<PAGE>
                                                                    EXHIBIT 10.1

                                AIRCRAFT N303FL

________________________________________________________________________________

                           OPERATING LEASE AGREEMENT

                         DATED AS OF NOVEMBER 1, 1996

                                    BETWEEN


                           FRONTIER AIRLINES, INC.,
                                   AS LESSEE


                                      AND


                  FIRST SECURITY BANK, NATIONAL ASSOCIATION,
                 NOT INDIVIDUALLY BUT SOLELY AS OWNER TRUSTEE
                                   AS LESSOR
                               -----------------

                       ONE BOEING MODEL 737-3M8 AIRCRAFT

________________________________________________________________________________

     To the extent, if any, that this Operating Lease Agreement constitutes
chattel paper (as such term is defined in the Uniform Commercial Code as in
effect in any applicable jurisdiction), no security interest in this Operating
Lease Agreement may be created through the transfer or possession of any
counterpart other than the original.


                       Vedder, Price, Kaufman & Kammholz 
                               Chicago, Illinois



CERTAIN CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT AND IS BEING
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.


<PAGE>
 
                               TABLE OF CONTENTS
                               -----------------

<TABLE>
<CAPTION>
                                                                                                       Page
                                                                                                       ----
<S>         <C>                                                                                        <C> 
SECTION 1.   Definitions..............................................................................     -1-

SECTION 2.   Notice of Delivery Date; Acceptance and Leasing of Aircraft; Conditions..................     -1-
     (a)     Notice of Delivery Date..................................................................     -1-
     (b)     Agreement to Lease.......................................................................     -1-
     (c)     Delivery Conditions; Inspections.........................................................     -1-
     (iii)   Demonstration Flight.....................................................................     -2-
     (iv)    Final Ground Check.......................................................................     -2-
     (v)     Technical Acceptance.....................................................................     -3-
     (vi)    Indemnification..........................................................................     -3-
     (vii)   Initial Maintenance Visit................................................................     -3-
     (d)     Changes in Delivery Date; Limitation of Lessor's Obligation to Deliver Aircraft..........     -3-
     (e)     Conditions...............................................................................     -4-
             (1)     Conditions Precedent to the Obligations of Lessor................................     -4-
             (2)     Conditions Precedent to the Obligations of Lessee................................     -7-

SECTION 3.   Term and Rent............................................................................     -8-
     (a)     Term.....................................................................................     -8-
     (b)     Basic Rent...............................................................................     -8-
     (c)     Supplemental Rent........................................................................     -8-
     (d)     Payments in General......................................................................     -8-
     (e)     Security Deposit.........................................................................     -9-

SECTION 4.   Representations, Warranties and Covenants................................................    -11-
     (a)     Lessee's Representations, Warranties and Covenants.......................................    -12-
     (b)     Covenants of Lessee......................................................................    -14-
             (i)     Maintenance of Corporate Existence...............................................    -14-
             (ii)    Payment of Taxes.................................................................    -15-
             (iii)   Financial Covenant...............................................................    -15-
             (iv)    Permits and Licenses.............................................................    -15-
             (v)     Compliance with Laws.............................................................    -15-
             (vi)    Further Acts.....................................................................    -15-
             (vii)   Reporting Requirements...........................................................    -15-
             (viii)  Maintain Certificates, Consents, etc.............................................    -15-
             (ix)    Notification.....................................................................    -15-
             (x)     Records..........................................................................    -16-

SECTION 5.   Return of the Aircraft...................................................................    -16-
</TABLE> 

                                      -i-
<PAGE>
 
<TABLE> 
<S>          <C>                                                                                          <C>   
     (a)     Return of the Aircraft; Condition Upon Return............................................    -16-
     (b)     Manuals..................................................................................    -16-
     (c)     Cooperation..............................................................................    -16-
     (d)     Extension of Term Due to Conditions upon Return..........................................    -17-
     (e)     Non-Compliance...........................................................................    -17-
     (f)     Aircraft Documents.......................................................................    -17-

SECTION 6.   Liens....................................................................................    -18-

SECTION 7.   Registration, Maintenance and Operation; Possession; Insignia............................    -18-
     (a)     (1)     Registration and Maintenance.....................................................    -18-
             (2)     Operation and Use................................................................    -20-
     (b)     Possession...............................................................................    -23-
     (c)     Insignia.................................................................................    -24-
     (d)     Maintenance Reserves.....................................................................    -24-

SECTION 8.   Replacement of Parts; Alterations, Modifications and Additions...........................    -27-
     (a)     Replacement of Parts.....................................................................    -27-
     (b)     Alterations, Modifications and Additions.................................................    -28-

SECTION 9.   [Intentionally Omitted]..................................................................    -29-

SECTION 10.  Loss, Destruction, Requisition, etc......................................................    -29-
     (a)     Event of Loss with Respect to the Aircraft...............................................    -29-
     (b)     Event of Loss with Respect to an Engine..................................................    -29-
     (c)     Application of Payments from Governmental Authorities for Requisition of Title, etc......    -30-
     (d)     Requisition for Use of the Aircraft by the Government of Registry........................    -31-
     (e)     Application of Payments During Existence of Events of Default............................    -31-

SECTION 11.  Insurance................................................................................    -31-

SECTION 12.  Inspection...............................................................................    -34-

SECTION 13.  Assignment; Subject and Subordinate......................................................    -34-

SECTION 14.  Events of Default........................................................................    -35-

SECTION 15.  Remedies.................................................................................    -37-

SECTION 16.  FAA Filing; Tax Indemnity; General Indemnity; etc........................................    -39-
     (a)     FAA Filing...............................................................................    -39-
     (b)     General Tax Indemnity....................................................................    -39-
</TABLE> 

                                     -ii-
<PAGE>
 
<TABLE> 
<S>          <C>                                                                                          <C> 
     (c)     General Indemnity........................................................................    -42-

SECTION 17.  Notices..................................................................................    -43-

SECTION 18.  Net Lease; Set-Off, Counterclaim, etc....................................................    -44-

SECTION 19.  Miscellaneous; Governing Law; Expenses...................................................    -45-

SECTION 20.  Bankruptcy...............................................................................    -46-
</TABLE> 

                                     -iii-
<PAGE>
 
APPENDIX A     Definitions

EXHIBIT A      Lease Supplement No. 1

EXHIBIT B      Basis Rent, Stipulated Loss Value and Maintenance Reserves

EXHIBIT B-1    Officer's Monthly Maintenance Reserve Certificate

EXHIBIT C      Form of Acceptance Certificate

EXHIBIT D-1    Aircraft Documents on Delivery Date

EXHIBIT D-2    Aircraft Documents on Return Date

EXHIBIT E      Return Conditions

EXHIBIT E-1    Return Certificate

EXHIBIT F      Insurance Requirements

EXHIBIT G      Reporting Requirements

EXHIBIT H      Delivery Conditions

EXHIBIT I      Demonstration Flight Procedures

EXHIBIT J      Form of Letter of Credit

                                     -iv-

<PAGE>
 
          OPERATING LEASE AGREEMENT, dated as of November 1, 1996, between
FRONTIER AIRLINES, INC., a Colorado corporation ("Lessee"),  and FIRST SECURITY
                                                  ------                       
BANK, NATIONAL ASSOCIATION, not individually but solely as trustee under that
certain Trust Agreement dated as of November 1, 1996 between itself and Sanwa
Business Credit Corporation (the "Lessor").

          SECTION 1.  Definitions.  Unless the context otherwise requires, all
                      -----------                                             
capitalized terms used herein and not otherwise defined herein shall have the
meanings set forth in Appendix A hereto for all purposes of this Lease Agreement
and shall be equally applicable to both the singular and the plural forms of the
terms herein defined.

          SECTION 2.  Notice of Delivery Date; Acceptance and Leasing of
                      --------------------------------------------------
Aircraft; Conditions.
-------------------- 

          (a)  Notice of Delivery Date.  Lessor agrees to give Lessee at least
               -----------------------                                        
three Business Days' prior written notice of the scheduled Delivery Date for the
Aircraft, which scheduled Delivery Date shall be, unless otherwise agreed
between Lessee and Lessor, a Business Day not later than November 15, 1996.

          (b)  Agreement to Lease. Subject to satisfaction of the conditions set
               ------------------                                           
forth in this Section 2, Lessor hereby agrees to deliver the Aircraft to Lessee
at the Delivery Location and to lease the Aircraft to Lessee, and Lessee hereby
agrees to accept the Aircraft at the Delivery Location and to lease the Aircraft
from Lessor, in each case on the Delivery Date and in the condition specified in
Exhibit H, but otherwise in "as is, where is" condition, pursuant to the terms
and conditions of this Agreement and the other Operative Documents, the
commencement of such leasing to be evidenced by the execution by Lessor and
Lessee of the Initial Lease Supplement. Lessee hereby agrees that its execution
of the Initial Lease Supplement shall, without further act, constitute
unconditional and irrevocable acceptance by Lessee of the Aircraft for all
purposes of this Agreement.

          (c)  Delivery Conditions; Inspections.
               -------------------------------- 

          (i)  Lessee and Lessor shall cooperate and use reasonable efforts to
ensure that the delivery of the Aircraft from Lessor to Lessee hereunder shall
be completed in an efficient and mutually satisfactory manner.  Lessor shall use
reasonable best efforts to procure that Air Invest complies with Air Invest's
obligations with regard to delivery pursuant to the Purchase Agreement.  Lessee
shall be entitled to participate in the preliminary inspection (the "Preliminary
Inspection") relating to the delivery of the Aircraft from Air Invest to Lessor,
which inspection shall take place from October 22 to October 27 in Brussels,
Belgium (the "Preliminary Inspection Location").

          (ii) (A) Following the Preliminary Inspection, and prior to the Test
Flight, and as soon as practicable in accordance with the Purchase Agreement,
the Aircraft, including the 
<PAGE>
 
Aircraft Documents, shall be made available to Lessee and/or Lessee's agents,
representatives and designees (each for purposes of this Section 2(c), an
"Inspecting Party") for ground inspection by the Inspecting Parties (the "Second
Inspection") at the Preliminary Inspection Location. The Second Inspection shall
be for the purpose of determining whether (i) there has been any change in the
condition of the Aircraft from its condition at the Preliminary Inspection, and
(ii) the Aircraft meets the redelivery conditions in the Air Invest Lease. The
Second Inspection also may, at Lessor's or Lessee's option, include a power
assurance run of the Engines. Lessor shall make available to the Inspecting
Parties such documentation regarding the condition, use, maintenance, operation
and history of the Aircraft during the term of the Air Invest Lease as Air
Invest may have access to under the Air Invest Lease.

          (B)  Promptly after such inspections, except as otherwise agreed in
writing by Lessor and Lessee, any discrepancies from the Aircraft delivery
condition requirements set forth in this Section 2, shall be corrected by Air
Invest at its cost (Lessor agreeing to use its reasonable best efforts to
procure such payment) prior to the demonstration flight described in Section
2(c)(iii).

          (iii)  Demonstration Flight.
                 -------------------- 

                    (A)  Immediately following the correction of any
discrepancies pursuant to Section 2(c)(ii), but prior to Lessee's technical
acceptance of the Aircraft, Lessee shall participate in a demonstration flight
in the Aircraft, which shall be the first two hours of the ferry flight of the
Aircraft from the Preliminary Inspection Location to the Delivery Location under
the Purchase Agreement, in accordance with such procedures as may be mutually
agreed between Lessor and Lessee (including, without limitation, such procedures
set forth on Exhibit I) to demonstrate the proper functioning of the Aircraft
systems and components within limits and/or guidelines established by the
relevant manufacturers, the FAA. Such flight shall continue for a duration of up
to two (2) hours. The power assurance run shall be performed immediately prior
to the ferry flight.

                    (B)  Except as otherwise agreed in writing by the Lessor and
Lessee, promptly following such demonstration flight (which for purposes of
noting discrepancies shall be considered to be the entire ferry flight) (but
subject to completion of the final ground inspection pursuant to Section
2(c)(iv) hereof), any deficiencies from the Aircraft return condition
requirements set forth in this Section 2, shall be corrected by Air Invest at
its cost (Lessor agreeing to use its reasonable best efforts to procure such
payment) prior to the delivery of the Aircraft.

          (iv)  Final Ground Check.
                ------------------ 

                    (A)  Prior to or promptly after the correction of any
discrepancies pursuant to Section 2(c)(iii), Lessor shall conduct a final ground
check of the Aircraft for the purpose of demonstrating to the reasonable
satisfaction of Lessee the operation of the systems

                                      -2-
<PAGE>
 
that are normally ground-checked by Lessee. The final ground check shall
include, without limitation, complete Engine video borescope inspections
performed in the presence of the Inspecting Parties (the results of which shall
be within manufacturer's limits).

               (B)  Promptly after the final ground check, except as otherwise
agreed in writing by Lessor and Lessee, any discrepancies from the Aircraft
return condition requirements set forth in this Section 2, and any discrepancies
that must be corrected in order to comply with the Maintenance Program and the
Manufacturer's maintenance manual criteria, shall be corrected by Air Invest at
its cost (Lessor agreeing to use its reasonable best efforts to procure such
payment) prior to the demonstration flight described in Section 2(c)(iv).

          (v)  Technical Acceptance.  Upon completion of the final ground check
               --------------------                                            
and, unless otherwise agreed in writing by Lessor and Lessee, correction of any
discrepancies or deficiencies required to be corrected by Air Invest prior to
the Delivery, Lessee shall execute and deliver to Lessor, an Acceptance
Certificate in the form attached hereto as Exhibit C which shall, for all
purposes hereof, constitute complete, irrevocable and absolute evidence of
Lessee's technical acceptance of the Aircraft, except as validly noted in such
Acceptance Certificate.

          (vi)  Indemnification.  Without limiting the provisions of Section 9
                ---------------                                               
hereof, Lessee hereby assumes liability for and shall fully indemnify and hold
harmless each Indemnified Party on demand and shall keep each Indemnified Party
fully indemnified at all times and on an after-tax basis from and against all
Expenses arising directly or indirectly from any injuries to or deaths of
Lessee's representatives or loss of or damage to property of Lessee or its
representatives or designees during the Aircraft delivery (including, without
limitation, all inspections and the ferry flight) described in this Section 2(c)
except to the extent occasioned by the gross negligence or willful misconduct of
such Indemnified Party.

          (vii)  Initial Maintenance Visit.  Lessee shall accept the Aircraft
                 -------------------------                                   
without the Aircraft having undergone a bridging maintenance visit and without
having TCAS installed thereon.  Immediately following execution and delivery of
the Acceptance Certificate pursuant to Section 2(c)(v) hereof, Lessee shall
perform, or cause to be performed, a bridging maintenance visit (at which Lessee
shall perform, or cause to be performed, all maintenance, modifications and
inspections necessary to standardize the Aircraft passenger cabin, cockpit,
flight instruments and emergency equipment to the Lessee's configuration and
place the Aircraft on Lessee's operating certificate) for the Aircraft in order
to integrate the Aircraft onto Lessee's operating certificate and to install
TCAS on the Aircraft (the "Initial Maintenance Visit").

          (d)  Changes in Delivery Date; Limitation of Lessor's Obligation to
               --------------------------------------------------------------
Deliver Aircraft.
---------------- 

                                      -3-
<PAGE>
 
          (i)  Lessee acknowledges and agrees that Lessor's ability to perform
its obligations to deliver the Aircraft in the condition, at the time, at the
location and otherwise as specified in this Agreement is dependent upon, among
other things, delivery of the Aircraft under, and at the time, at the location
and otherwise in accordance with, the Purchase Agreement.  Lessee also
acknowledges and agrees that Lessor may delay in the delivery of, or fail to
deliver, the Aircraft for reasons of Force Majeure.

          (ii)  Lessor shall use reasonable efforts to give advance written
notice to Lessee of any change in the Delivery Date.

          (iii)  Accordingly, if, owing to (y) any delay in the delivery of, or
failure to deliver, the Aircraft to Lessee due to a delay in the delivery of the
Aircraft to Lessor pursuant to the terms of the Lease and/or (z) reasons of
Force Majeure, Lessor shall delay in the delivery of the Aircraft under this
Agreement beyond the calendar date specified in the definition of "Delivery
Date," then Lessee shall accept delivery of the Aircraft on the first Business
Day after such date on which Lessor has possession of the Aircraft at the
Delivery Location; provided, however, that if delivery of the Aircraft under
this Agreement is delayed beyond the Commitment Termination Date, then either
party hereto may, by written notice to the other, terminate this Agreement and
each other Operative Document, whereupon neither Lessor nor Lessee shall have
any further obligation to the other hereunder or thereunder and any amounts of
Basic Rent, and the Initial Deposit and Security Deposit paid by Lessee prior to
such termination shall be promptly returned by Lessor to Lessee.  In the event
of any such delay or any eventual termination of this Agreement, Lessor shall
not be responsible for any losses, including loss of profit, costs or Expenses
arising therefrom suffered or incurred by Lessee.

          (e)  Conditions.
               ---------- 

               (1)  Conditions Precedent to the Obligations of Lessor.  The
                    -------------------------------------------------      
     obligation of Lessor to lease the Aircraft and the Aircraft Documents to
     Lessee is subject to the satisfaction on the Delivery Date of the
     conditions precedent set forth below:

                    (i) The following documents shall have been duly authorized,
          executed and delivered by the respective party or parties thereto and
          shall be in full force and effect:

                    (A)  this Lease Agreement;

                    (B)  the Initial Lease Supplement (to be delivered on the
                         Delivery Date);

                                      -4-
<PAGE>
 
                    (C)  the Acceptance Certificate (to be delivered on the
                         Delivery Date); and

                    (D)  the Trust Agreement.

                    (ii) The Lessor shall have received the following, in each
          case in form and substance reasonably satisfactory to it:  a copy of
          the certificate of incorporation of Lessee and a copy of the general
          authorizing resolutions of the board of directors (or executive
          committees) or other reasonably satisfactory evidence of authorization
          of Lessee certified as of the Delivery Date by the Secretary or an
          Assistant Secretary of Lessee, which authorize the execution, delivery
          and performance by Lessee of all the Operative Documents to which it
          is a party, together with such other documents and evidence with
          respect to Lessee as Lessor or its counsel may reasonably request in
          order to establish the consummation of the transactions contemplated
          hereby, the taking of all corporate proceedings in connection
          therewith and compliance with the conditions herein set forth.

                    (iii) All appropriate action required to have been taken
          prior to the Delivery Date by the Federal Aviation Administration or
          any governmental or political agency, subdivision or instrumentality
          of the United States in connection with the transactions contemplated
          hereby shall have been taken, and all orders, permits, licenses,
          waivers, authorizations, exemptions and approvals of such entities
          required to be in effect on the Delivery Date in connection with the
          transactions contemplated hereby shall have been issued, and all such
          orders, permits, licenses, waivers, authorizations, exemptions and
          approvals shall be in full force and effect on the date hereof and on
          the Delivery Date (no such orders, permits, licenses, waivers,
          authorizations, exemptions and approvals shall be issued on a
          temporary basis pending further review by the entity requiring such to
          be in effect).

                    (iv) On the Delivery Date, (A) the representations and
          warranties of Lessee contained in Section 4(b) hereof shall be true
          and accurate as though made on and as of such date, except to the
          extent that such representations and warranties relate solely to an
          earlier date (in which case such representations and warranties shall
          be true and accurate on and as of such earlier date), (B) no event
          shall have occurred and be continuing, or would result from the lease
          of the Aircraft, which constitutes (or would, with the passage of time
          or the giving of notice or both, constitute) an Event of Default
          hereunder, and (C) no event shall have occurred that may reasonably be
          expected to adversely affect the ability of Lessee to perform its
          obligations under the Operative Documents.

                                      -5-
<PAGE>
 
                    (v)     Lessor shall have received an opinion from the
          General Counsel of Lessee, in form and substance satisfactory to it.

                    (vi)    Lessor shall have received a certificate signed by
          the President or any Vice President of Lessee certifying as to the
          matters with respect to such party specified in clause (iv) above.

                    (vii)   Lessor shall have received an independent insurance
          broker's report, and certificates of insurance, in form and substance
          reasonably satisfactory to Lessor, as to the due compliance with the
          terms of Section 11 and Exhibit F hereof relating to insurance with
          respect to the Aircraft.

                    (viii)  No action or proceeding shall have been instituted
          nor shall governmental action be threatened before any United States
          or foreign court or governmental agency, nor shall any order, judgment
          or decree have been issued or proposed to be issued by any United
          States or foreign court or governmental agency at the time of the
          Delivery Date to set aside, restrain, enjoin or prevent the completion
          and consummation of this Lease or the transactions contemplated hereby
          and thereby.

                    (ix)    No change shall have occurred after the date of
          execution and delivery of this Lease in applicable law or regulations
          thereunder or interpretations thereof by appropriate regulatory
          authorities which, in the reasonable opinion of Lessor, would make it
          a violation of a law or regulations for Lessor to execute, deliver and
          perform its obligations hereunder or under any other Operative
          Document to which it is a party.

                    (x)     All proceedings taken in connection with the
          transactions contemplated hereby and by the Operative Documents and
          all documents and papers relating hereto and thereto shall be
          reasonably satisfactory to Lessor and its counsel, and Lessor and its
          counsel shall have received copies of such documents and papers as
          such Person may reasonably request, in connection herewith and
          therewith or as a basis for such counsel's closing opinion, all in
          form and substance satisfactory to Lessor and its counsel.

                    (xi)    The Purchase Agreement shall have been executed and
          delivered and Air Invest shall have delivered the Aircraft to Lessor
          in accordance with the terms thereof.

                    (xii)   The Aircraft shall be registered with the FAA in
          the name of the Lessor.

                                      -6-
<PAGE>
 
                    (xiii)  Lessor shall have received an opinion from
          Daugherty, Fowler & Peregrin, special FAA counsel, in form and
          substance satisfactory to it.

                    (xiv)  Prior to the Delivery Date, Lessee shall have
          provided to Lessor a written summary of the proposed Maintenance
          Program and such information reasonably requested by Lessor regarding
          the proposed Maintenance Program and the minimum equipment list
          required by the FAA, in each case, for the Aircraft (including,
          without limitation, evidence that the FAA has approved the Maintenance
          Program and such minimum equipment list), and Lessor shall have
          reviewed and approved such summary of the proposed Maintenance Program
          and such minimum equipment list.

                    (xv)  Lessor shall receive from Lessee a good standing
          certificate from the Secretary of State of Colorado;

                    (xvi)  A precautionary Uniform Commercial Code financing
          statement shall have been executed, delivered and filed by the Lessee.

               The conditions specified in this Section 2(e)(1) are inserted for
     the sole benefit of Lessor and may be waived or deferred in whole or in
     part and with or without conditions by Lessor.  If any of the said
     conditions are outstanding on the Delivery Date and Lessor (in its absolute
     discretion) nonetheless agrees to deliver the Aircraft to Lessee, Lessee
     shall ensure that such outstanding conditions are fulfilled within such
     time period as Lessor shall reasonably select and Lessor shall be entitled
     to treat the failure of Lessee to perform such outstanding conditions
     within the selected time period as an Event of Default.

               (2)  Conditions Precedent to the Obligations of Lessee.  The
                    -------------------------------------------------      
     obligation of Lessee to accept delivery of the Aircraft and the Aircraft
     Documents under this Lease is subject to the fulfillment to the
     satisfaction of Lessee prior to or on the Delivery Date of the conditions
     precedent set forth below:

                    (i)  The Lessor Documents shall have been duly authorized,
          executed and delivered by Lessor, shall be in full force and effect on
          the Delivery Date, and a Lessor executed counterpart of each shall
          have been delivered to Lessee or its counsel.

                    (ii) On the Delivery Date, the representations and
          warranties of Lessor contained in Section 4(a) hereof shall be true
          and accurate as though made on and as of such date, except to the
          extent that such representations and warranties relate solely to an
          earlier date (in which case such representations and warranties shall
          be true and accurate on and as of such earlier date).

                                      -7-
<PAGE>
 
                    (iii)  No action or proceeding shall have been instituted
          nor shall governmental action be threatened before any United States
          or foreign court or governmental agency, nor shall any order, judgment
          or decree have been issued or proposed to be issued by any United
          States or foreign court or governmental agency at the time of the
          Delivery Date to set aside, restrain, enjoin or prevent the completion
          and consummation of this Lease or the transactions contemplated hereby
          and thereby.

           SECTION 3.  Term and Rent.
                       ------------- 

           (a) Term.  Unless earlier terminated pursuant to the provisions
               ----                                                       
hereof, the Term shall commence on the Delivery Date at the Delivery Time and
end on the Lease Expiry Date at the Delivery Time.

           (b) Basic Rent.  Lessee shall pay to Lessor basic rent ("Basic Rent")
               ----------                                                       
for the Aircraft in the amount per month equal to the amount set forth on
Exhibit B hereto for the Aircraft, payable monthly in advance on the Base Term
Commencement Date and the first day of each month thereafter during the Term
(each, a "Basic Rent Payment Date"); provided that Basic Rent payable for the
period commencing on the Base Term Commencement Date and ending on the last day
of the month in which the Base Term Commencement Date occurs shall be an amount
equal to the sum of each applicable Basic Rent multiplied by a fraction the
numerator of which is the number of days from and including the Base Term
Commencement Date to and including the last day of the month in which the Base
Term Commencement Date occurred and the denominator is 30 days. The Base Term
Commencement Date shall be the date which is 21 days after the Delivery Date.
Lessee shall have no obligation to pay Basic Rent for the period from the
Delivery Date through (but not including) the Base Term Commencement Date;
provided, however, if the Aircraft is put into service by Lessee earlier than
forty-two (42) days after the Delivery Date, then Lessee shall pay to Lessor
additional Basic Rent on the first Basic Rent Payment Date after Lessee's
payment obligation under this Section 3(b) arises for the period from (A) the
date which is (x) one-half (1/2) the number of days between the Delivery Date
and the date the Aircraft is placed in service after (y) the Delivery Date to
(B) the Base Term Commencement Date, at a rate per day equal to the Daily Rate
as set forth in Exhibit B hereto.

          (c)  Supplemental Rent.  Lessee shall pay (or cause to be paid)
               -----------------                                         
promptly to Lessor, or to whomsoever shall be entitled thereto, any and all
Supplemental Rent constituting Stipulated Loss Value, Maintenance Reserves and
all other amounts of 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 when due, Lessor shall have all rights, powers and remedies provided for
herein or in any other Operative Document or by law or equity or otherwise in
the case of nonpayment of Basic Rent.  Lessee will also pay to Lessor, or to
whomsoever shall be entitled thereto, as Supplemental Rent, to the extent
permitted by applicable law, interest at 

                                      -8-
<PAGE>
 
the Overdue Rate with respect to any payment of Basic Rent not paid prior to
12:00 p.m., Chicago time, on the date when due for any period for which the same
shall be overdue and on any payment of Supplemental Rent not paid prior to 12:00
p.m., Chicago time, on the date when due for the period until the same shall be
paid.

          (d)  Payments in General. All payments of Rent payable to Lessor shall
               ------------------- 
be made without set-off directly by Lessee by wire transfer of immediately
available funds prior to 12:00 p.m., Chicago time, on the date of payment in
Dollars, to the following account of the Owner Participant:

               Harris Trust and Savings Bank
               111 West Monroe Street
               Chicago, Illinois  60690
               Account #401-689-5
               ABA #071-000-288
               Ref:   Frontier Airlines, Inc.
               ATTN:  Ida Renaud

or to such other account as the Owner Participant shall direct in a notice to
Lessee at least five (5) Business Days prior to the date such payment of Rent is
due.

          Notwithstanding anything to the contrary contained herein, if any date
on which a payment of Rent becomes due and payable is not a Business Day, then
such payment shall be made on the immediately succeeding Business Day without
adjustment to the amount of interest which would otherwise be due and owing on
the date scheduled for such payment.

          (e)  Security Deposit.
               ---------------- 

          (i)  Initial Deposit.  Lessee has previously paid to Lessor, as
               ---------------                                           
security for its obligations hereunder,  *  in cash (the "Initial Deposit").
The Initial Deposit shall be and remain the property of Lessor unless the
Delivery Date fails to occur due to (i) the fact that Lessee is not satisfied
with the correction of discrepancies noted by it during the Preliminary
Inspection pursuant to Section 2(c)(ii) hereof; (ii) Lessor does not purchase
the Aircraft pursuant to the Purchase Agreement; or (iii) Lessor does not
deliver the Aircraft under this Agreement, in which case Lessor will return the
Initial Deposit without interest.

          (ii)  Security Deposit.  Lessee shall on or prior to the Delivery Date
                ----------------                                                
pay to Lessor as security for its obligations hereunder  * in immediately
available Dollars (the "Security Deposit") (the Initial Deposit to be credited
towards Lessee's obligations to make such payment). In lieu of payment of the
Security Deposit, Lessee may cause an irrevocable letter of credit substantially
in the form of Exhibit I hereto (the "Letter of Credit") issued by a U.S. Money
Center Bank (the "Letter of Credit Bank") to be issued in favor of Lessor in an
amount equal to * (the "Stated Amount") on the following terms and
conditions

                                      -9-
<PAGE>
 
          (A)  Drawings under any Letter of Credit may be made by Lessor in part
               or in full upon the occurrence of any of the following (each, a
               "Drawing Event"):

               (1)  if Lessor receives a notice from the Letter of Credit Bank
                    that it will not renew such Letter of Credit, and Lessee
                    fails to provide Lessor with a substitute Letter of Credit
                    in the Stated Amount by the 10th Business Day preceding the
                    day on which the existing Letter of Credit is to expire; or

               (2)  if an Event of Default shall have occurred and be
                    continuing.

          (B)  Forty-five (45) days after the Lease Expiry Date, and provided
               Lessee shall have satisfied all of its obligations hereunder
               (other than potential contingent obligations (of which Lessor has
               no knowledge) under the indemnity provisions of this Agreement),
               Lessor shall take any and all actions which Lessee may reasonably
               request to terminate and return to Lessee any outstanding Letter
               of Credit.

          (iii)  If at any time Lessor makes a drawing on the Letter of Credit
in excess of the amount then owing to Lessor hereunder, such excess amount shall
be treated as a deposit held by Lessor as security for Lessee's obligations
hereunder (such excess amount being referred to herein as the "Letter of Credit
Deposit").  In the event of the occurrence of the foregoing, Lessee may obtain a
replacement Letter of Credit in an amount equal to the Letter of Credit Deposit.
If Lessee obtains such a replacement Letter of Credit and provided that no
Default or Event of Default has occurred and is continuing, Lessor shall return
the balance of the Letter of Credit Deposit to Lessee.

          (iv)  At any time during the Term while a Letter of Credit shall
remain outstanding and provided that no Default or Event of Default has occurred
and is continuing Lessee shall have the option of providing Lessor with a
Security Deposit in the Stated Amount and Lessor will promptly thereafter
terminate and return to Lessee the outstanding Letter of Credit.

          (v)  Any of the Initial Deposit, the Security Deposit or Letter of
Credit Deposit (collectively, the "Deposit") shall be held by Lessor during the
Lease Term as security for the full and punctual performance of all of Lessee's
obligations to Lessor under this Agreement including, without limitation,
satisfaction of the requirements of the condition of the Aircraft at the end of
the Lease Term as set forth in Section 7; provided, however, that, if Lessee
provides the Letter of Credit in the full amount of the Security Deposit, then,
so long as no Event of Default shall have occurred and be continuing, Lessor
shall credit the Initial Deposit toward Lessee's payment of Basic Rent on the
Deliver Date and, if any amounts remain thereafter, on the next succeeding Basic
Rent Date.  Lessee acknowledges that Lessor may 

                                     -10-
<PAGE>
 
commingle any Deposit with its general funds. Lessee hereby grants to Lessor a
security interest by way of priority security interest in its interest, if any,
in any Deposit and hereby charges to Lessor any and all of Lessee's right, title
and interest therein, if any, as security for Lessee's obligations hereunder. No
interest shall accrue in favor of Lessee in respect of any Deposit held by
Lessor. At the end of the Lease Term, upon satisfactory performance by Lessee of
all of its obligations hereunder (other than potential contingent obligations
(of which Lessor has no knowledge) under the indemnity provisions of this
Agreement), Lessor shall refund any remaining Deposit to Lessee. Lessor's
obligations in respect of the return of the Deposit and payment of interest
shall be those of a debtor of Lessee, not as a trustee or other fiduciary.

          (vi)  If an Event of Default shall have occurred and be continuing,
Lessor may, but shall not be obliged to, apply the Deposit (or any amount drawn
under any Letter of Credit provided hereunder) in whole or in part for the
payment of any Rent, indemnities, legal fees and other expenses, insurance and
other casualty payments and any other amount owing from time to time by Lessee
under this Agreement, for the payment of any loss or damage suffered by Lessor
as a result of any Event of Default or utilize the Deposit (or any amount drawn
under any Letter of Credit provided hereunder) in whole or in part to perform
any of Lessee's obligations under this Agreement or to otherwise remedy any
circumstance giving rise to an Event of Default, including in the redelivery
condition of the Aircraft, without prejudice to any other remedy of Lessor (it
being understood that an application of the Deposit (or amount drawn under a
Letter of Credit) shall not constitute a cure of any Event of Default unless and
until Lessee shall have complied with the following sentence). In any such event
Lessee shall, on demand, restore the Deposit to the Stated Amount by payment to
Lessor of an amount in cash equal to such amount or by increasing the amount
available to be drawn on any Letter of Credit then held by Lessor pursuant to
the foregoing.


          SECTION 4.  Representations, Warranties and Covenants.
                      ----------------------------------------- 

                  (1) LESSOR LEASES AND LESSEE TAKES THE AIRCRAFT "AS-IS, WHERE-
     IS."  LESSEE ACKNOWLEDGES AND AGREES THAT AS BETWEEN LESSOR AND LESSEE (A)
     THE AIRFRAME AND EACH ENGINE ARE OF A SIZE, DESIGN, CAPACITY AND
     MANUFACTURE SELECTED BY AND ACCEPTABLE TO LESSEE, (B) LESSEE IS SATISFIED
     THAT THE AIRFRAME AND EACH ENGINE ARE SUITABLE FOR ITS PURPOSES, (C) LESSOR
     IS NOT A MANUFACTURER OR A DEALER IN PROPERTY OF SUCH KIND, AND (D) LESSOR
     HAS NOT MADE, AND LESSOR SHALL NOT BE DEEMED TO HAVE MADE, WHETHER BY
     VIRTUE OF HAVING LEASED THE AIRCRAFT AND THE AIRCRAFT DOCUMENTS UNDER THIS
     LEASE, OR HAVING ACQUIRED THE AIRCRAFT AND THE AIRCRAFT DOCUMENTS, OR
     HAVING DONE OR FAILED TO DO ANY ACT, OR HAVING ACQUIRED OR FAILED TO
     ACQUIRE ANY STATUS UNDER OR IN RELATION TO THIS 

                                     -11-
<PAGE>
 
LEASE OR OTHERWISE, AND LESSOR, EXCEPT AS EXPRESSLY REPRESENTED HEREIN, WILL BE
DEEMED TO HAVE EXPRESSLY DISCLAIMED, ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, AS TO THE TITLE, AIRWORTHINESS, CONDITION, VALUE, DESIGN, OPERATION,
MERCHANTABILITY OR FITNESS FOR USE FOR ANY PARTICULAR PURPOSE OF THE AIRCRAFT,
THE AIRCRAFT DOCUMENTS OR ANY PART THEREOF, AS TO THE QUALITY OF THE MATERIAL OR
WORKMANSHIP WITH RESPECT TO THE AIRCRAFT OR ANY PART THEREOF, AS TO THE ABSENCE
OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF
ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF
OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, OR ANY OTHER REPRESENTATION OR
WARRANTY WHATSOEVER, EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED WARRANTY ARISING
FROM A COURSE OF PERFORMANCE OR DEALING OR USAGE OF TRADE), WITH RESPECT TO THE
AIRCRAFT, THE AIRCRAFT DOCUMENTS OR ANY PART THEREOF, except that Lessor (i)
represents and warrants that (x) on the Delivery Date, Lessor has whatever title
to the Aircraft and the Aircraft Documents as was conveyed to it pursuant to the
Purchase Agreement and (y) it has the power and authority to lease the Aircraft
and Aircraft Documents to Lessee pursuant to the terms hereof, and (ii) subject
to Section 13 hereof, covenants that it will not, through its own actions,
interfere in, or take any action intended to be inconsistent with, Lessee's
quiet enjoyment, use, possession or operation of the Aircraft or permit third
parties acting under color of claim against Lessor or its predecessors in
interest to interfere in, or take any action intended to be inconsistent with,
Lessee's quiet enjoyment, use, possession or operation of the Aircraft, in each
case unless a Default or an Event of Default has occurred and is continuing.

               (2)  Lessor further represents and warrants that as of the
Delivery Date:

                    (i)  it is a national banking association duly organized and
          validly existing in good standing under the laws of the jurisdiction
          of its organization and has the corporate power and authority to enter
          into and perform its obligations under the Lessor Documents;

                    (ii)  each of the Lessor Documents has been duly authorized
          by all necessary corporate action on its part, and neither the
          execution and delivery thereof nor its performance of or compliance
          with any of the terms and provisions thereof will violate any federal
          or Delaware law or regulation or contravene or result in any breach
          of, or constitute any default under its charter or by-laws or the
          provisions of any indenture, mortgage, contract or other 

                                     -12-
<PAGE>
 
          agreement to which it is a party or by which it or its properties may
          be bound or affected;

                    (iii)  each of the Lessor Documents has been duly executed
          and delivered by it; and

                    (iv) each of the Lessor Documents is a legal, valid and
          binding obligation of Lessor, enforceable against Lessor in accordance
          with its respective terms.

          (a)  Lessee's Representations, Warranties and Covenants.  Lessee
               --------------------------------------------------         
hereby represents and warrants to Lessor that:

               (i)  Lessee is a corporation duly organized and validly existing
     in good standing, in accordance with the laws of the State of Colorado and
     has the corporate power and authority, and all material licenses, rights,
     permits, certificates, franchises and other privileges, necessary to
     perform its obligations under this Lease and the other Operative Documents
     to which it is a party; Lessee is duly qualified to do business as a
     foreign corporation in each jurisdiction in which its operations or the
     nature of its business requires; and Lessee is a "citizen of the United
     States" and an "air carrier" as such terms are defined in 49 U.S.C. Section
     40102(a) operating pursuant to operating certificates issued under 49
     U.S.C. Sections 41102 and 44705;

               (ii) The execution, delivery and performance by Lessee of this
     Lease and the other Operative Documents to which it is a party have been
     duly authorized by all necessary corporate action on the part of Lessee and
     neither the execution and delivery hereof or thereof nor the consummation
     of the transactions contemplated hereby and by the other Operative
     Documents to which it is a party nor compliance by Lessee with any, nor
     Lessee's performance of all, of the terms and provisions hereof or thereof
     will contravene or has contravened any judgment or order applicable to or
     binding on it or any applicable law or conflict with, result in any breach
     of, or constitute any default under, its corporate charter or by-laws or
     conflict with, result in the creation of a Lien under, or require the
     consent of any trustee or creditor pursuant to, any indenture, mortgage,
     chattel mortgage, deed of trust, conditional sales contract, lease, bank
     loan or credit agreement or other agreement or instrument to which Lessee
     is a party or by which it or its assets are bound, which in any such case
     would have a material adverse effect upon Lessee or its ability to perform
     its obligations hereunder;

               (iii)  Lessee has received and has complied with every necessary
     consent, approval, order, or authorization of, or registration with, and
     has given prior notice to, each government body having jurisdiction with
     respect to the execution and delivery of this Lease and the other Operative
     Documents to which it is a party, and to perform any of the transactions
     and obligations contemplated hereby and thereby 

                                     -13-
<PAGE>
 
     required to be obtained or given by it, where failure to do so would have
     an adverse effect upon Lessee or its ability to perform its obligations
     hereunder;

               (iv)  This Lease and the other Operative Documents to which it is
     or will be a party have been duly executed and delivered by Lessee and,
     assuming the due authorization, execution and delivery thereof by the other
     parties thereto, constitute or will constitute legal, valid and binding
     obligations of Lessee, enforceable against it in accordance with their
     respective terms, except as enforceability of any Operative Document is
     subject to bankruptcy, insolvency or similar laws affecting creditors'
     rights generally;

               (v)    Except for the filing for recordation of this Lease and
     the Lease Supplement with the FAA, no further filing or recording of this
     Lease, and no further action is necessary, under the laws of the United
     States, in order to fully protect and establish Lessor's interests in the
     Aircraft and this Lease as against Lessee or any third party;

               (vi)   There are no suits or legal proceedings (including any
     administrative proceeding) pending or threatened before any court or
     administrative agency against Lessee which, if adversely determined, would
     have a material adverse effect upon its financial condition or business or
     its ability to perform its obligations hereunder;

               (vii)  Lessee has not taken any corporate action nor have other
     steps been taken or legal proceedings been started or (to the best of
     Lessee's knowledge and belief) threatened against it for its winding-up,
     dissolution, administration or re-organization or for the appointment of a
     receiver, administrator, administrative receiver, trustee or similar
     officer of it or of any or all of its assets or revenues;

               (viii) Lessee is not in breach of or in default under any
     agreement to which it is a party or which is binding on it or any of its
     assets to an extent or in a manner which would have a material adverse
     effect on its ability to perform its obligations under this Agreement and
     each other Operative Document to which it is a party;

               (ix)   No Default or Event of Default has occurred and is 
     continuing;
     

               (x)    The annual and first quarter financial statements of
     Lessee dated March 31, 1996 and June 30, 1996 (copies of which were
     provided to the Lessor) were prepared in accordance with generally accepted
     accounting principles and consistently applied and give (in conjunction
     with the notes thereto) a true and fair view of the financial condition of
     the Lessee at the dates as of which they were prepared and the results of
     Lessee's operations during the financial year and month then ended;

                                     -14-
<PAGE>
 
               (xi) Since publication of the financial statements referred to in
     (x) above, there has been no material adverse change in the business or
     financial condition of Lessee; and

               (xii)  Lessee's chief executive office, as such term is defined
     in Article 9 of the Uniform Commercial Code as in effect from time to time
     in the State of Colorado, is located at 12015 East 46th Street, Denver,
     Colorado 80239.

          (b)  Covenants of Lessee.
               ------------------- 

               (i)  Maintenance of Corporate Existence.  Lessee will continue to
                    ----------------------------------                          
operate as a U.S. Air Carrier and will preserve and maintain its corporate
existence and its rights, privileges, licenses and franchises material to
Lessee's ability to perform its obligations hereunder and under the other
Operative Documents in each applicable jurisdiction, and Lessee shall take all
actions within Lessee's reasonable control necessary to allow Lessor to become,
and remain, throughout the Term, entitled to the benefits of Section 1110 of the
United States Bankruptcy Code in any action or proceeding before any court in
which Lessee is the debtor;

               (ii)  Payment of Taxes. Lessee will pay or cause to be paid all
                     ---------------- 
Taxes imposed upon it, or upon its income or profits, or upon any property
belonging to it, on or prior to the due date thereof, including any extensions
which have been duly obtained or granted except to the extent Lessee has elected
in good faith to contest any such Tax with respect to which the failure to pay
would not result in a risk of criminal or civil liability for the Lessor or the
Owner Trustee or a material risk, of forfeiture of the Aircraft;

               (iii)  Financial Covenant.  [Intentionally Reserved];
                      ------------------                            

               (iv)  Permits and Licenses. Lessee shall make or obtain, and
                     -------------------- 

maintain in full force and effect, each and every consent, license, approval,
notice, registration, filing or other action with any government body the lack
of which would have an adverse effect upon the operation, performance or use of
the Aircraft, the Airframe, any Engine or Part or the execution, delivery or
performance of this Lease;

               (v)  Compliance with Laws.  Lessee shall comply with all laws and
                    --------------------                                        
regulations from time to time in force in the United States and in any country
to, from, in or over which the Aircraft is flown;

               (vi) Further Acts. At its own expense from time to time Lessee
                    ------------  
shall do and perform such other and further acts and execute and deliver any and
all further instruments as may be required by law or reasonably requested by
Lessor to establish, maintain and protect the respective rights and remedies of
Lessor and to carry out and give effect to the intents and purposes of this
Agreement and the parties hereto;

                                     -15-
<PAGE>
 
               (vii)   Reporting Requirements.  Lessee shall comply with the
                       ----------------------                               
reporting requirements set forth in Exhibit G hereto;

               (viii)   Maintain Certificates, Consents, etc.  Lessee shall
                        -------------------------------------              
obtain and maintain all necessary governmental and other certificates, consents,
licenses, permits and authorizations and take all action which may be necessary
or desirable for the continued due performance of Lessee's obligations under
this Agreement and for the use and operation of the Aircraft;

               (ix)   Notification. Lessee shall notify Lessor as soon as
                      ------------     
practicable after becoming aware of any loss, theft, damage or destruction of or
to the Aircraft (including any Engine) or any Part of any thereof if the
potential cost of repair or replacement may exceed $100,000 (One Hundred
Thousand Dollars); and

               (x)  Records. Lessee shall keep accurate, complete and current
                    ------- 
records in English of all flights made by the Aircraft during the Term and all
records required pursuant to Section 7(a)(1) hereof. Such records shall be kept
in such manner as the FAA may from time to time require (including, without
limitation, pursuant to any applicable FARs). Upon Lessor's request, Lessee
shall provide Lessor and/or Lessor's technical advisor access to complete
updated copies of all such records and to the Maintenance Program; and Lessor
and/or Lessor's technical advisor may, at Lessor's cost and expense, make copies
or reproductions of any thereof, provided, however, with respect to the
Maintenance Program, Lessor and any of Lessor's technical advisors shall
deliver, or cause to be delivered, a confidentiality agreement with regard
thereto in form and substance reasonably satisfactory to Lessee (which agreement
shall, however, allow access to such records and Maintenance Program for the
purposes of performing maintenance in regard to the Aircraft or for the purpose
of transitioning the Aircraft to another operator's maintenance program at the
end of the Term).

          SECTION 5.  Return of the Aircraft.
                      ---------------------- 

          (a)  Return of the Aircraft; Condition Upon Return.  On the expiration
               ---------------------------------------------                    
or earlier termination of this Lease with respect to the Aircraft, Lessee will
(at Lessee's sole expense) return the Aircraft, together with the Aircraft
Documents with respect thereto, to Lessor at such location in the continental
United States as shall be notified to Lessee by Lessor (any such location being
herein called the "Return Location").  At the time of any such return the
                   ---------------                                       
Aircraft to be returned shall be in compliance with Exhibit E hereto and the
parties hereto shall execute the Return Certificate attached as Exhibit E-1
hereto.  In the event that the Airframe (with respect to the next "D" Check or
its equivalent under the Maintenance Program), either Engine, any landing gear
or life limited or time controlled part shall have less than their required
amount of time remaining (based upon Exhibit E hereto), an economic adjustment
based upon Lessee's historical maintenance costs shall be negotiated.  The

                                     -16-
<PAGE>
 
appropriate Maintenance Reserve Account balances shall be available to the
Lessee to comply with this paragraph.

          (b)  Manuals.  Upon the return of the Aircraft upon any termination of
               -------                                                          
this Lease with respect to such Aircraft in accordance with paragraph (a) of
this Section 5, Lessee shall deliver or cause to be delivered to Lessor all
Aircraft Documents and any other logs, manuals, drawings and data and
inspection, maintenance, modification and overhaul records required to be
maintained during the Term (in each case in English) by the FAA.  In addition,
Lessee shall re-assign to Lessor, at the expense of Lessee, the benefit of any
manufacturer's warranty which has been assigned to Lessee with respect to the
Aircraft.

          (c)  Cooperation. During the Term, with reasonable notice, Lessee will
               -----------
cooperate, at Lessor's cost, in all reasonable respects with the efforts of
Lessor to sell or lease (after expiration of the applicable Term) the Aircraft
and the Aircraft Documents and the documents referred to in Section 5(b) with
respect thereto, including, without limitation, permitting prospective
purchasers or lessees to inspect the Aircraft and the Aircraft Documents, and
the documents referred to in Section 5(b) with respect thereto, all in
accordance with Section 12 hereof. In addition, if Lessor requests at any time
prior to or after the end of the applicable Term (but in any event within 90
days after the end of the applicable Term), Lessee will, at Lessor's expense,
assist Lessor in transitioning the Aircraft to the next operator's maintenance
program, provided, however, such assistance shall not disrupt Lessee's operation
of the applicable Aircraft or otherwise unreasonably interfere with the business
or operations of the Lessee.

          (d)  Extension of Term Due to Conditions upon Return.  Should
               -----------------------------------------------         
redelivery of the Aircraft and the Aircraft Documents and the documents referred
to in Section 5(b) with respect thereto from Lessee to Lessor be delayed (which
delay shall be deemed to have occurred until Lessee shall have complied with all
of the return conditions set forth in this Section 5 and Exhibit E with respect
to the Aircraft) beyond the date required by the terms of this Lease, all of
Lessee's obligations under this Lease with respect to the Aircraft will remain
in full force and effect, including, without limitation the obligation (subject
to Section 5(e) hereof) to pay Rent hereunder with respect to the Aircraft;
provided, however, that Lessee shall pay Basic Rent for the Aircraft during any
extension pursuant to this Section 5(d) at a rate equal to 150% of the Basic
Rent that was payable by Lessee immediately prior to the scheduled return date
of the Aircraft.

          (e)  Non-Compliance.  To the extent that, at the time of the Final
               --------------                                               
Inspection of the Aircraft, the condition of the Aircraft and the Aircraft
Documents or the documents referred to in Section 5(b) with respect to the
Aircraft does not comply with this Section 5 and Exhibit E, Lessee will, at its
sole cost and expense, diligently proceed to rectify any defect or non-
compliance as promptly as practicable (and in any event within thirty (30) days)
to Lessor's reasonable satisfaction; and the Term will be automatically extended
and this Lease will remain in full force and effect as provided in Section 5(d)
above with respect to the 

                                     -17-
<PAGE>
 
Aircraft. If Lessee shall not have rectified any such defect or non-compliance
within such thirty day period, Lessee shall, upon expiration of such thirty day
period (unless Lessor shall request an earlier redelivery), redeliver the
Aircraft and the Aircraft Documents and the documents referred to in Section
5(b) with respect thereto to Lessor and Lessor shall, at Lessee's sole expense,
diligently proceed to rectify such defect or non-compliance to Lessor's
reasonable satisfaction and the applicable Term will be automatically extended
and this Lease will remain in full force and effect as provided in Section 5(d)
above until the date on which such defect or non-compliance has been so
rectified.

          (f)  Aircraft Documents.  Prior to the Return Date of the Aircraft and
               ------------------                                               
upon Lessor's request, Lessee will provide Lessor or its representative or any
prospective lessee or purchaser of the Aircraft access to the Aircraft Documents
and the documents referred to in Section 5(b) with respect to the Aircraft, in
order to facilitate the transition, integration and bridging of the Aircraft
into any subsequent operator's fleet, and any thereof shall have the right to
make copies, at their expense, of such Aircraft Documents and the documents
referred to in Section 5(b) hereof.

          SECTION 6.  Liens.  Lessee will not directly or indirectly create,
                      -----                                                 
incur, assume or suffer to exist any Lien on or with respect to the Aircraft,
title thereto or any interest therein or in this Lease, except (i) the
respective rights of Lessor and Lessee as herein provided and any other rights
existing pursuant to the Operative Documents, (ii) Lessor Liens, (iii) Liens for
Taxes of Lessee not yet due and (iv) materialmen's, mechanics', workmen's,
repairmen's, employees' or other like Liens arising in the ordinary course of
Lessee's business securing obligations that are not overdue for a period of more
than 30 days so long as during such 30-day period there is not any material risk
of the sale, forfeiture or loss of any Airframe or any Engine or any interest in
any thereof.  Lessee will promptly, at its own expense, take (or cause to be
taken) such actions as may be necessary duly to discharge any such Lien not
excepted above if the same shall arise at any time.

          SECTION 7.  Registration, Maintenance and Operation; Possession;
                      ----------------------------------------------------
Insignia.
-------- 

          (a)  (1)  Registration and Maintenance.  Lessee shall, at its sole
                    ----------------------------                            
cost and expense, except as otherwise explicitly set forth below, commencing on
the Delivery Date and through the balance of the Term:

          (i) cause the Aircraft to remain duly registered in the name of Lessor
     with the FAA, the responsibility (including the cost except as expressly
     provided for herein) of maintaining such registration will be Lessee's,
     provided, however, that Lessor shall, at Lessee's expense, execute and
     deliver all such documents as Lessee may reasonably request for the purpose
     of maintaining and continuing such registration;

                                     -18-
<PAGE>
 
          (ii) maintain, service, repair, and overhaul (or cause to be
     maintained, serviced, repaired, and overhauled) the Aircraft (including,
     without limitation, the Airframe, Engines, Parts, APU and landing gear of
     the Aircraft):

               (w)  so as to keep the Aircraft in as good an operating condition
          as when delivered by Lessor to Lessee hereunder (or, if better, the
          condition immediately following the Initial Maintenance Visit),
          ordinary wear and tear excepted, and so as to keep the Aircraft in
          such condition as may be necessary to enable the airworthiness
          certification for the Aircraft to be maintained in good standing at
          all times (other than when the Aircraft is undergoing maintenance by
          an FAA-approved maintenance provider) with the FAA,

               (x)  in compliance with (I) the Maintenance Program (Lessee shall
          not change the Maintenance Program unless, if Lessee contemplates a
          change in the Maintenance Program, Lessee shall, subject to the
          proviso contained in Section 4(b)(x) hereof, provide a copy of the new
          proposed program specifications to Lessor, certified as true and
          correct by Lessee at least fifteen (15) Business Days prior to
          implementation of the same and Lessor does not object to such change
          within such fifteen (15) Business Day period) and providing for the
          inspection of corrosion and the cleaning, repair and treatment thereof
          in accordance with the corrosion treatment and correction criteria as
          specified by the FAA approved corrosion prevention and control program
          applicable to 737 Aircraft; (II) all manufacturer's mandatory service
          bulletins applicable to 737 aircraft requiring compliance pursuant to
          Section 7(a)(3) hereof, and (III) all applicable Airworthiness
          Directives issued by the FAA with an effective date requiring
          compliance pursuant to Section 7(a)(3) hereof;

               (y)   *

               (z)  in substantially the same manner as Lessee maintains,
          services, repairs and overhauls similar aircraft and engines operated
          by Lessee and without in any way discriminating against the Aircraft
          whether by reason of the leased status thereof or otherwise,
          including, without limitation, in regard to compliance with
          Airworthiness Directives;

          (iii) not install replacement components with excessive wear or having
     an inferior value, utility or modification status or exchange components on
     or in the Aircraft when the Aircraft is about to be returned to Lessor for
     other aircraft components in Lessee's possession for use on aircraft that
     will remain in Lessee's possession after such return to reduce or avoid
     future maintenance requirements on such aircraft; and

                                     -19-
<PAGE>
 
          (iv) maintain, or cause to be maintained during the Term (as
     applicable to the Aircraft), in English, all Aircraft Documents and other
     records, logs and other materials required to be maintained in respect of
     the Aircraft by the FAA or that are required to be returned with the
     Aircraft pursuant to Section 5(b) hereof (which Aircraft Documents,
     records, logs and other materials shall, as between Lessor and Lessee and
     all parties claiming through Lessee, be kept at Lessee's maintenance
     facilities in Denver, Colorado (or such other single location as Lessee may
     designate in writing to Lessor), but shall be the property of Lessor;
     provided, however, that the Aircraft Documents and other documents referred
     to in Section 5(b) hereof with respect to the Aircraft shall become the
     property of Lessee only upon the occurrence of an Event of Loss with
     respect to the Aircraft and Lessee's compliance with Section 10 hereof with
     respect to the Aircraft.

          (2)  Operation and Use.  From and after the Delivery Date and for the
               -----------------                                               
balance of the Term:

          (A) Lessee will not maintain, use, service, repair, overhaul or
     operate the Aircraft or any Aircraft Documents (aa) in violation of the
     rules and regulations of the FAA or any other law or any rule, regulation,
     treaty, order or certificate of any government or governmental authority
     having jurisdiction over the Aircraft or the Aircraft Documents, or an
     owner or operator in respect thereof (including without limitation, any
     country to, from, in or over which the Aircraft is flown), (bb) in
     violation of any airworthiness certificate, license or registration
     relating to the Aircraft issued by any such authority or (cc) contrary to
     any recommendation of the manufacturer of the Airframe, the Engines or any
     Part of any thereof.

          (B) Lessee shall ensure that the crew and engineers employed by it in
     connection with the operation and maintenance of the Aircraft shall have
     such qualifications and hold such licenses as are required by applicable
     law.

          (C) Lessee shall use the Aircraft solely in commercial passenger
     operations and shall not use or permit the Aircraft to be used for any
     purpose for which it is not designed or reasonably suitable.

          (D) Lessee shall not use the Aircraft for the carriage of (i) whole
     animals living or dead except in the cargo compartments according to
     I.A.T.A. regulations, and except domestic pet animals carried in a suitable
     container to prevent the escape of any liquid and to ensure the welfare and
     safekeeping of the animal; (ii) acids, toxic chemicals, other corrosive
     materials, explosives, nuclear fuels, wastes, or any nuclear assemblies or
     components, except as permitted for passenger aircraft under the
     "Restriction of Goods" schedule issued by I.A.T.A. from time to time and
     provided that all the requirements for packaging or otherwise contained
     therein are fulfilled; or (iii) any other goods, materials or items of
     cargo which could reasonably be expected to 

                                     -20-

     
<PAGE>
 
     cause damage to the Aircraft and which would not be adequately covered by
     the insurance required by or obtained pursuant to the terms of this Lease.

          (E) Lessee will not cause or permit the Aircraft to proceed to, or
     remain at, any locations which are the subject of a prohibition order (or
     any similar order or directive) by the federal government of the United
     States or the United Nations.

          (F) Lessee will not knowingly do or permit to be done anything which
     may expose the Aircraft or any part thereof to penalty, forfeiture,
     seizure, arrest, impounding, detention, confiscation, taking in execution,
     attachment, appropriation or destruction nor abandon the Aircraft or any
     part of any thereof and, if any such penalty, forfeiture, seizure, arrest,
     impounding, detention, confiscation, taking in execution, attachment or
     appropriation shall occur, Lessee shall give Lessor immediate notice
     thereof and shall procure the immediate release of the Aircraft, or the
     relevant part therefrom.

          (G) Lessee will promptly pay or procure that all license and
     registration fees, charges and all Taxes of any nature (together with any
     penalties, fines or interest thereon) assessed or demanded by any
     government or any revenue authority, upon or with respect to the delivery,
     leasing, possession, use, operation or return of the Aircraft by Lessee are
     promptly paid, and shall immediately provide Lessor, upon Lessor's request
     (no more often than quarterly), with an itemized statement of all such
     fees, charges or taxes outstanding as applied as of the date of such
     request.

          (H) Lessee will, on request of Lessor, furnish to Lessor evidence
     satisfactory to Lessor that all charges incurred by Lessee with respect to
     the Aircraft, including, without limitation, all payments due to any air
     navigation control authorities, have been paid and discharged in full.

          (I) Lessee will not at any time

(i) represent or hold out Lessor or Owner Participant as carrying goods or
passengers on the Aircraft or as being in any way connected or associated with
any operation of carriage (whether for hire or reward or gratuitously) which may
be undertaken by Lessee or (ii pledge the credit of Lessor or Owner Participant.

          (J) Lessee will obtain or procure the obtaining of all and any
     necessary certificates, licenses, permits and authorizations required for
     the use and operation of the Aircraft, and for the making of payments
     required by, and the compliance by Lessee with its other obligations under,
     this Lease and will maintain each thereof or procure that each thereof is
     maintained in full force and effect for so long as the same shall be
     required.

                                     -21-
<PAGE>
 
          (K) Lessee will, upon Lessor's request, keep Lessor, and if required
     by the insurances required hereby, Lessee's insurers, informed as to
     current engine serial numbers of the Engines and any engines installed on
     the Aircraft in accordance with the provisions hereof, and the location of
     any Engine for the time being not installed on the Airframe.

          (L) Except as provided in Sections 7(b) and 10(b) hereof, Lessee shall
     ensure that any Engine which is not installed on an Airframe is being
     diligently repaired and shall keep any such Engine properly and safely
     stored and free from Liens.  Lessee may install (or cause to be installed)
     on the Aircraft any Acceptable Alternate Engine not owned by Lessor if an
     Engine is undergoing maintenance work as provided in Section 7(b) hereof
     and no other Engine is available for installation on such Aircraft;
     provided, however, that as promptly as practicable after the completion of
     --------  -------                                                         
     such maintenance in respect of such Engine, Lessee shall reinstall (or
     shall cause the reinstallation of) such Engine on such Aircraft.

          (M) Lessee shall ensure that the Aircraft is operated only in such
     countries as the Lessee is permitted by applicable law.  Lessee will not
     operate the Aircraft (or allow the Aircraft to be on the ground), or suffer
     or permit any Person to operate the Aircraft (or suffer or permit any
     Person to keep the Aircraft on the ground), in or to any areas excluded
     from coverage by any insurance required to be maintained by the terms of
     Section 11 hereof.

          (N) Lessee shall at all times comply with all requirements of all
     insurance policies required to be maintained pursuant to Section 11 hereof
     and not take any actions that would have the effect of voiding any such
     policy.

          (3)  Airworthiness Directives. Lessee agrees to comply with all
               ------------------------                                   
Airworthiness Directives which become due during the Term or are otherwise
required to be performed on the Aircraft within twelve (12) months following the
end of the Term (or, if such Airworthiness Directives shall relate to a cycle or
hour standard, the proportionate cycle or hour equivalent thereof). All
Airworthiness Directives shall be accomplished in strict compliance with all
issuing agency's specific instructions. Lessee shall include within the Aircraft
Documents all documentation necessary to establish the source data, method of
compliance, verification of accomplishment, quality assurance, and all schedules
of recurring action of any Airworthiness Directive.

          (4)  Service Bulletins. Lessee agrees, at its sole cost and expense,
               -----------------                                               
to incorporate into the Aircraft all those Airframe and Engine manufacturer and
other vendor service bulletins (other than "alert" service bulletins, it being
understood that "alert" service bulletins are Airworthiness Directives) which
Lessee plans to adopt during the Term for the rest of its 737 aircraft fleet.
The Aircraft, with respect to the rest of Lessee's fleet, shall not be
discriminated against in service bulletin compliance or other maintenance
matters.

                                     -22-
<PAGE>
 
          (5)  Corrosion Control.  Lessee shall adopt and incorporate in the
               -----------------                                            
Maintenance Program specific measures for the control of corrosion in
conformance with the Airframe manufacturer's corrosion prevention manual, and
shall carry out such work as may be required to comply therewith, including
without limitation, periodic inspections by penetration of fuel tanks, periodic
inspection and clean-up under cargo areas and periodic treatment of all mild and
moderate corrosion and correcting of all severe or exfoliated corrosion in
accordance with the Maintenance Program.

          (b)  Possession.  Lessee will not sublease or otherwise in any manner
               ----------                                                      
deliver, transfer or relinquish possession of any Airframe or any Engine or
install or permit any Engine to be installed on any airframe other than an
Airframe; provided that, so long as no Default or Event of Default shall have
occurred and be continuing at the time of such delivery, transfer or
relinquishment of possession or installation, and so long as the action to be
taken shall not deprive Lessor of its title or its interest to any of the
Equipment, Lessee may:

               (i)   deliver temporary possession and control of any Airframe or
     any Engine or Part to the manufacturer thereof for testing, service,
     maintenance, overhaul or repair or, to the extent permitted by Section 8,
     for modifications or additions;

               (ii)  install an Engine on an airframe owned by the Lessee free
     and clear of all Liens except Permitted Liens;

               (iii) install an Engine on an airframe leased to the Lessee or
     owned by the Lessee and subject to a security agreement under which the
     Lessee is the debtor, provided that (A) such airframe is free and clear of
                           -------- ----                                       
     all Liens except the rights of the parties to such lease or security
     agreement and except Permitted Liens, and (B) such lessor or secured party
     shall not acquire any right, title or interest in such Engine; and

               (iv)  in the ordinary course of testing, servicing, maintenance,
     repair or overhaul, remove any Part from an Airframe or any Engine,
                                                                        
     provided that the Lessee replaces such Part as promptly as possible with a
     --------                                                                  
     Part which has a value and utility at least equal to the Part being
     replaced and is owned by the Lessee free and clear of all Liens except
     Permitted Liens (it being understood that any Part, prior to its
     installation on the Aircraft may have been (but will not upon installation
     be) leased by Lessee under the terms of a parts lease agreement which
     permits an exchange of ownership of parts); and any such replacement Part
     shall thereby become subject to this Lease without necessity of further
     act; provided, however, that any Part removed from an Airframe or any
          --------                                                        
     Engine for such purpose shall remain subject to this Lease until replaced
     by a replacement Part as provided above in this clause (iv).

No transfer of possession or control or other right afforded the Lessee pursuant
to this Section 7(b) shall in any manner affect any of the obligations of the
Lessee under this Lease or under the other Operative Documents, which
obligations shall remain primary and shall continue to 

                                     -23-
<PAGE>
 
the same extent as in the absence of such transfer or other right. In the event
that the Lessor shall have received a written agreement or existing security
agreement or lease complying with the terms of clause (iii) of this Section
7(b), the Lessor hereby agrees for the benefit of the lessor or secured party
furnishing such agreement that the Lessor will not acquire or claim, as against
such lessor or secured party, any right, title or interest in any engine owned
by such lessor or in which such secured party has a security interest by reason
of such engine being installed on the Airframe.

          (c)  Insignia.  Lessee agrees to affix and maintain (or cause to be
               --------                                                      
affixed and maintained) in the cockpit of the Airframe adjacent to the
registration certificate therein and on each Engine a nameplate (no smaller than
5" x 7") bearing the inscription:

          "This [Aircraft]/[Engine] is owned by First Security Bank, National
          Association, not individually but solely as Owner Trustee."

(such nameplate to be replaced, if necessary, with a nameplate reflecting the
name of any successor Lessor, as permitted under the Operative Documents).

          Except as above provided, Lessee will not allow the name of any Person
to be placed on any Airframe or any Engine as a designation that might be
interpreted as a claim of ownership; provided that nothing herein contained
shall prohibit Lessee from placing its customary colors and insignia on any
Airframe or any Engine.

          (d)  Maintenance Reserves.  In addition to installments of Basic Rent,
               --------------------                                             
Lessee shall pay maintenance reserves monthly in arrears in an amount equal to
the amount set forth on Exhibit B hereto under the heading ""D" Check
Maintenance Reserves" per Hour of operation (or portion thereof) of the Airframe
(the ""D" Check Maintenance Reserves"), plus the amount set forth on Exhibit B
hereto under the heading "Landing Gear Maintenance Reserves" per Hour (or
portion thereof) of the Airframe (the "Landing Gear Maintenance Reserves"), plus
the sum of the amount set forth on Exhibit B hereto under the heading "Life
Limited Parts Maintenance Reserves" per Hour (or portion thereof) of each of the
Engines (the "Life Limited Parts Maintenance Reserves"), plus the amount set
forth on Exhibit B hereto under the heading "Engine Maintenance Reserves" per
Hour (or portion thereof) of each of the Engines (the "Engine Maintenance
Reserves"; and the "D" Check Maintenance Reserves, the Engine Maintenance
Reserves, the Life Limited Parts Maintenance Reserves and the Landing Gear
Maintenance Reserves hereinafter may be referred to collectively as the
"Maintenance Reserves").  Each of the amounts set forth opposite "D" Check
Maintenance Reserves, Engine Maintenance Reserves, Landing Gear Maintenance
Reserves and Life Limited Parts Maintenance Reserves on Exhibit B is subject to
revision by Lessor on each anniversary of the Delivery Date based upon (A)
changes in actual maintenance cost, changes in the hourly earnings index (SIC
Code 3721), and the industrial commodities index, each index as published by the
U.S. Department of Labor, Bureau of Labor Statistics and (B) changes in 

                                     -24-
<PAGE>
 
Lessee's operating Hours to Cycles ratio from 1.75 Hours to 1 Cycle (or such
ratio as was used for the previous years adjustment). On the tenth day of each
calendar month during the Term (or, if such date is not a Business Day, then the
next preceding Business Day), Lessee shall (i) transmit to Lessor an officer's
certificate in the form of Exhibit B-1 attached hereto setting forth the actual
number of Hours of operation of the Airframe and each Engine during the
immediately preceding month and the calculation of the Maintenance Reserves
payable with respect to such operation and (ii) pay Lessor on or before such
date, in the manner set forth in Section 3(d) hereof, the applicable Maintenance
Reserves for such period. The "D" Check Maintenance Reserves shall be paid into
the "D" Check Maintenance Account, the Engine Maintenance Reserves for each
Engine shall be paid into separate Engine Maintenance Accounts, the Landing Gear
Maintenance Reserves shall be paid into the Landing Gear Maintenance Account and
the Life Limited Parts Maintenance Reserves shall be paid into the Life Limited
Parts Maintenance Account (the "D" Check Maintenance Account, the Engine
Maintenance Accounts, the Landing Gear Maintenance Account and the Life Limited
Parts Maintenance Account may be referred to collectively as the "Maintenance
Accounts"). Lessor shall note all deposits and disbursements from each
Maintenance Account and, within 10 days following Lessor's receipt of each
officer's certificate specified in clause (i) above, shall provide Lessee a
report of all such deposits and disbursements during the preceding calendar
month and setting forth the amount of Maintenance Reserves attributable to each
of the Maintenance Accounts at the end of such calendar month, which report
shall be conclusive absent manifest error by Lessor in producing such report.

          As used herein, the terms ""D" Check Maintenance Account", "Engine
Maintenance Accounts", "Landing Gear Maintenance Account" and Life Limited Parts
Maintenance Account" (collectively the "Reserve Accounts"), shall mean accounts
kept by Lessor (or Owner Participant) on its books in which Lessor (or Owner
Participant) notes the deposits and disbursements from the respective Reserve
Account (or subaccount thereof). Lessor (or Owner Participant) need not
segregate the monies deposited in such Reserve Accounts (or subaccount thereof)
and may instead commingle such monies with its own funds. Interest accrued on
the Reserve Accounts shall be for the account of the Lessor and shall not be
available for drawdown by the Lessee.

          So long as no Default or Event of Default then exists, and no Event of
Loss shall have occurred, but subject to the provisions of the next following
paragraph, Lessor shall distribute funds deposited in the Maintenance Accounts
as follows:

          (a) funds deposited in the "D" Check Maintenance Account shall be
disbursed by Lessor to reimburse Lessee for its costs in performing, or causing
to be performed, a "D" Check maintenance visit required to be performed during
the Term pursuant to the Maintenance Program;

          (b) funds deposited in a specific Engine Maintenance Account shall be
disbursed by Lessor to reimburse Lessee for its costs in performing, or causing
to be 

                                     -25-
<PAGE>
 
performed, Engine maintenance visits required to be performed on the
applicable Engine only during the Term pursuant to the Maintenance Program;
provided, however, that any funds deposited in the Engine Maintenance Accounts
shall not be used to pay for replacing life limited parts;

          (c) funds deposited in the Landing Gear Maintenance Account shall be
disbursed by Lessor to reimburse Lessee for its costs in performing, or causing
to be performed landing gear shop visits required to be performed during the
Term pursuant to the Maintenance Program; and

          (d) funds deposited in the Life Limited Parts Maintenance Account
shall be disbursed by Lessor to reimburse Lessee for its costs in replacing, or
causing to be replaced, life limited parts installed on the Engine (except to
the extent such replacement is as the result of improper maintenance or misuse,
off-wing engine mishandling or foreign object damage, with respect to which
Lessee shall be solely responsible).

          Except as explicitly set forth herein, Lessor shall not be required to
reimburse Lessee for the payment of any costs incurred to the extent that the
amounts in the appropriate Maintenance Account shall be insufficient to
reimburse Lessee for its costs to which it would otherwise be entitled to
reimbursement from such Maintenance Account, nor shall Lessor be required to pay
or reimburse Lessee for the cost of work related to improper maintenance or
misuse, off-wing engine mishandling or foreign object damage, all such costs
relating to such work to be solely for Lessee's account.  Notwithstanding the
foregoing, Lessor agrees that it shall reimburse Lessee for the following:  (i)
*    of costs incurred by Lessee in performing, or causing to be performed, the
first "D" Check maintenance visit for the Airframe during the Term to the extent
there are insufficient funds in the "D" Check Maintenance Account to otherwise
reimburse Lessee; (ii)   *    of costs incurred by Lessee in performing, or
causing to be performed, the first Engine Maintenance Visit for the Engine
bearing manufacturer's serial number 724892 to the extent there are insufficient
funds in the Engine Maintenance Account to otherwise reimburse Lessee; and (iii)
*    of costs incurred in performing, or causing to be performed, the first
Engine Maintenance Visit for the Engine bearing manufacturer's serial number
725897 to the extent there are insufficient funds in the Engine Maintenance
Account to otherwise reimburse Lessee.  In addition, Lessor shall reimburse
Lessee for Lessee's costs incurred in performing, or causing to be performed,
the Initial Maintenance Visit in an aggregate up to the sum of   *   which
Lessor is able to procure (using its best good faith efforts) from Air Invest as
a result of the Aircraft being painted white at the end of the Air Invest Lease.

          Lessee shall give Lessor ninety (90) days (or such shorter period as
is reasonably practicable in the case of unplanned and non-deferrable
maintenance) prior written notice of any proposed "D" Check, "C" Check, Engine
shop visit, landing gear shop visit or life limited part replacement.  Such
notice shall disclose the scope of the proposed work, the name of the
maintenance provider and the proposed cost of the maintenance work.  Actual

                                     -26-
<PAGE>
 
disbursements shall be made by Lessor upon at least five (5) Business Days prior
written notice to Lessor, which notice shall (i) request reimbursement for at
least   *   (or such lesser amount as shall equal the total cost of the
maintenance for which Lessee is then seeking reimbursement) of maintenance costs
and (ii) include an invoice from the maintenance provider indicating the cost of
the work completed, the scope of the work completed and a statement that the
work has been completed. Lessor shall be entitled, at its expense, to have an
employee or agent on site at the maintenance provider's facility to monitor the
work to be performed.

          Lessee acknowledges that, subject to the foregoing, it is solely
responsible (without reimbursement from the Lessor) for any and all maintenance
costs for which the Lessor has not agreed to pay or reimburse the Lessee.

          Upon the expiration or early termination of this Lease, Lessee shall
immediately pay to Lessor that portion of the Maintenance Reserves that is
applicable to the period commencing on the first day of the month in which such
termination occurs and ending with the date the Aircraft is returned to Lessor
in accordance with Section 5 hereof.

          It is the intent of the parties hereto that all Maintenance Reserves
shall be the sole and exclusive property of Lessor.  Accordingly, at the end of
the term all Maintenance Reserves shall be retained by Lessor and Lessee shall
have no right with respect thereto nor shall Lessee be entitled to an accounting
thereof.  If, notwithstanding the first sentence of this paragraph, a court of
law disregards the intent of the parties hereto and determines such Maintenance
Reserves are the property of Lessee, Lessee hereby grants Lessor a first
priority security interest in such Maintenance Reserves.

          SECTION 8.  Replacement of Parts; Alterations, Modifications and
                      ----------------------------------------------------
Additions.
--------- 

          (a) Replacement of Parts.  Lessee will promptly replace or cause to be
              --------------------                                              
replaced all Parts which 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
8(b) hereof.  All replacement parts shall be (i) reasonably acceptable to
Lessor, (ii) owned by Lessee free and clear of all Liens (it being understood
that any part, prior to its installation on the Aircraft, may have been (but
will not upon installation be) leased by Lessee under the terms of a parts lease
agreement which permits an exchange of ownership of parts) and (iii) have a
serviceability tag attached and be accompanied by all records required by the
FAA, shall be interchangeable as to form, fit and function, shall be in at least
the same mandatory and recommended service bulletin accomplishment status, shall
have been overhauled or repaired and inspected (if applicable) by an agent
acceptable to the FAA and shall be in as good an operating condition as, and
shall have a value and utility at least equal to, the Parts replaced, assuming
such replaced Parts were in the condition and repair required to be maintained
by the terms hereof and all historical records with respect to such Parts shall
be retained.  All Parts at any time removed from any 

                                     -27-
<PAGE>
 
Airframe or any Engine shall remain the property of Lessor and subject to this
Lease, no matter where located, until such time as such Parts shall be replaced
by parts which have been incorporated or installed in or attached to the
applicable Airframe or Engine and which meet the requirements for replacement
parts specified above. Immediately upon any replacement part becoming
incorporated or installed in or attached to the applicable Airframe or Engine as
provided above, without further act, (i) title thereto shall vest in and such
replacement part shall become the property of Lessor and shall become subject to
this Lease and be deemed a Part for all purposes hereof to the same extent as
the Parts originally incorporated or installed in or attached to such Airframe
or such Engine; (ii) the replaced Part shall no longer be the property of Lessor
and shall no longer be deemed a Part hereunder; and (iii) title to the replaced
Part shall thereupon vest in Lessee, free and clear of all rights of Lessor.

          (b) Alterations, Modifications and Additions.  Lessee will make (or
              ----------------------------------------                       
cause to be made) such alterations and modifications in and additions to the
Airframe and each Engine as may be required to be made during the Term to meet
the applicable standards of the FAA and any applicable regulatory agency or body
of any other jurisdiction in which any part of the Equipment may then be
registered or that takes jurisdiction over any part of the Equipment, to reflect
such (and any other permitted) modifications in the records and manuals
maintained in respect of the Aircraft, Airframe and/or Engine in accordance with
all applicable laws and the Maintenance Program and to maintain at all times the
standard certificate of airworthiness for the Aircraft.  All such alterations,
modifications and additions shall be documented by the applicable FAA-approved
Original Equipment Manufacturer ("OEM") Service Bulletin, OEM Master Change or
FAA-approved Supplemental Type Certificate, whichever is applicable under the
Federal Aviation Act and/or applicable FARs.  All Parts incorporated or
installed in or attached or added to any Airframe or any Engine as the result of
such alteration, modification or addition shall, without further act, become
subject to this Lease and become the property of, and title to such Parts shall
vest in, Lessor.  Lessee will not, without the prior written consent of Lessor,
make any additions to, or alterations or modifications (including without
limitation a change in configuration) of, the Aircraft other than as expressly
required by this paragraph (b) or which shall adversely affect the value,
utility or airworthiness of the Airframe or Engine, as the case may be.  Prior
to commencing work on any such addition, alteration or modification permitted by
this Section 8(b), Lessee shall give Lessor at least twenty (20) Business Days
notice of the same (except when such work is mandated by an Airworthiness
Directive, or mandatory service bulletin which makes a twenty (20) day notice
impractical, in which case Lessee shall provide notice as soon as it becomes
aware of the applicable Airworthiness Directive or mandatory service bulletin),
which notice shall contain a detailed description of the workscope of such
addition, alteration or modification and the name of the proposed maintenance
facility that shall complete the work, each of which workscope and maintenance
facility shall be reasonably acceptable to Lessor.  In respect of the last
maintenance check or shop visit for the Aircraft or any Engine, as the case may
be, prior to the Lease Expiry Date, Lessee shall comply with any reasonable
request of Lessor in regard thereto, including, without limitation, a request by
Lessor to change the scope of the work to be performed, provided, however,
                                                        --------          
Lessor shall be responsible for any incremental cost 

                                     -28-
<PAGE>
 
resulting directly from any such request to change or otherwise alter the scope
of work beyond that which would otherwise be required to be performed under this
Lease during such maintenance check or shop visit, as the case may be.

      SECTION 9.  [Intentionally Omitted].

      SECTION 10.  Loss, Destruction, Requisition, etc.
                   ----------------------------------- 

          (a)      Event of Loss with Respect to the Aircraft. Upon the
                   ------------------------------------------                
occurrence of an Event of Loss with respect to the Airframe or the Airframe and
the Engines or engines then installed thereon, Lessee shall (1) forthwith (and
in any event, within three (3) days after such occurrence) give Lessor written
notice of such Event of Loss and (2) to the extent not previously paid to Lessor
as insurance proceeds, pay or cause to be paid in the manner specified in
Section 3(d) hereof to Lessor (the date required for such payment being herein
referred to as the "Loss Payment Date") within the earlier of (x) 45 days after
such occurrence and (y) three (3) days of the receipt of insurance proceeds, the
sum of (A) the Stipulated Loss Value with respect to the Aircraft, plus (B) all
Rent then due and unpaid hereunder.

          At such time as Lessor shall have actually received the sum of the
amounts specified in clauses (A) and (B) above, (I) the obligation of Lessee to
pay Basic Rent hereunder with respect to the Aircraft and the Aircraft Documents
with respect thereto shall cease to accrue, (II) the Lease shall terminate,
(III) Lessor will transfer to or at the direction of Lessee, without recourse or
warranty (except as to the absence of Lessor Liens), all of Lessor's right,
title and interest in and to the Airframe, the Aircraft Documents with respect
thereto and, if an Aircraft has suffered such Event of Loss, the Engines of such
Aircraft "as-is, where-is" and furnish to or at the direction and cost of Lessee
a bill of sale in form and substance reasonably satisfactory to Lessee,
evidencing such transfer, and (IV) Lessee will be subrogated to all claims of
Lessor, if any, against third parties (other than in respect of any insurance
policy independently maintained by the Lessor pursuant to Section 11 hereof) to
the extent the same relate to physical damage to or loss of the Airframe and any
Engines which were subject to such Event of Loss.

          (b)      Event of Loss with Respect to an Engine. Upon the occurrence
                   ---------------------------------------
of an Event of Loss with respect to an Engine under circumstances in which there
an Event of Loss with respect to an Engine under circumstances in which there
has not occurred an Event of Loss with respect to the Airframe, Lessee shall
forthwith (and in any event, within three (3) days after such occurrence) give
Lessor written notice thereof and shall, within 45 days after the occurrence of
such Event of Loss (the "Replacement Period"), convey or cause to be conveyed to
Lessor, as replacement for the Engine with respect to which such Event of Loss
occurred, title to an Acceptable Alternate Engine free and clear of all Liens,
in as good an operating condition as, and having a value, utility, modification
status and remaining useful life at least equal to the Engine with respect to
which such Event of Loss occurred, assuming such Engine was of the value,
utility, modification status and remaining useful life and in the condition and
repair required by the terms hereof immediately prior to the occurrence of such

                                     -29-
<PAGE>
 
Event of Loss.  Prior to or at the time of any such conveyance, Lessee, at its
own expense, will (i) furnish Lessor with a warranty (as to title) bill of sale,
in form and substance reasonably satisfactory to Lessor, with respect to such
Acceptable Alternate Engine, (ii) cause a Lease Supplement relating thereto to
be duly executed by Lessee and to be duly filed under the applicable laws, rules
and regulations of the FAA, (iii) furnish Lessor with such evidence of Lessor's
title to such Acceptable Alternate Engine and compliance with the insurance
provisions of Section 11 hereof with respect to such Acceptable Alternate Engine
as Lessor may reasonably request, (iv) furnish Lessor with such documents as
Lessor shall request with respect to such Acceptable Alternate Engine,
including, without limitation, all disk records reasonably requested by Lessor
or which are otherwise required by the FAA to maintain or establish the
airworthiness of such Acceptable Alternate Engine, and (v) furnish the Lessor
with an opinion of counsel to the effect that title to such Acceptable Alternate
Engine has been duly conveyed to the Lessor free and clear of all Liens, and
Lessor will transfer to or at the direction of Lessee without recourse or
warranty except as to the absence of Lessor Liens (on an "AS-IS", "WHERE-IS"
basis) all of Lessor's right, title and interest, if any, in and to (A) the
Engine with respect to which such Event of Loss occurred and furnish to or at
the direction of Lessee at Lessee's expense a bill of sale in form and substance
reasonably satisfactory to Lessee evidencing such transfer and (B) all claims,
if any, against third parties (other than in respect of any insurance policy
independently maintained by Lessor), for damage to or loss of the Engine subject
to such Event of Loss, and such Engine shall thereupon cease to be an Engine
leased hereunder.  For all purposes hereof, each such Acceptable Alternate
Engine shall, after such conveyance, be deemed part of the property leased
hereunder, and shall be deemed an "Engine".   No Event of Loss with respect to
an Engine under the circumstances contemplated by the terms of this paragraph
(b) shall result in any reduction in Basic Rent or any other amounts due from
Lessee under any Operative Document.

     During the Replacement Period, the Lessee may install on an Airframe an
engine of the same or an improved make and model as the Engine which has
suffered such Event of Loss, and which is otherwise suitable for installation on
such Airframe, but which does not otherwise constitute an Acceptable Alternate
Engine.  Lessee shall have no obligation to pay Maintenance Reserves with
respect to such temporarily installed engine.

          (c) Application of Payments from Governmental Authorities for
              ---------------------------------------------------------
Requisition of Title, etc.  Any payments (other than insurance proceeds the
--------------------------                                                 
application of which is provided for in Section 11) received at any time by
Lessor or Lessee from any governmental authority or other Person with respect to
an Event of Loss, will be applied as follows:

              (i) if payments are received with respect to the Airframe (or the
     Airframe and any Engine or engines then installed thereon and the Aircraft
     Documents related thereto), after reimbursement of Lessor for its
     reasonable costs and expenses, so much of such payments remaining as shall
     not exceed the Stipulated Loss Value of the Aircraft shall be applied in
     reduction of Lessee's obligation to pay Stipulated Loss Value with respect
     to the Aircraft if not already paid by Lessee, or, if already paid by

                                     -30-
<PAGE>
 
     Lessee, shall be applied to reimburse Lessee for its payment of such
     Stipulated Loss Value and following the foregoing application, the balance,
     if any, of such payments shall be distributed to Lessor; and

               (ii) if such payments are received with respect to an Engine
     under circumstances contemplated by Section 10(b) hereof, so much of such
     payments remaining after reimbursement of Lessor for its reasonable costs
     and expenses shall be paid over to, or retained by, Lessee, provided that
     Lessee shall have fully performed the terms of Section 10(b) with respect
     to the Event of Loss for which such payments are made.

          (d)  Requisition for Use of the Aircraft by the Government of
               --------------------------------------------------------
Registry. In the event of the requisition for use of the Aircraft or the
--------
Airframe and the Engines or engines installed on such Airframe during the Term
not constituting an Event of Loss, Lessee shall promptly notify Lessor of such
requisition, and all of Lessee's rights and obligations under this Lease
Agreement shall continue to the same extent as if such requisition had not
occurred. All payments received by Lessor or Lessee for the use during the Term
of the Airframe and Engines or engines shall be paid over to, or retained by,
Lessee, with all such amounts for use after the Term to be paid to Lessor. No
such requisition shall result in any reduction of Basic Rent or any other sum
due from Lessee under any Operative Document and Lessee's obligations shall
continue throughout the Term.

          (e)  Application of Payments During Existence of Events of Default.
               -------------------------------------------------------------  
Any amount referred to in this Section 10 which is payable to or retainable by
Lessee shall not be paid to or retained by Lessee if at the time of such payment
or retention a Default or an Event of Default shall have occurred and be
continuing, but shall be held by or paid over to Lessor as security for the
obligations of Lessee under this Lease and applied against Lessee's obligations
hereunder as and when due.  At such time as there shall not be continuing any
such Default or Event of Default, such amount shall be promptly paid to Lessee
to the extent not previously applied in accordance with the preceding sentence.

          SECTION 11.  Insurance.
                       --------- 

          (a)  From the Delivery Date and at all times thereafter Lessee shall
be responsible for effecting and maintaining or causing to be effected and
maintained, in full force and effect, insurances in respect of the Aircraft and
the Aircraft Documents in accordance with insurance customarily carried by
airlines similarly situated to Lessee and of a type, in such amounts and
covering such risks from time to time as specified in Exhibit F attached hereto
and made part hereof, and procured through such brokers and maintained with such
primary insurers as shall be reasonably acceptable to Lessor (the "Insurances").

                                     -31-
<PAGE>
 
          (b)  As between Lessor and Lessee, it is agreed that all proceeds of
insurance maintained in compliance herewith and received as the result of the
occurrence of an Event of Loss will be applied as follows:

               (x) if such payments are received with respect to the Airframe
          (or the Airframe and the Engines installed thereon), (i) so much of
          such payments remaining, after reimbursement of Lessor for reasonable
          costs and expenses, as shall not exceed the Stipulated Loss Value of
          the Aircraft and other amounts payable by Lessee hereunder shall be
          applied in reduction of Lessee's obligation to pay such amounts, if
          not already paid by Lessee, or, if already paid by Lessee, shall be
          applied to reimburse Lessee for its payment of such amounts and the
          balance, if any, of such payments remaining thereafter will be paid
          over to, or retained by, Lessee; and

               (y) if such payments are received with respect to an Engine under
          the circumstances contemplated by Section 10(b) hereof, so much of
          such payments remaining after reimbursement of Lessor for reasonable
          costs and expenses shall be paid over to, or retained by, Lessee,
          provided that Lessee shall have fully performed the terms of Section
          10(b) hereof with respect to the Event of Loss for which such payments
          are made.

          (c)  Lessee shall:

               (1) ensure that the Additional Insureds shall be named as
          additional insureds on the Insurances covering the Aircraft and the
          Lessor shall be named as "Loss Payee" under the insurances required by
          Sections (a), (b) and (c) of Exhibit F hereto;

               (2) ensure that all legal requirements as to insurance of the
          Aircraft or any Part of any thereof which may from time to time be
          imposed by the laws of the government of registry or any state to,
          from or over which the Aircraft shall be flown, in so far as they
          affect or concern the operation of the Aircraft, are complied with and
          in particular those requirements for which compliance is necessary to
          ensure that (a) the Aircraft is not in danger of detention or
          forfeiture, (b) the Insurances remain valid and in full force and
          effect, and (c) the interests of the Additional Insureds in the
          Insurances, the Aircraft or any Part of any thereof are not thereby
          prejudiced;

               (3) not use, cause or permit any of the Aircraft to be used for
          any purpose or in any manner not covered by the Insurances or outside
          any geographical limit imposed by such Insurances or for any purpose
          or in any manner which is contrary to applicable law.  Lessee shall
          comply, and procure compliance, with the terms and conditions of each
          and every policy of the 

                                     -32-
<PAGE>
 
          Insurances and shall not do, consent, suffer, or agree to any act or
          omission which invalidates or may invalidate or renders unenforceable
          or may render unenforceable the whole or any part of any such
          Insurances;

               (4) ensure that at all times during the Term, all Insurances
          (which term shall include, for the purposes of this sentence,
          replacement policies) have a minimum remaining term of not less than
          two (2) weeks.  Written confirmation of completion of renewal is to be
          delivered to Lessor prior to the expiry date. Certificates of
          insurance, in the English language, detailing the coverage and
          confirming the insurers' agreement to the specified insurance
          requirements of this Agreement and being in substantially the same
          form as the previously delivered certificate must be provided to
          Lessor at the same time;

               (5) furnish, or cause to be furnished, to Lessor and Owner
          Participant, on or before the Delivery Date and on each annual
          anniversary of the Delivery Date, a report, signed by an independent
          firm of insurance brokers reasonably acceptable to Lessor (the
          "Insurance Broker"), describing in reasonable detail the insurance
          then carried and maintained with respect to the Aircraft and stating
          the opinion of such firm that (a) all premiums in connection with such
          insurance then due have been paid, (b) such insurance complies with
          the terms hereof, and (c) such insurance provides coverages against
          risks that are customarily insured against by other air carriers
          similarly situated to Lessee and that such coverages are in
          substantially similar forms, are of such types and have limits within
          the range of limits as are customarily carried by other air carriers
          similarly situated to Lessee;

               (6) cause the Insurance Broker to agree to advise Lessor and
          Owner Participant in writing of any default in the payment of any
          premium and of any other act or omission on the part of Lessee of
          which it has knowledge and which might invalidate or render
          unenforceable, in whole or in part, any insurance on the Aircraft or
          cause any of the Insurances to lapse;

               (7) promptly notify Lessor of any occurrence likely to give rise
          to a claim under the Insurances;

               (8) not make or cause to be made any modification or alteration
          to the Insurances adverse to any of the Additional Insureds, nor do or
          leave undone anything which may invalidate such insurance coverage;

               (9) be responsible for any deductible/excluded loss under the
          Insurances;

                                     -33-
<PAGE>
 
               (10) provide and cause Lessee's insurance broker to provide any
          other insurance related information, or assistance, as Lessor or Owner
          Participant may reasonably require; and

               (11) reimburse Lessor and/or any of the Additional Insureds for
          any premiums (together with interest thereon at the Overdue Rate from
          the date of payment until the date of reimbursement) paid by any of
          them pursuant to Section 11(e).

          (d)  Any amount referred to in this Section 11 which is payable to or
retainable by Lessee shall not be paid to or retained by Lessee if at the time
of such payment or retention a Default or an Event of Default shall have
occurred and be continuing, but shall be held by or paid over to Lessor as
security for the obligations of Lessee under this Lease and, if a Default or an
Event of Default shall have occurred and be continuing, applied against Lessee's
obligations hereunder as and when due.  At such time as there shall not be
continuing any such Default or Event of Default, such amount shall be paid to
Lessee to the extent not previously applied in accordance with the preceding
sentence.

          (e)  Each of the Additional Insureds shall be entitled, if at any time
Lessee fails to maintain the Insurances in any respect to pay the premiums due
or to effect and maintain Insurances required hereunder to the extent such
Additional Insured considers appropriate.  Any sums so expended by it shall
become immediately due and payable by Lessee together with interest thereon at
the Overdue Rate, from the date of expenditure by such Additional Insured up to
the date of reimbursement by Lessee.  At any time while such failure is
continuing, the Lessor may require the Aircraft to remain at any airport or (as
the case may be) to proceed to and remain at any airport designated by it until
such failure is remedied.  No exercise by any such Additional Insured of said
option shall affect any provision of this Lease, including the provision that
failure by the Lessee to maintain the prescribed insurance shall constitute an
Event of Default.

          (f)  Lessee may not self-insure in respect of any of the Insurances.

          SECTION 12.  Inspection.  At any time, and from time to time, Lessor
                       ----------                                             
or Owner Participant, or their respective authorized representatives, may
inspect the Aircraft (subject to the proviso set forth at the end of the
penultimate sentence of this Section 12), and inspect and make copies of the
Aircraft Documents and other books and records of Lessee referred to in Section
5(b) (at Lessor's expense).  Any such inspection of the Aircraft shall include a
visual, walk-around inspection of the interior and exterior of the Aircraft.
Neither Lessor nor Owner Participant shall have any duty to make any such
inspection nor shall Lessor or Owner Participant incur any liability or
obligations by reason of not making any such inspection.  Lessee will cooperate
with Lessor's and Owner Participant's reasonable requests in connection with
such inspection (including information as to where the Airframe or any Engine
is, or will be, at any point in time, when panels, bays or the like will be open
and the time, 

                                     -34-
<PAGE>
 
location and availability of personnel to assist in such inspection); provided
that, so long as no Default or Event of Default shall have occurred and be
continuing hereunder, Lessor or Owner Participant, as the case may be, shall
give Lessee reasonable notice of the exercise of any inspection right and no
exercise of any inspection right shall interfere with normal operation of the
Aircraft by Lessee. If a Default or an Event of Default shall have occurred and
be continuing, the cost of any such inspection shall be for the account of
Lessee.

          SECTION 13.  Assignment; Subject and Subordinate.  (a)  Except as
                       -----------------------------------                 
otherwise provided herein or in any Operative Document, Lessee will not during
the Term, without the prior written consent of Lessor, assign any of its rights
hereunder.  Subject to the foregoing, the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of Lessor and Lessee and their
respective successors and permitted assigns.

          (b) Lessee hereby agrees and consents to the collateral assignment by
Lessor of this Lease and all rights and remedies hereunder to secure Lessor's
obligations under any loan agreement which Lessor may from time to time enter
into.  Lessee hereby agrees, at Lessor's own cost and expense (including,
without limitation, payment of Lessee's legal fees and expenses), to cooperate
with Lessor in so assigning this Lease for security, including, without
limitation, the execution and delivery of such documents and instruments as may
be reasonably requested by the lender under such loan agreement in connection
therewith.  In addition, at the request of Lessor, Lessee shall confirm in
writing that any such lender and its Affiliates, successors, assigns, agents,
servants, directors, officers and employees are Additional Insureds and
Indemnified Parties hereunder.

          Without limiting the foregoing, Lessor's fixed or contingent rights to
receive payments hereunder or other proceeds hereof are also freely assignable
and transferable by Lessor, in whole or in part, without restriction of any kind
whatsoever.

          SECTION 14.  Events of Default.  Each 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):

          (a) Lessee shall not have made a payment of Basic Rent, Maintenance
Reserves or Stipulated Loss Value after the same shall have become due and such
failure shall continue for three (3) Business Days beyond such due date; or

          (b) Lessee shall have failed to make a payment of Supplemental Rent
(other than Stipulated Loss Value or Maintenance Reserves) after the same shall
have become due and such failure shall continue for five (5) Business Days
beyond such due date; or

                                     -35-
<PAGE>
 
          (c) Lessee shall fail to carry and maintain on or with respect to the
Aircraft (or cause to be carried and maintained) any insurance required to be
maintained in accordance with the provisions of Section 11 hereof (including
without limitation the requirement contained in Section 11 that all insurance
policies shall at all times have a minimum remaining term of at least 2 weeks);
or

          (d) Lessee shall have failed to perform or observe any other covenant
or agreement to be performed or observed by it under any Operative Document
(other than those relating to matters covered by subparagraphs (a), (b) and (c)
above and subparagraph (h) below); provided, however, such failure shall not
constitute an Event of Default hereunder unless such failure shall have
continued in excess of fifteen (15) days after notice from Lessor to Lessee
specifying the default and requiring that the same be remedied; or

          (e) any representation or warranty made by Lessee herein, in any other
Operative Document or in any certificate delivered in connection herewith or
therewith shall prove to have been incorrect or untrue in any material respect
at the time made or deemed to be made; or

          (f) the commencement of an involuntary case or other proceeding in
respect of Lessee under United States bankruptcy laws, as now or hereafter
constituted, or any other applicable bankruptcy, insolvency or other similar law
in the United States or seeking the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of Lessee or
for all or substantially all of its property, or seeking the winding-up or
liquidation of its affairs and the continuation of any such case or other
proceeding undismissed or unstayed for a period of 60 consecutive days or an
order for relief or any other order, judgment or decree shall be entered in any
proceeding by any court of competent jurisdiction appointing, without the
consent of Lessee, a receiver, trustee or liquidator of Lessee, or for all or
substantially all of its property, or a sequestering of all or substantially all
of the property of Lessee and any such order, judgment or decree or appointment
or sequestration shall be final or shall remain in force undismissed, unstayed
or unvacated for a period of 60 consecutive days after the date of entry
thereof; or

          (g) the commencement by Lessee of a voluntary case under United States
bankruptcy laws, as now or hereafter constituted, or any other applicable
bankruptcy, insolvency or other similar law, or the consent by Lessee to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) of Lessee or for
all or substantially all of its property, or the making by Lessee of any
assignment for the benefit of creditors or Lessee shall take any corporate
action to authorize any of the foregoing; or

          (h) the Lessee shall fail to pay when due any amount due and payable
or shall otherwise be in default under any agreement or document (other than
this Lease) after 

                                     -36-
<PAGE>
 
expiration of any applicable notice or cure requirements (A) to which the Lessee
and Lessor are party, or (B) to which the Lessee is a party and which has been
assigned to the Lessor; or

          (i) Lessee shall cease to be a U.S. Air Carrier or shall lose or have
revoked, cancelled or otherwise terminated any material franchises, concessions,
permits, rights or privileges required for the conduct of the business and
operations of Lessee (including without limitation the DOT certificate of public
convenience and necessity and the FAA Air Carrier Operating Certificate) or
shall have the free and continued use and exercise thereof curtailed or
prevented; or

          (j) Lessee shall cease to operate 50% or more of the aircraft (without
replacement therefor with additional aircraft) which Lessee is operating on the
Delivery Date; or

          (k) an event of default shall have occurred under any agreement
wherein Lessee is a debtor or a lessee with respect to aircraft or aircraft
engines; or an uninsured judgment or judgments in excess of $300,000 for the
payment of money shall be rendered against Lessee and such judgment shall not be
effectively stayed; or Lessee shall fail to pay (after expiration of any grace
or cure period) any portion of any material indebtedness or other material
obligation of Lessee, or there shall occur a declaration of default, an
acceleration or any exercise of remedies with respect to any material obligation
or liability of Lessee.

          SECTION 15.  Remedies.  Upon the occurrence of any Event of Default
                       --------                                              
and at any time thereafter, Lessor may do one or more of the following with
respect to all or any part of or all of the Airframes and any or all of the
Engines as Lessor in its sole discretion shall elect:

          (a) upon the written demand of Lessor and at Lessee's expense, cause
Lessee to return promptly, and Lessee shall return promptly, the Airframe, any
Aircraft Documents or any Engine as Lessor may so demand to Lessor or its order
in the manner and condition required by, and otherwise in accordance with all
the provisions of, Section 5 and Exhibit E as if the Airframe, Aircraft
Documents or Engine were being returned at the end of the Term, or Lessor, at
its option, may enter upon the premises where all or any part of the Airframe,
the Aircraft Documents, the documents referenced in Section 5(b) hereof or any
Engine is located and take immediate possession of and remove the same (together
with any engine or any part which is not an Engine or a Part which is installed
on the Airframe, subject to the rights of the owner, lessor or secured party of
such engine or part, provided that such engine or part shall be held for the
account of any such owner, lessor or secured party or, if owned by Lessee, may
at the option of Lessor, be exchanged for an Engine or Part in accordance with
the provisions of Section 8) by summary proceedings or otherwise (and/or, at
Lessor's option, store the same at Lessee's premises until disposal thereof by
Lessor);

                                     -37-
<PAGE>
 
          (b) sell the Aircraft, the Aircraft Documents and the documents
referenced in Section 5(b) hereof at public or private sale, as Lessor may
determine, or otherwise dispose of, hold, use, operate, lease to others or keep
idle the Aircraft, the Aircraft Documents and the documents referenced in
Section 5(b) hereof as Lessor, in its sole discretion, may determine, all free
and clear of any rights of Lessee, except as hereinafter set forth in this
Section 15;

          (c) whether or not Lessor shall have exercised, or shall thereafter at
any time exercise, any of its rights under paragraph (a) or (b) above with
respect to the Aircraft, the Aircraft Documents and the documents referenced in
Section 5(b), Lessor, by written notice to Lessee specifying a payment date not
earlier than ten (10) days from the date of such notice, may demand that Lessee
pay to Lessor, and Lessee shall pay Lessor, on the payment date so specified, as
liquidated damages for loss of a bargain and not as a penalty, any unpaid Basic
Rent due on or prior to such payment date plus all Basic Rent due subsequent to
such payment date, after discounting such subsequently due Basic Rent to its
present value using the discount rate specified therefor in the Initial Lease
Supplement (together with interest, if any, on such amount at the Overdue Rate
from such specified payment date until the date of actual payment of such
amount) plus an amount equal to the excess, if any, of the Stipulated Loss Value
of the Aircraft over the fair market sales values of the Aircraft as of the
payment date specified as the payment date in such notice;

          (d) Lessor may terminate this Lease Agreement, and/or may exercise any
other right or remedy which may be available to it under applicable law or
proceed by appropriate court action to enforce the terms hereof or to recover
damages for breach hereof; or

          (e) Lessor shall have, and may exercise, any and all of the rights and
remedies under the Uniform Commercial Code as enacted in the State of Illinois
and any other jurisdiction in which the Aircraft, the Airframe, any Engine, any
other Part, the Aircraft Documents or the documents referenced in Section 5(b)
may be located.

          In addition to the foregoing, Lessee shall be liable, except as
otherwise provided above, without duplication of amounts payable hereunder, for
any and all unpaid Rent due hereunder before, during or after the exercise of
any of the foregoing remedies and for all reasonable and actual legal fees and
other costs and expenses incurred by Lessor in connection with the exercise of
Lessor's remedies hereunder, including the return of the Aircraft, the Aircraft
Documents and the documents referenced in Section 5(b) in accordance with the
terms of Section 5 and Exhibit E hereof or in placing the Aircraft in the
condition and with airworthiness certification as required by such Section.

          At any sale of the Aircraft, the Airframe, the Engines, the Aircraft
Documents, the documents referenced in Section 5(b) hereof or any part thereof
pursuant to this Section 15, Lessor may bid for and purchase such property.
Except as otherwise expressly provided above, no remedy referred to in this
Section 15 is intended to be exclusive, but each shall be 

                                     -38-
<PAGE>
 
cumulative and in addition to any other remedy referred to above 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 of such other remedies.
No waiver by Lessor of any Event of Default shall in any way be, or be construed
to be, a waiver of any future or subsequent Event of Default. To the extent
permitted by applicable law, Lessee hereby waives any and all rights to notice
and judicial hearing with respect to the repossession of the Aircraft, the
Airframe, the Aircraft Documents, the documents referenced in Section 5(b) or
any Engine by Lessor upon the occurrence of an Event of Default and agrees that,
except as may be required by law, Lessor shall not be required to sell or lease
the Aircraft, the Airframe, the Aircraft Documents, the documents referenced in
Section 5(b) or any Engine in order to reduce, offset or mitigate the damages
for which Lessee is liable hereunder.

          In effecting any repossession, Lessor and its representatives and
agents, to the extent permitted by law, shall:

          (i)  have the right to enter upon any premises of Lessee where it
     reasonably believes the Aircraft, the Airframe, the Aircraft Documents, the
     Documents referenced in Section 5(b), an Engine or Part to be located and
     Lessee shall cooperate in giving Lessor such access; and

          (ii) not be liable, in conversion or otherwise, for the taking of any
     personal property of Lessee which is in or attached to the Aircraft, the
     Airframe, an Engine or Part which is repossessed; provided, however, that
     Lessor shall return to Lessee all personal property of Lessee or its
     passengers which were on the Aircraft at the time Lessor retakes possession
     of the Aircraft.

          If upon the expiration of the Term of this Lease, Lessor owes Lessee
money and has not paid such money due to the existence of a Default or Event of
Default, Lessor shall pay such amount to Lessee immediately upon the cure of the
same unless such amount has previously been applied against any Expenses
incurred by Lessor as a result of such Default or Event of Default.

          SECTION 16.  FAA Filing; Tax Indemnity; General Indemnity; etc.
                       ------------------------------------------------- 

          (a) FAA Filing.  Forthwith upon the execution and delivery of each
              ----------                                                    
Lease Supplement (other than the Initial Lease Supplement delivered in
connection with the execution and delivery of this Lease Agreement) from time to
time required by the terms hereof and upon the execution and delivery of any
amendment to this Lease, Lessee at its expense will cause such Lease Supplement
or amendment to be duly filed and recorded, and maintained of record, with the
FAA.

          (b) General Tax Indemnity.
              --------------------- 

                                     -39-
<PAGE>
 
               (i)  Indemnity. Except as provided in Section 16(b)(ii), Lessee
                    ---------                                                 
shall pay, pursuant to Section 16(b)(v), and on written demand shall indemnify
and hold harmless each Indemnified Party (individually referred to as an
"Indemnitee") from and against, any and all Taxes imposed against, including by
 ----------                                                                    
way of withholding, any Indemnitee, Lessee or any Affiliate, the Aircraft, the
Airframe, or any Engine or Part thereof or interest therein by the Federal,
state or local government of the United States or other taxing authority in the
United States or by any foreign government or any international taxing authority
or any political subdivision or taxing authority of any of the foregoing upon or
with respect to (A) the acceptance, rejection, delivery, transport, ownership,
control, insuring, possession, repossession, operation, location, landing,
departure, use, condition, maintenance, repair, sale, return, abandonment,
preparation, installation, storage, redelivery, leasing, subleasing,
modification, rebuilding, transfer of title or other application or disposition
of, or the imposition of any Lien on, the Aircraft, the Airframe, or any Engine
or Part thereof or interest therein (or the incurrence of any liability to
refund or pay over any interest as the result of any such Lien), (B) any amount
paid or payable pursuant to or in connection with this Lease and any amendments,
supplements or modifications thereto which have been approved by Lessee, (C)
otherwise with respect to the Transaction or (D) the Aircraft, the Airframe, the
Engines, the Parts or any part thereof.

               (ii) Exclusions from General Tax Indemnity.  The provisions of
                    -------------------------------------                    
Section 16(b)(i) shall not apply to:

               (1)  Income Taxes (as defined in Section 16(b)(viii)) imposed on
     an Indemnitee by the United States Federal government;

               (2)  Income Taxes imposed on an Indemnitee by any state or local
     government or other state or local taxing authority in the United States
     ("Local Tax Authority") or any international taxing authority or foreign
     ---------------------                                                   
     taxing jurisdiction (except for any such Income Taxes imposed by any Local
     Tax Authority or by any international or foreign taxing authority by reason
     of the use, operation or location of the Aircraft, the Airframe, an Engine
     or Part thereof or interest therein, or the activities or location of the
     Lessee or any other user of the Aircraft, the Airframe, an Engine or Part
     thereof, in the jurisdiction imposing such tax);

               (3)  Taxes imposed on an Indemnitee which result from the willful
     misconduct or gross negligence of such Indemnitee; and

               (4) Taxes for any taxable period (or portion thereof) before
     commencement of the Term or after the Term (or the return of the Aircraft
     if later).

          Notwithstanding anything to the contrary contained in this Section
16(b)(ii), the provisions of this Section 16(b)(ii) shall not apply to any Taxes
imposed by any Federal, state or local government or other taxing authority in
the United States or any foreign government

                                     -40-
<PAGE>
 
or subdivision thereof or any international authority or any political
subdivision or taxing authority of any of the foregoing in respect of the
receipt or accrual of any indemnity payment pursuant to this Section 16(b) or
Section 16(c).

               (iii)   Calculation of General Tax Indemnity Payments.  Any
                       ---------------------------------------------
payment which Lessee is required to make to or for the account of Indemnitee
with respect to any Tax subject to indemnification under this Section 16(b)
shall include the amount necessary to hold the Indemnitee harmless on an after-
tax basis from the amount of any and all Taxes required to be paid by the
Indemnitee as a result of the receipt or accrual of any such payment pursuant to
the laws of any Federal, state or local government or other taxing authority in
the United States, any foreign government or subdivision thereof or an
international authority or any political subdivision or taxing authority of any
of the foregoing.

               (iv)    Reports.  Lessee will provide, at Lessee's expense, such
                       -------                                                 
information maintained or readily obtainable by Lessee as may be reasonably
requested by an Indemnitee (including logs as appropriate) or required to enable
the Indemnitee to fulfill its tax filing or other information reporting
requirements with respect to the Transaction.  If any report, return or
statement is required to be filed with respect to any Tax which is subject to
indemnification under this Section 16(b), Lessee shall, at its own expense,
timely file the same (except for any such report, return or statement which an
Indemnitee has notified Lessee that the Indemnitee intends to file, or for
Income Tax returns or any other return, report or statement which the Indemnitee
is required by law to file in its own name or for any report, return or
statement the filing of which is not based on Lessee's operation or movement of
the Aircraft, the Airframe or any Engine (or any Part)).  Lessee shall have no
filing obligation under the preceding sentence nor any indemnification
obligation with respect to such Tax if the Indemnitee after receipt of Lessee's
written request fails to furnish Lessee with such information as is solely
within the Indemnitee's control and is required to file such returns.  Lessee
will file or cause to be filed any report, return or statement and take such
actions and execute such documents as required by law to be taken by Lessee or
as reasonably requested by the Indemnitee as may be reasonable and necessary to
accomplishment of the intent hereof.  Lessee shall be liable to each Indemnitee
for any fines, penalties, or interest imposed as a result of the failure of
Lessee to fulfill its obligations hereunder.

               (v)     Payment.  Lessee shall pay any Tax for which it is liable
                       -------                                                  
pursuant to this Section 16(b) directly to the appropriate taxing authority, or,
if previously paid by an Indemnitee, upon demand of such Indemnitee, to such
Indemnitee, within the later of (1) fifteen (15) days after receipt of written
request by such Indemnitee or (2) five (5) Business Days before the date such
Tax is due to the taxing authority, in immediately available funds.  Any such
demand for payment from an Indemnitee shall specify in reasonable detail the
amount of the payment and the facts upon which the right to payment is based and
shall be verified in a manner reasonably satisfactory to Lessee.  Each
Indemnitee shall promptly forward to Lessee any notice, bill or advice in the
nature of a notice or bill received by it concerning any Tax.  As soon as
practicable after each payment by Lessee of any Tax, Lessee 

                                     -41-
<PAGE>
 
shall furnish the appropriate Indemnitee the original or a certified copy of a
receipt for Lessee's payment of such Tax or such other evidence of payment of
such Tax as is reasonably acceptable to the Indemnitee.

               (vi)    Contest.  If (A) within 45 days after Lessee receives the
                       -------
notice, bill or advice described in Section 16(b)(v), Lessee delivers to such
Indemnitee a written request that such Indemnitee contest such Taxes, which
written request shall be accompanied by an opinion of independent tax counsel
(which counsel is reasonably satisfactory to such Indemnitee) that there is a
reasonable basis for contesting such Taxes, (B) Lessee delivers to such
Indemnitee an indemnity, in form and substance reasonably satisfactory to such
Indemnitee, for such Taxes and for any liability, loss or expense that such
Indemnitee may incur as a result of contesting such Taxes, including, all costs,
expenses, losses, legal and accounting fees and disbursements, penalties and
interest, and Lessee agrees to pay, and shall pay, on demand all such taxes,
liabilities, losses or expenses, and (C) provided no Default or Event of Default
shall have occurred and be continuing, then, as long as such conditions shall
remain satisfied, Indemnitee shall contest the validity, applicability or amount
of such taxes by (I) resisting payment thereof, if practicable, (II) if payment
is made, using reasonable efforts to obtain a refund thereof in appropriate
administrative and judicial proceedings, and (III) taking such other reasonable
action as Lessee shall request from time to time, but only if such contest shall
not, in such Indemnitee's reasonable opinion (confirmed by an opinion of
independent legal counsel), involve a material risk of loss or forfeiture of any
part of the Aircraft.

          If an Indemnitee obtains a refund of all or any part of the Taxes, to
the extent such amount has been paid to such Indemnitee pursuant to this Section
16(b), Lessee shall promptly be paid the amount of such refund and, if in
addition to such refund an Indemnitee receives an amount representing interest
on such refund, Lessee shall promptly be paid that proportion of such interest
that is fairly attributable to Taxes paid by Lessee prior to the receipt of such
refund, but such amounts shall not be payable if a Default or an Event of
Default shall have occurred and be continuing.

               (vii)   Definition of Indemnitee.  For purposes of this Section
                       ------------------------
16(b), the term Indemnitee shall mean and include the successors and permitted
assigns of each respective Indemnitee, and any consolidated, combined or unitary
group of which the Indemnitee is a member if such group is treated as a single
taxpayer for purposes of any Tax.

               (viii)  Income Tax.  For purposes of this Section 16(b), the term
                       ----------                                               
Income Tax means, in the case of an Indemnitee, any Tax imposed on, based on or
measured by or with respect to the gross or net income (including, without
limitation, capital gains Taxes, minimum or alternative minimum Taxes, Taxes on
Tax preference items, accumulated earnings Taxes, personal holding company Taxes
and succession or estate Taxes) and interest, additions to Tax, penalties, or
other charges in respect thereof (in each case other than sales, 

                                     -42-
<PAGE>
 
use, rental, license, ad valorem, property or value-added Taxes or Taxes in the
nature of such Taxes).

          (c)  General Indemnity.
               ----------------- 

               (i)  Indemnification.  Lessee hereby agrees to assume liability
                    ---------------
for, and does hereby agree to indemnify, protect, save and keep harmless each
Indemnified Party from and against any and all liabilities, obligations, losses,
damages, penalties, claims, actions, suits and related costs, expenses and
disbursements, including reasonable legal and investigative fees and expenses,
of whatsoever kind and nature, but excluding overhead expenses (for purposes of
this Section 16(c), collectively called "Expenses"), imposed on, asserted
                                         --------                        
against or incurred by any Indemnified Party, in any way relating to or arising
out of this Lease, the other Operative Documents or the transactions
contemplated hereby or thereby, including but not limited to (A) a Default or an
Event of Default related to the breach by Lessee of any covenant contained
herein or therein or inaccuracy or incompleteness of any representation or
warranty of Lessee contained herein or therein and (B) claims by third parties
relating to the construction, acceptance, delivery, transport, control,
assembly, possession, repossession, operation, location, landing, departure,
use, condition, maintenance, repair, return, abandonment, installation, storage,
redelivery, leasing, subleasing, modification, rebuilding, or the imposition of
any Lien on, the Aircraft, the Airframe, the Aircraft Documents, any Engine or
Part thereof or interest therein (or the incurrence of any liability to refund
or pay over any interest as the result of any such Lien), including, without
limitation, latent or other defects, whether or not discoverable, strict tort
liability, and any claim for patent, trademark or copyright infringement.

          However, Lessee shall not be required to indemnify any Indemnified
Party pursuant to this Section 16(c) for (A) any Tax or (B) Expenses to the
extent attributable to the willful misconduct or gross negligence of such
Indemnified Party (other than gross negligence or willful misconduct imputed to
such Indemnified Party by virtue of its interest in the Aircraft).  Except to
the extent attributable to the failure of Lessee fully to discharge its
obligations hereunder, and except for claims arising as a consequence of a
Default or an Event of Default, the indemnities contained in this Section 16(c)
apply only to acts (or failures to act) or events or conditions which exist or
existed after the Delivery Date and on or before, or Expenses fairly
attributable to the period before, the termination of this Lease and return or
disposition of the Aircraft in accordance with the provisions of this Lease.  If
any Indemnified Party has knowledge of any claim or liability hereby indemnified
against, it shall give prompt written notice thereof to Lessee, but the failure
of the Indemnified Party to give such notice shall not relieve Lessee of any of
its obligations hereunder unless and solely to the extent such failure shall
have materially and adversely affected Lessee.

               (ii)  Payments, Survival and Other Provisions.  All amounts
                     ---------------------------------------
payable by Lessee pursuant to this Section 16(c) shall (A) be payable directly
to the parties entitled to indemnification within 10 days of written demand
therefor and (B) be adjusted for payment on

                                     -43-
<PAGE>
 
an after tax basis as provided in Section 16(b)(i) as if such amount payable
were an indemnity obligation under said Section. All the indemnities contained
in this Section 16(c) shall continue in full force and effect notwithstanding
the expiration or other termination of this Lease and are expressly made for the
benefit of, and shall be enforceable directly by, each Indemnified Party.
Lessee's obligations under this Section 16(c) shall be that of a primary obligor
irrespective of whether the Indemnified Party shall also be indemnified with
respect to the same matter under any other agreement by any other Person.

          SECTION 17.  Notices.  All notices required under the terms and
                       -------                                           
provisions hereof shall be in English and in writing (including telecopier or
similar writing) and shall be effective (a) if given by telecopier when
transmitted and the appropriate confirmation received, (b) if given by certified
mail, five (5) days after being deposited in the mails, (c) if given by telex,
upon receipt by the party transmitting the telex of such party's callback code
at the end of such telex (receipt of confirmation in writing not being necessary
to the effectiveness of any telex) and (d) if given by other means, when
received or personally delivered, addressed:

               (i)  if to Lessor, to First Security Bank, National Association,
     79 South Main Street, Salt Lake City, Utah 84111, Attn: Corporate Trust
     Department, telecopier no.: (801) 246-5053, with a copy to the Owner
     Participant at One South Wacker Drive, Chicago, Illinois 60606-4614,
     Attention:  Senior Vice-President, Transportation Finance, telecopier
     number (312) 782-7168 and a further copy to Vedder, Price, Kaufman &
     Kammholz, 222 North LaSalle Street, Chicago, Illinois  60601, telecopier
     no.: (312) 609-5005; Attention: Dean N. Gerber, Esq., or to such other
     address or telecopier number as Lessor shall from time to time designate in
     writing to Lessee; and

               (ii) if to Lessee, at 12015 E. 46th Avenue, Denver, Colorado
     80239, telecopier no.:  (303) 371-7007, Attention: General Counsel or to
     such other address or telecopier number as Lessee shall from time to time
     designate in writing to Lessor.

          SECTION 18.  Net Lease; Set-Off, Counterclaim, etc.
                       --------------------------------------

          (a)  This Lease is a net lease, and, except as otherwise explicitly
provided herein, it is intended that Lessee shall pay all costs and expenses of
every character, whether foreseen or unforeseen, ordinary or extraordinary or
structural or non-structural, in connection with the use, operation,
maintenance, insurance, repair, replacement of Parts, taxes and required
alterations and modifications of, on or in respect of the Airframe and each
Engine by the Lessee, including the costs and expenses particularly set forth in
this Lease.  The Rent which Lessee is obligated to pay shall be paid without
invoice, notice or demand and, without set-off, counterclaim, abatement,
suspension, deduction or defense or any other right which Lessee may have
against Lessor for any reason whatsoever.

                                     -44-
<PAGE>
 
          (b)  Except as otherwise expressly provided, this Lease shall not
terminate, nor shall Lessee have any right to terminate this Lease or be
entitled to abatement, suspension, deferment or reduction of any Rent which the
Lessee is obligated to pay hereunder, nor shall the obligations hereunder of
Lessee be affected, by reason of (A) any damage to or the destruction or loss of
all or any portion of the Airframe or any Engine from whatever cause, (B) the
loss, theft or inaccessibility of any portion of the Airframe or any Engine, (C)
the taking of the Airframe or any Engine or any portion thereof by condemnation,
confiscation, requisition or otherwise, (D) the prohibition, limitation or
restriction of the Lessee's use of all or any part of the Airframe or any Engine
or the interference with such use by any Person, (E) the inadequacy or
incorrectness of the description of any portion of the Airframe or any Engine,
(F) Lessee's acquisition or ownership of all or any part of the Airframe or any
Engine otherwise than pursuant to an express provision of this Lease, (G) any
defect in compliance with specifications, condition, merchantability, design,
airworthiness, quality, durability, operation or fitness for use or any purpose
of any Airframe or any Engine or any portion thereof, (H) any insolvency,
bankruptcy, reorganization or similar proceedings by or against Lessee, Lessor,
the Owner Participant or any other Person, (I) any breach, default or
misrepresentation by the Lessor under this Lease or any other Operative Document
or any of the documents referred to herein or therein, (J) any invalidity or
unenforceability, in whole or in part, of this Lease or any other Operative
Document or any of the documents referred to herein or therein, or any other
infirmity herein or therein, or any lack of power or authority of any party to
this Lease or any other Operative Document or any such documents to enter into
the same or any termination of this Lease by operation of law, or (K) any other
circumstance, happening or act whatsoever, whether or not foreseen or similar to
any of the foregoing, it being the intention of the parties hereto that the
obligations of Lessee shall be absolute and unconditional and shall be separate
and independent covenants and agreements and shall continue unaffected unless
and until the covenants have been terminated pursuant to an express provision of
this Lease.

          Except as expressly provided herein, Lessee waives all rights now or
hereafter conferred by law (x) to quit, terminate, rescind or surrender this
Lease or the Airframe or any Engine or any part thereof, or (y) to any
abatement, suspension, deferment, return or reduction of the Rent.

          SECTION 19.  Miscellaneous; Governing Law; Expenses.  (a) Any
                       --------------------------------------          
provision of this Lease which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.  To
the extent permitted by applicable law, Lessee hereby waives any provision of
law which renders any provisions hereof prohibited or unenforceable in any
respect.  No term or provision of this Lease may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which the enforcement of the change, waiver, discharge or termination is
sought.  This Lease shall constitute an agreement of lease, 

                                     -45-
<PAGE>
 
and nothing contained herein shall be construed as conveying to Lessee any
right, title or interest in the Aircraft or the Aircraft Documents except as a
lessee only. The section and paragraph headings in this Lease and the table of
contents are for convenience of reference only and shall not modify, define,
expand or limit any of the terms or provisions hereof and all references herein
to numbered sections, unless otherwise indicated, are to sections of this Lease.
This Lease may be executed by the parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute but one and the same instrument. The
representations, warranties, covenants, agreements and indemnities of Lessee and
Lessor set forth in this Lease and Lessor's and Lessee's obligations hereunder,
shall survive the expiration or other termination of this Lease to the extent
required for full performance and satisfaction thereof.

          (b)  THIS LEASE SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE. This Lease is being delivered in
Chicago, Illinois.

          (c)  Each of Lessor and Lessee agrees that it shall be responsible for
any and all fees and expenses it incurs in connection with the negotiation,
preparation, execution and delivery of this Agreement and any other documents or
instruments relating to the transaction contemplated hereby, including, without
limitation, legal fees, expenses and disbursements; provided, however, that
Lessee agrees to pay all reasonable expenses incurred in connection with
recording and filing fees of the FAA, including, without limitation the
reasonable fees and disbursements of Daugherty, Fowler & Peregrin, FAA counsel.

          (d)  Lessee (a) hereby irrevocably submits itself to the exclusive
jurisdiction of (i) the courts of the State of Illinois and (ii) any United
States District Court in Illinois for the purposes of any suit, action or other
proceeding arising out of this Agreement or any other Operative Document, or the
subject matter hereof or thereof or any of the transactions contemplated hereby
or thereby, brought by or on behalf of Lessor, Owner Participant or their
respective successors, subrogees or assigns, and (b) hereby irrevocably agrees
that all claims in respect of such action or proceeding shall be heard and
determined in either such Illinois State or Federal court.

          LESSEE HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO WHICH
IT IS A PARTY INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN
TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED
WITH THIS LEASE AGREEMENT OR THE OTHER OPERATIVE DOCUMENTS OR THE RELATIONSHIP
ESTABLISHED HEREUNDER OR THEREUNDER AND WHETHER ARISING OR ASSERTED BEFORE OR
AFTER THE DATE HEREOF OR BEFORE OR AFTER THE PAYMENT, OBSERVANCE AND PERFORMANCE
OF LESSEE'S OBLIGATIONS UNDER THIS LEASE AGREEMENT OR THE OTHER OPERATIVE
DOCUMENTS.

                                     -46-
<PAGE>
 
          SECTION 20.  Bankruptcy.  It is the intention of the parties that the
                       ----------                                              
Lessor shall be entitled to the benefits of Section 1110 of the United States
Bankruptcy Code with respect to the right to repossess the Aircraft, the
Airframe, any Engines and Parts as provided herein, and in any circumstances
where more than one construction of the terms and conditions of this Agreement
is possible, a construction which would preserve such benefits shall control
over any construction which would not preserve such benefits or would render
them doubtful.  It is the intention of the parties hereto that this Lease be
treated as a lease for federal income tax purposes.

                              *        *        *

                                     -47-
<PAGE>
 
          IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease to
be duly executed as of this ___ day of ________, 1996.


                                        FRONTIER AIRLINES, INC.,
                                              Lessee



                                        By:_______________________________


                                        FIRST SECURITY BANK, NATIONAL 
                                        ASSOCIATION, not in its individual
                                        capacity, but solely as Owner Trustee,
                                                  Lessor
 


                                        By:________________________________

                                     -48-
<PAGE>
 
                               Aircraft (N303FL)
--------------------------------------------------------------------------------


                                  APPENDIX A


                                  DEFINITIONS



                OPERATING LEASE OF ONE BOEING 737-3M8 AIRCRAFT


--------------------------------------------------------------------------------
<PAGE>
 
          The definitions stated herein shall apply equally to both the singular
and plural forms of the terms defined.

          "Acceptable Alternate Engine" means, a CFM International, Inc. model
           ---------------------------                                        
CFM56-3B2 engine or an engine of the same manufacturer of the same or a
comparable model or an improved model, in each case of equivalent or greater
value, modification status and utility and suitable for installation and use on
the Airframe.

          "Acceptance Certificate" means, with respect to the Aircraft, an
           ----------------------                                         
acceptance certificate for the Aircraft, substantially in the form of Exhibit C
to the Lease, signed by Lessee and Lessor.

          "Additional Insureds" means each of the Lessor (in its individual
           -------------------                                             
capacity and as trustee), the Owner Participant and, for the first five years of
the term, Air Invest, together with their respective Affiliates, successors and
permitted assigns and each of their respective officers, directors, agents,
employees, partners and shareholders and "Additional Insured" means any of the
foregoing.

          "Affiliate" of any Person means any other Person directly or
           ---------                                                  
indirectly controlling, controlled by or under common control with such Person.
For purposes of this definition, "control" when used with respect to any
                                  -------                               
specified Person means the power generally to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise and the terms "controlling" and
                                                    -----------     
"controlled" have meanings correlative to the foregoing.
 ----------                                             

          "Air Invest" means Air Invest IV, B.V., a Netherlands corporation.
           ----------                                                       

          "Air Invest Lease" means that certain Lease Agreement dated January 7,
           ----------------                                                     
1992, between Air Invest, as lessor and Eurobelgian Air Lines, as lessee, as
amended, modified and supplemented from time to time.

          "Aircraft Documents" means, as applicable, the items provided to
           ------------------                                             
Lessee on the Delivery Date, which includes the items identified in Exhibit D-1
to the Lease, and the items to be provided to Lessor upon the Return Date, which
includes the logs, manuals, drawings, data, inspection, maintenance,
modification and overhaul records (in English) required to be maintained during
the Term with respect to the Aircraft in accordance with the Lease Agreement.

          "Aircraft" means the Airframe together with the two (2) Engines
           --------                                                      
specified in the Initial Lease Supplement as being a part of the Aircraft,
whether or not any of such Engines may from time to time be installed on the
Airframe or may be installed on any other airframe or any other aircraft.

                                      A-1
<PAGE>
 
          "Airframe" means (i) the Boeing model 737-3M8 airframe bearing U.S.
           --------                                                          
Registration Number N303FL (except Engines or engines from time to time
installed thereon) leased under the Lease by Lessor to Lessee pursuant to the
Initial Lease Supplement; and (ii) the landing gear and APU and any and all
Parts so long as the same shall be incorporated or installed in or attached to
such airframe, or so long as title thereto shall remain vested in Lessor in
accordance with the terms of Section 8 of the Lease after removal from the
Airframe.

          "Airworthiness Directive" means any airworthiness directive applicable
           -----------------------                                              
to the use, operation or maintenance of any Airframe or any Engine which may
from time to time be issued by the FAA, and all "alert" service bulletins
applicable to the use, operation or maintenance of any Airframe or any Engine
which may from time to time be issued by the Manufacturers of the Airframe or
the Engines.

          "APU" means the auxiliary power unit relating to the Aircraft.
           ---                                                          

          "Base Rate" means the rate of interest announced from time to time by
           ---------                                                           
The First National Bank of Chicago at its principal office in Chicago, Illinois
as its "corporate base rate" (or its equivalent successor rate if the corporate
base rate is no longer used).

          "Base Term Commencement Date" has the meaning set forth in Section
           ---------------------------                                      
3(b) of the Lease.

          "Basic Rent" has the meaning set forth in Section 3(b) hereof.
           ----------                                                   

          "Business Day" means any day (other than a Saturday or Sunday) on
           ------------                                                    
which banking institutions in Chicago, Illinois are authorized or required by
law, regulation or executive order to be open for business.
 
          ""C" Check" means a "C" Check, as such term is defined in the
           ---------                                                   
Maintenance Program relating to the Aircraft.

          "Code" means the United States Internal Revenue Code of 1986, as
           ----                                                           
currently in effect or hereafter amended.

          "Commitment Termination Date" shall mean November 30, 1996, at the
           ---------------------------                                      
Delivery Location.

          "Contractual Obligation" means, as to any Person, any provision of any
           ----------------------                                               
security issued by such Person or of any agreement, instrument or other
undertaking to which such person is a party or by which it or any of its
property is bound.

          "Cycle" means one take-off and landing of the Aircraft.
           -----                                                 

                                      A-2
<PAGE>
 
          ""D" Check" means a "D" Check, as such term is defined in the
            --------                                                   
Maintenance Program relating to the Aircraft or an equivalent check that meets
the requirements of a "7C" Check as defined in the Boeing 737 Maintenance
Planning Document (MPD); or such other structural check which shall then be the
most significant maintenance check under the MPD.

          "Daily Rate" has the meaning set forth in Section 3(b) of the Lease.
           ----------                                                         

          "Default" means any event or condition which, with the giving of
           -------                                                        
notice, lapse of time or both, would become an Event of Default.

          "Delivery Date" means the date the Aircraft is leased by Lessor to
           -------------                                                    
Lessee and accepted by Lessee under the Lease as evidenced by the Acceptance
Certificates.

          "Delivery Location" means Everett, Washington, U.S.A.
           -----------------                                   

          "Delivery Time" has the meaning specified in the definition of Term.
           -------------                                                      

          "Dollars" and "U.S. Dollars" and "$" and "U.S. $" each means the
           -------       ------------       -       ------                
lawful currency of the United States of America.

          "Engine" means (i) each of the two CFM International, Inc. Model
           ------                                                         
CFM56-3B2 engines listed by manufacturer's serial numbers in the Initial Lease
Supplement and originally designated as being parts of the Aircraft including
all quick engine change kit components normally installed thereon whether or not
from time to time thereafter installed on such Airframe or installed on any
other airframe or on any other aircraft; (ii) any Acceptable Alternate Engine
which may from time to time be substituted for an Engine leased under the Lease;
and (iii) any and all Parts incorporated or installed in or attached to any such
Engine or any and all Parts removed from such Engine so long as title thereto
shall remain vested in Lessor in accordance with the terms of Section 8 of the
Lease after removal from such Engine.  Except as otherwise set forth in any
Operative Document, at such time as an Acceptable Alternate Engine shall be so
substituted, the replaced Engine shall cease to be an Engine.  The term
"Engines" also means, as of any date of determination, all Engines then leased
under the Lease.

          "Engine Manufacturer" means CFM International, Inc.
           -------------------                               

          "Equipment" shall mean the Aircraft, the Airframe, any Engine and/or
           ---------                                                          
any Part.

          "Event of Default" has the meaning set forth in Section 14 of the
           ----------------                                                
Lease.

          "Event of Loss" with respect to the Aircraft, the Airframe or any
           -------------                                                   
Engine means any of the following events with respect to such property:  (i) the
loss of such property or of 

                                      A-3
<PAGE>
 
the use thereof due to the destruction of or damage to such property which
renders repair uneconomic or which renders such property permanently unfit for
normal use by Lessee for any reason whatsoever; (ii) any damage to such property
which results in an insurance settlement with respect to such property on the
basis of a total loss or a constructive or compromised total loss; or (iii) (a)
the theft or disappearance of such property for a period in excess of 30
consecutive days or, if earlier, beyond the Lease Expiry Date or (b) the
confiscation, condemnation or seizure of, or requisition of title to, or use of,
such property by any governmental or purported governmental authority, which
shall have resulted in the loss of possession of such property by the Lessee or
loss of title by Lessor, as the case may be, for a period in excess of 60
consecutive days or, if earlier, beyond the Lease Expiry Date. 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.

          "Expenses" means any and all liabilities, obligations, losses,
           --------                                                     
damages, penalties, claims (including, but not limited to, negligence, strict or
absolute liability, liability in tort and liabilities arising out of violation
of laws or regulatory requirements of any kind), actions, suits, out-of-pocket
costs, expenses and disbursements (including reasonable legal fees and expenses
and all costs and expenses relating to amendments, supplements, waivers and
consents to and under the Operative Documents).

          "FAA" and "Federal Aviation Administration" means the Federal Aviation
           ---       -------------------------------                            
Administration of the United States of America and any successor governmental
authority.

          "FAR" means the Federal Aviation Regulations of the FAA, or any
           ---                                                           
successor provisions thereto.

          "Federal Aviation Act" means Title 49 of the United States Code, as
           --------------------                                              
amended.

          "Hour" means, with respect to the Aircraft, each 60 minute period or
           ----                                                               
portion thereof elapsing from the moment at which the wheels of the Aircraft
leave the ground on take-off of the Aircraft until the wheels of the Aircraft
touch the ground on landing of the Aircraft following each flight of such
Aircraft.

          "Indemnified Parties" means each of the Lessor (in its individual
           -------------------                                             
capacity and as trustee), the Owner Participant and any Affiliates, successors,
assigns, agents, servants, directors, officers and employees of each of the
foregoing and "Indemnified Party" means any of the foregoing.

          "Initial Deposit" has the meaning specified in Section 3(c) of the
           ---------------                                                  
Lease.

          "Initial Lease Supplement" means Lease Supplement No. 1, substantially
           ------------------------                                             
in the form of Exhibit A to the Lease, to be entered into between Lessor and
Lessee on the Delivery 

                                      A-4
<PAGE>
 
Date for the purpose of leasing the Aircraft and the Aircraft Documents under
and pursuant to the terms of the Lease. 

          "Initial Maintenance Visit" has the meaning set forth in Section
           -------------------------                                      
2(c)(vii) of the Lease.

          "Insurances" shall have the meaning specified in Section 11(a) of the
           ----------                                                          
Lease.

          "Lease" or "Lease Agreement" or "Agreement" means the Operating Lease
           -----      ---------------      ---------                           
Agreement dated as of November 1, 1996, between Lessor and Lessee, including all
annexes, supplements and exhibits thereto, all as amended, modified or
supplemented from time to time in accordance with the applicable provisions
thereof.

          "Lease Expiry Date" means the last day of the month which is ninety-
           -----------------                                                 
six (96) months after the month in which the Base Term Commencement Date occurs.

          "Lease Supplement" means the Initial Lease Supplement and any
           ----------------                                            
subsequent Lease Supplement entered into in accordance with the terms of the
Lease.

          "Lessee" means Frontier Air Lines, Inc., a corporation organized and
           ------                                                             
existing pursuant to the laws of the State of Colorado and its successors and
permitted assigns.

          "Lessee Documents" means the Lease, any Lease Supplement, the
           ----------------                                            
Acceptance Certificate and any other documents executed by Lessee in connection
with the transactions contemplated by the Lease.

          "Lessor" means First Security Bank, National Association, not
           ------                                                      
individually but solely as Owner Trustee under the Trust Agreement.

          "Lessor Documents" means the Lease, any Lease Supplement, the Trust
           ----------------                                                  
Agreement and any other documents executed by the Lessor in connection with the
transactions contemplated by the Lease.

          "Lessor Liens" means any Lien or disposition of title arising as a
           ------------                                                     
result of (i) claims against Lessor not related to the transactions contemplated
by the Operative Documents, (ii) any act or omission of Lessor which is not
related to the transactions contemplated by the Operative Documents or
constitutes a breach by Lessor of any of the terms of the Operative Documents,
or (iii) any Lien that Lessor may grant over the Aircraft.

          "Lien" means any mortgage, pledge, lien, charge, right of detention,
           ----                                                               
right of set-off, encumbrance, lease, exercise of rights, or other security
interest of any kind whatsoever and howsoever created (including, without
limitation, any conditional sale or other title retention agreements) or claim.

                                      A-5
<PAGE>
 
          "Maintenance Program" means an FAA-approved maintenance program
           -------------------                                           
adopted by Lessee for the Aircraft derived from the Manufacturer's Planning
Document (MPD) encompassing scheduled maintenance (including block maintenance),
condition monitored maintenance, and on-condition maintenance of the Airframe,
Engines, landing gear, APUs and parts, including, but not limited to, servicing,
testing, preventive maintenance, repairs, structural repairs, inspections,
system checks, overhauls, approved modifications, service bulletins, engineering
orders, airworthiness directives, corrosion control, inspections and treatments,
and otherwise conforming to the requirements of Section 7(a)(1) of the Lease and
reasonably acceptable to the Owner Participant.

          "Maintenance Reserves" has the meaning specified therefor in Section
           --------------------                                               
7(d) of the Lease.

          "Manufacturer" means The Boeing Company, a Delaware corporation.
           ------------                                                   

          "Operative Documents" means the Lease, any Lease Supplement, the
           -------------------                                            
Acceptance Certificate, the Trust Agreement and any other documents executed in
connection with the transactions contemplated by the Lease.

          "Overdue Rate" means a rate per annum equal to 4% over the Base Rate.
           ------------                                                        

          "Owner Participant" means Sanwa Business Credit Corporation, a
           -----------------                                            
Delaware corporation.

          "Owner Trustee" means First Security Bank, National Association, in
           -------------                                                     
its capacity as trustee under the Trust Agreement.

          "Parts" means all appliances, parts, instruments, appurtenances,
           -----                                                          
accessories, furnishings and other equipment of whatever nature (other than
complete Engines or engines); that at any time of determination are incorporated
or installed in or attached to the Airframe or any Engine or the title to which
remains vested in Lessor in accordance with Section 8 of the Lease. Except as
otherwise set forth in any Operative Document, at such time as a replacement
part shall be substituted for a Part, the Part so removed shall cease to be a
Part hereunder.

          "Permitted Liens" means any Lien of the type described in clauses (i)
           ---------------                                                     
through (iv) of Section 6 of the Lease.

          "Person" means any individual, corporation, partnership, joint
           ------                                                       
venture, association, joint-stock company, trust, unincorporated organization,
or government or any agency or political subdivision thereof.

                                      A-6
<PAGE>
 
          "Preliminary Inspection" has the meaning ascribed thereto in Section
           ----------------------                                             
2(c) of the Lease.

          "Purchase Agreement" means that certain Aircraft Purchase and Sale
           ------------------                                               
Agreement dated as of November 1, 1996 by and between Lessor and Air Invest.

          "Rent" means, collectively, Basic Rent and Supplemental Rent.
           ----                                                        

          "Return Certificate" means, with respect to the Aircraft, the return
           ------------------                                                 
certificate for such Aircraft, substantially in the form of Exhibit E-1 to the
Lease, signed by the Lessee and Lessor.

          "Return Date" means, with respect to the Aircraft, the date of return
           -----------                                                         
of the possession of the Aircraft and the Aircraft Documents and the documents
referenced in Section 5(b) of the Lease with respect thereto from Lessee to
Lessor at the end of the Term or upon Lessor taking possession thereof pursuant
to Section 15 of the Lease, as such date may be adjusted pursuant to the terms
of the Operative Documents.

          "Return Location" has the meaning specified therefor in Section 5(a)
           ---------------                                                    
of the Lease.

          "Shop Visit" means a shop visit under the Maintenance Program at
           ----------                                                     
which, at a minimum, the high pressure turbine was refurbished and such Engine
was produced with at least 20 degrees EGT margin.

          "Stipulated Loss Value" means, with respect to the Aircraft, the
           ---------------------                                          
Dollar amount set forth under such term on Exhibit L hereto for the Aircraft.

          "Supplemental Rent" means all amounts, liabilities, Stipulated Loss
           -----------------                                                 
Value, Maintenance Reserves and obligations (other than Basic Rent) which Lessee
agrees to pay under the Lease or under any other Operative Document to Lessor or
others.

          "Taxes" means any and all fees (including, without limitation,
           -----                                                        
license, documentation and registration fees), taxes (including, without
limitation, income, gross receipts, sales, rental, use, turnover, value-added,
property (tangible and intangible), excise, franchise, capital, doing business
and stamp taxes), licenses, levies, imposts, duties, recording charges or fees,
charges, assessments, or withholdings of any nature whatsoever, together with
any assessments, penalties, fines, additions to tax and interest thereon (each,
individually a "Tax").

          "Term" means, with respect to the Aircraft, the term for the Aircraft
           ----                                                                
and the Aircraft Documents are leased hereunder pursuant to Section 3(a) of the
Lease beginning on the Delivery Date at the time of delivery of the Aircraft and
the Aircraft Documents with 

                                      A-7
<PAGE>
 
respect thereto by Lessor to Lessee (the "Delivery Time"), as set forth in the
                                          -------------
Initial Lease Supplement, and ending on the Lease Expiry Date at the Delivery
Time, or such earlier or later date or dates as the Lease may be terminated with
respect to the Aircraft in accordance with the terms of the Lease or the other
Operative Documents.

          "Transaction" means all the transactions and activities referred to in
           -----------                                                          
or contemplated by the Lease.

          "Trust Agreement" means that certain Trust Agreement dated as of
           ---------------                                                
November 1, 1996 between Owner Participant and Owner Trustee.

          "U.S. Air Carrier" means any United States air carrier holding a
           ----------------                                               
carrier operating certificate issued by the Secretary of Transportation pursuant
to Chapter 447 of Title 49, United States Code, for aircraft capable of carrying
ten or more individuals or 6,000 pounds or more of cargo, and as to which there
is in force an air carrier operating certificate issued pursuant to Part 121 of
the FAR, or which may operate as an air carrier by certification or otherwise
under any successor or substitute provisions therefor or in the absence thereof.

          "U.S. Money Center Bank" shall mean any of the following:  Citibank,
           ----------------------                                             
N.A.; The Chase Manhattan Bank, N.A.; NationsBank, National Association; First
NBD Bank of Chicago; Bank of America, N.A. or Wells Fargo Bank, N.A. or such
other bank as may be agreed by the parties hereto; provided, however, that, if,
                                                   --------                    
in Lessor's reasonable discretion, there is a material adverse change in the
condition, financial or otherwise, of any of such institutions prior to the
Delivery Date, such institution shall no longer constitute a "U.S. Money Center
Bank."

                                      A-8
<PAGE>
 
                                   EXHIBIT A


                            LEASE SUPPLEMENT NO. __
                            -----------------------


          LEASE SUPPLEMENT No. __ dated __________, between FRONTIER AIRLINES,
INC., a Colorado corporation ("Lessee"), and FIRST SECURITY BANK, NATIONAL
                               ------                                     
ASSOCIATION, not individually but solely as Owner Trustee under the Trust
Agreement ("Lessor").

          Lessor and Lessee have heretofore entered into that certain Operating
Lease Agreement dated as of November 1, 1996 relating to one Boeing Model 737-
3M8 airframe (herein called the "Lease" and the defined terms therein being
                                 -----                                     
hereinafter used with the same meanings). The Lease provides for the execution
and delivery from time to time of Lease Supplements for the purpose of leasing
the Aircraft, Airframe and Engines under the Lease as and when delivered by
Lessor to Lessee in accordance with the terms thereof.

     /1/  The Lease relates to the Aircraft described below, and a counterpart
of the Lease is attached hereto, and made a part hereof, and this Lease
Supplement together with such attachment, is being filed for recordation on the
date hereof with the Federal Aviation Administration as one document.

     /2/  The Lease relates to the Aircraft described below, and a counterpart
of the Lease, attached and made a part of Lease Supplement No. 1 dated
__________, 1996, has been recorded by the Federal Aviation Administration on
_______________, as one document and assigned Conveyance No. _________.

          NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, Lessor and Lessee hereby agree as follows:

          1.   Lessor hereby delivers and leases to Lessee under the Lease and
Lessee hereby accepts and leases from Lessor under the Lease the following
described Boeing Model 737-3M8 aircraft (the "Aircraft"), which Aircraft as of
the date hereof consists of the following components:

               (i)  Airframe:  U.S. Registration No. N303FL; manufacturer's
               serial no. 25039; and

__________________

/1/  This language for the InitialLease Supplement.

/2/  Thislanguage for the other Supplements.
<PAGE>
 
               (ii) Engines:  two (2) CFM International, Inc. CFM56-3B2 engines
               bearing, respectively, manufacturer's serial nos. 724892 and
               725897 (each of which engines has 750 or more rated takeoff
               horsepower or the equivalent of such horsepower).

          2.   The Delivery Date of the Lease is the date of this Lease
Supplement set forth in the opening paragraph hereof, the Delivery Time is
__:__, __.m., (C.S.T.).

          3.   Except as otherwise provided in the Lease, the Term for the
Aircraft shall commence on the Delivery Date and end on the Lease Expiry Date.

          4.   Lessee hereby confirms its agreement to pay Lessor Basic Rent for
the Aircraft throughout the Term therefor in accordance with Section 3 of the
Lease.

          5.   The discount rate to be used in connection with the Lessor's
exercise of its rights under paragraph (c) of Section 15 of the Lease shall be
the then Base Rate.

          6.   Lessee hereby confirms to Lessor that Lessee has accepted the
Aircraft for all purposes hereof and of the Lease as being airworthy, in good
working order and repair and without defect or inherent vice in condition,
design, operation or fitness for use; provided, however, that nothing contained
herein or in the Lease shall in any way diminish or otherwise affect any right
Lessee or Lessor may have with respect to the Aircraft against The Boeing
Company, United Technologies, CFM International, Inc. or any subcontractor or
supplier of each of the above.

          8.   All of the terms and provisions of the Lease are hereby
incorporated by reference in this Lease Supplement to the same extent as if
fully set forth herein.

          9.   This Lease Supplement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.


                            *           *          *

                                      A-2
<PAGE>
 
          IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease
Supplement to be duly executed on the day and year first above written.


                                        FRONTIER AIRLINES, INC.,
                                              Lessee



                                        By:________________________________


                                        FIRST SECURITY BANK, NATIONAL 
                                        ASSOCIATION, not in its individual
                                        capacity, but solely as Owner Trustee,
                                                     Lessor
 


                                        By:________________________________
 
                                      A-3
 
<PAGE>
 
                                                                       EXHIBIT B
                                                          TO THE LEASE AGREEMENT

                       BASIC RENT, STIPULATED LOSS VALUE
                           AND MAINTENANCE RESERVES


 
BASIC RENT:                                              *
 
STIPULATED LOSS VALUE:                                   *
MAINTENANCE RESERVES:

     "D" Check Maintenance Reserves:                     * /Hour of
                                                         operation of the
                                                         Airframe
     Engine Maintenance Reserves:                        * /Hour of        
                                                         operation of each 
                                                         Engine            
     Life Limited Parts Maintenance Reserves:            * /Hour of        
                                                         operation of each 
                                                         Engine            
     Landing Gear Maintenance Reserves:                  * /Hour of        
                                                         operation of the  
                                                         Airframe          
DAILY RENT:                                                  * 
<PAGE>
 
                                                                     EXHIBIT B-1
                                                          TO THE LEASE AGREEMENT


               OFFICER'S MONTHLY MAINTENANCE RESERVE CERTIFICATE
               -------------------------------------------------

Re:  Operating Lease Agreement dated as of November __, 1996 (the "Lease
                                                                   -----
     Agreement") between FRONTIER AIR LINES, INC., a ________ corporation
     ---------                                                           
     ("Lessee"), and FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually
     --------                                                                   
     but solely as Trustee, with respect to one Boeing model 737-3M8 Aircraft
     and certain CFM International, Inc. Model CFM56-3B2 Engines.

     The undersigned, a duly authorized officer of the Lessee, hereby certifies
in accordance with Section 7(d) of the Lease Agreement, that the number of Hours
the Aircraft and Engines identified below were used during the month of
______________, 199_ for purposes of calculating Maintenance Reserves payable on
____________, 199_ are as follows:

<TABLE>
<CAPTION>
                                                      Maintenance
                            Hours      Cycles  Rate   Reserve $
                            -----      ------  ----  -----------
<S>                         <C>        <C>     <C>   <C>
"D" Check Maintenance
  Reserves                  ________   _____   ___   __________
Life Limited Parts
 Maintenance Reserves       ________   _____   ___   __________
 
Landing Gear Maintenance    ________   _____   ___   __________
 Reserves
Engine Maintenance
  Reserves (MSN _______)    ________   _____   ___   __________
Engine Maintenance
  Reserves (MSN _______)    ________   _____   ___   __________
TOTAL                                                __________
</TABLE>

          The undersigned represents that simultaneous with the delivery hereof
to Lessor an amount equal to the total amount of Maintenance Reserves as above
calculated has been paid to Lessor by wire transfer in accordance with Section
3(d) of the Lease Agreement.
<PAGE>
 
          IN WITNESS WHEREOF, I have affixed hereto my signature this ___ day of
_________________, ____.


                                    By:
                                    Name:
                                    Title:

                                      B-2
<PAGE>
 
                                                                       EXHIBIT C
                                                              TO LEASE AGREEMENT

                            ACCEPTANCE CERTIFICATE
                            ----------------------

     On this ____ day of _____________________, 1996 (referred to in the below
referenced Lease as the "Delivery Date"), FRONTIER AIRLINES, INC. ("Lessee")
hereby unconditionally accepts the below-described Aircraft for all purposes
under that certain Operating Lease Agreement dated as of November 1, 1996 (the
"Lease"), between Lessee and FIRST SECURITY BANK, NATIONAL ASSOCIATION, not
individually but solely as Owner Trustee.  Capitalized terms used herein and not
otherwise defined herein shall have the same meaning as in the Lease. Lessee
hereby acknowledges that it has found the below described Aircraft to comply
with all delivery requirements set forth in the Lease and acknowledges
unconditional acceptance of the below-described Aircraft.

Airframe:
-------- 

Manufacturer's Serial Number             __________
U.S. Registration Number                 __________
Total Hours                              __________ 
Total Cycles                             __________
Hours since last D Check                 __________
Cycles since last D check                __________ 
Months since last D check                __________
Hours since last C Check                 __________
Cycles since last C check                __________ 
Months since last C check                __________
Pounds of fuel on board                  __________
Gallons of oil on board                  __________
 
Engine Serial Nos.:             ____   ____  ____  ____
Total Hours                     ____   ____  ____  ____
Total Cycles                    ____   ____  ____  ____
Hours since last Shop Visit     ____   ____  ____  ____
Cycles since last Shop Visit    ____   ____  ____  ____
 
                                Right  Left
Landing Gears:                  Main   Main  Nose
--------------
Cycles since last overhaul      ____   ____  ____
Days since last overhaul        ____   ____  ____
<PAGE>
 
Hours since last overhaul       ____   ____  ____
                                
APU:                            
---
Total Hours                     ____
Total Cycles                    ____

                                     C-1-2
<PAGE>
 
     Attached as Exhibit 1 hereto is a complete and accurate list of the items
of loose equipment delivered with the Aircraft.


                                   FRONTIER AIRLINES, INC.,
                                   Lessee


                                   By:______________________

     The above completed information is found acceptable by the undersigned.

                                   FIRST SECURITY BANK, NATIONAL 
                                   ASSOCIATION, not individually but solely 
                                   as Owner Trustee,
                                    Lessor



                                   By:______________________

                                     C-1-3
<PAGE>
 
                                   Exhibit 1
                                   ---------


                                Loose Equipment
                                ---------------
<PAGE>
 
                                  EXHIBIT D-1
                                  -----------

                      AIRCRAFT DOCUMENTS ON DELIVERY DATE
                      -----------------------------------

A.   CERTIFICATES

     -    FAA Certificate of Airworthiness (on board aircraft)

     -    Current Aircraft Registration Certificate (on board aircraft)

B.   AIRCRAFT STATUS SUMMARIES

     -    Aircraft record of flight time and cycles (listing of accumulated
          hours and cycles as of specific dates)

     -    Airworthiness Directive Applicability and Compliance Report

     -    Supplemental Structural Inspection (SSID) Status (if applicable)

     -    Corrosion Prevention and Control Program Task Status

     -    List of Major Repairs and Alterations

     -    List and Status of Life Limited Components

     -    Check/Inspection Status

     -    List and Current Status of Time-Controlled Components

     -    Serialized On-Condition/Condition Monitored Components Inventory of
          Installed Units

C.   AIRCRAFT MAINTENANCE RECORDS

     Airframe inspection, maintenance, modification and repair documents with
     maintenance and/or inspection signatures (as required) and description of
     work done.

     -    Last "A", "B" "C" and "D" Checks (or equivalents)
          (In the event that a check is performed in phases, all phases
          necessary to constitute a complete block check are required.  In the
          event that check content varies by multiples of the check, all
          multiples necessary to constitute a complete cycle are required).

     -    Airworthiness Directive, Service Bulletin and modification compliance
          documents including engineering orders, drawings, shop cards, etc., as
          necessary to establish method of compliance, quality control
          acceptance, and approval authority
<PAGE>
 
     -    Supplemental Structural Inspection (SSID) compliance documents and
          findings (if applicable)

     -    Corrosion Prevention and Control Program compliance documents and
          findings

     -    Documentation of major repairs and alterations including engineering
          orders, drawings, Supplemental Type Certificates, Master Change
          Notice, etc., as necessary to define work done, certification basis
          and approval authority

     -    Aircraft weighing records

D.   AIRCRAFT HISTORY RECORDS

     -    Service Difficulty Reports

     -    Accident or Incident Reports

E.   ENGINE RECORDS (for each engine)

     -    Engine Master Record (record of installation and removal and
          accumulated flight time and cycles)

     -    Airworthiness Directive Applicability and Compliance Report

     -    Manufacturer Service Bulletin Compliance Report

     -    List of Operator Modifications Incorporated, if any

     -    List of Major Repairs and Alterations, if any

     -    List of Current Status of Life Limited Components

     -    Check/Inspection Status

     -    List and Status of Time Controlled Components

     -    Serialization On-Condition/Condition Monitored Components Inventory of
          Installed Units

     -    Repair, overhaul and inspection documents including FAA Forms 337

     -    Documents necessary to demonstrate installation and traceability to
          new for life limited components currently installed

                                     D-1-2
<PAGE>
 
     -    Test Cell Records for last test

F.   APU RECORDS

     -    APU Master Record (record of installation and removal and accumulated
          time and cycles)

     -    Airworthiness Directive Applicability and Compliance Report

     -    Manufacturer Service Bulletin Compliance Report

     -    List of Operator Modifications Incorporated, if any

     -    List and Current Status of Life Limited Components

     -    List and Status of Time Controlled Components

     -    Serialized On-Condition/Condition Monitored Components Inventory of
          Installed Units

     -    Repair, overhaul and inspection documents including FAA Forms 337

G.   COMPONENT RECORDS

     -    Time Controlled Component Historical Records with installation and
          serviceability tags

     -    Documents necessary to demonstrate installation and traceability to
          new for life limited components currently installed

     -    Installation records and serviceability tags for Serialized On-
          condition/Condition Monitored Components (minimum of last twelve
          months)

H.   MANUALS

     Airplane Delivered Used:

     -    Airplane Flight Manual

     -    Weight and Balance Control and Loading Manual

     -    Maintenance Manual (microfilm)

     -    Wiring Diagram Manual (paper)

                                     D-1-3
<PAGE>
 
     -    Illustrated Parts Catalog (microfilm)

     -    Operator Weight and Balance Manual

     -    Minimum Equipment List

I.   MISCELLANEOUS TECHNICAL DOCUMENTS

     -    Maintenance Program Specifications

     -    Interior configuration drawings including FAA approval of such
          drawings

     -    Boeing Aircraft Readiness Log

     -    Loose Equipment Inventory

     -    FAA Burn Certificates of Aircraft Interiors

     -    FAA Burn and Flotation Certificates for passenger seat cushions

                                     D-1-4
<PAGE>
 
                                  EXHIBIT D-2
                                  -----------

                       AIRCRAFT DOCUMENTS ON RETURN DATE
                       ---------------------------------

A.   CERTIFICATES

     -    FAA Certificate of Airworthiness (on board aircraft)

     -    Current Aircraft Registration Certificate (on board aircraft)

B.   AIRCRAFT STATUS SUMMARIES

     -    Aircraft record of flight time and cycles (listing of accumulated
          hours and cycles as of specific dates)

     -    Airworthiness Directive Applicability and Compliance Report

     -    Supplemental Structural Inspection (SSID) Status (if applicable)

     -    Corrosion Prevention and Control Program Task Status

     -    List of Major Repairs and Alterations

     -    List and Status of Life Limited Components

     -    Check/Inspection Status

     -    List and Current Status of Time-Controlled Components

     -    Serialized On-Condition/Condition Monitored Components Inventory of
          Installed Units

C.   AIRCRAFT MAINTENANCE RECORDS

     Airframe inspection, maintenance, modification and repair documents with
     maintenance and/or inspection signatures (as required) and description of
     work done.

     -    Last "A", "B" "C" and "D" Checks (or equivalents)
          (In the event that a check is performed in phases, all phases
          necessary to constitute a complete block check are required.  In the
          event that check content varies by multiples of the check, all
          multiples necessary to constitute a complete cycle are required).

     -    Airworthiness Directive, Service Bulletin and modification compliance
          documents including engineering orders, drawings, shop cards, etc., as
          necessary to establish method of compliance, quality control
          acceptance, and approval authority
<PAGE>
 
     -    Supplemental Structural Inspection (SSID) compliance documents and
          findings (if applicable)

     -    Corrosion Prevention and Control Program compliance documents and
          findings

     -    Documentation of major repairs and alterations including engineering
          orders, drawings, Supplemental Type Certificates, Master Change
          Notice, etc., as necessary to define work done, certification basis
          and approval authority

     -    Aircraft weighing records

D.   AIRCRAFT HISTORY RECORDS

     -    Service Difficulty Reports

     -    Accident or Incident Reports

E.   ENGINE RECORDS (for each engine)

     -    Engine Master Record (record of installation and removal and
          accumulated flight time and cycles)

     -    Airworthiness Directive Applicability and Compliance Report

     -    Manufacturer Service Bulletin Compliance Report

     -    List of Operator Modifications Incorporated, if any

     -    List of Major Repairs and Alterations, if any

     -    List of Current Status of Life Limited Components

     -    Check/Inspection Status

     -    List and Status of Time Controlled Components

     -    Serialization On-Condition/Condition Monitored Components Inventory of
          Installed Units

     -    Repair, overhaul and inspection documents including FAA Forms 337

     -    Documents necessary to demonstrate installation and traceability to
          new for life limited components currently installed

                                     D-2-2
<PAGE>
 
     -    Test Cell Records for last test

F.   APU RECORDS

     -    APU Master Record (record of installation and removal and accumulated
          time and cycles)

     -    Airworthiness Directive Applicability and Compliance Report

     -    Manufacturer Service Bulletin Compliance Report

     -    List of Operator Modifications Incorporated, if any

     -    List and Current Status of Life Limited Components

     -    List and Status of Time Controlled Components

     -    Serialized On-Condition/Condition Monitored Components Inventory of
          Installed Units

     -    Repair, overhaul and inspection documents including FAA Forms 337

G.   COMPONENT RECORDS

     -    Time Controlled Component Historical Records with installation and
          serviceability tags

     -    Documents necessary to demonstrate installation and traceability to
          new for life limited components currently installed

     -    Installation records and serviceability tags for Serialized On-
          condition/Condition Monitored Components (minimum of last twelve
          months)

H.   MANUALS

     Airplane Delivered Used:

     -    Airplane Flight Manual

     -    Weight and Balance Control and Loading Manual

     -    Maintenance Manual (microfilm)

     -    Wiring Diagram Manual (paper)

                                     D-2-3
<PAGE>
 
     -    Illustrated Parts Catalog (microfilm)

     -    Operator Weight and Balance Manual

     -    Minimum Equipment List

I.   MISCELLANEOUS TECHNICAL DOCUMENTS

     -    Maintenance Program Specifications

     -    Interior configuration drawings including FAA approval of such
          drawings

     -    Boeing Aircraft Readiness Log

     -    Loose Equipment Inventory

     -    FAA Burn Certificates of Aircraft Interiors

     -    FAA Burn and Flotation Certificates for passenger seat cushions

                                     D-2-4
<PAGE>
 
                                   EXHIBIT E

                               RETURN CONDITIONS
                               -----------------

The Lessee undertakes with the Lessor that the Aircraft at the time of
redelivery thereof shall have been maintained and repaired in accordance with
this Agreement and the Maintenance Program as if the Aircraft were to be kept in
further service by the Lessee, and shall meet the requirements set forth in this
Exhibit E.

1.   General Condition
     -----------------

(a)  the Aircraft shall be in the same configuration and working order (with all
     equipment installed therein), and in as good an airworthy condition (or if
     better, the condition immediately following the Initial Maintenance Visit,
     as at the Delivery Date thereof, excepting only (subject to the following
     provisions of this Exhibit E) ordinary wear and tear from normal commercial
     operation and such replacement parts and substitute parts and equipment as
     may have been properly installed by the Lessee pursuant to the provisions
     of this Agreement (including this Exhibit E);

(b)  the Aircraft shall be (i) in good operating condition with all the Aircraft
     equipment, components and systems functioning in accordance with their
     intended use, (ii) capable of certificated full rated performance without
     limitation throughout the entire operating envelope as defined by the FAA-
     approved Aircraft Flight Manual and (iii) capable of entering into
     immediate revenue service in the United States under FAR Part 121
     regulations;

(c)  the Aircraft shall be clean by commercial airlines standards;

(d)  the Aircraft shall have accomplished thereon and be in compliance with all
     outstanding regulations, mandatory orders, directives and instructions
     affecting the aircraft and issued by the FAA which have a date for
     compliance prior to or within (one) year after the return date, but so that
     (i) Lessee has obtained from the FAA, or is entitled to, any waivers,
     deviations, dispensations or extensions from or for having to comply with
     any such regulations, mandatory orders, directives and instructions, or
     (ii) the Maintenance Program permits the carry over or deferral of
     maintenance items, performance of which would, but for such carry over or
     deferral, have otherwise been required hereby, the Lessee shall
     nevertheless, prior to redelivery of the Aircraft to the Lessor and at the
     Lessee's cost and sole expense, comply with all such regulations, mandatory
     orders, directives and instructions covered by such waiver, deviation,
     dispensation or extension and perform or cause to be performed such
     maintenance items;

(e)  the Aircraft shall have had accomplished thereon all outstanding deferred
     maintenance items;
<PAGE>
 
(f)  if corrosion is detected during the course of scheduled maintenance (as
     defined in the Maintenance Program) the Lessee shall accomplish the
     cleaning and treating of all mild and moderate corrosion and correcting of
     all severe or exfoliated corrosion in accordance with the corrosion
     treatment and correction criteria set forth in the Maintenance Program;

(g)  the Aircraft shall have installed therein all applicable Vendors' and
     Manufacturer's service bulletin kits theretofore received by the Lessee
     which are appropriate for the Aircraft and to the extent not installed,
     such kits shall be furnished free of charge to the Lessor by being loaded
     on board the Aircraft as cargo;

(h)  if requested by Lessor, the Aircraft shall have a valid and current
     exemption free FAA Certificate of Airworthiness for Export;

(i)  the Aircraft shall be fresh from its next or currently due "C" Check, and
     it shall have an equal or greater amount of time remaining to its next
     scheduled "D" Check, or its equivalent under a phased or progressive
     maintenance program, as it had on the Delivery Date.  However, in no event
     shall the Aircraft have less than 3000 Hours remaining until the next
     scheduled "D" Check (or its equivalent) as determined under the Maintenance
     Program.]

2.   Fuselage, Windows and Doors
     ---------------------------

(a)  the fuselage shall be free of major dents and abrasions, and loose or
     pulled or missing rivets and all exterior repairs and patches will be
     permanent repairs installed in accordance with the manufacturer's approved
     procedures;

(b)  the windows shall be free of delamination, blemishes, crazing and shall be
     properly sealed;

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

3.   Wings and Empennage
     -------------------

(a)  all leading edges shall be free from damage;

(b)  all control surfaces shall be waxed and polished to industry standards;

(c)  all unpainted cowlings and fairing shall be polished to industry standards;

(d)  wings shall be free of fuel leaks.

4.   Interior
     --------

(a)  all galleys shall be dry, clean, effectively sealed and in good condition;

                                      E-2
<PAGE>
 
(b)  sealings, sidewalls and bulkhead panels shall be cleaned and free of cracks
     and stains;

(c)  all carpets and seat covers shall be in good condition, clean and shall
     meet fire resistance regulations of the FAA;

(d)  all seats shall be serviceable, in good condition and repainted as
     necessary;

(e)  all signs and decals shall be clean and legible;

(f)  all emergency equipment having a calendar life shall have a minimum of one
     year or 100% (one hundred percent) of its total approved life whichever is
     less, remaining.

5.   Cockpit
     -------

(a)  all decals shall be clean, secure and legible;

(b)  all fairing panels shall be free of cracks, shall be clean, secure and
     repainted as necessary;

(c)  floor coverings shall be clean and effectively sealed;

(d)  seat covers shall be in good condition, clean and shall conform to fire
     resistance regulations;

(e)  seats shall be fully serviceable and shall be repainted as necessary.

6.   Cargo Compartments
     ------------------

(a)  all panels shall be in good condition;

(b)  any nets shall be in good condition;

(c)  the cargo system shall be operational.

7.   Landing Gears and Wheel Wells
     -----------------------------

(a)  shall be clean, free of leaks and repaired as necessary;

(b)  all decals shall be clean, secure and legible;

(c)  the service life remaining on all tires and brakes shall not be less than
     50% (fifty percent);

(d)  shall have at least the same number of Hours or Cycles remaining as on the
     Delivery Date, subject to a minimum of 3000 Hours/Cycles per landing gear.

                                      E-3
<PAGE>
 
8.   Fuel Tanks
     ----------

     Fuel tanks shall be free from contamination and corrosion.

9.   Livery
     ------

     The livery, insignia and markings of the Lessee shall have been removed
from the Aircraft by industry methods and to industry standard and the Aircraft
shall be painted freshly white, to industry standard and acceptable to the
Lessor.

10.  Fuel
     ----

     All fuel and oil on board the Aircraft at the time of redelivery to the
Lessor shall be the property of the Lessor without charge.

11.  Aircraft Documents
     ------------------

(a)  Lessee shall have returned to Lessor, at the time of return, at least one
     copy of all the applicable Aircraft and Engine historical records,
     documents, manuals and data, which shall have been updated and maintained
     by the Lessee up to the date of redelivery and shall be in the English
     language.

(b)  The Lessee shall also provide to the Lessor all records, documents,
     manuals, authorizations, drawings and data in English which were developed
     or caused to be developed by the Lessee and/or required by the FAA, which
     shall have been updated and maintained by the Lessee for the Aircraft up to
     the date of redelivery.  Any records, documents, manuals, authorizations,
     drawings and data not previously returned shall be returned to the Lessor
     at the time of redelivery.  All documentation, of any type, referred to in
     the preceding two sentences is herein individually and collectively
     referred to as the "Aircraft Documents".  Any Aircraft Documents not
     already owned by the Lessor when delivered to the Lessor pursuant to this
     paragraph, shall thereupon become the property of the Lessor, at no cost to
     the Lessor.  If the Lessor requires copies of any of the Aircraft Documents
     prior to return to the Lessor in order for the Lessor to plan or accomplish
     modifications, recertifications, sale, lease or other disposition of or
     utilization of the Aircraft upon such return, the Lessee shall, immediately
     upon request by the Lessor, provide advance copies of such Aircraft
     Documents so requested by the Lessor.

12.  Engine
     ------

(a)  Each Engine shall be in serviceable condition, shall have undergone a video
     boroscope inspection of all accessible stages performed by a representative
     of Lessor (at the expense of the Lessee), shall be free of any limiting
     condition and shall pass a power assurance run satisfactory to Lessor.

                                      E-4
<PAGE>
 
(b)  No engine shall be on engineering watch or on a reduced interval inspection
     of any nature.

(c)  If engine historical records or trend monitoring data indicate a rate of
     acceleration in performance deterioration or oil consumption, which based
     on the manufacturer's specifications and/or experience would require
     maintenance to be performed prior to the next anticipated or scheduled shop
     visit, Lessee shall correct or cause to be corrected, such conditions as
     necessary to rectify all Engine performance parameters in accordance with
     the manufacturer's specifications.

(d)  Each Engine shall have the same number of Hours/Cycles remaining until its
     next scheduled shop visit as it had on the Delivery Date, but in no event
     shall any Engine have less than 3000 Hours or Cycles (whichever is more
     limiting) remaining.

13.  APU
     ---

(a)  The APU shall be delivered in serviceable condition with at least the same
     number of Hours and/or Cycles since its last shop visit as it had on the
     Delivery Date, subject to the Lessee conducting a complete borescope
     inspection in accordance with the manufacturer's maintenance manual.

14.  Life Limited Parts
     ------------------

(a)  Each life limited part shall have at least the same number of hours
     remaining (subject to a minimum of one year) as they had upon the
     Aircraft's entry into revenue service by Lessee.

                                      E-5

<PAGE>
 
                                                                     EXHIBIT E-1
                                                              TO LEASE AGREEMENT
                              RETURN CERTIFICATE
                              ------------------

     On this ____ day of _____________________, ____ FRONTIER AIRLINES, INC.
("Lessee") hereby returns the below-described Aircraft for all purposes under
that certain Operating Lease Agreement dated as of November __, 1996 (the
"Lease"), between Lessee and FIRST SECURITY BANK, NATIONAL ASSOCIATION,not
individually but solely as Owner Trustee.   Capitalized terms used herein and
not otherwise defined herein shall have the same meaning as in the Lease.
Lessor hereby acknowledges that it has found the below-described Aircraft or
Airframe to comply with all return conditions set forth in the Lease and
acknowledges return of the below-described Aircraft.

Airframe:
-------- 

Manufacturer's Serial Number        __________
U.S. Registration Number            __________
Total Hours                         __________ 
Total Cycles                        __________
Hours since last D Check            __________ 
Cycles since last D check           __________
Months since last D check           __________ 
Hours since last C Check            __________
Cycles since last C check           __________
Months since last C check           __________
Pounds of fuel on board             __________
Gallons of oil on board             __________
 
Engine Serial Nos.:               ____   ____  ____  ____
                                                     
Total Hours                       ____   ____  ____  ____
Total Cycles                      ____   ____  ____  ____
Hours since last Shop Visit       ____   ____  ____  ____
Cycles since last Shop Visit      ____   ____  ____  ____

                                     E-1-1

<PAGE>
 
                                  Right  Left
Landing Gears:                    Main   Main  Nose
-------------            
                                  
Cycles since last overhaul        
                                  ____   ___   ___
Hours since last overhaul                         
                                  ____   ___   ___
Days since last overhaul                          
                                  ____   ___   ___ 

APU:
---
                                  
Total Hours                       ____
Total Cycles                      ____
Operating Hours since overhaul    ____ 

                                     E-1-2
<PAGE>
 
     Attached as Exhibit 1 hereto is a complete and accurate list of the items
of loose equipment returned with the Aircraft.


                                   FRONTIER AIRLINES, INC.,
                                    Lessee


                                   By:______________________________
 

     The above completed information is found acceptable by the undersigned.

                                   FIRST SECURITY BANK, NATIONAL 
                                   ASSOCIATION, not individually but solely 
                                   as Owner Trustee,
                                    Lessor



                                    By:_____________________________

                                     E-1-3
<PAGE>
 
                                   EXHIBIT F
                                   ---------

                            INSURANCE REQUIREMENTS
                            ----------------------

The Insurances required to be maintained shall be as follows:

(a)       HULL ALL RISKS of Loss or Damage with respect to each Aircraft
          (including contingent hull risk coverage) in an amount not less than
          the Stipulated Loss Value of the Aircraft or such other amounts as may
          be reasonably required by Lessor.

(b)       WORLDWIDE HULL WAR AND ALLIED PERILS, being such risks excluded from
          the Hull All Risks Policy (mentioned in (a) above) (such insurance to
          be in the respective amounts not less than the values required by
          clause (a) above per occurrence and to cover the perils of (i) 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, (ii) strikes, riots, civil commotions or labor disturbances,
          (iii) 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, (iv)
          any malicious act or act of sabotage, (v) confiscation,
          nationalization, seizure, restraint, detention, appropriation,
          requisition for title or use by or under the order of any government
          (whether civil, military or de facto) or public or local authority,
          and (vi) 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 the insured).

(c)       ALL RISKS (INCLUDING WAR AND ALLIED RISKS) property damage and fire
          and extended coverage insurance on all Engines, Parts and aircraft
          equipment when not installed on the Aircraft for their full
          replacement value.

(d)       COMPREHENSIVE AIRLINE LIABILITY, AIRCRAFT THIRD PARTY, CONTRACTUAL
          LIABILITY (as per endorsement), PROPERTY DAMAGE, PASSENGER, BAGGAGE,
          CARGO AND MAIL AND AIRLINE GENERAL THIRD PARTY (INCLUDING PRODUCTS)
          LEGAL LIABILITY for a Combined Single Limit (Bodily Injury/Property
          Damage) of an amount not less than U.S. $350,000,000 for the time
          being any one occurrence.  War and Allied Risks are also to be covered
          under this Policy to the same extent as set forth above.

(e)       All required insurance (as specified in paragraphs (a), (b), (c) and
          (d) above), shall:-

          (i)       name each Additional Insured as additional assureds for
                    their respective rights and interests, warranted, each as to
                    itself only, no operational interest;
<PAGE>
 
          (ii)      in the case of the insurance required by paragraphs (a), (b)
                    and (c), provide that any loss shall be settled with the
                    Lessee and shall for amounts in excess of $100,000 be
                    payable in Dollars to the Lessor as Loss Payee;

          (iii)     include a Severability of Interest Clause which provides
                    that the insurance shall operate to give each assured the
                    same protection as if there were a separate policy issued to
                    each assured;

          (iv)      contain a provision confirming that the policy is primary
                    without right of contribution and the liability of the
                    insurers shall not be affected by any other insurance of
                    which any Additional Insured or Lessee have the benefit so
                    as to reduce the amount payable to the Additional Insureds
                    under such policies;

          (v)       contain a 50/50% clause per AVS 103 or its equivalent;

          (vi)      shall provide that in respect of the respective interests of
                    each Additional Insured in such policies the insurance shall
                    not be invalidated or impaired by any action or inaction of
                    Lessee or any other Person and shall insure the respective
                    interests of each Additional Insured, as they appear,
                    regardless of any breach or violation of any warranty,
                    declaration or condition contained in such policies by
                    Lessee or by any other Person;

          (vii)     be in accordance with normal industry practice of
                    organizations operating similar aircraft in similar
                    circumstances;

          (viii)    provide coverage denominated in Dollars;

          (ix)      acknowledge the insurer is aware of the Lease and that the
                    Aircraft is owned by Lessor;

          (x)       provide that the insurers shall hold harmless and waive any
                    rights of recourse and/or subrogation against each
                    Additional Insured;

          (xi)      provide that an Additional Insured shall have no obligation
                    or responsibility for the payment of any premiums due (but
                    reserve the right to pay the same should any of them elect
                    so to do) and that the insurers will not exercise any right
                    of set-off or counter-claim in respect of any premium due
                    against the respective interests of an Additional Insured;

                                      F-2
<PAGE>
 
          (xii)     provide that the Insurances shall continue unaltered for the
                    benefit of each Additional Insured for at least thirty (30)
                    days after written notice by registered mail or telex of any
                    cancellation, changes, event of non-payment of premium or
                    installment thereof shall have been sent to Lessor, except
                    in the case of war risks for which seven (7) days will be
                    given, or in the case of war between the five great powers
                    or nuclear peril for which termination is automatic;

          (xiii)    accept and insure the indemnity provisions of the Lease
                    (Section 16(c)) to the extent of the risks covered by the
                    policies; and

          (xiv)     contain an initial term of at least twelve (12) months and
                    it (or any replacement policy) shall at all times have a
                    remaining term of at least one (1) month in regard to all
                    required insurance.

                                      F-3
<PAGE>
 
                                   EXHIBIT G
                                   ---------

                            Reporting Requirements
                            ----------------------

     Lessee will furnish to Lessor during the Term:

               (1)  Quarterly Statements - As soon as practicable after the end
                    --------------------                                       
     of the first, second and third quarterly fiscal periods in each fiscal year
     of Lessee, and in any event within 45 days thereafter, duplicate copies of:

                    (x)  a consolidated balance sheet of the Lessee as at the
          end of such quarter setting forth in comparative form the amount for
          the end of the corresponding period of the preceding fiscal year,

                    (y)  consolidated statements of income and retained earnings
          of Lessee for such quarterly period and

                    (z)  consolidated statements of cash flow of Lessee for the
          portion of the fiscal year ending with said quarter;

     in each case prepared in accordance with generally accepted accounting
     principles consistently applied and certified by the Chief Financial
     Officer of Lessee as having been prepared in accordance with generally
     accepted accounting principles consistently applied; and

              (2)   Annual Statements - As soon as practicable after the end of
                    -----------------                                          
     each fiscal year of Lessee, and in any event within 90 days thereafter,
     duplicate copies of:

                    (x)  a consolidated balance sheet of Lessee as at the end of
          such year, and

                    (y)  consolidated statements of income and retained earnings
          and of cash flow of Lessee for such year,

     prepared in accordance with generally accepted accounting principles
     setting forth in each case in comparative form the figures for the previous
     fiscal year and accompanied by an auditor's report of a firm of independent
     certified public accountants of recognized national standing reasonably
     satisfactory to Lessor stating that such balance sheet and consolidated
     statements have been prepared in accordance with generally accepted
     accounting principles consistently applied; and

               (3)  Notice of Default or Claimed Default - Immediately upon an
                    ------------------------------------                      
     officer of Lessee becoming aware of the existence of a Default or an Event
     of Default, a written notice 
<PAGE>
 
     specifying the nature of the Default or Event of Default and what action
     Lessee is taking or proposes to take with respect thereto;

               (4)  No Default Certificate.  Concurrently with the delivery of
                    ----------------------                                    
     the financial statements referred to in clauses (1) and (2) above, Lessee
     will deliver to Lessor a certificate of Lessee, signed by the President, a
     Vice President, the Chief Financial Officer or the principal accounting
     officer of Lessee to the effect that the signer is familiar with or has
     reviewed the relevant terms of each of the Lessee Documents and the signer
     does not have knowledge of the existence, as of the date of such
     certificate, of any condition or event which constitutes a Default or an
     Event of Default; and

               (5)  Quarterly Operating Report.  Not more than sixty (60) days
                    --------------------------                                
     after the end of each fiscal quarter of the Lessee, a report of Lessee's
     operations during the preceding fiscal quarter, which report shall include
     (a) on a fleetwide basis, revenue passenger miles, available seat miles,
     load factor, average yield, cost per ASM, fuel gallons consumed and average
     price paid per gallon of fuel and (b) for the Aircraft only, a detailed
     description of maintenance activities performed on the Aircraft.

                                      G-2
<PAGE>
 
                                   EXHIBIT H

                                   DELIVERY
                                   --------

At the time of delivery of the Aircraft to Lessee, the Aircraft, Engines,
Aircraft Documents and all Parts shall comply with the following:

1.   General Condition
     -----------------

(a)  the Aircraft shall be in good operating condition with all the Aircraft
     equipment, components and systems functioning in accordance with their
     intended use;

(b)  the Aircraft shall be clean by commercial airlines standards;

(c)  the Aircraft shall have accomplished thereon and be in compliance with all
     outstanding regulations, mandatory orders, directives and instructions
     affecting the aircraft and issued by the FAA which have a date for
     compliance prior to or within (one) year after the Delivery date, but so
     that (i) Air Invest has obtained from the FAA, or is entitled to, any
     waivers, deviations, dispensations or extensions from or for having to
     comply with any such regulations, mandatory orders, directives and
     instructions, or (ii) the Air Invest Maintenance Program permits the carry
     over or deferral of maintenance items, performance of which would, but for
     such carry over or deferral, have otherwise been required hereby, the
     Lessor shall nevertheless, prior to delivery of the Aircraft to the Lessee,
     use its best efforts to cause the then current operator of the Aircraft to
     comply with all such regulations, mandatory orders, directives and
     instructions covered by such waiver, deviation, dispensation or extension
     and perform or cause to be performed such maintenance items;

(d)  the Aircraft shall have had accomplished thereon all outstanding deferred
     maintenance items;

(e)  the Aircraft shall have installed therein all applicable Vendors' and
     Manufacturer's service bulletin kits theretofore received by the Lessee
     which are appropriate for the Aircraft and to the extent not installed,
     such kits shall be furnished free of charge to the Lessor by being loaded
     on board the Aircraft as cargo;

2.   Fuselage, Windows and Doors
     ---------------------------

(a)  the fuselage shall be free of major dents and abrasions, and loose or
     pulled or missing rivets and all exterior repairs and patches will be
     permanent repairs installed in accordance with the manufacturer's approved
     procedures;

(b)  the windows shall be free of delamination, blemishes, crazing and shall be
     properly sealed;

(c)  the doors shall be free moving, correctly rigged and be fitted with
     serviceable seals.
<PAGE>
 
3.   Wings and Empennage
     -------------------

(a)  all leading edges shall be free from damage;

(b)  all control surfaces shall be waxed and polished to industry standards;

(c)  all unpainted cowlings and fairing shall be polished to industry standards;

(d)  wings shall be free of fuel leaks.

4.   Interior
     --------

(a)  all galleys shall be dry, clean, effectively sealed and in good condition;

(b)  sealings, sidewalls and bulkhead panels shall be cleaned and free of cracks
     and stains;

(c)  all carpets and seat covers shall be in good condition, clean and shall
     meet fire resistance regulations of the FAA;

(d)  all seats shall be serviceable, in good condition and repainted as
     necessary;

(e)  all signs and decals shall be clean and legible;

(f)  all emergency equipment having a calendar life shall have a minimum of one
     year or 100% (one hundred percent) of its total approved life whichever is
     less, remaining.

5.   Cockpit
     -------

(a)  all decals shall be clean, secure and legible;

(b)  all fairing panels shall be free of cracks, shall be clean, secure and
     repainted as necessary;

(c)  floor coverings shall be clean and effectively sealed;

(d)  seat covers shall be in good condition, clean and shall conform to fire
     resistance regulations;

(e)  seats shall be fully serviceable and shall be repainted as necessary.

6.   Cargo Compartments
     ------------------

(a)  all panels shall be in good condition;

(b)  any nets shall be in good condition;

                                      H-2
<PAGE>
 
(c)  the cargo system shall be operational.

7.   Landing Gears and Wheel Wells
     -----------------------------

(a)  shall be clean, free of leaks and repaired as necessary;

(b)  all decals shall be clean, secure and legible;

(c)  the service life remaining on all tires and brakes shall not be less than
     50% (fifty percent);

8.   Fuel Tanks
     ----------

     Fuel tanks shall be free from contamination and corrosion.

9.   Fuel
     ----

     All fuel and oil on board the Aircraft at the time of redelivery to the
Lessor shall be the property of the Lessor without charge.

10.  Aircraft Documents
     ------------------

(a)  Lessor shall have provided to Lessee, at the time of delivery, at least one
     copy of all the applicable Aircraft and Engine historical records,
     documents, manuals and data, which shall have been updated and maintained
     by Air Invest up to the date of delivery and shall be in the English
     language.

(b)  Lessor shall also provide to Lessee all records, documents, manuals,
     authorizations, drawings and data in English which were developed or caused
     to be developed by Air Invest and/or required by the FAA, which shall have
     been updated and maintained by Air Invest for the Aircraft up to the date
     of delivery.

                                      H-3
<PAGE>
 
                                   EXHIBIT I

                        DEMONSTRATION FLIGHT PROCEDURES


   [List to be consistent with demonstration flight procedures on delivery.]
<PAGE>
 
                                   EXHIBIT J

                           FORM OF LETTER OF CREDIT


FOR PURPOSES OF CONFIDENTIALITY, EXHIBIT J TO THE OPERATING LEASE AGREEMENT IS
INTENTIONALLY OMITTED FROM THE COPY OF THE OPERATING LEASE AGREEMENT ON FILE
WITH THE FEDERAL AVIATION ADMINISTRATION.