Exhibit 10.35

                                 LEASE AGREEMENT


                                     between


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

                         HELLER FINANCIAL LEASING, INC.,
                              as Owner Participant

                                       and

                            FRONTIER AIRLINES, INC.,
                                    as Lessee

                   Relating to one (1) Boeing 737-3U3 Aircraft
                        Manufacturer's Serial No.: 28738
                          U.S. Registration No. N308FL

                          Dated as of November 23, 1998



This Lease Agreement has been executed in several  counterparts.  To the extent,
if any,  that this 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 Lease  Agreement  may be created
through the transfer or  possession of any  counterpart  other than the original
executed counterpart containing the receipt executed by Lessor or, if Lessor has
assigned its rights to a third party in  accordance  with this Lease  Agreement,
such third party on the signature page of this Lease Agreement.



                        Vedder, Price, Kaufman & Kammholz
                                Chicago, Illinois

<PAGE>


                                TABLE OF CONTENTS

                                                               Page


SECTION 1.  Definitions; Construction of Terms                   1
         (a)  General Definitions                                1
         (b)  Construction                                      15

SECTION 2.  Lease of Aircraft                                   16
         (a)  Agreement to Lease                                16
         (b)  Delivery Conditions; Inspections                  16
         (c)  Changes in Delivery Date; Limitation of 
              Lessor's Obligation to Deliver Aircraft           17
         (d)  Bridging Maintenance                              18

SECTION 3.  Lease Term; Rent; Payments                          18
         (a)  Lease Term                                        18
         (b)  Basic Rent and Renewal Rent                       19
         (c)  Supplemental Rent                                 19
         (d)  Security Deposit                                  19
         (e)  Payments in General                               21
         (f)  No Deductions or Withholdings                     22

SECTION 4.  Conditions Precedent                                22
         (a)  Delivery of Aircraft                              22
         (b)  Delivery Conditions                               22
         (c)  Approved Maintenance Program                      22
         (d)  [Intentionally reserved]                          23
         (e)  Agreements and Documents                          23
         (f)  Delivery Date Conditions                          24
         (g)  Registration                                      25
         (h)  Necessary Government Actions                      25
         (i)  No Government Actions                             25
         (j)  No Change in Law                                  26

SECTION 5.  Representations and Warranties                      26
         (a)  Disclaimer; Representations, Warranties and 
              Covenants of Lessor and Owner Participant         26
         (b)  Lessee's Representations and Warranties           28

SECTION 6.  Certain Covenants of Lessee                         31
         (a)  Maintenance of Corporate Existence; 
              Duly Qualified; Certificated Air Carrier          31
         (b)  Merger or Consolidation                           32
         (c)  Reporting Requirements                            32
         (d)  Government Approvals                              33
         (e)  Taxes                                             33
         (f)  Place of Business                                 34
         (g)  Filings                                           34
         (h)  Approved Maintenance Program                      34

SECTION 7.  Return of the Aircraft                              34
         (a)  Date and Location of Return                       34
         (b)  Condition of Aircraft                             34
         (c)  Final Inspection                                  34
         (d)  Operational Ground Check                          35
         (e)  Demonstration Flight                              36
         (f)  Technical Acceptance                              36
         (g)  Failure to Return Aircraft                        36
         (h)  Transition                                        37

SECTION 8.  Liens                                               37
         (a)  No Liens                                          37
         (b)  Removal of Liens                                  38
         (c)  No Adverse Action                                 38

SECTION 9.  Indemnities                                         39
         (a)  General Indemnity                                 39
         (b)  Exceptions to General Indemnity                   39
         (c)  Taxes                                             40
         (d)  [Intentionally reserved]                          44
         (e)  Scope, Survival, Etc                              44
         (f)  Gross-Up for Taxes on Indemnity Payments          45
         (g)  Tax Contests                                      45

SECTION 10.  Title; Registration; Maintenance and
             Operation; Insignia                                47
         (a)  Title to the Aircraft                             47
         (b)  Registration                                      47
         (c)  Maintenance                                       48
         (d)  Operation                                         51
         (e)  Insignia                                          52
         (f)  Costs of Operation                                53
         (g)  Payment of Flight Charges                         53
         (h)  Loss or Damage                                    53
         (i)  Cost Sharing                                      54

SECTION 11.  Possession                                         54
         (a)  Maintenance, Etc                                  54
         (b)  Installation of Engines on Other Airframes        55
         (c) Pooling; Sublease.                                 55
         (d)  Transfers of Possession in General                56

SECTION 12.  Replacement of Parts, Alterations,
             Modifications and Additions                        57
         (a)  Replacement of Parts                              57
         (b)  Modifications                                     58

SECTION 13.  Risk of Loss, Destruction, Requisition, Etc        60
         (a)  Risk of Loss                                      60
         (b)  Event of Loss With Respect to the Aircraft        60
         (c)  Event of Loss With Respect to an Engine           61
         (d)  Application of Payments From any Government 
              Entity for Requisition of Title, Etc              62
         (e)  Application of Payments During Existence
              of Default                                        63

SECTION 14.  Maintenance Reserves.                              63
         (a)  Amount                                            63
         (b)  Payments                                          64
         (c)  Release of Maintenance Reserves                   64

SECTION 15.  Insurance                                          65
         (a)  Requirements                                      65
         (b)  Application of Proceeds of Hull Insurance         65
         (c)  Insurance for Indemnities;
              Continuation of Liability Insurance               66
         (d)  Reports, Etc                                      66
         (e)  Self-Insurance                                    66
         (f)  Additional Insurance                              66
         (g)  Application of Payments During
              Existence of a Default                            67
         (h)  Change of Practice or Insurers                    67
         (i)  Change of Circumstance                            67
         (j)  Negative Undertakings                             68
         (k)  Failure to Insure                                 68

SECTION 16.  Inspection                                         68
         (a)  Maintenance Schedule                              68
         (b)  Reasonable Inspections                            69
         (c)  No Duty to Inspect                                69
         (d)  Follow-On Lease                                   69
         (e)  Absolute Right                                    69

SECTION 17.  Assignment                                         69
         (a)  Assignment by Lessee                              70
         (e)  Collateral Assignment                             71
         (g)  Successors and Assigns                            73

SECTION 18.  Early Termination                                  73

SECTION 19.  Events of Default                                  73
         (a)  Failure to Pay Basic Rent,
              Renewal Rent or Stipulated Loss Value             74
         (b)  Failure to Pay Supplemental Rent                  74
         (c)  Insurance                                         74
         (d)  Return                                            74
         (e)  Unauthorized Transfer                             74
         (f)  Certain Covenants                                 74
         (g)  Other Covenants                                   74
         (h)  Representations and Warranties                    75
         (i)  Authorizations                                    75
         (j)  Voluntary Bankruptcy, Etc                         75
         (k)  Involuntary Bankruptcy, Etc                       75
         (l)  Indebtedness                                      75
         (m)  Government Action                                 76
         (n)  Judgments                                         76
         (o)  Cross Default                                     76
         (p)  Adverse Change                                    76
         (q)  Letter of Credit.                                 76

SECTION 20.  Remedies                                           76
         (a)  Retake Possession                                 77
         (b)  Termination or Enforcement                        77
         (c)  Application of Funds                              77
         (d)  Damages                                           78

SECTION 21.  Transaction Expenses                               78

SECTION 22.  No Setoff, Counterclaim, Etc                       78

SECTION 23.  Further Assurances, Etc                            81
         (a)  Further Assurances                                81
         (b)  Lessor's  Performance  of Lessee's  Obligations   81 
         (c) No Implied Waivers; Rights Cumulative              81 
         (d) Warranties                                         82

SECTION 24.  Confidentiality                                    82

SECTION 25.  Governing Law and Jurisdiction                     83
         (a)  Governing Law                                     83
         (b)  Nonexclusive Jurisdiction in Illinois             83

SECTION 26.  Miscellaneous                                      84
         (a)  Amendments                                        84
         (b)  Severability                                      84
         (c)  Counterparts                                      84
         (d)  Chattel Paper                                     84
         (e)  Time of the Essence                               84
         (f)  Notices                                           84
         (g)  Entire Agreement                                  85



<PAGE>


EXHIBITS AND SCHEDULES

Exhibit A                  Technical Acceptance Certificate
Exhibit B                  Basic Rent
Exhibit C                  Form of Lease Supplement
Exhibit D                  Intentionally Omitted
Exhibit E                  Insurance Requirements
Exhibit F                  Intentionally Omitted
Exhibit G                  Intentionally Omitted
Exhibit H                  Intentionally Omitted
Exhibit I                  Form of Aircraft Status Report

Schedule 1                 Permitted Jurisdictions
Schedule 2                 Delivery Conditions
Annex A                    Delivery Receipt
Attachment 1               Aircraft Status
Attachment 2               Aircraft Documentation
Schedule 3                 Addresses and Accounts
Schedule 4                 Filings and Recordings
Schedule 5                 Return Conditions
Annex A                    Redelivery Receipt
Attachment 1               Return Documentation
Attachment 2               Aircraft Status


<PAGE>


                                [Lease Agreement]
                                 LEASE AGREEMENT

         THIS LEASE AGREEMENT,  dated as of November 23, 1998 (this  "Agreement"
or this "Lease"),  is between FRONTIER  AIRLINES,  INC., a Colorado  corporation
having its principal place of business at 12015 E. 46th Avenue, Denver, Colorado
80239 ("Lessee") and FIRST SECURITY BANK, NATIONAL ASSOCIATION not individually,
but solely as trustee  under that certain Trust  Agreement  dated as of November
23, 1998 between  itself and Heller  Financial  Leasing,  Inc.  ("Lessor"),  and
HELLER FINANCIAL  LEASING,  INC., a corporation  organized under the laws of the
State of Delaware ("Owner Participant").

                                                    WITNESSETH:

         WHEREAS, Lessee desires, upon the terms and conditions hereof, to lease
the Aircraft (as defined  below) from  Lessor,  and Lessor is willing,  upon the
terms and conditions hereof, to lease the Aircraft to Lessee.

                                                    AGREEMENT:

         NOW,  THEREFORE,  in consideration of the foregoing  premises,  and for
other good and  valuable  consideration  the  adequacy  and receipt of which are
hereby acknowledged, the parties hereto agree as follows:

         SECTION 1.  Definitions; Construction of Terms.

                  (a)  General Definitions.  The following terms shall have the 
following meanings for all purposes of this Agreement:

                  "AD"  shall  mean any  airworthiness  directive  issued by the
Aviation Authority or mandatory SB.

                  "Additional Parts" has the meaning specified in Section 12(b)
(ii)(z).

                  "Affiliate"  shall mean,  in  relation to a Person,  any other
Person directly or indirectly controlling, controlled by or under common control
with that Person.

                  "Aircraft" shall mean,  collectively,  the Airframe (including
the APU) and the Engines and,  unless the context does not permit,  the Aircraft
Documentation.

                  "Aircraft Documentation" shall mean, collectively, any and all
log books, records, manuals and other data or documents relating to the Aircraft
which are  delivered to Lessee in  connection  with the delivery of the Aircraft
and/or  set  forth on  Attachment  1 to Annex A to  Schedule  5 hereto  and such
additional log books,  records,  manuals and other data or documents relating to
the  Aircraft  which  are  maintained  by  Lessee as  required  by the  Aviation
Authority.

                  "Aircraft Status Report" shall mean a report  substantially in
the form of Exhibit I hereto.

                  "Airframe"   shall  mean,   collectively,   (i)  the  Airframe
Manufacturer model 737-3U3 airframe (except only Engines or engines from time to
time installed thereon),  bearing the Airframe  Manufacturer's serial number and
the  registration  mark specified in Lease Supplement No. 1, leased hereunder by
Lessor  to  Lessee  and  (ii) any and all  Parts  so long as the  same  shall be
incorporated or installed in or attached to such airframe, and any and all Parts
removed  therefrom so long as title to such removed Parts shall remain vested in
Lessor in accordance with the terms of Section 12.

                  "Airframe  Manufacturer"  shall  mean  The  Boeing  Company, a
Delaware corporation.

                  "Airworthiness   Certificate"  shall  mean  a  valid,  current
transport category  airworthiness  certificate issued in respect of the Aircraft
by the Aviation Authority.

                  "Airframe Cycle" shall mean, with respect to the Airframe, one
takeoff and landing thereof.

                  "Airframe  Flight  Hour" shall mean each hour or part  thereof
elapsing from the moment the wheels of the Airframe  leave the ground on takeoff
until the wheels of the  Airframe  touch the ground on  landing  following  such
flight.  For  purposes  of all  calculations  under this  Agreement  measured in
Airframe  Flight Hours,  such Airframe Flight Hours (and parts thereof) shall be
rounded to the nearest minute.

                  "Approved  Maintenance  Performer"  shall mean  Lessee or such
other maintenance  performer,  if any, which shall have a repair station license
and  approval  by the  Aviation  Authority  and,  with  respect  to  maintenance
performers who are to accomplish Heavy Checks,  Basic Shop Visits and/or Landing
Gear Overhauls, the Lessor.

                  "Approved  Maintenance  Program" shall mean Lessee's  Aviation
Authority-approved  written  maintenance,  inspection  and  repair  program  and
schedule for Boeing Model 737-3U3 aircraft,  including Lessee's current approved
maintenance schedule,  and the CPCP approved by the Aviation Authority,  as such
maintenance,  inspection  and repair  program is approved by Lessor  pursuant to
Section 4(c), or such other written maintenance,  inspection and repair program,
if any, as Lessor and Lessee shall agree in writing.

                  "APU" shall mean (i) the  auxiliary  power unit  identified by
manufacturer's  serial number in Lease  Supplement  No. 1 and (ii) any auxiliary
power unit  substituted  for such auxiliary  power unit in accordance  with this
Agreement.

                  "Authorizations"  shall mean each and every approval,  waiver,
authorization,  consent, license, certificate or order of, or registration with,
or requirement for the giving of prior notice to, or the taking of any action in
respect  of, the  Aviation  Authority,  or any other  Government  Entity  having
jurisdiction  over Lessee,  the  operation  of the Aircraft or any  transactions
contemplated hereby or by any Operative Document.

                  "Aviation  Authority"  shall  mean the United  States  Federal
Aviation  Administration,  and  any  person,  governmental  department,  bureau,
commission or agency succeeding to all or any of such authority's functions.

                  "Base  Rate" shall mean the rate of  interest  announced  from
time to time by The First  National  Bank of  Chicago  as its  prime  commercial
lending rate (or its equivalent  successor rate if the prime commercial  lending
rate is no longer used).

                  "Basic Lease Term" shall be the period from and  including the
Delivery  Date  to but  excluding  the  40th  monthly  anniversary  of the  Rent
Commencement Date.

                  "Basic  Rent"  shall  mean the rent  payable  during the Basic
Lease Term with respect to the Aircraft pursuant to Section 3(b)(i).

                  "Basic  Rent Date" shall mean (i) the Rent  Commencement  Date
and (ii) each monthly  anniversary of the Rent  Commencement Date (provided that
if there is no corresponding date in a particular month, the Basic Rent Date for
such month shall be the last day of such month) occurring during the Basic Lease
Term.

                  "Basic Term Expiry Date" shall mean the date forty (40) months
 following the Rent Commencement Date.

                  "Basic Shop Visit"  shall mean,  with respect to any Engine or
the APU,  any shop  visit,  as  defined by the  Engine  Manufacturer  or the APU
manufacturer,  as the case  may be,  that is based  on an  approved  program  of
condition  monitoring  and trend  monitoring of performance  deterioration  that
results  in an  Engine  or APU,  as the  case  may be,  being  restored  to full
performance standard.

                  "Basis point" shall mean 1/100 of 1%.

                  "Break  Amount"shall  mean, with respect to any termination of
the Lease  prior to the Expiry  Date  pursuant  to Section 20 hereof,  an amount
equal to the sum of the present  values  calculated  pursuant  to the  following
formula:

                  (A - B)/12 x C where:

                                    A = The yield,  as  published by the Federal
                           Reserve  System  in  its  "Statistical  Release  H.15
                           (519),  Selected  Interest  Rates"  under the caption
                           "U.S.   Government    Securities/Treasury    Constant
                           Maturities," for a U.S.  Government Security having a
                           maturity  on the Basic Term Expiry Date (which may be
                           obtained   by   interpolating   between   the  yields
                           published for whole years), on the Delivery Date;

                                    B = The yield,  as  published by the Federal
                           Reserve  System  in  its  "Statistical  Release  H.15
                           (519),  Selected  Interest  Rates"  under the caption
                           "U.S.   Government    Securities/Treasury    Constant
                           Maturities," for a U.S.  Government Security having a
                           maturity  on the Basic Term Expiry Date (which may be
                           obtained   by   interpolating   between   the  yields
                           published   for   whole   years),   on  the  date  of
                           determination of such Break Amount; and

                                    C = The  amount  of  Stipulated  Loss  Value
                           which  would  have  been  outstanding  on the date of
                           determination  of such Break  Amount and on the first
                           day of each  month  thereafter  throughout  the Basic
                           Lease  Term  had no  termination  of  this  Agreement
                           occurred.

The present  value of each of the amounts  calculated  above will be obtained by
discounting each amount at the monthly equivalent of the rate obtained in clause
B above for the  number of whole  months  from the date of  termination  of this
Agreement to the Basic Term Expiry Date (all percentages shall be rounded to the
nearest one hundred  thousandth  percent and Dollar amounts to the nearest whole
Dollar). In no event shall Break Amount be a negative number. Break Amount shall
be zero during any Renewal Term.

                  "Business  Day"  shall mean a day  (other  than a Saturday  or
Sunday) on which  banks are not  required  or  authorized  to close in Salt Lake
City, Utah or Chicago, Illinois.

                  "Cabin"  shall mean the passenger  compartment  and all doors,
windows,  interior panels,  storage bins, lights,  seats, seat covers,  carpets,
lavatories,   galleys,  galley  equipment,   closets,  flight  attendant  seats,
passenger communications and entertainment systems,  emergency and miscellaneous
equipment, seat tracks and floor areas.

                  "Certificate  of  Registration"  shall mean the certificate of
registration issued by the Aviation Authority in respect of the Aircraft.

                  "Certificated  Air  Carrier"  means a  Citizen  of the  United
States holding an air carrier operating  certificate  issued by the Secretary of
Transportation  pursuant to Chapter 447 of Title 49 of the United  States  Code,
for aircraft capable of carrying ten or more individuals or 6,000 pounds or more
of cargo or that otherwise is certified or registered to the extent  required to
fall within the purview of 11 U.S.C.  Section  1110 or any  analogous  successor
provision of the United States Bankruptcy Code.

                  "Commitment Termination Date" shall mean December 31, 1998.

                  "CPCP" shall mean a Corrosion  Prevention and Control  Program
and/or Aging Aircraft  Program that  establishes  minimum  requirements  for the
Aircraft, incorporating, among other things, the recommendations of the Airframe
Manufacturer  and  the  mandatory  requirements   established  by  the  Approved
Maintenance Program.

                  "Cycle"  shall  mean  an Airframe Cycle or an Engine Cycle, as
indicated by the context.

                  ""D" Check" means a "D" Check,  as such term is defined in the
Approved  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.

                  "Default"  shall mean any Event of  Default or any  condition,
circumstance, act or event which, upon the giving of notice, the passage of time
and/or the fulfillment of any other  condition would  constitute or give rise to
an Event of Default.

                  "Delivery" shall have the meaning set forth in Section 2(b).

                  "Delivery  Conditions"  shall  mean  the  requirement  for the
condition of the Aircraft on delivery, as set forth in Schedule 2.

                  "Delivery  Date"  shall  mean  the  date,  local  time  at the
Delivery Location,  on which the Aircraft is delivered by Lessor and accepted by
Lessee pursuant to this Agreement as such date is set forth in Lease  Supplement
No. 1.

                  "Delivery  Location"  shall mean the  Airframe  Manufacturer's
delivery  facility in Seattle,  Washington,  or such other location,  if any, as
Lessor, Owner Participant and Lessee shall agree, in writing.

                  "Delivery Receipt" shall have the meaning specified in Section
4(e)(iii).

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

                  "Engine"  shall  mean (i)(y) either of the Engine Manufacturer
Model CFM56-3C-1 engines listed by Engine Manufacturer's serial numbers in Lease
Supplement  No.  1 and  originally  installed  on the  Airframe  at the  time of
delivery  to  Lessee  hereunder  whether  or not  from  time to time  thereafter
installed  on the  Airframe  or  installed  on any  other  airframe  and (z) any
Replacement  Engine which may from time to time be substituted,  pursuant to the
terms  hereof,  for either of such engines,  and (ii) in each case,  any and all
Parts  incorporated  or  installed  in or attached  thereto or any and all Parts
removed  therefrom so long as title  thereto  shall  remain  vested in Lessor in
accordance with the terms of Section 12 after removal from such Engine, provided
that at such  time as an  engine  shall be deemed  part of the  property  leased
hereunder in substitution for an Engine,  pursuant to the applicable  provisions
hereof,  the  replaced  Engine shall cease to be an Engine  hereunder.  The term
"Engines" shall mean, as of any date of  determination,  all Engines then leased
hereunder.

                  "Engine  Cycle" shall mean,  with  respect to any Engine,  one
takeoff  and  landing  of  the  airframe  (including,  without  limitation,  the
Airframe) on which such Engine is from time to time installed.

                  "Engine  Flight  Hour"  shall  mean each hour or part  thereof
elapsing  from  the  moment  the  wheels  of the  airframe  (including,  without
limitation,  the  Airframe) on which such Engine is from time to time  installed
leave the ground on takeoff until the wheels of such  airframe  touch the ground
on landing  following such flight.  For purposes of all calculations  under this
Agreement  measured in Engine Flight Hours,  such Engine Flight Hours (and parts
thereof) shall be rounded to the nearest minute.

                  "Engine Manufacturer" shall mean CFM International, Inc.

                  "Event of Default" has the meaning specified in Section 19.

                  "Event of Loss" shall mean, with respect to the Aircraft,  the
Airframe or any Engine, any of the following events, conditions or circumstances
with respect to such property:

                          (i) the  actual or constructive  loss of such property
                  or the use thereof due to the destruction of or damage to such
                  property  which renders repair  uneconomical  or which renders
                  such  property  permanently  unfit for normal use by Lessee or
                  Lessor;

                          (ii) any damage to such  property  or other occurrence
                  which results in an insurance settlement with respect  to such
                  property  on  the  basis  of a  total  loss or a constructive,
                  compromised, arranged or agreed total loss;

                          (iii)  the   confiscation,   condemnation,    seizure,
                  forfeiture  or  requisition  of the  title  to  such  property
                  (for any reason  whatsoever and  whether de jure or de facto),
                  other than as set forth in clause (v) below);

                          (iv)  the disappearance, hijacking or theft (including
                  a  seizure  of title  or use not  otherwise  included  in this
                  definition) of such property for a continuous period in excess
                  of ten (10) days (or, if less, the remaining Lease Term); and

                          (v)  the confiscation,  condemnation or seizure of, or
                  requisition by any Government  Entity or purported  Government
                  Entity  of use or hire  of  such  property  which  shall  have
                  resulted in the loss of  possession or use of such property by
                  Lessee for a  continuous  period in excess of thirty (30) days
                  (or, if less, the remaining Lease Term).

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.  An Event of Loss with
respect to one or more Engines  without loss of the Airframe shall not be deemed
an Event of Loss with respect to the Aircraft.

                  "Event of Loss Date" shall mean (i) with  respect to any Event
of Loss set forth in clause  (i) or (ii) of the  definition  of "Event of Loss,"
the earliest of (x) the date of actual  loss,  (y) the date on which the loss is
agreed,  arranged or  compromised by the insurers and (z) thirty (30) days after
the date of notice to Lessee's brokers or insurers  claiming the loss, (ii) with
respect  to any  Event of Loss set forth in clause  (iii) of the  definition  of
Event of Loss, the date such event,  condition or circumstance  occurs, or (iii)
with  respect  to any  Event of Loss  set  forth  in  clause  (iv) or (v) of the
definition of Event of Loss,  the earlier of (y) the date on which insurers make
payment on the basis of a total loss and (z) the  expiration  of the period,  or
the  continuation  of the condition or circumstance  beyond the date,  described
therein.

                  "Expense"  shall mean any  liabilities,  obligations,  losses,
damages  (including,  without  limitation,  damages for loss of life,  injury to
persons or damage to any property), penalties, fines, sanctions, claims (whether
fraudulent,   groundless,  false  or  not),  actions,  suits,  judgments,  legal
proceedings  (whether  civil or  criminal),  costs,  disbursements  and expenses
(including  reasonable  legal  fees and  expenses,  costs of  investigation  and
related expenses), in each case, of every kind and nature whatsoever (including,
without  limitation  any  liability,  obligation or claim arising in contract or
tort,  whether or not arising from the negligence,  actual,  implied or imputed,
active or passive,  or absolute or strict  liability of an Indemnified  Party or
any other Person or under any other theory).

                  "Expiry Date" shall mean the Basic Term Expiry Date or, if the
Renewal  Lease  Term shall be entered  into,  the date of expiry of the  Renewal
Lease Term.

                  "Final  Inspection"  shall mean the inspection of the Aircraft
by Lessor and any other  Inspecting  Parties during any part of the inspections,
checks,  and test flights  required  pursuant to Sections 7(c), 7(d) and 7(e) or
otherwise performed in connection with the Return.

                  "Final  Maintenance"  shall  mean  prior to the  return of the
Aircraft on the last day of the Lease Term, the completion of the next scheduled
heavy  maintenance  check ("C" Check or above and, if  applicable,  multiples of
such checks falling due within a "C" Check  maintenance  interval) in respect of
the  Aircraft  under  the  Approved   Maintenance  Program  (which  check  shall
incorporate  all  lower-level  checks and any  special  repair  items or special
inspections  (including,  without  limitation,  all  applicable  AD's  that  are
required  to be  accomplished  in  accordance  with  the  terms  of this  Lease,
mandatory SB's and CPCP items) as well as inspections that have a frequency less
than a "C" Check and all cleaning and refurbishment  that would be a normal part
of the Approved  Maintenance Program were the Aircraft to continue in commercial
passenger service by Lessee.

                  "Flight   Charges"  shall  mean  all  flight  charges,   route
navigation  charges,  navigation  service charges and all other fees, charges or
Taxes  payable  for  the  use of or for  services  provided  at any  airport  or
otherwise  payable  to any  airport,  airport  authority,  navigation  or flight
authority or other  similar  entity or for any services  provided in  connection
with the operation, landing or navigation of aircraft.

                  "Follow-On  Operator" shall mean any Person acquiring title to
or the right to use the Aircraft after the end of the Lease Term (whether or not
such Person is an airline or other operator).

                  "Force Majeure" shall mean delay or  nonperformance  due to or
arising out of acts of God or public  enemy,  civil war,  insurrection  or riot,
fire, flood, explosion,  earthquake, accident, epidemic, quarantine restriction,
any act of government,  governmental priority,  allocation,  regulation or order
affecting,  directly  or  indirectly,  the  Aircraft,  Lessor  or  Lessee or any
materials or facilities,  strike or labor dispute causing cessation, slowdown or
interruption  of work,  inability  after due and  timely  diligence  to  procure
equipment,  data or materials from  suppliers in a timely  manner,  or any other
cause (including unforeseen maintenance) to the extent that such cause is beyond
the control of Lessor or Lessee  whether  above  mentioned or not and whether or
not similar to the foregoing.

                  "GAAP" shall mean generally accepted accounting  principles as
shall  from  time to time  be in  effect  in the  Lessee  Jurisdiction,  as such
principles  may at any time or from  time to time be  varied  by any  applicable
financial  accounting  rules and,  with  respect to any Person,  shall mean such
principles applied on a basis consistent with prior periods.

                  "Government  Entity"  shall  mean (i) any  national,  state or
local government of any country,  any territory or possession of any country, or
any international  authority (including,  without limitation,  in each case, any
central bank or fiscal, tax or monetary authority),  (ii) any board, commission,
department, division,  instrumentality,  court, agency, territory, possession or
political  subdivision  of any entity  described  in clause  (i) above,  however
constituted,  (iii) any  association,  organization  or institution of which any
entity  described  in  clause  (i)  or  (ii)  above  is a  member  or  to  whose
jurisdiction  any  thereof is subject or in whose  activities  any  thereof is a
participant and (iv) any taxing authority of any entity described in clause (i),
(ii) or (iii) above.

                  "Hour" shall mean an Airframe  Flight Hour or an Engine Flight
Hour, as indicated by the context.

                  "Indebtedness"  means all obligations of Lessee that would, in
accordance with GAAP, be shown as a liability on Lessee's  balance sheet, and in
any  footnotes  or  notations  thereto,   including,   without  limitation,  (i)
obligations  for the repayment of monies  borrowed or raised,  (ii)  obligations
under finance leases,  hire-purchase  arrangements,  conditional sale agreements
and  other  obligations  for the  deferred  purchase  price of  property,  (iii)
guarantees,  direct  or  indirect,  of  the  obligations  of any  other  Person,
including any such obligations secured by a Lien on any property of Lessee, (iv)
indemnity and reimbursement obligations,  including any such obligations arising
to any issuer of a letter of credit or similar  instrument,  and (v) obligations
to purchase or otherwise acquire any indebtedness of, or to advance monies to or
on behalf of, or make any investment in any other Person.

                  "Indemnified  Party" shall mean Lessor,  in its individual and
trust  capacities,  Owner  Participant and each Inspecting  Party (but, as to an
Inspecting  Party,  only in connection  with an  inspection  pursuant to Section
7(c)) and each of their respective Affiliates,  and the successors and permitted
assigns  of  each  of the  foregoing  and  the  directors,  officers,  corporate
stockholders, partners, employees, servants and agents of each of the foregoing.

                  "Inspecting Party" shall have the meaning specified in Section
7(c)(i).

                  "Insurance   Brokers"  shall  mean  any  independent  firm  of
internationally recognized insurance brokers reasonably acceptable to Lessor.

                  "Insured Party" shall mean each Indemnified Party.

                  "Landing  Gear" shall mean (i) each landing  gear  assembly of
the Aircraft  identified by serial number in Lease Supplement No. 1 and (ii) any
landing gear assembly  substituted for any such identified landing gear assembly
in accordance with this Agreement.

                  "Landing Gear Overhaul" means any full overhaul of any Landing
Gear to full manufacturer  specification and operating  condition,  and, for the
avoidance of doubt,  "full overhaul" does not mean only the replacement,  repair
or overhaul of any rotable components,  but includes any cleaning or replacement
of seals, any repair of brakes,  wheels or tires,  brake rods, struts or braces,
in each case, that occurs any more frequently than a full overhaul.

                  "Lease  Supplement"  shall mean any lease  supplement  entered
into in accordance with the terms hereof to this Agreement  substantially in the
form of Exhibit C; "Lease  Supplement No. 1" to be entered into between  Lessor,
Owner Participant and Lessee on the Delivery Date for the purpose of leasing the
Aircraft under and pursuant to the terms of this Agreement.

                  "Lease  Term"  shall mean the Basic Lease Term and the Renewal
Lease Term.

                  "Lender" means each of (a) any person or persons as the Lessor
may from time to time  advise  Lessee in  writing  to be the  person or  persons
providing  finance  to  the  Lessor  to  assist  it in  purchasing,  funding  or
refinancing the purchase by the Lessor of the Aircraft and including,  where the
context so admits or requires,  any agent or trustee for any one or more of such
persons;  and  (b)  any of  the  respective  successors,  permitted  assigns  or
permitted transferees of any one or more of any such persons.

                  "Lessee Jurisdiction" shall mean the United States.

                  "Lessor  Lien" shall mean any Lien of any Person  claiming by,
through  or under  Lessor  or Owner  Participant  which  arises  from any act or
omission  of  Lessor  or Owner  Participant,  other  than any  Lien  created  or
permitted hereby or by any other Operative Document.

                  "Letter of Credit" shall have the meaning specified in Section
3(d).

                  "Letter of Credit Bank" shall have the  meaning  specified  in
Section 3(d)(ii).

                  "Letter of Credit Deposit" shall have the meaning specified in
Section 3(d)(iii).

                  "Lien" means any mortgage, pledge, lien, charge,  encumbrance,
hypothecation,  lease, sublease, seizure, exercise of rights, security interest,
judgment,  writ,  order or other  claim  or right of  possession  of any kind or
nature  whatsoever,  however and wherever  created or arising and whether or not
consensual (including,  without limitation, any agreement or arrangement to give
or effect any of the foregoing and any conditional sale or other title retention
agreement).

                  "Life Limited  Component"  shall mean any part or component on
the Aircraft for which the  manufacturer  has specified a certain life in either
calendar time,  Cycles or Hours  accumulated  after which such part or component
must be replaced.

                  "Maintenance  Planning  Document"  shall  mean the  Boeing 737
maintenance planning document.

                  "Maintenance Reserves" shall have the meaning assigned thereto
in Section 14(a).

                  "Major Checks" shall mean any "D" check,  "C" check,  multiple
"C" check  (including  all lower  checks and all other items that are due before
the next "C" check),  heavy structural  inspection (or  equivalent),  structural
inspection or annual heavy  maintenance  visit or segment thereof  suggested for
commercial  aircraft  of  the  same  model  as  the  Aircraft  by  the  Airframe
Manufacturer as set out in the Approved Maintenance Program.

                  "Major Modifications"  includes,  but shall not be limited to:
(i) changes that alter the fundamental nature of the Aircraft as a passenger and
cargo  carrying  aircraft  or Cabin  modifications  that  materially  change the
interior  layout of the  Aircraft,  (ii)  changes to the  Aircraft  structure or
performance   of   the   Aircraft,   (iii)   changes   that   adversely   affect
interchangeability  or  replaceability  of Parts, (iv) substitution of different
types of equipment  or  accessories  which are not  equivalent  in cost,  value,
remaining  useful  life  and/or  operational  capability  to  the  equipment  or
accessories  being replaced,  (v) changes that invalidate or impair any warranty
with respect to the Aircraft or any Engine or Part,  (vi) changes that adversely
affect the  eligibility of the Aircraft to obtain an  Airworthiness  Certificate
from the Aviation Authority or (vii) any changes that result in a variation from
the original  type  certificate  for the  Aircraft,  but shall  exclude  changes
pursuant  to ADs  and SBs  provided  by the  Airframe  Manufacturer  which  have
Aviation Authority approval and all Required Modifications.

                  "Modification"   shall   mean  any   modification,   addition,
alteration, removal or other change, including, without limitation, ADs and SBs,
to the Airframe, any Engine or any Part.

                  "Operative  Documents"  shall mean this Agreement,  each Lease
Supplement, the Trust Agreement and any other document,  agreement or instrument
to which  Lessee is a party,  or to which it consents  in  writing,  or which is
delivered  by or on behalf of Lessee and which is entered  into or  delivered in
connection  with  any  of  the  foregoing  or  with  any  of  the   transactions
contemplated by the foregoing.

                  "Parts" shall mean any and all appliances,  parts, components,
modules,  communications  equipment,  computers,   instruments,   appurtenances,
accessories,  furnishings and other equipment of whatever nature  (including the
APU, the Landing Gear but excluding  complete Engines or engines) which may from
time to time be  incorporated or installed in or attached to the Airframe or any
Engine,  so long as title thereto  shall remain vested in Lessor,  in accordance
with the terms hereof.

                  "Past Due Rate"  shall mean a rate per annum  equal to 5% over
the Base Rate.

                  "Permitted Jurisdiction"  shall  mean  any  country  listed in
Schedule 1.

                  "Permitted  Lien"  shall mean any Lien  referred to in clauses
(i) through (vi) of Section 8(a).

                  "Person"  shall  mean  any  individual,   corporation,  trust,
partnership, unincorporated association, joint venture, association, joint-stock
company, government or Government Entity.

                  "Proposal  Letter"  shall  mean the Letter  Agreement  between
Lessee and Owner Participant dated October 23, 1998.

                  "Purchase Agreement" shall mean the Purchase Agreement  Number
2198 between Heller Financial, Inc and the Airframe Manufacturer dated September
16, 1998.

                  "Reconfiguration"  shall mean configure to 136 coach passenger
seats  with   flotation   type  seat  bottom   cushions  and  provide  LOPA  and
certification for interior reconfiguration; rearrange cabin emergency equipment;
paint  aircraft  exterior  to conform to  Frontier  provided  drawings;  replace
existing  Allied  Signal wheels and brakes with  Goodrich;  convert fuel related
systems to U.S.  standards;  reprogram the Electronic  Flight  Instrument System
(EFIS),  Electronic  Horizontal  Situation  Indicator (EHSI),  Flight Management
System (FMS),  and the Ground  Proximity  Warning System (GPWS);  perform Boeing
Service  Bulletin  ###-##-####  to operate  CFM56-3C1  engines at 20,000  pounds
thrust; deactivate ACARS; deactivate the HF communications system; reprogram the
SelCal decoder;  deactivate the passenger video and audio entertainment systems;
deactivate the prerecorded passenger  announcement system; replace control wheel
switches with  switches  that are spring  loaded to the OFF  position;  load the
Frontier  provided FMS  Navigational  Data Base; and such other  reconfiguration
items as may be agreed upon in advance by Lessor.

                  "Renewal  Rent" shall mean the rent  payable for the  Aircraft
during the Renewal Lease Term, if any, determined pursuant to Section 3(b)(ii).

                  "Renewal  Rent Date"  shall mean with  respect to the  Renewal
Lease  Term,  if any,  (i) the Basic Term  Expiry  Date,  and (ii) each  monthly
anniversary  of the  Rent  Commencement  Date  (provided  that  if  there  is no
corresponding  date in a particular  month, the Renewal Rent Date for such month
shall be the last day of such month) occurring during the Renewal Lease Term.

                  "Renewal Lease Term" shall mean the period,  if any, for which
the  leasing of the  Aircraft  hereunder  has been  renewed  pursuant to Section
3(a)(ii).

                  "Rent" shall mean, collectively, Basic Rent, Renewal Rent  and
Supplemental Rent.

                  "Rent  Commencement Date" shall mean the later of (i) December
15, 1998 and (ii) the date of completion of the  Reconfiguration,  provided that
this clause (ii) shall not extend beyond the fifteenth  (15th) day following the
Delivery Date.

                  "Replacement  Engine" shall mean an Engine  Manufacturer model
CFM56-3C-1 engine (or an improved model having a modification  status, value and
utility at least equal to such an Engine  Manufacturer  model CFM56-3C-1 engine)
(including, without limitation, all warranty rights with respect to such engine)
suitable for installation and use on the Airframe without impairing the value or
utility of the Aircraft,  and with neither Engine Flight Hours nor Engine Cycles
since the last Basic Shop Visit  greater than the Engine  Flight Hours or Engine
Cycles  of the  Engine  it is  replacing  (and  with an  equal or  greater  life
remaining on each Life Limited Component),  and which has a value and utility at
least  equal to the  Engine it is  replacing  (assuming  such  Engine was in the
modification  status,   condition  and  repair  required  by  the  terms  hereof
immediately  prior to being replaced) and which has been  maintained,  serviced,
repaired and  overhauled in  substantially  the same manner as is required under
this Agreement as to "Engines" and without  discrimination  in any way, title to
which shall have been conveyed to Lessor pursuant to the terms hereof,  together
with all Parts relating to such Engine so long as the same shall be incorporated
or installed  in or attached to such Engine  leased  hereunder,  and any and all
Parts  removed  therefrom  so long as title to such  removed  Parts shall remain
vested in Lessor in accordance with the terms hereof.

                  "Required Modifications" has the meaning specified in  Section
10(c)(ii)(B).

                  "Return"  shall mean the return of the  Aircraft  by Lessee to
Lessor at the Return  Location in the condition and manner required by Section 7
and the other provisions of this Agreement and the other Operative Documents, as
evidenced by the execution by Lessor,  and the delivery to Lessee, of the Return
Receipt referred to in Section 7(f).

                  "Return  Date" shall mean the date upon which the  Aircraft is
returned to Lessor pursuant to and in accordance with Section 7 hereof.

                  "Return  Location"  shall  mean such  location  in the  United
States as may be  designated  by  Lessor,  or such  other  location  as shall be
mutually agreed between Lessor and Lessee.

                  "Return Receipt" shall have the meaning specified in Section 7
(f).

                  "SB"  shall mean any  service  bulletin  or service  letter as
issued by the Airframe Manufacturer,  Engine Manufacturer or the manufacturer of
any appliances or Parts.

                  "Scheduled  Delivery Date" shall mean November 23, 1998 (local
time at the Delivery Location),  or if such date is not a Business Day, the next
succeeding Business Day (such date to be extended in the event of a delay in the
delivery of the Aircraft as a result of additional  work being  performed on the
Aircraft at the request of Lessee), provided that if the conditions precedent of
Lessor  contained in Section 4 hereof are not met, or waived by Lessor,  on such
date, (i) Lessor and Lessee shall  cooperate and, as applicable,  use reasonable
efforts to satisfy such conditions  precedent as soon as practicable  after such
date and (ii) the next Business Day on which such conditions  precedent are met,
or waived by Lessor, shall be the Scheduled Delivery Date.

                  "Security Deposit" shall have the meaning specified in Section
3(d).

                  "State of Registration" shall mean the United States.

                  "Stated Amount" shall have the meaning specified in  Section 3
(d)(ii).

                  "Stipulated Deductible Amount" shall mean US$250,000.

                  "Stipulated Loss Value" shall mean US$36,000,000.

                  "Supplemental  Rent" shall mean all amounts,  liabilities  and
obligations  (other than Basic Rent and  Renewal  Rent)  which  Lessee  assumes,
agrees or otherwise  becomes  liable to pay to Lessor,  Owner  Participant,  any
Indemnified  Party or any  other  Person  hereunder  or under  any of the  other
Operative Documents, including, without limitation, payments of or in respect of
the Stipulated Loss Value, Expenses,  Maintenance Reserves,  Taxes, Break Amount
or other amounts payable under any indemnities.

                  "Taxes"  shall  mean  any  and  all  present  or  future  fees
(including,  without limitation,  license, documentation and registration fees),
taxes (including,  without limitation,  income,  receipts,  sales,  rental, use,
turnover,  value-added,  property (tangible or intangible),  excise,  franchise,
capital,  user, transfer,  doing business and stamp taxes or duties),  licenses,
levies,  imposts,   duties,   recording  charges  or  fees,  or  other  charges,
assessments,  deductions or withholdings of any nature whatsoever, together with
any  assessments,  penalties,  late  payment  charges,  notary  charges,  fines,
additions  to  tax or  other  similar  liabilities  with  respect  to any of the
foregoing and interest on any of the foregoing.

                  "Tax Indemnitee"  shall mean Lessor,  Owner  Participant,  any
Affiliate of Owner Participant,  any successor or permitted assign of any of the
foregoing or any Affiliate that is a member of a group that files a consolidated
or combined  tax return that  includes  Owner  Participant,  and the  directors,
officers, employees, servants and agents of each of the foregoing.

                  "Technical  Acceptance  Certificate"  shall  have  the meaning
specified in Section 2(b)(ii).

                  "Time  Controlled  Component"  shall mean any  component  that
Lessee  monitors with an interval  pursuant to which action is taken to inspect,
replace and/or  overhaul such component and that is limited by Airframe  Cycles,
Airframe Flight Hours and/or calendar time.

                  "Trust  Agreement" means that certain Trust Agreement dated as
of November 23, 1998 between Owner Participant and Owner Trustee.

                  "U.S.  Money Center Bank" shall mean U.S. Bank  Corporation or
such  other  bank as  shall  be  acceptable  to  Owner  Participant  in its sole
discretion.

                  "Wet  Lease"  shall mean any  arrangement  whereby  the Lessee
agrees to  furnish  the  Aircraft  to a third  party and  pursuant  to which the
Aircraft  shall be (i)  operated  solely  by  regular  employees  of the  Lessee
possessing  all current  certificates  and  licenses  required  by the  Aviation
Authority and  applicable  laws and (ii)  maintained by the Lessee in accordance
with its normal maintenance practices and the terms of this Lease.

                  (b)  Construction.

                  (i) In  this  Agreement,  unless  the  contrary  intention  is
stated, a reference to:

                                    (u)  Each  of  "Lessor,"   "Lessee,"  "Owner
                  Participant" or any other Person includes,  without  prejudice
                  to the provisions of this Agreement, any successor in interest
                  to it and  any  permitted  assignee  and,  in the  case of any
                  Government  Entity, any Government Entity succeeding to all or
                  any of its functions;

                                    (v)  Words importing  the plural include the
                  singular and vice versa;

                                    (w) Any  document or any law  includes  that
                  document or that law, as the case may be, as amended, modified
                  or  supplemented  from  time to time in  accordance  with  its
                  terms,  and any  document  entered  into or any law enacted or
                  promulgated,   as  the  case  may  be,  in   substitution   or
                  replacement therefor;

                                    (x)  A  "Law"  (1)   includes  any  statute,
                  decree,  constitution,  regulation,  decision, finding, order,
                  rule,  judgment or directive  of any  Government  Entity,  (2)
                  includes any treaty, pact, compact or other agreement to which
                  any  Government  Entity is a signatory or party,  (3) includes
                  any judicial or  administrative  interpretation or application
                  thereof,  and (4) is a reference  to any of the  foregoing  as
                  amended, substituted, reissued or reenacted;

                                    (y)   The   words   "this    Lease,"   "this
                  Agreement,"   "hereby,"   "herein,"   "hereto,"  "hereof"  and
                  "hereunder"  and  words of  similar  import  when used in this
                  Agreement  refer  to  this  Agreement  as a  whole  including,
                  without  limitation,  the  Schedules  and  Exhibits,  and  all
                  Annexes thereto, and not to any particular  provisions of this
                  Agreement; and

                                    (z) A Section or an Exhibit or a Schedule is
                  a reference  to a section  of, or an exhibit or  schedule  to,
                  this Agreement.

                  (ii) Headings used in this Agreement are for convenience  only
and  shall  not  in any  way  affect  the  construction  of,  or be  taken  into
consideration in the interpretation of, this Agreement.

         SECTION 2.  Lease of Aircraft.

                  (a)  Agreement  to  Lease.  Subject  to  satisfaction  of  the
conditions  set forth in  Section 4 and to the  provisions  of 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, on the
Scheduled Delivery Date, in each case in the condition  specified in Schedule 2,
but  otherwise  in an "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,  Owner  Participant
and Lessee of Lease Supplement No. 1. Lessee hereby agrees that its execution of
Lease Supplement No. 1 shall, without further act, constitute  unconditional and
irrevocable  acceptance  by  Lessee of the  Aircraft  for all  purposes  of this
Agreement.

                  (b)  Delivery Conditions; Inspections.

                  (i) Owner  Participant  shall use  reasonable  best efforts to
procure that the Airframe Manufacturer complies with its obligations with regard
to delivery of the Aircraft (the "Delivery") pursuant to the Purchase Agreement.
Lessee  shall be  entitled  to  participate  in the  inspection  and test flight
relating to the redelivery of the Aircraft from the Airframe  Manufacturer which
inspection shall take place at the Delivery  Location.  Lessee shall be entitled
to have one  representative  on board as observer of any test  flight.  Lessee's
participation  in the  inspection  and test flight under the Purchase  Agreement
shall satisfy Lessor's obligations to provide Lessee with reasonable opportunity
to verify that the Aircraft meets the Delivery Conditions.

                  (ii)  Upon  completion  of  the  inspection  and  test  flight
referred  to above,  Lessee  agrees to execute and deliver to Lessor a technical
acceptance certificate (the "Technical Acceptance Certificate") substantially in
the  form  attached  hereto  as  Exhibit  A.  Upon  execution  of the  Technical
Acceptance Certificate,  Lessee shall be deemed to have found the Aircraft to be
in acceptable  condition for delivery  hereunder  (and shall not be permitted to
refuse to accept  delivery of the Aircraft on the  Delivery  Date on that basis)
except to the extent  damage or loss to the Aircraft or any Part thereof  occurs
during the period following  execution of the Technical  Acceptance  Certificate
and prior to the Delivery  Date  (unless  Lessor has repaired any such damage or
loss prior to the Delivery Date).

                  (iii) Lessor,  Owner  Participant  and Lessee shall  cooperate
such that the inspection and delivery  procedures  shall minimize the tax impact
to such parties under Section 9(c) hereof.

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

                  (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  (including,   without
limitation,  a failure by the Airframe  Manufacturer  to perform its obligations
regarding delivery pursuant to the Purchase Agreement).

                  (ii)  Lessor  shall use  reasonable  efforts  to give  advance
written notice to Lessee of any change in the Scheduled 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 Purchase Agreement 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
"Scheduled  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,  except
that  Lessor  shall  be  obligated  to  return  the  Security  Deposit  paid (or
delivered) by Lessee prior to such  termination.  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.

                  (d) Bridging  Maintenance.  Following delivery of the Aircraft
to Lessee, Lessee, except as explicitly set forth in Schedule 2 hereto, shall be
solely responsible for:

                  (i)  causing the Aircraft to be listed on  Lessee's  Operating
Specifications; and

                  (ii) subject to the following sentence, performing, or causing
to be  performed,  all bridging  maintenance  work  necessary to allow Lessee to
operate the Aircraft in regularly scheduled revenue passenger service.

Lessee may, following delivery of the Aircraft, arrange for the Reconfiguration.
Upon completion of the Reconfiguration and submission to Owner Participant of an
invoice therefor  setting out in reasonable  detail the applicable costs related
thereto,  Owner  Participant  shall  remit to the Lessee an amount  equal to the
lesser of the actual cost of the Reconfiguration and US$300,000. The actual cost
of the Reconfiguration, to the extent in excess of US$300,000, shall be the sole
responsibility of the Lessee.

         SECTION 3.  Lease Term; Rent; Payments.

                  (a)  Lease Term.

                  (i) The Basic Lease Term shall  commence on the Delivery  Date
and,  unless this  Agreement is terminated  earlier  pursuant to the  provisions
hereof, shall end on the Basic Term Expiry Date.

                  (ii)  Renewal  Lease  Term.  Lessee  shall  have the option to
extend the Lease Term beyond the Basic Term  Expiry Date for one (1)  additional
term  consisting of twelve (12) months (the "Renewal  Lease Term").  The Renewal
Lease Term shall  commence  on the Basic  Term  Expiry  Date and end on the date
twelve  (12)  months  following  the  commencement  of the  Renewal  Lease Term;
provided  that if the last day of the Renewal Lease Term shall not be a Business
Day,  then the Renewal  Lease Term shall expire on the next  preceding  Business
Day. Such option may be exercised only by delivery of irrevocable written notice
to Lessor at least one hundred  eighty (180) days prior to the expiration of the
Basic Lease Term.  The Renewal Lease Term shall be governed by the terms of this
Agreement.  As a condition  precedent  to Lessee's  right to elect to extend the
Lease Term,  no Event of Default may be  occurring at the time of such notice or
such extension. Exercise of Lessee's option to extend the Lease Term pursuant to
this Section  3(a)(ii) shall not prejudice the rights of Lessor arising upon the
occurrence of a Default or an Event of Default,  including,  without limitation,
the right of Lessor,  upon the  occurrence of an Event of Default,  to terminate
this Lease at any time after such occurrence.

                  (b)  Basic Rent and Renewal Rent.

                  (i)  Basic  Rent.  During  the  Basic  Lease  Term,  from  and
including the Rent Commencement  Date, Lessee shall pay rent for the Aircraft in
advance  on each  Basic  Rent Date  during  the Basic  Lease  Term in advance in
immediately  available Dollars, in forty (40) consecutive  monthly payments,  in
the amount set forth in Exhibit B hereto.

                  (ii) Renewal  Rent.  Lessee shall pay rent for the Aircraft on
each Renewal Rent Date during the Renewal  Lease Term in advance in  immediately
available Dollars and in the amount 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 or in respect of the Stipulated Loss Value, Break
Amount  and all other  amounts of  Supplemental  Rent when and as the same shall
become due and owing.  In the event of any  failure on the part of Lessee to pay
any Supplemental  Rent when due, Lessor and each other  Indemnified  Party shall
have all  rights,  powers  and  remedies  provided  for  herein  or in any other
Operative  Document,  or at law or in  equity  or  otherwise,  in  the  case  of
nonpayment of Basic Rent or Renewal Rent. Lessee also shall pay to Lessor, or to
whomsoever shall be entitled thereto,  on demand,  as Supplemental  Rent, to the
extent permitted by applicable law, interest at the Past Due Rate on any part of
any  installment  of Basic Rent or Renewal Rent not paid when due for any period
for which the same shall be overdue and on any payment of Supplemental  Rent (to
the extent  permitted by applicable  law) not paid when due for the period until
the same shall be paid.

                  (d)  Security Deposit.

                  (i) Initial  Deposit.  In connection with the execution of the
Proposal Letter,  Lessee delivered to the Owner  Participant an initial security
deposit  in the amount of  US$260,000  (the  "Initial  Security  Deposit").  The
Initial  Security  Deposit  shall  be and  remain  the  property  of  the  Owner
Participant unless the Delivery Date fails to occur due for reasons other than a
default by Lessee,  in which case the Initial Security Deposit shall be returned
to Lessee.

                  (ii) In  connection  with  the  Delivery,  and as a  condition
thereto,  Lessee shall deliver to the Owner  Participant an additional  security
deposit in the amount of US$260,000  (the  "Additional  Security  Deposit",  and
together with the Initial Security Deposit, the "Security Deposit").  So long as
no Default  shall have occurred and is  continuing,  Lessee may, in exchange for
the  Security  Deposit,  cause  an  irrevocable  letter  of  credit  in form and
substance  satisfactory  to the Lessor (the "Letter of Credit") issued by a U.S.
Money Center Bank (the  "Letter of Credit  Bank") to be issued in favor of Owner
Participant (or its designee) in an amount equal to Five Hundred Twenty Thousand
Dollars   (US$520,000)   (the  "Stated  Amount")  on  the  following  terms  and
conditions:

                  (A)      Drawings  under any  Letter of Credit  may be made by
                           Owner  Participant  (or its  designee)  in part or in
                           full  upon  the  occurrence  of any of the  following
                           (each, a "Drawing Event"):

                           (1)      if Lessor or Owner  Participant  receives  a
                                    notice  from the Letter of Credit  Bank that
                                    it will not renew such Letter of Credit, and
                                    Lessee  fails to provide  Owner  Participant
                                    (or its designee)  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)      Thirty (30) days after the Expiry Date,  and provided
                           Lessee shall have  satisfied  all of its  obligations
                           hereunder    (other   than    potential    contingent
                           obligations  (of which  Lessor and Owner  Participant
                           has no knowledge)  under the indemnity  provisions of
                           this Agreement), Owner Participant 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 Owner Participant (or its designee) makes
a drawing on the  Letter of Credit in excess of the amount  then owing to Lessor
and Owner  Participant  hereunder,  such  excess  amount  shall be  treated as a
deposit  held  by  Lessor  and  Owner   Participant  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 has occurred and is continuing,  Owner  Participant
(or its designee)  shall return the Letter of Credit  Deposit (net of any amount
of the  Letter  of Credit  Deposit  applied  by Owner  Participant  as  provided
pursuant to Section 3(d)(vi)) to Lessee.

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

                  (v) Each of the  Security  Deposit  and the  Letter  of Credit
Deposit (collectively, the "Deposit") shall be held by the Owner Participant (or
its  designee)  during  the Lease  Term as  security  for the full and  punctual
performance  of all of  Lessee's  obligations  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.  Lessee
acknowledges  that the Owner  Participant  (or its  designee)  may commingle the
Deposit with its general funds. Lessee hereby grants to the Owner Participant or
its  designee,  as  applicable,  a security  interest  by way of first  priority
perfected  security  interest  in its  interest,  if any, in the Deposit and the
proceeds thereof and hereby grants to the Owner Participant or its designee,  as
applicable,  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 the Deposit held by the Owner  Participant  or its
designee,  as  applicable.  At the end of the Lease Term,  upon  performance  by
Lessee,  satisfactory  to the Owner  Participant of all of Lessee's  obligations
hereunder (other than potential  contingent  obligations (of which Lessor has no
knowledge)  under  the  indemnity  provisions  of  this  Agreement),  the  Owner
Participant or its designee, as applicable,  shall refund any remaining Security
Deposit to Lessee. The Owner Participant's  obligations in respect of the return
of the Security Deposit shall be that of a debtor of Lessee, not as a trustee or
other fiduciary.

                  (vi) If a Default shall have occurred and be  continuing,  the
Owner Participant or its designee, as applicable,  may, but shall not be obliged
to,  apply the Deposit and any amount  drawn under the Letter of Credit 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 or Owner  Participant  as a result of any Default or
utilize the Security  Deposit and any amount drawn under the Letter of Credit in
whole or in part to perform any of Lessee's  obligations under this Agreement or
to otherwise  remedy any  circumstance  giving rise to a Default,  including the
redelivery  condition of the Aircraft,  without prejudice to any other remedy of
Lessor or Owner  Participant  (it being  understood  that an  application of the
Security  Deposit  and any amount  drawn  under the  Letter of Credit  shall not
constitute a cure of any Default  unless and until  Lessee  shall have  complied
with the following sentence). In any such event Lessee shall, on demand, restore
the full amount of the Security  Deposit by payment to the Owner  Participant of
an amount in  immediately  available  Dollars  equal to the  amount by which the
balance of the Security  Deposit has been reduced  under this clause (iv) or, if
applicable, increase the amount available to be drawn under the Letter of Credit
to the Stated Amount.

                  (e) Payments in General.

                  (i) All  payments of Rent shall be made  directly by Lessee in
Dollars by wire transfer of immediately  available funds on the date for payment
to the  account  for Lessor  specified  in column (2) of  Schedule 3, or to such
account as Lessor shall otherwise direct by notice to Lessee.

                  (ii) If the due date for any  payment of Basic  Rent,  Renewal
Rent, Break Amount or Stipulated Loss Value is not a Business Day, then,  unless
otherwise  provided herein,  such payment shall be made on the Business Day next
preceding  such due date with the same  force and  effect as if made on such due
date and without adjustment in the amount due.

                  (iii)  All  amounts  of  interest  or  amounts  calculated  by
reference to interest  payable  under any of the  provisions  of this  Agreement
shall be  calculated  on the basis of the actual  number of days  elapsed  and a
360-day year.

                  (f) No  Deductions  or  Withholdings.  All  payments by Lessee
under this  Agreement  or any other  Operative  Document  to Lessor or any other
Indemnified  Party,  including  payments in respect of Basic Rent, Renewal Rent,
Supplemental Rent, interest,  fees, indemnities or any other item, shall be made
in full without any counterclaim, delay, deduction or withholding of any kind or
nature  whatsoever  (including,  without  limitation,  in respect of any setoff,
counterclaim,  Taxes, insurance charges, monetary transfer fees or any costs and
expenses arising in connection with the use and operation of the Aircraft).

         SECTION 4. Conditions  Precedent.  The obligations of Owner Participant
to enter into the  transactions  contemplated  hereby and of Lessor to lease the
Aircraft to Lessee are subject to the fulfillment to the  satisfaction of Lessor
and Owner  Participant,  and  Lessee  shall  (with  respect  to such  conditions
precedent as are within Lessee's  reasonable  control) procure such fulfillment,
on or prior to the Delivery Date (or, if another date is specified  below, on or
prior to such date) of the following conditions precedent:

                  (a) Delivery of Aircraft. The Airframe Manufacturer shall have
performed all of its  obligations  under the Purchase  Agreement with respect to
the delivery of the Aircraft.

                  (b) Delivery Conditions. Prior to the Scheduled Delivery Date,
the Aircraft shall have met all of the Delivery Conditions set forth on Schedule
2 hereto.

                  (c)  Approved  Maintenance  Program.  Prior  to the  Scheduled
Delivery  Date,  Lessee shall have  provided to Lessor and Owner  Participant  a
summary of the  Approved  Maintenance  Program and such  information  reasonably
requested  by  Lessor  or Owner  Participant  regarding  the  proposed  Approved
Maintenance  Program,  in  each  case,  for  the  Aircraft  (including,  without
limitation,  evidence  that the  Aviation  Authority  has  approved the Approved
Maintenance  Program and such minimum  equipment  list),  and Owner  Participant
shall have reviewed and approved such Approved Maintenance Program.

                  (d) [Intentionally reserved].

                  (e)  Agreements  and  Documents.   The  following   documents,
agreements,  instruments  or  certificates  shall  have  been  duly  authorized,
executed and delivered by the respective party or parties thereto, shall each be
satisfactory in form and substance to Lessor and Owner  Participant and shall be
in full force and effect and in the English  language and executed  counterparts
shall  have been  delivered  to Lessor  and  Owner  Participant  and/or to their
respective counsel:

                  (i)  this Agreement;

                  (ii)  Lease  Supplement  No. 1  covering  the   delivery   and
acceptance of the Aircraft and dated the Delivery Date;

                  (iii) (y) a Technical  Acceptance  Certificate and an Aircraft
Status  Report  (as of the  Delivery  Date)  and  (z) a  delivery  receipt  (the
"Delivery Receipt") in the form of Annex A to Schedule 2;

                  (iv) (y) a  Certificate  of  Insurance  in form and  substance
         satisfactory  to Lessor  and  Owner  Participant  and  which  otherwise
         complies with the  requirements of Section 15 and (z) a Broker's Letter
         in form and substance reasonably satisfactory to Owner Participant from
         the   Insurance   Brokers  and  which   otherwise   complies  with  the
         requirements of Section 15, together with such other evidence as Lessor
         shall request as to the due compliance by Lessee with Section 15;

                  (v) (w) an opinion of Ray, Quinney & Nebeker,  special counsel
         to the Owner  Trustee,  (x) an  opinion  of Arthur  T.  Voss,  in-house
         counsel  to Lessee in form and  substance  reasonably  satisfactory  to
         Owner  Participant,  (y) an opinion of  Daugherty,  Fowler,  Perigrin &
         Haught,   special  FAA  counsel,  in  form  and  substance   reasonably
         satisfactory to Lessor and Owner Participant, and in each case covering
         such  other  matters  as Lessor  or Owner  Participant  may  reasonably
         request;

                  (vi)  copies  of  documents  where  available  evidencing  the
         issuance of each  Authorization that may be required in connection with
         the remittance to Lessor and any other intended recipient of any amount
         payable under this Agreement,  or any other Operative  Document and the
         performance by Lessee of any of its respective obligations hereunder or
         thereunder;

                  (vii)   certified   copies   of   Lessee's    Certificate   of
         Incorporation,  bylaws and any other organizational  documents plus any
         subsequent amendments thereto;

                  (viii)  copies of  resolutions  of the Board of  Directors  of
         Lessee or other written evidence of appropriate  corporate action, duly
         authorizing or ratifying the lease of the Aircraft  hereunder,  and the
         execution,  delivery and  performance  of this  Agreement and the other
         Operative Documents,  certified by a duly authorized officer of Lessee,
         in the case of any such  resolutions,  to have  been  passed  at a duly
         convened  and  constituted  meeting,  and  in  each  case  to be  true,
         accurate,  complete,  unamended  and in full force and effect as of the
         Delivery Date;

                  (ix)  certificate  signed  by a  duly  authorized  officer  of
Lessee:

                                    (u)  certifying  the  incumbency,   and  the
                  accuracy  of  the   signatures,   of  the  Person  or  Persons
                  authorized to execute and deliver the  Operative  Documents on
                  behalf of Lessee;

                                    (v) stating  that  Lessee's  representations
                  and  warranties  contained  in this  Agreement  and each other
                  Operative Document are and shall be true and correct on and as
                  of the  Delivery  Date as  though  made on and as of such date
                  (unless  made as of a  specified  date,  in  which  case  such
                  representations and warranties shall be true and correct as of
                  such specified date);

                                    (w)  stating  that no  Default  or  Event of
                  Default has occurred and is continuing or will result from the
                  lease of the Aircraft under this Agreement; and

                  (x)  such  other  documents,   agreements,   certificates  and
         evidence with respect to the Aircraft,  Lessee,  any Persons acting for
         Lessee  or  otherwise  as Lessor or Owner  Participant  may  reasonably
         request  in  connection  with  the  consummation  of  the  transactions
         contemplated  by this Agreement or the other Operative  Documents,  the
         taking  of all  proceedings  (corporate  or  otherwise)  in  connection
         therewith  or  compliance  with all the  conditions  set  forth in this
         Section 4.

                  (f) Delivery Date  Conditions.  Each of the following shall be
true on the Delivery Date:

                           (i)  Lessee  shall  have  paid in full (x) the  first
         installment of Basic Rent and (y) the Security Deposit;

                           (ii) all  representations  and  warranties  of Lessee
         hereunder  and under the other  Operative  Documents  shall be true and
         correct on and as of the Delivery Date as though made on and as of such
         date  (unless  made  as  of  a  specified  date,  in  which  case  such
         representations  and  warranties  shall be true and  correct as of such
         specified date);

                           (iii) Lessee shall have performed,  complied with and
         observed all its obligations, covenants and agreements set forth herein
         and in each other  Operative  Document which it is required to perform,
         comply with or observe prior to or on the Delivery Date;

                           (iv) no  Default,  Event of Default or Event of Loss,
         or event,  condition  or  circumstance  that  would  with the giving of
         notice or  passage  of time or both  become or give rise to an Event of
         Loss, shall have occurred;

                           (v) (y) no material  adverse  change has  occurred in
         the  financial  condition or prospects of Lessee from that set forth in
         its unaudited  consolidated  financial  statements  dated September 30,
         1998 and (z) nothing has occurred  between  September  30, 1998 and the
         Delivery Date which could  materially and adversely  affect the ability
         of Lessee to carry on its business or to perform its obligations  under
         any Operative Document to which it is or will be a party; and
                           (vi) Owner  Participant shall have received a copy of
         Lessee's  consolidated   financial  statements  referenced  in  Section
         5(b)(x) hereof.

                  (g)  Registration.  The Aircraft shall be registered with  the
Aviation Authority in the name of Lessor.

                  (h)  Necessary  Government  Actions.  All  appropriate  action
required to have been taken prior to the Delivery Date by the Aviation Authority
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).

                  (i) No Government  Actions. 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.

                  (j) No Change in Law. 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 or Owner Participant, would make it a
violation of a law or  regulations  for Lessor or Owner  Participant to execute,
deliver and  perform  its  obligations  hereunder  or under any other  Operative
Document to which it is a party.

The conditions precedent specified in this Section 4 are for the sole benefit of
Lessor and Owner  Participant  and may be waived or deferred in whole or in part
and with or without  condition by Lessor and Owner  Participant.  If any of such
conditions  is not  satisfied  or waived in  writing  by Lessor on and as of the
Delivery Date and Lessor, nonetheless delivers the Aircraft to Lessee hereunder,
Lessee hereby  covenants and agrees to satisfy,  or cause the  satisfaction  of,
such outstanding conditions within thirty days after the Delivery Date.

         SECTION 5.  Representations and Warranties.

                  (a)  Disclaimer; Representations, Warranties and  Covenants of
Lessor and Owner Participant.

                           (i)  EXCEPT AS  SPECIFICALLY  SET FORTH IN ANY OF THE
         OPERATIVE  DOCUMENTS,  THE AIRCRAFT SHALL BE DELIVERED UNDER THIS LEASE
         "AS IS, WHERE IS" AND LESSEE  AGREES,  ACKNOWLEDGES  AND ACCEPTS  THAT,
         NEITHER  LESSOR NOR ANY OTHER  INDEMNIFIED  PARTY MAKES ANY WARRANTY OR
         REPRESENTATION WHATSOEVER CONCERNING THE AIRCRAFT OR OTHERWISE. LESSEE,
         FOR THE BENEFIT OF LESSOR AND EACH  INDEMNIFIED  PARTY,  HEREBY WAIVES,
         RELEASES  AND  RENOUNCES  ALL  WARRANTIES,  REPRESENTATIONS  AND  OTHER
         INDEMNITIES,  OBLIGATIONS  AND  LIABILITIES  OF  LESSOR  AND ANY  OTHER
         INDEMNIFIED  PARTY AND ANY  RIGHTS,  CLAIMS  AND  REMEDIES  OF  LESSEE,
         EXPRESS OR IMPLIED,  ARISING BY LAW OR  OTHERWISE,  IN EACH CASE,  WITH
         RESPECT  TO ANY  NONCONFORMANCE  OR  DEFECT IN THE  AIRCRAFT,  ANY PART
         THEREOF OR ANY OTHER THING DELIVERED,  LEASED, CHARTERED OR TRANSFERRED
         UNDER THIS LEASE, OR OTHERWISE INCLUDING, WITHOUT LIMITATION:

                  (A) ANY WARRANTY AS TO THE  AIRWORTHINESS,  VALUE,  CONDITION,
         DESIGN, OPERATION OF, OR THE QUALITY OF THE MATERIAL OR WORKMANSHIP IN,
         OR ANY DEFECT IN, THE AIRCRAFT, THE AIRFRAME, ANY ENGINE, ANY PART, ANY
         DATA, ANY AIRCRAFT DOCUMENTATION OR ANY OTHER THING DELIVERED,  SOLD OR
         TRANSFERRED HEREUNDER;

                  (B) ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR USE
         FOR A PARTICULAR PURPOSE;

                  (C) ANY EXPRESS OR IMPLIED WARRANTY AS TO TITLE;

                  (D) ANY IMPLIED WARRANTY ARISING FROM  COURSE OF  PERFORMANCE,
         COURSE OF DEALING OR USAGE OF TRADE;

                  (E) ANY OBLIGATION OR LIABILITY WITH RESPECT TO ANY  ACTUAL OR
         ALLEGED PATENT OR OTHER INTELLECTUAL PROPERTY INFRINGEMENT;

                  (F) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT,
         WHETHER OR NOT IN STRICT OR  ABSOLUTE  LIABILITY  OR  ARISING  FROM THE
         NEGLIGENCE  OF  LESSOR OR ANY  INDEMNIFIED  PARTY,  ACTUAL OR  IMPUTED,
         ACTIVE OR PASSIVE; AND

                  (G) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS
         OR DAMAGE TO THE AIRCRAFT, THE AIRFRAME, ANY ENGINE, ANY PART, ANY DATA
         OR ANY OTHER THING,  FOR ANY LOSS OF USE,  REVENUE OR PROFIT OR FOR ANY
         OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.

                           (ii) DELIVERY BY LESSEE TO LESSOR OF LEASE SUPPLEMENT
                  NO. 1 WILL BE  CONCLUSIVE  PROOF AS BETWEEN  LESSOR AND LESSEE
                  (BUT WITHOUT PREJUDICE TO ANY CLAIMS LESSOR OR LESSEE MAY HAVE
                  AGAINST THE AIRFRAME MANUFACTURER,  ENGINE MANUFACTURER OR ANY
                  VENDOR WITH RESPECT TO THE AIRCRAFT)  THAT LESSEE HAS EXAMINED
                  AND INSPECTED THE AIRCRAFT, THAT THE AIRCRAFT AND THE AIRCRAFT
                  DOCUMENTATION  ARE  SATISFACTORY TO LESSEE AND THAT LESSEE HAS
                  IRREVOCABLY  AND  UNCONDITIONALLY  ACCEPTED  THE  AIRCRAFT FOR
                  LEASE HEREUNDER WITHOUT ANY RESERVATIONS WHATSOEVER.

                           (iii)  Each  of  Lessor  and  the  Owner  Participant
                  represents   and  warrants  that  on  the  Delivery  Date  and
                  throughout  the  Lease  Term,  so long as no Event of  Default
                  shall  have  occurred  and  be  continuing,  except  as may be
                  expressly provided in this Agreement or in any other Operative
                  Document to which Lessee is a party or consents,  it shall not
                  take  or  cause  to be  taken  any  action  inconsistent  with
                  Lessee's right of quiet  enjoyment of, or otherwise in any way
                  interfere with or interrupt, the continuing use, operation and
                  possession  of the  Aircraft,  the  Airframe  or any Engine by
                  Lessee.

                           (iv) Each of Lessor and the Owner Participant  hereby
                  agrees for the benefit of each lessor of any  airframe  leased
                  to Lessee and each seller of an airframe  purchased  by Lessee
                  subject to a conditional sale or other security agreement that
                  it will not  acquire  or  claim,  as  against  such  lessor or
                  seller,  any right, title or interest in any engine covered by
                  any such lease or conditional sale and owned by such lessor or
                  seller,  which  engine is attached to the  Airframe,  provided
                  that such agreement of Lessor and the Owner  Participant shall
                  not be for the benefit of any lessor or seller of any airframe
                  leased  to  Lessee  or  purchased  by  Lessee   subject  to  a
                  conditional  sale,  unless such lessor or seller has expressly
                  agreed  (which  agreement  may be  contained  in such lease or
                  conditional sale agreement) that neither it nor its successors
                  or  assigns  will   acquire,   as  against   Lessor  or  Owner
                  Participant,  any right,  title or  interest in an Engine as a
                  result of such Engine's being installed on such airframe.

                  (b)  Lessee's  Representations  and  Warranties.  In  order to
induce  Lessor and Owner  Participant  to enter into this Lease and to lease the
Aircraft,  Lessee hereby represents and warrants to Lessor and Owner Participant
as of the date hereof and as of the Delivery  Date (unless,  in each case,  such
representation and warranty is expressly applicable on and as of another date or
dates) that:

                           (i) Organization, Qualification, Etc. Lessee (w) is a
         corporation duly incorporated  under the laws of the State of Colorado,
         (w) holds all Authorizations necessary to authorize Lessee to engage in
         air transport and to carry on scheduled  passenger and cargo service in
         each  case as  presently  conducted,  (x) has the  corporate  power and
         authority to own or hold under lease its properties wherever located or
         used and to enter into and perform its obligations under each Operative
         Document to which it is a party,  (y) is duly  qualified and authorized
         to do business,  and is in good standing, in each jurisdiction in which
         the nature of its business makes such qualification  necessary,  except
         where the absence of such qualification would not materially  adversely
         affect its  ability  to perform  its  obligations  under the  Operative
         Documents and (z) is a Certificated Air Carrier.

                           (ii) Corporate Authority. The execution, delivery and
         performance  by Lessee of this  Agreement,  Lease  Supplement No. 1 and
         each other Operative Document to which Lessee is a party have been duly
         authorized by all necessary  corporate action on the part of Lessee, do
         not require any  stockholder  or shareholder  approval,  or approval or
         consent of any trustee or holders of any indebtedness or obligations of
         Lessee,  except  such as have been duly  obtained  or, by the  Delivery
         Date, will have been duly obtained, and copies of which shall have been
         delivered  to Lessor and Owner  Participant  on or before the  Delivery
         Date.

                           (iii) Government Approvals. Neither the execution and
         delivery by Lessee of this  Agreement,  Lease  Supplement  No. 1 or any
         other Operative Document to which Lessee is a party nor the performance
         by Lessee of its  obligations  hereunder  or  thereunder  requires  any
         Authorization,  except  for (y)  Authorizations  that  have  been  duly
         obtained  and are in full force and  effect,  and copies of which shall
         have been  delivered to Lessor and Owner  Participant  on or before the
         Delivery  Date,  and  (z)  any  normal  periodic  and  other  reporting
         requirements under the applicable rules and regulations of the Aviation
         Authority (but only to the extent  required to be observed or performed
         after the Delivery Date).

                           (iv) No Breach. Neither the execution and delivery of
         this Agreement,  Lease Supplement No. 1 or any other Operative Document
         by  Lessee  nor  the   consummation  by  Lessee  of  the   transactions
         contemplated hereby or thereby nor compliance by Lessee with any of the
         terms or  provisions  hereof or  thereof  will (x)  violate  any of the
         provisions  of the  organizational  or charter  documents  or bylaws of
         Lessee,  (y) conflict  with or  contravene,  or result in the creation,
         perfection or enforcement  of any lien under,  any law applicable to or
         binding  upon the  Aircraft,  Lessee or any  property  of Lessee or (z)
         conflict with or result in any breach of any of the terms or provisions
         of, or  constitute  any  default  under,  or result in or  require  the
         creation of any Lien upon any property of Lessee under,  any indenture,
         mortgage, deed of trust, conditional sales contract, note, loan, credit
         agreement or other  agreement or  instrument to which Lessee is a party
         or by  which  Lessee  or its  properties  or  assets  may be  bound  or
         affected.

                           (v) Legal, Valid and Binding Agreements.  This Lease,
         Lease  Supplement  No. 1 and each  other  Operative  Document  to which
         Lessee is a party,  in each case, as and when entered into,  have been,
         or will be, duly  executed and delivered by Lessee and  constitute,  or
         will constitute,  legal, valid, binding and enforceable  obligations of
         Lessee.

                           (vi)  Litigation.  There are no pending or threatened
         actions or proceedings before any court or administrative agency (y) in
         respect  of this  Agreement  or any  other  Operative  Document  or the
         Aircraft or the performance by Lessee of its  obligations  hereunder or
         under any other  Operative  Document or (z) which  would,  if adversely
         determined,  materially  adversely  affect  the  ability  of  Lessee to
         perform its obligations under the Operative Documents.

                           (vii)  Filing.  Except  for the  registration  of the
         Aircraft  with  the FAA and the  filings  or  recordings  described  in
         Schedule 4, no further action, including the filing or recording of any
         instrument or document is necessary or advisable  under the laws of the
         State of Registration or the Lessee  Jurisdiction (x) in order for this
         Agreement to constitute a valid and perfected  lease of record relating
         to the  Aircraft,  (y) to  authorize  or permit  Lessee to perform  its
         obligations   under  each  Operative   Document   (including,   without
         limitation,  Lessee's  obligation to pay Rent) or (z) fully to protect,
         establish,  perfect and preserve Lessor's title to, and Lessor's rights
         and interests in, the Aircraft as against Lessee and any other Person.

                           (viii) No Withholding. Lessee will not be required to
         deduct  from  any  Rent  payment  made  or to  be  made  hereunder  any
         withholding  or other Tax under the laws of the State of  Registration,
         the Lessee Jurisdiction or any other jurisdiction,  either (y) on or by
         virtue of the execution or delivery by Lessee of this  Agreement or any
         other  Operative  Document or (z) on or by virtue of the performance by
         Lessee of this Agreement or any other  Operative  Document,  including,
         without limitation,  payment of Rent or any other amount made, or to be
         made,  by Lessee  pursuant  to this  Agreement  or any other  Operative
         Document.

                           (ix) No  Default or Event of  Default.  There has not
         occurred  any event  which is  presently  continuing  and  which  would
         constitute a Default or Event of Default under this Agreement or any of
         the other Operative Documents.

                           (x) Financial Condition.  The statements of financial
         position of Lessee as of March 31, 1998 and  September 30, 1998 and the
         related  statements of earnings and cash flows of Lessee for the fiscal
         year and six (6)  months  then  ended,  fairly  present  the  financial
         condition of Lessee as at such dates and the results of operations  and
         cash flow of Lessee for the periods ended on such dates,  in accordance
         with generally  accepted  accounting  principles  consistently  applied
         (except  as may be stated in the notes  thereto),  and,  subject in the
         case of the  March  31,  1998  statements,  to  normal  year-end  audit
         adjustments,  since March 31, 1998,  there has been no material adverse
         change in such  condition or  operations,  except as disclosed in press
         releases issued by Lessee.

                           (xi) Taxes.  Lessee has paid or caused to be paid all
         Taxes when due and  payable or has made  adequate  provision  by way of
         security  for all Taxes  payable by Lessee  (except to the extent being
         contested  in good faith and by  appropriate  proceedings,  and for the
         payment of which adequate reserves have been provided,  so long as such
         contest  does not  involve a material  danger of the sale,  forfeiture,
         confiscation,  seizure  or loss of the  Aircraft,  any  Engine  or Part
         thereof).  No  Taxes  (including,  without  limitation,  any  stamp  or
         value-added taxes), levies,  imposts,  duties or similar charges may be
         imposed by the government of the Lessee Jurisdiction, or any Government
         Entity or political or taxing subdivision therein, upon or with respect
         to the execution or delivery of this  Agreement or any other  Operative
         Document or the delivery of the Aircraft hereunder.

                           (xii) No Material Adverse Change. Since September 30,
         1998 no event has  occurred or state of affairs  exists that has or may
         have a material adverse effect on (i) the ability of Lessee to carry on
         its business or to perform its obligations under any Operative Document
         to which it is or will be a party or (ii) the  rights or  interests  of
         Lessor under any Operative Document to which it is or will be a party.

                           (xiii) Pari Passu.  The  obligations  of Lessee under
         this Agreement and the other  Operative  Documents are direct,  general
         and  unconditional  obligations  of Lessee and rank at least pari passu
         with  all  other  present  and  future  unsecured  and   unsubordinated
         obligations  (including  contingent  obligations)  of  Lessee  with the
         exception of such  obligations as are mandatorily  preferred by law and
         not by virtue of any contract.

                           (xiv)  Section  1110.   Lessor  is  entitled  to  the
         protection  of  Section  1110 of  Chapter  11 of Title 11 of the United
         States  Code in  connection  with its right to take  possession  of the
         Aircraft,  Airframe  and  Engines  in the  event of a case  under  such
         Chapter 11 in which Lessee is a debtor.

         The rights and remedies of Lessor or Owner  Participant  in relation to
any  misrepresentation  or breach of warranty on the part of Lessee shall not be
prejudiced by any  investigation by or on behalf of Lessor or Owner  Participant
into the affairs of Lessee, by the performance of this Agreement or by any other
act or  thing  which  may be done or  omitted  to be done  by  Lessor  or  Owner
Participant  and which would or might,  but for this  provision,  prejudice such
rights and remedies.

         SECTION 6.  Certain Covenants of Lessee.  Lessee  covenants  and agrees
with Lessor and Owner Participant at Lessee's sole cost and expense, as follows:

                  (a)  Maintenance  of  Corporate  Existence;   Duly  Qualified;
Certificated Air Carrier. Subject to Section 6(b), at all times during the Lease
Term,  Lessee  shall (i) exist as a company  incorporated  under the laws of the
State of Colorado, (ii) hold all Authorizations necessary to authorize Lessee to
engage in air transport and to carry on passenger and cargo service in each case
as presently  conducted by Lessee,  (iii) have the corporate power and authority
to own or hold under lease its properties  wherever located or used and to enter
into and perform its obligations under each Operative  Document to which it is a
party,  (iv) be duly  qualified and  authorized  to do business,  and be in good
standing,  in each  jurisdiction  in which the nature of its business makes such
qualification  necessary,  except where the absence of such qualification  would
not materially or adversely affect its ability to perform its obligations  under
the Operative Documents and (v) at all times be a Certificated Air Carrier.

                  (b)  Merger  or  Consolidation.   Lessee  shall  preserve  its
corporate  existence,  and will not merge or consolidate  with any person unless
the  successor  person   resulting  from  such  merger  or  consolidation   (the
"Successor"):

                           (i)   is the Lessee or a corporation incorporated  in
         the State of Colorado or another State of the United States;

                           (ii)  shall have a net worth  immediately  after such
         merger  or  consolidation  of not less  than  the  Lessee's  net  worth
         immediately prior thereto;

                           (iii) shall be  authorized  under  applicable  law to
         perform the Lessee's obligations under this Lease to the same extent as
         the Lessee;

                           (iv)  shall   deliver    to  the   Lessor  and  Owner
         Participant an agreement in form and substance reasonably  satisfactory
         to  the  Lessor  Owner  Participant  containing  an  assumption  by the
         Successor of the Lessee's  representations  and  warranties  under this
         Lease,  together  with  the due  and  punctual  performance  of all the
         Lessee's obligations under this Lease; and

                           (v) shall deliver to the Lessor and Owner Participant
         an opinion of counsel reasonably  satisfactory in form and substance to
         the  Lessor and Owner  Participant  to the  effect  that the  agreement
         referred to in  sub-clause  (iii)  above  constitutes  the  Successor's
         legal, valid, binding and enforceable obligations.

                  (c)  Reporting  Requirements.  The Lessee shall furnish to the
Lessor and Owner Participant:

                           (i)  within  45 days  after the last day of the first
         three  fiscal  quarters  of  each  fiscal  year  of  Lessee,  unaudited
         consolidated  quarterly financial statements of the Lessee prepared for
         such  quarter  as of the last day of such  quarter  and  statements  of
         income  and  retained  earnings  for  such  fiscal  quarter  and  on  a
         comparative  basis  figures  for  the   corresponding   period  of  the
         immediately  preceding fiscal year, all in reasonable detail, each such
         statement to be certified in a certificate of Lessee's chief  financial
         officer or chief accounting  officer as fairly presenting the financial
         position and the results of operations of the Lessee as at its date and
         for such quarter (subject to year-end audit  adjustments) and as having
         been prepared in accordance with GAAP;

                           (ii)  as soon as available but not in any event later
         than 90 days after the last day of each fiscal year of Lessee,  audited
         financial  statements of the Lessee prepared for such year, including a
         balance  sheet of Lessee of the last day of such  year,  statements  of
         income and retained  earnings of Lessee for such fiscal year, a balance
         sheet of the Lessee as of the last day of such year and  statements  of
         income and retained  earnings of the Lessee for such fiscal year and in
         all cases on a comparative basis figures for the immediately  preceding
         fiscal year, all in reasonable detail, each prepared in accordance with
         GAAP and certified without qualification by KPMG Peat Marwik or another
         firm of independent  certified public  accountants as fairly presenting
         the  financial  position and the results of operations of Lessee at the
         end of and  for  such  fiscal  year  and as  having  been  prepared  in
         accordance with GAAP;

                           (iii) in lieu of the financial statements referred to
         in sub-clauses (i) and (ii) above,  any Quarterly  Reports on Form 10-Q
         and  Annual  Report on Form 10-K for the  respective  periods  filed by
         Lessee pursuant to and in accordance  with the Securities  Exchange Act
         of 1934, as amended;

                           (iv)  concurrently  with  the  financial   statements
         furnished  pursuant to Clauses  6(c)(i) and (ii)  above,  an  officer's
         certificate  signed by the chief financial  officer or chief accounting
         officer of Lessee certifying to the best knowledge after due inquiry of
         such officer that no Default occurred during the period covered by such
         financial  statements  and no  Default  exists  on  the  date  of  such
         officer's certificate or, if a Default occurred or exists, stating that
         fact and  specifying the nature and period of existence of such Default
         and the actions  Lessee  took or proposes to take with  respect to such
         Default; and

                           (v)   on  request   from  time  to  time  such  other
         information  regarding  the Lessee and its  business and affairs as the
         Lessor or the Lender may reasonably request.

                  (d) Government  Approvals.  Lessee shall maintain, or cause to
be maintained,  in full force and effect all Authorizations obtained or effected
in connection with this Agreement and every document or instrument  contemplated
hereby as are  required  to be  maintained  and shall  take all such  additional
action as may be necessary or advisable in connection therewith.  Lessee further
undertakes  to obtain  or effect  any new or  additional  Authorizations  as may
become  necessary for the performance of any of the terms and conditions  hereof
or any other document or instrument contemplated hereby.

                  (e) Taxes.   Lessee  shall  file or cause to be filed  all tax
returns  which  are  required  to be filed and shall pay or cause to be paid all
Taxes when due and payable  (except to the extent being  contested in good faith
and by appropriate  proceedings,  and for the payment of which adequate reserves
have been  provided  but only as long as such  proceedings  do not  involve  any
material danger of the sale,  forfeiture,  confiscation,  seizure or loss of the
Aircraft or any interest therein).

                  (f) Place of Business.  Lessee shall provide to Lessor written
notice of any change in its principal place of business as set forth in Schedule
3 within 30 days thereafter.

                  (g) Filings.   Lessee  shall  promptly  take all such  action,
including  the filing or recording of any  instrument  or document as may,  from
time to  time,  be  necessary  or  advisable  under  the  laws of the  State  of
Registration  and the Lessee  Jurisdiction  (x) in order for this  Agreement  to
constitute a valid and perfected lease of record  relating to the Aircraft,  (y)
to authorize or permit Lessee to perform its  obligations  under each  Operative
Document (including,  without limitation,  its obligation to pay Rent) or (z) to
fully protect,  establish,  perfect and preserve Lessor's title to, and Lessor's
rights and interests in, the Aircraft as against Lessee,  and any other Persons.
For the avoidance of doubt,  the cost of all filings and related  notarizations,
required by this  Agreement or any other  Operative  Document  shall be borne by
Lessee.

                  (h) Approved  Maintenance  Program.  Lessee shall not make any
substantive changes to the Approved Maintenance Program unless Owner Participant
shall have  reviewed  and  approved  such  substantive  changes to the  Approved
Maintenance  Program  which  Lessee  proposes  to make  during  the Lease  Term,
provided that (ii) Owner Participant's  approval/disapproval of such substantive
changes shall be reasonable and consistent with industry standards.

         SECTION 7.  Return of the Aircraft.

                  (a) Date and  Location  of  Return.  Upon  any  expiration  or
termination of the Lease Term, subject only to Section 13(b)(ii)(x),  Lessee, at
its own risk,  cost and  expense,  shall  return  the  Aircraft,  including  the
Airframe,  the  Engines,  all Parts  thereof and the Aircraft  Documentation  to
Lessor or its designee in accordance  with the  provisions of this Agreement and
shall perform the elements of the Final Inspection as required hereby, all prior
to the end of the Lease Term (the "Return"). Not later than the end of the Lease
Term,  the  Aircraft  shall be returned to Lessor or its  designee at the Return
Location.

                  (b) Condition of Aircraft.  At Return,  Lessee  shall,  at its
sole risk, cost and expense,  procure that the Aircraft is free and clear of all
Liens (other than Lessor  Liens) and that the Aircraft  complies in all respects
with the conditions and requirements set forth in Schedule 5.

                  (c) Final Inspection.

                           (i) No less than 60 days prior to commencement of the
         Return,  Lessee shall  provide  Lessor with written  notice of the date
         (which  shall be not less than  fifteen  (15) days  prior to the Expiry
         Date) of, and a reasonably  complete plan for the content of, the Final
         Maintenance  and shall give Lessor  further  written notice of the date
         of, and any changes to the plan for, the Final Maintenance.  During the
         entire period of such Final  Maintenance,  the Aircraft,  including the
         Aircraft  Documentation,  shall  be made  available  to  Lessor  and/or
         Lessor's  agents,  representatives  and designees (each, an "Inspecting
         Party") for ground  inspection by the Inspecting  Parties at the Return
         Location.  So  long  as  no  Event  of  Default  has  occurred  and  is
         continuing,  no such  inspection  shall  unreasonably  interfere in the
         business operations of Lessee except to the extent such interference is
         reasonably  necessary  to enable an  Inspecting  Party to exercise  its
         rights set forth in this Section 7(c)(i).

                  Lessee  shall make  available to the  Inspecting  Parties such
         documentation regarding the condition, use, maintenance,  operation and
         history of the Aircraft  during the Lease Term as Lessor may reasonably
         request.  During the Final Inspection,  any Inspecting Party shall have
         the right to  reasonably  request  that  additional  panels or areas be
         opened in order to allow further  inspection by any  Inspecting  Party.
         Lessee shall remove the Aircraft from service and open the areas of the
         Aircraft as required  to perform  the Final  Maintenance  and the other
         inspections and checks as contemplated in this Section 7 and Schedule 5
         that are  reasonably  requested by Lessor in accordance  with the terms
         hereof and otherwise  permit Lessor to determine,  and assist Lessor in
         determining that the Aircraft, including the Aircraft Documentation, is
         in the condition required herein.

                           (ii)  Promptly  after  such  inspections,  except  as
         otherwise  agreed in writing by Lessor and  Lessee,  any  discrepancies
         from the  Aircraft  return  condition  requirements  set  forth in this
         Section 7, and any  discrepancies  that must be  corrected  in order to
         comply with the  Approved  Maintenance  Program,  which  shall  include
         clearing of all  deferred  maintenance  items,  shall be  corrected  by
         Lessee at its cost prior to the  operational  ground check described in
         Section 7(d).

                  (d) Operational Ground Check.

                           (i) In connection  with the Return (and following the
         inspection  referred  to in  Section  7(c)),  Lessee  shall  conduct an
         operational  ground  check  of the  Aircraft  in  accordance  with  the
         procedures set forth in the Airframe Manufacturer's maintenance manual,
         for the purpose of  demonstrating  to the  reasonable  satisfaction  of
         Lessor the  operation of all  Aircraft  systems that can be verified on
         the ground,  including,  if required by Lessor and at Lessee's  cost, a
         full fuel tank leak check, audible ignition check (both systems), pitot
         and static systems check and hydraulic system internal leak check.

                           (ii)  Promptly  after the  operational  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 7, and any  discrepancies  that must be  corrected  in
         order to comply with the Approved  Maintenance Program and the Airframe
         Manufacturer's  maintenance  manual  criteria,  shall be  corrected  by
         Lessee  at its cost  prior to the  demonstration  flight  described  in
         Section 7(e).

                  (e) Demonstration Flight.

                           (i)  Immediately  following  the  operational  ground
         check  pursuant  to  Section  7(d),  but  prior to  Lessor's  technical
         acceptance of the Aircraft,  Lessee shall,  using its own pilots and at
         its own cost,  carry  out for the  Inspecting  Parties a  demonstration
         flight in the Aircraft in accordance with Lessee's  specifications  and
         the Lessee's Aviation  Authority-approved  flight manual to demonstrate
         the proper functioning of Aircraft systems and components, as requested
         by Lessor within limits and/or  guidelines  established by the relevant
         manufacturers  and the Aviation  Authority.  Such flight shall continue
         for the duration necessary to perform such check flight procedures, but
         for a period not  exceeding  two (2) hours.  Lessor shall be allowed at
         least two representatives  on-board as observers during such flight and
         Lessee  shall  comply  with  all  reasonable   requests  made  by  such
         representatives during such flight.

                           (ii)  Except as  otherwise  agreed in  writing by the
         Lessor and Lessee,  promptly following such  demonstration  flight, any
         deficiencies from the Aircraft return condition  requirements set forth
         in this  Section 7 and Schedule 5, and any  discrepancies  that must be
         corrected in order to comply with the Approved  Maintenance Program and
         the  Airframe  Manufacturer's  maintenance  manual and to  achieve  the
         proper  functioning of the Aircraft  systems and  components,  shall be
         corrected by Lessee at its cost prior to Return.

                  (f) Technical Acceptance.  Upon satisfactory completion of the
Final  Inspection and, unless  otherwise agreed in writing by Lessor and Lessee,
satisfactory  correction of any  discrepancies  or  deficiencies  required to be
corrected by Lessee prior to Return, Lessor shall execute and deliver to Lessee,
a delivery  receipt in the form of Annex A to Schedule 5 (the "Return  Receipt")
which shall,  for all purposes  hereof,  constitute  complete,  irrevocable  and
absolute evidence of Lessor's  technical  acceptance of the Aircraft,  except as
validly noted in such Return Receipt. To the extent technical  acceptance occurs
prior to Return,  Lessee shall remain liable for the  performance  of all of its
payments and other obligations  hereunder,  and for any damage to or loss of the
Aircraft  occurring between the date thereof and Return (it being understood and
agreed that Lessee  shall  maintain  insurance  as required by Section 15 to and
including such date).

                  (g)  Failure  to  Return  Aircraft.  If Lessee  shall,  due to
reasons of Force Majeure or for any other reason whatsoever,  fail to return the
Aircraft  at the time or in the  condition  specified  herein  or  return of the
Aircraft  is not  accepted  by Lessor  because of  Lessee's  failure to meet the
requirements  of this  Section  7 and  Schedule  5, the  obligations  of  Lessee
provided in this Agreement and each other Operative  Document to which Lessee is
a party  (including the obligation to pay Rent, on a per diem basis based upon a
pro rata  application of 125% of the monthly Rent in force during the last month
of the Lease Term) shall  continue in effect with respect to the  Aircraft,  and
the Lease Term shall be deemed to be extended  until  Return of the  Aircraft to
Lessor; provided that, this Section 7(g) shall not be construed as permitting or
authorizing  Lessee to fail to meet,  or consenting to or waiving any failure by
Lessee to perform, Lessee's obligation to return the Aircraft in accordance with
the requirements of this Agreement.

                  (h)  Transition.  Lessee  acknowledges  that Lessor intends to
lease or sell the  Aircraft to another  Person at the end of the Lease Term.  In
order  to  facilitate  such  lease or sale of the  Aircraft,  Lessee  agrees  to
cooperate  with Lessor and to  otherwise  assist  Lessor in such matters by, for
example:

                           (i) allowing  reasonable  inspections of the Aircraft
                  by the Follow-On Operator (without interrupting any commercial
                  operation of the Aircraft);

                           (ii)  using  reasonable  endeavors  to  schedule  the
                  Return of the  Aircraft and the Final  Inspection  in a manner
                  that will allow for a simultaneous delivery of the Aircraft to
                  the Follow-On Operator;

                           (iii)  assisting with exporting the Aircraft from the
                  State  of  Registration   and  arranging  for  the  notice  of
                  deregistration  of the  Aircraft  to be sent  to the  aviation
                  authority in the country where the Aircraft will be registered
                  by the Follow-On Operator;

                           (iv)  assisting  with the  transition of the Aircraft
                  from  the  Approved  Maintenance  Program  to the  maintenance
                  program of the Follow-On  Operator by providing  access to the
                  relevant technical data; and

                           (v)  performing  or  procuring  the   maintenance  or
                  modifications  to the  Aircraft as may be agreed by Lessor and
                  Lessee, at Lessor's cost.

         SECTION 8.  Liens.

                  (a) No Liens.  Lessee will not directly or indirectly  create,
incur,  assume or suffer to exist, or agree to create or assume,  any Lien on or
with respect to the Aircraft, any Engine or any Part or in this Agreement, or in
any right, title or interest in any of the foregoing, except:

                           (i)  the  rights  of  Lessor  and  Owner  Participant
         provided in the Operative Documents;

                           (ii)  the  rights  of  others  under   agreements  or
         arrangements to the extent permitted by the terms of Section 11;

                           (iii)  Lessor Liens;

                           (iv)  Liens  for  Taxes  of  Lessee  arising  in  the
         ordinary  course of business  either not yet due or being  contested in
         good faith by  appropriate  proceedings  (and for the  payment of which
         adequate  reserves have been provided) so long as such contest does not
         involve any material danger of the sale, forfeiture, seizure or loss of
         the Airframe, any Engine or any Part or any interest therein;

                           (v)     materialmen's,     mechanics',     workmen's,
         repairmen's, employees' or other like Liens arising by operation of law
         in the ordinary course of Lessee's  business  (including  those arising
         under  maintenance  agreements  entered into in the ordinary  course of
         business)  securing  obligations  that  are not  yet  due or are  being
         contested in good faith by appropriate proceedings (and for the payment
         of which adequate  reserves have been provided) so long as such contest
         does not involve any material danger of the sale,  forfeiture,  seizure
         or  loss of the  Airframe,  any  Engine  or any  Part  or any  interest
         therein; and

                           (vi)  Liens,  other than Liens for Taxes,  in respect
         only of Lessee's  interest as Lessee under this  Agreement  and arising
         out of any  judgment  or award  against  Lessee (and for the payment of
         which adequate  reserves have been provided),  but only if the judgment
         secured  shall have been  discharged,  vacated,  reversed or  execution
         thereof  stayed  pending  a  good  faith  appeal  or  shall  have  been
         discharged, vacated or reversed upon expiration of such stay.

                  (b)  Removal  of  Liens.  Lessee  will  promptly,  at its  own
expense,  take, or cause to be taken,  such actions as may be necessary  duly to
discharge  any Lien not excepted  under Section 8(a) that may at any time arise,
exist or be levied upon the Aircraft, any Engine, any Part or in this Agreement,
or in any right,  title or interest in any of the  foregoing,  and Lessee  shall
indemnify and hold harmless Lessor, Owner Participant and each other Indemnified
Party from any Expenses arising therefrom.

                  (c) No Adverse Action.  Without  limiting the foregoing or any
other provision of this Agreement or any other Operative  Document,  Lessee will
not do or permit to be done  anything  which may expose the Aircraft or any part
thereof  to  penalty,  forfeiture,  seizure,  arrest,  impoundment,   detention,
confiscation, taking in execution, attachment, appropriation or destruction, nor
abandon the Aircraft or any Part.

         SECTION 9.  Indemnities.

                  (a) General  Indemnity.  Subject  only to the  exceptions  set
forth in Section 9(b),  Lessee hereby assumes liability for and hereby agrees to
indemnify  Lessor,  Owner  Participant and each other Indemnified Party against,
and agrees to protect,  save and keep harmless  each thereof  from,  any and all
Expenses of whatsoever kind and nature from time to time imposed on, incurred by
or asserted against any Indemnified  Party in any way relating to or arising out
of:

                           (i) the Operative Documents,  any of the transactions
                  contemplated  thereby or the  enforcement  of any of the terms
                  thereof,  including,  without  limitation,  the enforcement of
                  this Section 9;

                           (ii) the Aircraft, the Airframe, any Engine or engine
                  or Part or any other thing delivered under this Agreement;

                           (iii)  the  acceptance,  delivery,  lease,  sublease,
                  charter,     subcharter,     registration,     deregistration,
                  reregistration,   possession,   repossession,  use,  presence,
                  operation,  condition,  storage  (unless  otherwise  expressly
                  provided   herein),   installation,   testing,   modification,
                  alteration,     maintenance,    repair,    release,    return,
                  transportation,     transfer,    exportation,     importation,
                  abandonment  or  other   disposition  of  the  Aircraft,   the
                  Airframe,  any  Engine or  engine  or Part or any other  thing
                  delivered under this Agreement (including, without limitation,
                  any claim for patent,  trademark or copyright  infringement in
                  respect of any Part of the Aircraft which was not delivered to
                  Lessee hereunder,  any liability for any injury to or death of
                  any  Person or loss of or damage  to any  property,  latent or
                  other defects,  whether or not discoverable and whether or not
                  any of the foregoing  shall arise as a result of the action or
                  inaction of Lessee or any other Person); and

                           (iv) any breach or  noncompliance  by Lessee with any
                  covenant,   term,   agreement,   condition,   undertaking   or
                  obligation  under this Agreement or under any other  Operative
                  Document or  agreement  entered into or furnished by Lessee in
                  connection herewith or therewith, or the falsity or inaccuracy
                  in any material respect of any  representation  or warranty of
                  Lessee set forth herein or therein,  or the  occurrence of any
                  other Default,  including,  without  limitation,  any Expenses
                  incurred,   assumed  or   suffered  by  Lessor  or  any  other
                  Indemnified  Party as a  consequence  of  Lessee's  failure to
                  Return the Aircraft in accordance  with this  Agreement on any
                  date specified or required herein.

                  (b) Exceptions to General  Indemnity.  The indemnity  provided
for in Section  9(a) will not  extend to any of the  following  Expenses  of any
Indemnified Party:

                           (i) Expenses caused solely by the gross negligence or
                  willful  misconduct  of such  Indemnified  Party  (other  than
                  negligence  imputed to such Indemnified Party by reason of its
                  interest in the Aircraft solely and by virtue of law);

                           (ii)  Expenses  caused  solely  by a  breach  by such
                  Indemnified  Party of any covenant or inaccuracy or falsity of
                  a representation or warranty made by such Indemnified Party in
                  this  Agreement or the documents and  agreements  delivered by
                  such party to Lessee on or prior to the Delivery Date;

                           (iii)  Expenses  that are Taxes (it being agreed that
                  Lessee's  sole  responsibility  for  Taxes  is as  set  out in
                  Section 9(c) hereof);

                           (iv) Expenses  attributable  solely to the period (x)
                  prior  to the  Delivery  Date  and (y)  after  the  return  of
                  possession  of the  Airframe,  the  Engines  and the  Parts to
                  Lessor or its designee  pursuant to and in accordance with the
                  terms of this Lease (other than pursuant to Section 20 hereof,
                  in which case (and other than with respect to Taxes)  Lessee's
                  liability under this Section 9(b) shall survive for so long as
                  Lessor  shall be  entitled  to  exercise  remedies  under such
                  Section 20); and

                           (v) Expenses caused solely by any voluntary  transfer
                  or  disposition  (other  than  any  transfer  pursuant  to any
                  exercise of remedies in  connection  with an Event of Default,
                  pooling  arrangement  or  Event  of  Loss)  by  Lessor  of its
                  interest in the Aircraft, Airframe or Engines.

                  (c)  Taxes.

                           (i) Lessee  Liability.  Except as provided in Section
                  9(c)(ii),  Lessee  shall pay or cause to be paid when due, and
                  shall  indemnify and hold harmless  each Tax  Indemnitee  for,
                  from and  against,  any and all  Taxes  howsoever  imposed  or
                  levied on or  asserted  against,  from  time to time,  any Tax
                  Indemnitee,  Lessee,  the Aircraft,  Airframe or any Engine or
                  any Parts or any interest therein by any Government Entity on,
                  with respect to, based on or measured by:

                                    (A) the  acceptance,  delivery,  redelivery,
                           transport,       registration,        reregistration,
                           deregistration, possession, operation, location, use,
                           presence,  condition,  alteration  by or on behalf of
                           Lessee, maintenance,  repair, return, storage (unless
                           otherwise  expressly provided herein),  repossession,
                           disposition,   abandonment,   installation,  storage,
                           charter, leasing, subleasing,  modification, transfer
                           by or on behalf of Lessee,  importation,  exportation
                           or other  disposition  of, or the  imposition  of any
                           Lien on, the Aircraft,  Airframe or any Engine or any
                           Part or interest  therein (or the  incurrence  of any
                           liability  to  refund  or pay over any  amount as the
                           result of any such Lien);

                                    (B)  the  rentals  or   receipts   from  the
                           Aircraft,  Airframe or any Engine or Parts thereof or
                           interest therein;

                                    (C) the Aircraft,  Airframe or any Engine or
                           any Parts  thereof or  interest  therein  (including,
                           without  limitation,  title  or a  security  interest
                           therein), this Lease, any other Operative Document or
                           any  data  or  any  other  thing  delivered  or to be
                           delivered under the Operative Documents; or

                                    (D)   otherwise   with   respect  to  or  in
                           connection with the execution, delivery, enforcement,
                           amendment or supplement to the Operative Documents or
                           the   transactions   contemplated  by  the  Operative
                           Documents.

         (ii)  Exclusions From Lessee's Liability.  The provisions of Section 9
(c)(i) shall not apply to:

                                    (A) Taxes imposed on the income,  profits or
                           gains of a Tax Indemnitee by any  Government  Entity;
                           provided,  however,  that the exclusion  contained in
                           this clause (A) shall not apply to any Taxes  imposed
                           by any  Government  Entity if and to the extent  that
                           such  Tax  results  from  (i)  the  use,   operation,
                           presence  or  registration   of  the  Aircraft,   the
                           Airframe,  any Engine or any Part in the jurisdiction
                           imposing the Tax; or (ii) the situs of  organization,
                           any place of  business  or any  activity of Lessee or
                           any other Person having use, possession or custody of
                           the Aircraft, the Airframe, any Engine or any Part in
                           the  jurisdiction  imposing  the Tax;  or  (iii)  any
                           payment (actual or  constructive)  by or on behalf of
                           Lessee; provided,  further, however,  notwithstanding
                           anything  to the  contrary  contained  in this clause
                           (A), a gross withholding tax shall not be excluded by
                           this clause (A) unless due to the  activities  of the
                           Tax Indemnitee or an Affiliate  thereof  unrelated to
                           the transactions contemplated by this Lease Agreement
                           or the negotiation thereof;

                                    (B)  Sales,  use or similar  transfer  Taxes
                           imposed  on  a  Tax  Indemnitee  upon  any  voluntary
                           transfer (including a transfer by way of security but
                           excluding  a transfer  pursuant  to the  exercise  of
                           remedies in  connection  with an Event of Default,  a
                           Modification,  a pooling  arrangement  or an Event of
                           Loss) or disposition  (including a disposition by way
                           of security but excluding a  disposition  pursuant to
                           any exercise of remedies in connection  with an Event
                           of Default) by such Tax  Indemnitee  of any equitable
                           or legal  interest  in the  Aircraft,  Airframe,  any
                           Engine or any Part or this Agreement to any Person;

                                    (C) Taxes attributable  solely to any period
                           (a)  prior to the  Delivery  Date;  or (b)  after the
                           return of possession of the Airframe, the Engines and
                           the Parts to Lessor or its  designee  pursuant to the
                           terms of this Lease  (other than  pursuant to Section
                           20 hereof,  in which case  Lessee's  liability  under
                           this Section 9(c) shall survive for so long as Lessor
                           shall be  entitled to  exercise  remedies  under such
                           Section 20); provided,  however,  that the exclusions
                           set forth in this subparagraph (C) shall not apply to
                           Taxes to the  extent  such  Taxes  relate  to  events
                           occurring   or   matters    arising   prior   to   or
                           simultaneously with such return of possession;

                                    (D) Taxes caused  solely by a breach by such
                           Tax  Indemnitee  of any  covenant  or  inaccuracy  or
                           falsity of any  representation  or  warranty  made by
                           such  Tax   Indemnitee  in  this   Agreement  or  the
                           documents  and  agreements   delivered  by  such  Tax
                           Indemnitee to Lessee pursuant to this Agreement; and

                                    (E)  Taxes   caused   solely  by  the  gross
                           negligence   or   wilful   misconduct   of  any   Tax
                           Indemnitee.

         (iii) No Reduction for Withholding,  Etc. Notwithstanding anything that
may be contained  herein,  all  payments by Lessee  under this  Agreement or any
other  Operative  Document,  whether in respect of Rent,  interest,  fees or any
other item, shall be made in full without any deduction or withholding  (whether
in respect of setoff,  counterclaim,  duties, Taxes, charges, wages or otherwise
whatsoever),  unless the  withholding  or deduction is required by law, in which
event Lessee shall:

                                    (A)  forthwith   pay  the   recipient   such
                           additional  amount so that the net amount received by
                           such  recipient  after the  deduction or  withholding
                           will  equal the full  amount  which  would  have been
                           received by it had no such  deduction or  withholding
                           been made;

                                    (B) pay to the relevant  taxing  authorities
                           within the period for payment permitted by applicable
                           law the full amount of the  deduction or  withholding
                           (including,  but without  prejudice to the generality
                           of the foregoing, the full amount of any deduction or
                           withholding from any additional  amount paid pursuant
                           to this clause (iii)); and

                                    (C) furnish to Lessor, within the period for
                           payment  permitted  by  applicable  law,  an official
                           receipt of the relevant taxation or other authorities
                           involved  for all  amounts  deducted  or  withheld as
                           aforesaid  or,  if  no  such  receipt  is  issued,  a
                           certificate  of  deduction  or  equivalent   evidence
                           thereof.

                  (iv) Reports. Lessee will provide, promptly upon request, such
         information  as may be  reasonably  requested  by a Tax  Indemnitee  or
         required to enable a Tax Indemnitee to timely and properly  fulfill its
         tax filing  requirements with respect to the transactions  contemplated
         by  the  Operative  Documents,  including,  without  limitation,  those
         requirements  that  relate to Taxes  based on or  measured by the total
         time the  Aircraft is located in a  particular  place  irrespective  of
         whether  the  Aircraft  is there for  revenue,  maintenance  or storage
         purposes.  If any report,  return or  statement is required to be filed
         with respect to any Tax which is subject to indemnification  under this
         Section  9(c),  Lessee  shall timely file the same (except for any such
         report,  return or statement which such Tax Indemnitee  intends to file
         itself (and so notifies Lessee in writing));  provided,  however,  that
         Lessee shall have no obligation  under this sentence to the extent such
         Tax Indemnitee,  after receipt of Lessee's written request,  shall have
         failed to furnish Lessee with such information (including instructions)
         as is  peculiarly  within  such Tax  Indemnitee's  control and which is
         necessary to file such report, return or statement. Lessee shall either
         file such report,  return or statement  and send a copy of such report,
         return or  statement  to the Tax  Indemnitee  or,  where  Lessee is not
         permitted to file such  report,  return or  statement,  it shall notify
         such Tax  Indemnitee of such  requirement  and prepare and deliver such
         report,  return  or  statement  to  such  Tax  Indemnitee  in a  manner
         satisfactory  to such Tax  Indemnitee  no later than 30  Business  Days
         prior to the time  such  report,  return or  statement  is to be filed.
         Lessee  shall not have any right to examine the tax returns or books of
         any Tax Indemnitee. Lessee agrees to use reasonable endeavors to obtain
         official  receipts  indicating  the payment by it of all foreign income
         and withholding  Taxes that are subject to  indemnification  under this
         Section 9 and shall  promptly  deliver to the relevant  Tax  Indemnitee
         each such receipt  obtained by Lessee.  Notwithstanding  the foregoing,
         nothing in this Section  9(c)(iv) shall (x) require Lessor or Lessee to
         divulge to the other any  information  which  Lessor or Lessee,  as the
         case may be, considers confidential, provided, however, that Lessor and
         Lessee,  as the  case may be,  shall  be so  required  if  required  by
         applicable law or reasonably related to a matter indemnified hereunder;
         or (y) prevent  Lessor or Lessee from arranging its tax affairs in such
         manner as it sees fit,  unless to do so would increase the  obligations
         of the other under this Agreement.

                  (v)  Payment.  Lessee shall pay any Tax for which it is liable
         pursuant to this Section 9(c) in immediately  available  funds directly
         to the appropriate Government Entity or, upon written demand of the Tax
         Indemnitee, to such Tax Indemnitee,  but in no event shall such payment
         be required more than five (5) Business Days prior to the date such Tax
         is due.  Any  such  demand  for  payment  from a Tax  Indemnitee  shall
         specify,  in reasonable  detail,  the  calculation of the amount of the
         payment  and the facts  upon  which the right to  payment  is based and
         shall be  verified  upon the  request and at the expense of Lessee by a
         nationally  recognized  firm of  independent  accountants  for such Tax
         Indemnitee.  Each Tax 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;  provided,  however,  failure to provide  any such
         notice or bill shall not relieve Lessee of its  obligations  hereunder.
         As soon as practical  after each payment of any Tax by Lessee  directly
         to any  Government  Entity,  Lessee shall furnish the  appropriate  Tax
         Indemnitee  with 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 such Tax  Indemnitee.  Lessee shall
         also furnish  promptly upon request such data as any Tax Indemnitee may
         reasonably  require to enable  such Tax  Indemnitee  to comply with the
         requirements of any Government Entity.

                  (d) [Intentionally reserved].

                  (e)  Scope, Survival, Etc.

                  (i)  Lessee  shall be  obligated  under  this  Section  9 as a
         primary  obligor  irrespective  of whether an Indemnified  Party or Tax
         Indemnitee  shall  also be  indemnified,  guaranteed  or  insured  with
         respect to the same  matter  under any of the  Operative  Documents  or
         otherwise by any other Person,  and such Indemnified  Party may proceed
         directly against Lessee under this Section 9 without first resorting to
         any such other rights of indemnification, guarantee or insurance.

                  (ii) All  indemnities,  obligations,  adjustments and payments
         provided for in this  Section 9 shall  survive and remain in full force
         and effect,  notwithstanding the expiration or termination of the Lease
         Term or of this  Agreement  or any other  Operative  Documents  and the
         payment in full of all sums payable under the Operative Documents.  The
         obligations of Lessee in respect of all such indemnities,  obligations,
         adjustments  and  payments are  expressly  made for the benefit of, and
         shall be  enforceable  by,  the  Indemnified  Party  or Tax  Indemnitee
         entitled thereto,  without declaring this Agreement to be in default or
         taking other action under this Agreement.

                  (iii) Lessee  acknowledges that the Indemnified Parties or Tax
         Indemnitees, or any of them, may authorize Lessor, by notice in writing
         to Lessor and Lessee,  to make claims and demands  under any  indemnity
         hereunder  or under  any  other  Operative  Document  on behalf of such
         Indemnified  Parties or Tax Indemnitees,  and Lessee shall be obligated
         to make all payments  pursuant to any such indemnity to Lessor,  to the
         extent claimed by Lessor on behalf of such  Indemnified  Parties or Tax
         Indemnitees   (it  being   understood   that   Lessee  is  entitled  to
         conclusively  rely upon the  instructions of Lessor with respect to the
         payment of amounts  owing to any  Indemnified  Party or Tax  Indemnitee
         under the indemnities).

                  (iv) Each  Indemnified  Party  and  Lessee  will  give  prompt
         written  notice one to the other of any  liability  of which such party
         has  knowledge  for which Lessee is, or may be,  liable  under  Section
         9(a),  provided  that failure to give such notice will not prejudice or
         otherwise  affect any of the rights of the  Indemnified  Parties  under
         this Section 9.

                  (f) Gross-Up for Taxes on  Indemnity  Payments.  If and to the
extent any sums payable to an  Indemnified  Party or Tax  Indemnitee  under this
Section 9 are subject to any Taxes (including any payments made pursuant to this
Section 9(f)), Lessee shall pay to such Indemnified Party or Tax Indemnitee such
sum as will,  after the  obligation  in  respect  of such  Taxes has been  fully
satisfied with respect to all sums payable by Lessee under this Section 9, leave
the  Indemnified  Party or Tax Indemnitee  with the same amount as it would have
been entitled to receive in the absence of the imposition of any such obligation
in respect of such Taxes.

                  (g) Tax Contests. If any taxing authority proposes to impose a
Tax for which  Lessee  would be required to make an  indemnity  payment to a Tax
Indemnitee  under this  Section 9, such Tax  Indemnitee  shall if  requested  by
Lessee in writing in a timely fashion,  contest (or permit Lessee,  if requested
by  Lessee  and if the Tax  Indemnitee  consents,  which  consent  shall  not be
unreasonably  withheld  or  delayed  (such  consent  shall  not be  deemed to be
unreasonably withheld or delayed in the case of any Tax contest involving claims
for other Taxes  asserted  against such Tax  Indemnitee  for which Lessee has no
responsibility  hereunder  and which  cannot be severed for the purposes of such
contest))  the  validity,  applicability  or amount of such Tax at Lessee's sole
cost and expense by:

                  (i)  resisting payment thereof, if practicable;

                  (ii) not  paying the same  except  under  protest,  if protest
shall be necessary and proper;

                  (iii) if  payment  shall be made using  reasonable  efforts to
         obtain a refund thereof in appropriate administrative proceedings; and

                  (iv)  considering  in  good  faith  such  other  action  as is
         reasonably  requested  by the  Lessee  from  time  to  time;  provided,
         however,  that (x) in the case of Taxes that are  required by law to be
         contested in the Tax Indemnitee's name in proceedings that involve both
         Taxes for which such Tax Indemnitee is indemnified  hereunder and other
         Taxes and which  cannot,  as a matter of law,  be severed or  otherwise
         contested  separately  such Tax Indemnitee  may in its sole  discretion
         select the forum for such contest and  determine  whether or not to pay
         such Tax in  connection  with the contest and shall control the conduct
         of such  proceedings  (although such Tax  Indemnitee  shall keep Lessee
         reasonably informed of the status of such proceedings and shall consult
         in good faith with  Lessee and its  counsel  concerning  the conduct of
         such  proceedings);  and (y) no contest  shall be required or permitted
         unless:  (A) such Tax Indemnitee shall have received from Lessee (I) an
         indemnity reasonably satisfactory to Lessor for any liability,  expense
         or loss resulting from such contest; and (II) an opinion of independent
         tax counsel selected by Lessee and reasonably  satisfactory to such Tax
         Indemnitee,  furnished  at  Lessee's  expense,  to  the  effect  that a
         reasonable  basis exists for contesting  such claim (or, in the case of
         an appeal of a judicial  decision,  that a meritorious basis exists for
         such  appeal);  (B) no Event of  Default  shall  have  occurred  and be
         continuing;  (C) such Tax Indemnitee  shall have reasonably  determined
         that the contest will not create a material risk of a sale,  forfeiture
         or loss of, or creation  of any Lien  (other than a Permitted  Lien but
         not  including a Lien of the kind  described  in clause (iv) of Section
         8(a)) on, the  Aircraft,  or any portion  thereof or  interest  therein
         unless  Lessee  shall have  provided a bond or other  security for such
         risk  reasonably  adequate to Lessor;  and (z) in the case of any Taxes
         not  described  in  subclause  (x) and  subject to the  requirement  of
         subclause (y),  Lessee may conduct such contest in the forum and in the
         manner Lessee deems  appropriate  (although  Lessee shall keep such Tax
         Indemnitee informed of the status of such proceedings and shall consult
         in good faith with such Tax Indemnitee  and its counsel  concerning the
         conduct of such proceedings).

         If a Tax  Indemnitee  contests  any claim for Taxes by making a payment
and seeking a refund thereof,  then Lessee shall advance to such Tax Indemnitee,
on an  interest-free  basis,  an  amount  equal  to such  Taxes  (including  any
penalties,  additions to tax,  fines and  interest  paid by such  Indemnitee  in
connection with the contest) and shall hold such Tax Indemnitee  harmless,  on a
net  after-tax  basis,  against any adverse tax  consequences  of the receipt or
payment of such advance.  In the event a Tax Indemnitee  shall recover any Taxes
or other amounts  advanced to it by Lessee  pursuant to the preceding  sentence,
such Tax Indemnitee  shall promptly  refund to Lessee the amount  recovered plus
any interest received thereon. Notwithstanding the foregoing, the Tax Indemnitee
may waive in writing its rights to indemnification hereunder with respect to any
claim for any Tax and refrain from contesting,  or continuing the contesting of,
such claim,  in which event Lessee  shall have no liability to Lessor  hereunder
with respect to such claim.  In addition,  if a Tax Indemnitee  shall agree to a
settlement of any contest under this Section 9 without the prior written consent
of Lessee (which shall not be unreasonably  withheld or delayed),  then such Tax
Indemnitee shall be deemed to have waived its rights to the indemnities provided
for in this  Section  9 with  respect  to the  Tax  liability  accepted  in such
settlement.   Lessee   shall  not  be  deemed  to  be  in   default   under  the
indemnification  provisions of this Section 9 so long as it or a Tax  Indemnitee
shall conduct a contest in accordance with the provisions of this Section 9(g).

         SECTION 10.  Title; Registration; Maintenance and Operation; Insignia.

                  (a)  Title to the Aircraft.

                           (i) Lessee  acknowledges  that title to the  Aircraft
                  shall at all times be and remain solely and exclusively vested
                  in Lessor  and that  this  Agreement  and the other  Operative
                  Documents  constitute  an agreement to lease the Aircraft from
                  Lessor to Lessee and, accordingly, Lessee shall have no right,
                  title or interest in the Aircraft  except the right to use the
                  Aircraft as provided herein.

                           (ii)  Lessee will not at any time  represent  or hold
                  out Lessor,  Owner  Participant or any other Indemnified Party
                  as carrying goods or passengers on the Aircraft or as being in
                  any way  connected  or  associated  with any  operation of the
                  Aircraft or  attempt,  or hold itself out as having any power,
                  to sell, charge, lease or otherwise dispose of or encumber the
                  Aircraft, the Engines or any Part, nor create, incur or suffer
                  to exist any Lien over the Aircraft,  the Engines or any Part.
                  On all  occasions  when the  ownership  of the Aircraft or any
                  part of it is  relevant,  Lessee  will  make  clear  to  third
                  parties that title to the same is held by Lessor.

                  (b)  Registration.

                           (i) Upon Delivery of the Aircraft pursuant to Section
                  2, Lessee shall, at its own cost and expense, procure that the
                  Aircraft will be duly registered  with the Aviation  Authority
                  in the name of Lessor on the register  (except that Lessor and
                  Owner  Participant  shall be responsible for ensuring that the
                  Trust Agreement and all other  documents  necessary for filing
                  with the  Aviation  Authority  to effect  registration  in the
                  Lessor's  name are in due form for  filing  with the  Aviation
                  Authority),  and  thereafter  shall  maintain,  or procure the
                  maintenance  of, such  registration  throughout the Lease Term
                  and shall  promptly  deliver to Lessor a certified copy of the
                  Certificate  of  Registration  when  issued  by  the  Aviation
                  Authority and at all times during the Lease Term, Lessee shall
                  neither cause nor permit the Aircraft to be  registered  under
                  the laws of any other jurisdiction.

                           (ii) Upon the Delivery Date of the Aircraft  pursuant
                  to  Section  2,  Lessee  shall,  at its own cost and  expense,
                  procure  that,  if required  by  applicable  regulations,  any
                  Operative   Document  as  is  required   (including,   without
                  limitation,  this Lease and Lease  Supplement  No. 1) shall be
                  filed for  recording  with the Aviation  Authority,  and shall
                  promptly  (and in any event  within  five (5) days) after such
                  registration  deliver evidence of such registration to Lessor.
                  Lessee  shall,  at  its  own  cost  and  expense,  cause  such
                  recordation  to be  maintained  in good  standing at all times
                  during the Lease Term.

                           (iii)  Lessee will take,  or cause to be taken,  such
                  action with respect to the recording,  filing, rerecording and
                  refiling of this  Agreement or other  documents or instruments
                  (including,   without  limitation,   Uniform  Commercial  Code
                  financing  statements)  as  necessary or advisable in order to
                  establish,  protect,  preserve and perfect,  as against Lessee
                  and any third  party,  Lessor's  interest in the  Aircraft and
                  this  Agreement  and each other  Operative  Document and shall
                  furnish  to  Lessor  timely  notice of the  necessity  of such
                  action,  together  with such  documents  and  instruments,  in
                  execution form, and such other information as may be necessary
                  or advisable to take such action. Lessee shall cooperate fully
                  with Lessor and Owner  Participant,  if,  notwithstanding  the
                  foregoing,  Lessor or Owner  Participant  notifies Lessee that
                  Lessor  or  Owner  Participant  wishes  to  take  any  of  the
                  foregoing  actions,  in  lieu  of  Lessee  taking  any  of the
                  foregoing actions.

                           (iv) Without  limiting  the effect of the  foregoing,
                  Lessee  shall  also do or cause to be done at its own  expense
                  any and all acts and things  which may be  required  under the
                  terms of any  agreement,  treaty,  convention,  pact or by any
                  practice,  custom or understanding  involving any jurisdiction
                  in which Lessee may  operate,  and any and all acts and things
                  which Lessor or Owner Participant may reasonably  request,  to
                  establish, perfect, preserve and protect the respective rights
                  of Lessor in the Aircraft and in this Agreement and each other
                  Operative Document.

                           (v) Lessee shall  procure  that,  at all times during
                  the Lease Term,  the Aircraft  possesses a current,  legal and
                  valid   Airworthiness   Certificate,   and  all   such   other
                  certificates, licenses, permits and authorizations as are from
                  time  to time  required  for  the  use  and  operation  of the
                  Aircraft for the public  transport of  passengers  or cargo by
                  any  Government  Entity  having  jurisdiction  in any country,
                  state,  province  or other  political  subdivision  in or over
                  which the Aircraft is flown,  including,  without  limitation,
                  any aviation authority.

                  (c) Maintenance.  Lessee, at its own cost and expense,  shall,
at all times  during the Lease Term and until the  Aircraft  is  returned in the
condition and manner required by this Agreement:
                           (i)  maintain,  service,  repair,  test,  inspect and
                  overhaul,  or  cause  to be  maintained,  serviced,  repaired,
                  tested,  inspected and overhauled,  the Aircraft in accordance
                  with the  Approved  Maintenance  Program  (which  shall not be
                  amended in any material respect without Lessor's prior written
                  consent,  which consent shall not be  unreasonably  withheld),
                  the structural  repair manual and the rules and regulations of
                  the Aviation Authority,  including,  without  limitation,  FAR
                  Part 121,  and the  regulations  promulgated  by the  Aviation
                  Authority  thereunder,  and,  except to the extent in conflict
                  with the rules and regulations of the Aviation  Authority,  as
                  well as standard  commercial  airline  practice,  (x) so as to
                  keep  the  Aircraft  in  as  good  condition   (operating  and
                  otherwise) as when  delivered on the Delivery  Date,  ordinary
                  wear and tear  excepted,  and in at least the same  manner and
                  with at least  substantially  the same care and  diligence  as
                  other aircraft owned or operated by Lessee,  (y) so as to keep
                  the Aircraft free of, or so as to promptly  correct,  physical
                  damage to the Airframe,  any Engine or any Part which may have
                  resulted  from foreign  object  damage,  from damage caused by
                  ramp  equipment,  ramp  personnel,   operational  mishandling,
                  Lessee staff or  passengers or from other means or sources and
                  (z) so as to keep the  Aircraft  in such  condition  as may be
                  necessary to enable the applicable airworthiness certification
                  for the  Aircraft  to be  maintained  in good  standing at all
                  times under applicable law;

                           (ii)  without  limiting  Lessee's  obligations  under
                  Section 10(c)(i), agree that such maintenance and repairs will
                  include,  but will not be limited  to,  each of the  following
                  specific items:

                                    (A) to perform in accordance with recognized
                           standards  of prudent air  carriers  and the Approved
                           Maintenance  Program,  and all  applicable  rules and
                           regulations of the Aviation Authority, and, except to
                           the extent in conflict with the rules and regulations
                           of the Aviation Authority, all routine and nonroutine
                           maintenance work, including, without limitation, line
                           maintenance to be done upon the Aircraft;

                                    (B) without  prejudice to the  provisions of
                           Section 7, to comply with all applicable ADs that are
                           issued   during  the  Lease  Term  and  are  due  for
                           compliance on such basis at any time during the Lease
                           Term and  within  180 days after the end of the Lease
                           Term ("Required Modifications");

                                    (C)  to   incorporate   and  retain  in  the
                           Approved  Maintenance  Program  for the  Aircraft  an
                           applicable CPCP, and to carry out such work as may be
                           required  to  comply  therewith,  including  periodic
                           inspection,    testing   and   corrosion   inhibiting
                           treatment to or of fuel tanks,  periodic  inspection,
                           cleanup and resealing  under galleys and  lavatories,
                           the  cleaning  and  treating of all mild and moderate
                           corrosion  and  the  correcting  of  all  severe  and
                           exfoliated   corrosion,   and  the   application   of
                           corrosion  inhibition  compounds  to all areas of the
                           Aircraft  recommended  by the  Airframe  Manufacturer
                           that are manufactured  from aluminum or other metals,
                           in  accordance  with  the   recommendations   of  the
                           Airframe   Manufacturer,   the  CPCP,   the  Airframe
                           Manufacturer   structural   repair   manual  and  the
                           Approved Maintenance Program;

                                    (D) to  effect  any  required  repair to the
                           Airframe  or any  Engine,  and  any  Parts  installed
                           therein  or   thereon,   only  (w)  by  an   Aviation
                           Authority-approved  repair  station,  (x) by Aviation
                           Authority-licensed  mechanics  and (y) in  accordance
                           with  Lessee's  Approved   Maintenance  Program,  the
                           Airframe Manufacturer's structural repair manual, the
                           Airframe  Manufacturer's   component  repair  manual,
                           Engine  Manufacturer's  repair  manuals and the other
                           repair and overhaul  manuals  related to the Aircraft
                           or any Part thereof, in each case, as approved by the
                           Aviation  Authority,  and (z) the  relevant,  if any,
                           engineering  change  orders (which shall be initiated
                           in  accordance  with   procedures   approved  by  the
                           Aviation Authority);

                                    (E) to  maintain,  in the English  language,
                           the Aircraft  Documentation  and to keep the Aircraft
                           Documentation  current  and  up  to  date  (with  all
                           documents  and records  unique to the  Aircraft to be
                           maintained  unique to the  Aircraft,  which  Aircraft
                           Documentation  shall (i) conform with the laws of any
                           Government   Entity  having   jurisdiction  over  the
                           Aircraft and with normal  practices of commercial air
                           carriers,  (ii)  disclose  the location of any Engine
                           not  installed  on  the  Airframe,  (iii)  accurately
                           record the amount of time consumed  and/or the cycles
                           of use  (as  appropriate)  by each  operation  of the
                           Airframe,  each  Engine  and all  Parts  and all work
                           performed thereon,  (iv) accurately maintain complete
                           back-to-birth records of all Life Limited Components,
                           and (v) be made available for review by Lessor, Owner
                           Participant   or  their   respective   designees   on
                           reasonable notice in order to facilitate  Lessor's or
                           Owner Participant's  ability  periodically to inspect
                           the  Aircraft  and  monitor  the  maintenance  of the
                           Aircraft);

                                    (F)  to  make   available  for  review  upon
                           request  by  Lessor  or  Owner  Participant  or their
                           respective    designees   copies   of   any   written
                           communications with the Aviation Authority,  Airframe
                           Manufacturer,  Engine  Manufacturer  or other vendors
                           with respect to incidents, defects or malfunctions of
                           the Aircraft;

                                    (G)  to  diligently   correct  any  and  all
                           deficiencies  revealed by any inspection of Lessor or
                           Owner   Participant  by  proper  cleaning,   sealing,
                           repair,  replacement,   overhaul  and  adjustment  as
                           required   pursuant  to  the   Approved   Maintenance
                           Program;

                                    (H)  to  ensure   that   only  an   Approved
                           Maintenance Performer services, maintains, overhauls,
                           repairs or performs  any  Modifications  on or to the
                           Aircraft or any installed engine or part;

                                    (I) all parts or materials installed or used
                           on the Aircraft  shall have a current valid  Aviation
                           Authority  "serviceable  tag" of the  manufacturer or
                           maintenance  facility  providing such item to Lessee;
                           and

                                    (J) notwithstanding anything to the contrary
                           contained herein, to maintain any engine which is not
                           an Engine but which is  installed  on the Airframe as
                           if it were an Engine;

                           (iii)  furnish or cause to be furnished to Lessor and
                  Owner Participant as soon as reasonably  practicable and at no
                  cost to Lessee such  information  as may be required to enable
                  Lessor  and Owner  Participant  to file on a timely  basis any
                  reports  required  to be filed by Lessor or Owner  Participant
                  with  any  Government  Entity  because  of  Lessor's  or Owner
                  Participant's  rights,  title  and  interests  in  and  to the
                  Aircraft  or  under  this  Agreement  or any  other  Operative
                  Document.

                  (d)  Operation.

                           (i) Lessee shall not maintain, use, service,  repair,
                  overhaul or operate the Aircraft (or permit maintenance,  use,
                  service,  overhaul or operation of the  Aircraft) in violation
                  of any law of any Government  Entity having  jurisdiction,  in
                  violation   of   any    manufacturer's    operating   manuals,
                  recommendations   or  instructions  or  in  violation  of  any
                  airworthiness certificate, license or registration relating to
                  the Aircraft issued by any such Government Entity.

                           (ii) Lessee  shall not operate the Aircraft or permit
                  the  Aircraft  to be  operated  (y)  outside of the  Permitted
                  Jurisdictions  or (z) on routes  other than those  approved by
                  the government of the State of Registration.

                           (iii) Lessee shall not  knowingly  employ,  suffer or
                  cause  the  Aircraft  to be  used  for  the  carriage  of  (w)
                  livestock,  (x)  acids,  toxic  chemicals  or other  corrosive
                  materials,  unless  the same  are  appropriately  packaged  in
                  compliance with applicable law, (y) explosives,  nuclear fuels
                  or wastes,  (z) illegal  drugs,  controlled  substances or the
                  like or any other goods, materials or items of cargo which are
                  prohibited  by law or which  could  reasonably  be expected or
                  anticipated to cause damage to the Aircraft.

                           (iv)  Lessee  will not use, or permit the use of, the
                  Aircraft   for  testing  or  for   training,   qualifying   or
                  reconfirming  the  status of flight  crew  members  other than
                  employees of Lessee,  and then only if the use of the Aircraft
                  for such purpose is not  disproportionate  to the use for such
                  purpose  of other  Airframe  Manufacturer  model 737  aircraft
                  owned or operated by Lessee.

                           (v) Notwithstanding  anything herein to the contrary,
                  Lessee   shall  not   install,   and  shall  not   permit  the
                  installation  of,  any Engine on any  airframe  that is not an
                  Airframe Manufacturer model 737-3U3 airframe, except solely to
                  the extent the  Aviation  Authority  has  approved  the use of
                  engines of the same model and  manufacturer  as such Engine on
                  any  Airframe   Manufacturer  model  737-3U3  airframe,   such
                  airframe.

                           (vi) Lessee shall provide  Lessor on the tenth day of
                  each calendar month during the Lease Term with a completed and
                  duly executed Aircraft Status Report substantially in the form
                  of Exhibit I.

                  (e)  Insignia.  Lessee  shall affix and maintain in respect of
the  Airframe and each Engine a fireproof  identification  plate of a reasonable
size, in the location  specified below,  that contains the following  legends or
any other legend requested from time to time by Lessor in writing:

                  Location:          
                           (i) in the case of the Airframe, in the upper sill of
                  the left-hand forward entry door, adjacent to the Airframe 
                  Manufacturer's plate and 

                           (ii) in the case of each Engine, in a clearly visible
                  place in close proximity to the manufacturer's plate.

                  Legend:       
                           (y) in the case of the  Airframe,  "THIS  AIRCRAFT IS
                  OWNED BY FIRST SECURITY BANK, NATIONAL  ASSOCIATION,  AS OWNER
                  TRUSTEE, AND IS HELD UNDER LEASE BY FRONTIER AIRLINES, INC.,",
                  and

                           (z) in the case of each Engine, "THIS ENGINE IS OWNED
                  BY FIRST SECURITY BANK,NATIONAL ASSOCIATION, AS OWNER TRUSTEE,
                  AND IS HELD UNDER  LEASE BY FRONTIER AIRLINES, INC.".

Lessee shall promptly replace any such nameplate that becomes  illegible,  lost,
damaged or destroyed for any reason.

                  (f) Costs of Operation. Lessee shall pay all costs incurred in
the  operation  of the  Aircraft  for profit or  otherwise,  including,  without
limitation,  the costs and expenses of flight crews, cabin personnel, fuel, oil,
lubricants,  maintenance,  insurance,  landing fees,  navigation  fees,  airport
charges,  passenger service and any and all other expenses or claims of any kind
or  nature  (including,  without  limitation,  any and all  Taxes)  directly  or
indirectly  incurred  or  imposed  in  connection  with or  related  to the use,
movement,  operation,  maintenance,  repair, storage or location of the Aircraft
during the Lease Term.

                  (g) Payment of Flight Charges.  Without limiting the effect of
Section  8,  Lessee  shall pay  during  the Lease  Term  promptly  upon the same
becoming due and payable all Flight  Charges  payable by Lessee during the Lease
Term  whether in respect of the  Aircraft  or any other  aircraft  of Lessee and
which  involve  any  risk of the  imposition  of a Lien on the  Aircraft  or the
confiscation  or  detention  thereof  (unless  such  Flight  Charges  are  being
contested in good faith by appropriate proceedings) and shall indemnify and hold
Lessor, Owner Participant and any other Indemnified Party harmless in respect of
the  same,   which   indemnity   shall   continue   in  full  force  and  effect
notwithstanding the termination or expiration of the Lease Term or Return of the
Aircraft.

                  (h) Loss or Damage.

                           (i) Without  limiting  the other  provisions  of this
                  Section 10, if the Aircraft or any part  thereof  suffers loss
                  or damage not constituting an Event of Loss of the Aircraft or
                  the  Airframe  or any  Engine (in  respect  of which,  for the
                  avoidance  of doubt,  Section 13 shall  apply),  Lessee  shall
                  promptly correct and repair such loss or damage, including the
                  repair or  replacement of all damaged or lost Parts at its own
                  expense in  accordance  with this  Agreement in order that the
                  Aircraft  is  placed  in  an   airworthy   condition   and  in
                  substantially  the same condition as it was prior to such loss
                  or damage.  Any  insurance  payments  with  respect to loss or
                  damage not  constituting  an Event of Loss of the  Aircraft or
                  the Airframe  shall be paid in accordance  with the provisions
                  of Section 15 and  applied  in payment  for  repairs to or for
                  replacement of the property suffering the loss or damage.

                           (ii) Lessee shall notify Lessor forthwith of any such
                  loss  or  damage  to  the  Aircraft  for  which  the  cost  of
                  correction or repairs may exceed the Damage  Notice  Threshold
                  and shall provide an  explanation or proposal for carrying out
                  the  correction  or  repair.  If  after  its  receipt  of such
                  proposal, Lessor does not agree with Lessee's proposal, Lessor
                  shall promptly notify Lessee of such disagreement.  Lessee and
                  Lessor  shall then  consult  with the  Airframe  Manufacturer,
                  Engine Manufacturer or other relevant manufacturer, and Lessee
                  and  Lessor  agree to accept as  conclusive,  and be bound by,
                  such Person's  directions or  recommendations as to the manner
                  in which to carry out such repairs.

                  (i) Cost Sharing.  The Lessor shall,  if the cost to Lessee of
performing an inspection  resulting in modification  or terminating  action with
regard  to any AD or  causing  such  inspection  resulting  in  modification  or
terminating  action being performed with regard to such AD, exceeds  $100,000 in
respect  of any  individual  item of the same,  provided  no Default or Event of
Default  has  occurred  and is  continuing,  on receipt by Lessor of evidence of
payment for and completion of the relevant work, reimburse Lessee with an amount
equal to the solution to the following formula:-

                  P=Cx(N-R)/N
                           

         where "N" equals the Lease Term in months;

         "R"  represents  the remainder  of  the  Lease  Term  in  months  after
         completion of the modification/terminating action;

         "C" equals the cost of the modification/terminating action in excess of
         $100,000; and

         "P" equals the Lessor's share of any cost.

         SECTION  11.  Possession.  Lessee will not,  without the prior  written
consent of Lessor,  sublease or  otherwise  in any manner  deliver,  transfer or
relinquish  possession  of the  Aircraft,  Airframe or an Engine or any Part, or
install an Engine,  or permit any such  Engine to be  installed,  on an airframe
other than the Airframe,  provided that so long as (1) no Event of Default shall
have occurred and be continuing,  (2) the action to be taken shall not adversely
affect, or be of a nature that could reasonably be expected to adversely affect,
Lessor's rights, title and interests in and to the Aircraft or Airframe,  or any
Engine  or  Part,  or under  this  Agreement  or any  other  Operative  Document
(including,  without limitation,  any impairment of title to or the registration
with  the  then  Aviation  Authority  of,  the  Aircraft),  (3)  all  applicable
approvals,  if any, of the Aviation  Authority and any other  Government  Entity
having jurisdiction shall have been obtained,  and (4) the insurance  provisions
of  Section 15 hereof  shall  have been  complied  with,  then,  at the cost and
expense of Lessee:

                  (a)  Maintenance,  Etc.  Without the prior  consent of Lessor,
Lessee may deliver  possession  of the  Airframe or an Engine or any Part to the
manufacturer  thereof,  to any  Approved  Maintenance  Performer or to any other
Aviation  Authority-approved  company acceptable to Lessor for testing, service,
repair,  maintenance  or overhaul  work on the Airframe or Engine or any Part or
for alterations or  modifications  in or additions to such Airframe or Engine or
Part to the extent required or permitted by the terms of Section 12(b).

                  (b)  Installation of Engines on Other  Airframes.  Without the
prior  consent  of  Lessor,  Lessee  may  install  an  Engine  on  any  Airframe
Manufacturer  model 737 airframe (other than the Airframe) operated by Lessee so
long as no Person  will  acquire or claim any right,  title or  interest  in any
Engine by reason of such Engine's  being  installed on such airframe at any time
while such Engine is owned by Lessor.

                  (c) Pooling; Sublease.

                  Lessee will not,  without the prior written consent of Lessor,
sublease or otherwise in any manner deliver,  transfer or relinquish  possession
of the Aircraft, the Airframe or any Engine or install any Engine, or permit any
Engine to be installed,  on any airframe  other than as permitted  under Section
11(b); provided,  however,  subject to the provisions of this Section 11(c) that
if and for so long as (y) no Default or Event of Default shall have occurred and
be continuing,  and (z) all approvals,  consents or  authorizations  required in
connection with any such delivery,  transfer or  relinquishment of possession by
the Aviation  Authority  have been obtained and remain in full force and effect,
then Lessee may, without such prior written consent:

                  (i) Subject  any Engine to normal  interchange  agreements  or
         pooling  agreements  or  arrangements,  in each case  customary  in the
         commercial  airline  industry  and entered into in writing by Lessee in
         the ordinary  course of business and with any solvent United States air
         carrier;  provided,  however,  that no such  agreement or  arrangements
         shall require,  contemplate or result in any transfer of Lessor's title
         to such Engine. If,  notwithstanding  the foregoing,  Lessor's title to
         any such Engine is divested  under any such  agreement or  arrangement,
         then such Engine  shall be deemed to have  suffered an Event of Loss as
         of the date of such  divestiture,  with the effect that Lessee shall be
         required to replace such Engine with a Replacement  Engine  meeting the
         requirements of, and in accordance with, Section 13(c).

                  (ii) With respect to the Aircraft, enter into a Wet Lease with
         any United States air carrier, but only if:

                           (A)      Lessee shall provide 30 days advance written
                  notice to Lessor;

                           (B) At the time  that  Lessee  enters  into  such Wet
                  Lease,  no such air carrier  shall be  insolvent or subject to
                  any  bankruptcy,  insolvency,   liquidation,   reorganization,
                  dissolution or similar proceeding, or any similar non-ordinary
                  course transaction, shall be seeking any reorganization or any
                  readjustment of its debts, or shall have  substantially all of
                  its property in the  possession  of any  liquidator,  trustee,
                  receiver or similar person; and

                           (C) Any such Wet Lease  shall be for a period  not in
                  excess of 6 months and not extending  beyond the date which is
                  one year  prior to the end of the  Lease  Term,  and  shall be
                  expressly  subject to and subordinate to all the terms of this
                  Agreement  and to the  rights,  powers and  remedies of Lessor
                  hereunder,  including,  without  limitation,  Lessor's  rights
                  under  Section 20 to  repossess  the  Aircraft,  Airframe  and
                  Engines and to terminate  such Wet Lease,  upon the occurrence
                  of an Event of Default.

                  (iii) Notwithstanding anything to the contrary in this Section
11(c):

                           (A) Lessee shall remain  primarily  liable  hereunder
                  for the performance of all the terms of this Lease to the same
                  extent as if such transfer had not occurred and no transfer of
                  possession of the  Aircraft,  the  Airframe,  any Engine,  any
                  Part, or any Aircraft Documentation shall in any way discharge
                  or diminish any of Lessee's obligations to Lessor hereunder or
                  under any Operative Document; and

                           (B) Lessee shall ensure that no delivery, transfer or
                  relinquishment permitted under this Section 11(c) shall affect
                  the United States registration of the Aircraft.

                  (d)  Transfers  of  Possession  in General.  The rights of any
Person who receives  possession by reason of a transfer or sublease permitted by
this Section 11 shall be effectively  and expressly  subject and  subordinate to
all the  terms of this  Lease,  including,  without  limitation,  the  covenants
contained in Section 10, this Section 11 and Section 15 and the rights of Lessor
to  repossession  pursuant  to  Section  20  and to  avoid  transfer  upon  such
possession.  No  sublease,  relinquishment  or  transfer  of  possession  of the
Aircraft or Airframe, or any Engine or Part, shall in any way release, discharge
or otherwise  limit or diminish any of Lessee's  obligations to Lessor (it being
agreed that  notwithstanding  any such transfer or relinquishment of possession,
Lessee shall continue to be primarily  liable and responsible for performance of
all of its obligations under this Agreement and each other Operative  Document),
or  constitute a waiver of Lessor's  rights or remedies  hereunder or affect the
registration of the Aircraft with the Aviation  Authority.  Notwithstanding  any
other provision of this Agreement or any other Operative Document, any sublease,
relinquishment  or transfer of possession  must (x) be consistent with the terms
of this  Agreement  and the other  Operative  Documents,  and (y) not  adversely
affect  the  rights,  title or  interests  of  Lessor in or to the  Aircraft  or
Airframe,  or any Engine or Part, or under this Agreement or any other Operative
Document,  and (z) not result in any  increases in Taxes to the Lessor which are
not  indemnifiable  hereunder,  or otherwise  adversely  affect  applicable  tax
benefits available to Lessor.

         SECTION 12.  Replacement  of   Parts,  Alterations,  Modifications  and
                      Additions.

                  (a)  Replacement of Parts.

                           (i) Lessee, at its own expense, will replace or cause
                  to be  replaced  as  soon  as  reasonably  practicable  and in
                  accordance with  applicable  manufacturer  maintenance  manual
                  limits  (and in any event  within  thirty (30) days of removal
                  or,  if  earlier,  on the  date  the  Lease  Term  expires  or
                  terminates)  all Parts which may from time to time become worn
                  out, obsolete, lost, stolen, destroyed,  seized,  confiscated,
                  damaged  beyond repair or  permanently  rendered unfit for use
                  for any reason  whatsoever,  except as  otherwise  provided in
                  Section 12(b) with respect to Additional Parts.

                           (ii)  All  Parts  incorporated  or  installed  in  or
                  attached or added to the  Airframe or any Engine  shall (x) be
                  free and clear of all Liens (except for Permitted Liens),  (y)
                  except  with  respect  to  Additional  Parts,  be in  as  good
                  operating  condition as, and shall have a value and utility at
                  least equal to, the Parts  replaced,  assuming  such  replaced
                  Parts  were  in  the  condition  and  repair  required  to  be
                  maintained  by the terms  hereof and (z) have a current  valid
                  Aviation  Authority  "serviceable  tag" of the manufacturer or
                  maintenance   facility   providing   such   items  to   Lessee
                  identifying the manufacturer, vendor, part number, make, model
                  and serial number, date and hours and/or cycles and, if such a
                  tag is issuable  with  respect to the Parts,  indicating  that
                  such  Parts are new,  serviceable  or  overhauled.  Lessee may
                  substitute  for  any  Part a  part  that  does  not  meet  the
                  requirements  of the  foregoing  sentence if a complying  Part
                  cannot be procured or installed  within the  available  ground
                  time of the  Aircraft,  provided  that  the  original  Part is
                  reinstalled or the  noncomplying  part is removed and replaced
                  by a  complying  Part,  in each  case  as  soon as  reasonably
                  practicable  (and in any  event  within  thirty  (30)  days of
                  removal or, if earlier,  on the date the Lease Term expires or
                  terminates).

                           (iii)    Immediately   upon   any   Part's   becoming
                  incorporated  in,  installed on or attached to the Airframe or
                  any Engine,  as above provided,  without further act (x) title
                  to such Part shall thereupon vest in Lessor, free and clear of
                  all Liens (other than  Permitted  Liens),  (y) such Part shall
                  become  subject to this  Agreement  and be deemed part of such
                  Airframe or such Engine for all purposes hereof, and (z) title
                  to any replaced Part shall thereupon vest in Lessee,  free and
                  clear of all Lessor Liens and shall no longer be deemed a Part
                  hereunder. All Parts (other than Additional Parts) at any time
                  removed  from the  Airframe  or any  Engine  shall  remain the
                  property of Lessor,  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 Airframe or
                  any Engine and which meet the requirements set forth in clause
                  (iii)  above.  Upon any  removal of  Additional  Parts,  title
                  thereto shall,  without further act, vest in Lessee,  and such
                  Additional Part shall no longer be deemed a Part hereunder.

                           (iv)  Notwithstanding  any other provision hereof, no
                  Part that is a life  limited  part shall be  installed  on the
                  Aircraft  or any  Engine,  including,  without  limitation,  a
                  Replacement  Engine,  after the Delivery Date unless such Part
                  is new or Lessee has complete certified, back-to-birth records
                  for such part. (b) Modifications.

                           (i) Lessee,  at its own expense,  will make, or cause
                  to be made, such  Modifications to the Airframe and Engines as
                  may be  required  from  time to time  to meet  the  applicable
                  standards of the Aviation  Authority,  provided that except as
                  otherwise  provided with respect to Required  Modifications in
                  Section  10(c)(ii)(B),  Lessee may, in good faith, contest the
                  validity or application of any law, rule,  regulation or order
                  in any  manner  which does not  involve  any risk of the sale,
                  forfeiture  or  loss of the  Aircraft  or,  in the  reasonable
                  judgment  of Lessor,  materially  adversely  affect  Lessor or
                  involve any risk of civil or criminal  liability  on Lessor or
                  any Indemnified Party.

                           (ii)  Lessee,  at its own  expense,  may from time to
                  time  add  further   parts  or   accessories   and  make  such
                  Modifications to the Airframe or any Engine as Lessee may deem
                  desirable  in the  proper  conduct of its  business,  provided
                  that:

                                    (y) other than the  Reconfiguration,  Lessee
                           shall not,  without  Lessor's prior written  consent,
                           make  any  Major  Modifications,  including,  without
                           limitation,   modifications   as  to  the   type   or
                           manufacture  of the avionics and Cabin  modifications
                           which change the interior layout, to the Aircraft (it
                           being  agreed  that Lessee  shall,  if  requested  by
                           Lessor,   provide   advance   copies  of   regulatory
                           approvals and all designs, plans, diagrams,  drawings
                           and data used by Lessee in  accomplishing  such Major
                           Modifications);   provided   that  any   such   Major
                           Modifications that are performed shall be approved by
                           the Aviation  Authority (as evidenced by the issuance
                           of a  supplemental  type  certificate or similar data
                           acceptable to the Aviation Authority and Lessor); and

                                    (z) no such  Modification  shall  reduce the
                           remaining  useful life of the Airframe or such Engine
                           or diminish  the value or utility of the  Airframe or
                           such Engine or impair the condition, airworthiness or
                           marketability  thereof  below  the  remaining  useful
                           life,  value,  utility,  condition,  marketability or
                           airworthiness   thereof  immediately  prior  to  such
                           Modification,  assuming  the  Airframe or such Engine
                           was then of the  remaining  useful  life,  value  and
                           utility  and  in  the  condition  and   airworthiness
                           required  to be  maintained  by  the  terms  of  this
                           Agreement.   Title  to  all  Parts   incorporated  or
                           installed  in or attached or added to the Airframe or
                           an Engine as the  result  of such  Modification  (the
                           "Additional Parts") shall,  without further act, vest
                           in Lessor, and Lessee hereby  relinquishes all right,
                           title and  interest  thereto.  Any Part  installed as
                           part of the  Reconfiguration  shall not constitute an
                           Additional Part.

                           (iii)  Except as provided in Sections  2(d) and 10(i)
                  hereof, neither Lessor nor Owner Participant shall be required
                  under any  circumstances to pay directly or indirectly for any
                  Modifications.  Notwithstanding the foregoing,  Lessee may, at
                  any time during the Lease Term, so long as no Event of Default
                  shall have occurred and be continuing,  remove or suffer to be
                  removed  any  such   Additional   Part,   provided  that  such
                  Additional  Part (x) is in addition to, and not in replacement
                  of or substitution  for, any Part  originally  incorporated or
                  installed  in or attached to the Airframe or any Engine at the
                  time of  delivery  thereof  or any Part in  replacement  of or
                  substitution  for any such  Part,  (y) is not  required  to be
                  incorporated  or  installed  in or  attached  or  added to the
                  Airframe or any Engine  pursuant to the terms of this  Section
                  12 and (z) can be removed  from the  Airframe  or such  Engine
                  without damaging the Airframe or such Engine or diminishing or
                  impairing the value, utility, condition or airworthiness which
                  the  Airframe or such  Engine  would have had at such time had
                  such Modification not occurred,  assuming the Airframe or such
                  Engine was then of the fair  market  value and  utility and in
                  the condition and  airworthiness  required to be maintained by
                  the terms of this Agreement.

                           (iv) Upon expiration or termination of the Lease Term
                  and the written  request of Lessor at least ten (10)  Business
                  Days prior to such expiration or termination, Lessee shall, at
                  its own expense,  remove or cause to be removed any Additional
                  Part.  Upon the  removal by Lessee of any  Additional  Part as
                  provided above, title thereto shall, without further act, vest
                  in Lessee,  and such Additional Part shall no longer be deemed
                  part of the Airframe or Engine from which it was removed.  Any
                  Additional  Part not removed by Lessee as above provided prior
                  to the return of the  Airframe  or Engine to Lessor  hereunder
                  shall remain the property of Lessor.

                           (v)   Notwithstanding   anything   to  the   contrary
                  contained  herein,  Lessee shall not,  without  Lessor's prior
                  written consent,  remove any Modification which is required by
                  the Aviation Authority.

         SECTION 13.  Risk of Loss, Destruction, Requisition, Etc.

                  (a) Risk of Loss.  Throughout  the  Lease  Term and  until the
Return shall have been effected in accordance  with the terms of this Agreement,
Lessee  shall bear all risk of loss,  damage,  theft or  destruction  of, or any
other Event of Loss with respect to, the Aircraft or to the Airframe, any Engine
or any Part.

                  (b)  Event of Loss With Respect to the Aircraft.

                           (i) Upon  the  occurrence  of an  Event of Loss  with
                  respect to the  Airframe or the  Airframe  and Engines  and/or
                  engines then installed  thereon,  Lessee shall forthwith (and,
                  in any event,  within  three (3) days  after such  occurrence)
                  give  Lessor  written  notice  of such  Event of Loss.  By the
                  earlier  of (y) sixty  (60) days  following  the Event of Loss
                  Date  or (z)  the  date  on  which  the  applicable  insurance
                  proceeds are  received by the loss payee,  Lessee shall pay or
                  cause to be paid to Lessor in immediately  available funds the
                  Stipulated Loss Value of the Aircraft  together with all other
                  amounts then due and owing by Lessee hereunder.

                           (ii)  Until  the date on which  the  Stipulated  Loss
                  Value and the other amounts referred to in clause (b)(i) above
                  are paid in full,  Lessee  shall be obligated to pay all Basic
                  Rent or Renewal  Rent, as  applicable,  as scheduled and shall
                  continue  to perform  all of its other  obligations  under the
                  Operative Documents,  except to the extent rendered impossible
                  by the  occurrence  of such Event of Loss or rendered,  in the
                  opinion of Lessor,  unnecessary.  If the Stipulated Loss Value
                  referred  to in clause  (b)(i)  above is paid on a date  other
                  than a Basic Rent Date or  Renewal  Rent  Date,  Lessor  shall
                  refund  or  cause  to be  refunded  to  Lessee  any  paid  but
                  unaccrued  Basic Rent or Renewal  Rent,  as  applicable.  Upon
                  receipt of the full  amount of the  Stipulated  Loss Value and
                  the other amounts referred to in clause (b)(i) above by Lessor
                  pursuant  to this  Section  13(b),  and if Lessee has paid all
                  other  amounts  then due and  payable  by  Lessee  under  this
                  Agreement and the other Operative  Documents,  then (x) Lessor
                  shall,  upon the joint  written  request  of  Lessee  and each
                  insurer or their appointed  representatives  which contributed
                  to the payment of the Stipulated  Loss Value,  transfer to the
                  Person designated in such request all of Lessor's right, title
                  and  interest  in the  Aircraft  without  recourse or warranty
                  (except  as to absence  of Lessor  Liens)  and  subject to the
                  disclaimer  set forth in Section 5(a), and (y) Lessee shall be
                  relieved of its obligations under Section 7.

                  (c)  Event of Loss With Respect to an Engine.

                           (i) Upon  the  occurrence  of 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  promptly  (and,  in any event,  within three (3)
                  days after such occurrence) give Lessor written notice thereof
                  and  shall,  as soon as  reasonably  practicable  and,  in any
                  event,  within  forty-five  (45) days after the  occurrence of
                  such Event of Loss (or, if earlier the date of  expiration  or
                  termination  of the  Lease  Term) and upon  five  days'  prior
                  written notice,  convey or cause to be conveyed to Lessor,  as
                  replacement for the Engine with respect to which such Event of
                  Loss occurred,  title to a Replacement  Engine, free and clear
                  of all  Liens  (other  than  Permitted  Liens)  and  having an
                  equivalent    or   greater    value,    condition,    utility,
                  airworthiness,  remaining useful life as, and being in as good
                  operating  condition as, the Engine with respect to which such
                  Event of Loss occurred,  assuming such replaced  Engine was in
                  the  condition  and repair  required to be  maintained  by the
                  terms of this Agreement.  For all purposes  hereof,  each such
                  Replacement  Engine shall,  after such  conveyance,  be deemed
                  part of the property leased hereunder,  and shall be deemed an
                  "Engine."

                           (ii) Prior to or at the time of any  conveyance  of a
                  Replacement  Engine,  Lessee,  at its own  expense,  shall (t)
                  furnish  Lessor  with a full  warranty  (as to title)  bill of
                  sale, in form and substance satisfactory to Lessor,  conveying
                  to Lessor such Replacement Engine, (u) cause supplements to be
                  executed which shall subject such  Replacement  Engine to this
                  Agreement,  (v) cause the  filing of such  instruments  as are
                  necessary or advisable to  establish,  perfect and protect the
                  interest  of Lessor  in any such  Engine  (including,  without
                  limitation,  cause a Lease  Supplement,  in form and substance
                  satisfactory  to Lessor,  to be duly  executed  by Lessee) (w)
                  furnish  Lessor with such evidence of the transfer of title to
                  such  Replacement  Engine to Lessor as Lessor  may  reasonably
                  request, including,  without limitation, that such Replacement
                  Engine is free and clear of all Liens, except Permitted Liens,
                  such evidence to include,  without  limitation,  an opinion of
                  Lessee's  counsel  addressed to Lessor,  and opining that such
                  title has been so conveyed  and that such  Replacement  Engine
                  has been duly subjected to this Agreement  (such opinion to be
                  in form and  substance,  and  from  counsel,  satisfactory  to
                  Lessor),  (x) furnish  Lessor with such evidence of compliance
                  with the provisions of Sections  10(e),  12(a)(iv) and 15 with
                  respect to such  Replacement  Engine as Lessor may  reasonably
                  request,  (y) furnish  Lessor with a certificate  signed by an
                  officer of Lessee  certifying that, upon  consummation of such
                  replacement,  no Event of Default will exist hereunder and (z)
                  furnish Lessor with an appraisal  satisfactory to Lessor which
                  shall  establish,  and a certificate  of an aircraft  engineer
                  (who may be an  employee  of  Lessee)  certifying,  that  such
                  Replacement   Engine   has  a   value,   condition,   utility,
                  airworthiness and remaining useful life at least equal to, and
                  is in as good operating  condition as, the Engine so replaced,
                  assuming such Engine was in the condition and repair  required
                  by the  terms  of  this  Agreement  immediately  prior  to the
                  occurrence of such Event of Loss.

                           (iii) Upon compliance by Lessee with the requirements
                  of this  Section  13(c),  if no Event of  Default  shall  have
                  occurred  or be  continuing,  Lessor  shall,  upon  the  joint
                  written  request of Lessee and each insurer which  contributed
                  to the payment of any  insurance  proceeds with respect to the
                  lost Engine, transfer to the Person designated in such request
                  all of  Lessor's  right,  title and  interest  in such  Engine
                  without  recourse or warranty  (except as to absence of Lessor
                  Liens)  and  subject  to the  disclaimer  set forth in Section
                  5(a),  and such Engine shall  thereupon  cease to be an Engine
                  leased hereunder.
                           (iv) No Event of Loss with respect to an Engine shall
                  result in any reduction in Basic Rent or Renewal Rent.

                  (d)  Application  of Payments From any  Government  Entity for
Requisition  of Title,  Etc. Any  payments  (other than  insurance  proceeds the
application  of which is  provided  for in Section  15)  received at any time by
Lessor or by Lessee from any  Government  Entity 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 an  Engine  or  engines  then
                  installed   thereon),   after   reimbursement  of  Lessor  for
                  reasonable  costs  and  expenses,  so much  of  such  payments
                  remaining  as shall  not  exceed  the  Stipulated  Loss  Value
                  required to be paid by Lessee pursuant to Section 13(b) shall,
                  unless a Default or any Event of Default  shall have  occurred
                  and  be  continuing,  be  applied  in  reduction  of  Lessee's
                  obligation  to pay such  Stipulated  Loss Value and such other
                  amounts of Rent, if not already paid by Lessee, or, if already
                  paid by Lessee,  shall be applied to reimburse  Lessee for its
                  payment of such  Stipulated  Loss Value,  and the balance,  if
                  any, of such payments  shall be  distributed to or retained by
                  Lessor or

                           (ii) if such payments are received with respect to an
                  Engine under circumstances contemplated by Section 13(c), then
                  so much of such  payments  remaining  after  reimbursement  of
                  Lessor  for  reasonable  costs and  expenses;  up to an amount
                  equal to  Lessee's  actual  cost of  replacing  such Engine in
                  accordance  with  Section  13(c),  shall,  unless a Default or
                  Event of Default  shall have  occurred and be  continuing,  be
                  paid over to, or  retained  by,  Lessee if Lessee  shall  have
                  fully performed,  or concurrently  therewith will perform, the
                  terms of Section  13(c) with  respect to the Event of Loss for
                  which such payments are made, and the balance, if any, of such
                  payments shall be distributed to or retained by Lessor.

                  (e) Application of Payments During  Existence of Default.  Any
amount  referred  to in this  Section 13 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 any 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  Agreement to be held and applied  pursuant to
Section 20 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 paid to Lessee to the  extent  not  applied  in
accordance with the preceding sentence.

         SECTION 14.  Maintenance Reserves.

                  (a)  Amount.   Lessee  shall  pay  the  following  Maintenance
Reserves to Owner Participant during the Lease Term:
                           (i)  in  respect  of the  Airframe,  US$70  for  each
         Airframe  Flight Hour  operated by the Aircraft to cover 2C, 4C, 6C and
         7C Checks of the Aircraft during the Lease Term ("Airframe  Maintenance
         Reserves");

                           (ii) in respect of each Engine, US$57 for each Engine
         Flight Hour and US$52 for each Engine  Cycle,  in each case operated by
         that Engine to cover such  Engine's  Basic Shop Visits during the Lease
         Term (each, "Engine Maintenance Reserves");

                           (iii) in respect of the APU,  US$15 for each Airframe
         Flight  Hour  operated  by the  Aircraft to cover APU Basic Shop Visits
         during the Lease Term ("APU Maintenance Reserves"); and

                           (iv) in respect of the  Landing  Gear,  US$6 for each
         Airframe Flight Hour operated by the Aircraft to cover the Landing Gear
         Overhaul during the Lease Term ("Landing Gear Maintenance Reserves").

The Airframe  Maintenance  Reserves,  the Engine Maintenance  Reserves,  the APU
Maintenance  Reserves and the Landing Gear Maintenance  Reserves are referred to
collectively  herein as the "Maintenance  Reserves." It is understood and agreed
that Owner  Participant  may conduct an annual review of the Dollar  amounts set
forth in this  Section 14. Upon each  anniversary  of the Delivery  Date,  Owner
Participant  and Lessee agree to negotiate in good faith any  adjustments to the
Dollar  amounts  set  forth  in this  Section  14 (as may have  been  previously
adjusted  pursuant to this  sentence)  as may be  necessary  or  appropriate  to
reflect changes in Airframe Manufacturer or Engine Manufacturer recommendations,
industry  overhead cost  experience or such other factors as may be relevant for
the purposes of establishing appropriate reserve payments.  Without agreement to
a change in the Dollar amounts as aforesaid, no adjustment will be made thereto.

                  (b)  Payments.  Lessee shall pay the  Maintenance  Reserves in
respect of each calendar month during which  Maintenance  Reserves accrue on the
tenth day of the  subsequent  calendar  month  beginning on the tenth day of the
calendar  month  following  the Delivery Date and ending on the tenth day of the
calendar  month  in  which  the  Expiry  Date  occurs.  A final  payment  of the
Maintenance  Reserves  shall  be  made on the  Expiry  Date  in  respect  of the
operation  of the  Aircraft  during  the final  month of the Lease  Term.  Owner
Participant  shall keep  notional  running  accounts in respect of the Airframe,
each Engine, the APU and the Landing Gear to which shall be credited all amounts
in respect  thereof  received  under  Section 14(a) and debited all sums paid in
respect  thereof by Owner  Participant to, or on behalf of, Lessee under Section
14(c).

                  (c)  Release of  Maintenance  Reserves.  If Lessee  submits to
Owner Participant,  within six months after the commencement of such maintenance
work and  before the  Expiry  Date,  an  invoice  and  supporting  documentation
evidencing  performance  (in  reasonable  detail) of the following work by or on
behalf of Lessee,  Owner Participant  shall,  provided that (i) no reimbursement
shall be made in respect of  replacement,  repair or overhaul  caused by foreign
object  damage,  operational  or other  mishandling,  faulty  maintenance or any
accidental  cause or in respect of any cost which is  reimbursable by insurance,
and (ii) no Default or Event of  Default  is  continuing,  release to Lessee the
following amounts from the respective Maintenance Reserves:

                           (i) Airframe Checks:  with respect to a scheduled 2C,
         4C, 6C or 7C Check of the  Airframe,  the  lesser of (i) the  amount of
         such invoice and (ii) the balance of Airframe Maintenance Reserves held
         by Owner Participant at the time of payment.

                           (ii) Engine Refurbishment: with respect to any Engine
         Basic Shop Visit, the lesser of (i) the amount of such invoice and (ii)
         the balance of Engine Maintenance Reserves held by Owner Participant in
         respect of such Engine at the time of payment;

                           (iii)  APU and  Landing  Gear:  with  respect  to any
         scheduled APU Basic Shop Visit or Landing Gear Overhaul,  the lesser of
         (i) the amount of such invoice and (ii) the balance of APU  Maintenance
         Reserves or Landing Gear Maintenance Reserves,  as applicable,  held by
         the Owner Participant at the time of payment.

For the  avoidance  of doubt,  Lessee has no right to payment of any amount from
the Maintenance  Reserves except as expressly provided in this clause 14(c), and
any remaining  balances of the Maintenance  Reserves  following the Expiry Date,
after  application  of the  foregoing  provisions,  shall be  retained  by Owner
Participant  as its  sole  property.  Subject  to  its  rights  and  obligations
hereunder,  Lessee will not assign,  transfer or otherwise dispose of its rights
or interest in the Maintenance  Reserves. To the extent any maintenance expenses
exceed the amount available in the applicable Maintenance Reserves account, such
expenses shall be for the account of the Lessee and the shortfall, if any, shall
not  be  carried   forward  or  made  the  subject  of  any  further  claim  for
reimbursement.  Lessee  acknowledges  that Owner  Participant  may commingle the
Maintenance  Reserves  with its general  funds and no interest  shall  accrue in
favor of Lessee in respect of Maintenance Reserves held by Owner Participant

         SECTION 15.  Insurance.

                  (a)  Requirements.  At all times  during the Lease  Term,  and
until the Aircraft is returned to Lessor in the condition and manner required by
this Agreement,  Lessee shall maintain or cause to be maintained with respect to
the Aircraft,  at its own expense,  insurance in  compliance  with the Insurance
Requirements of Exhibit E hereto.

                  (b)  Application  of  Proceeds of Hull  Insurance.  As between
Lessor and Lessee,  it is agreed that all  proceeds of insurance  maintained  in
compliance  with this  Section 15 (except  Section  15(f)) 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 or engines installed
                  thereon),   so  much  of  such   payments   remaining,   after
                  reimbursement of Lessor for reasonable costs and expenses,  as
                  shall  not  exceed  the  Stipulated  Loss  Value and the other
                  amounts  payable  under  Section  13(b)  shall be  applied  in
                  reduction of Lessee's  obligation to pay such  Stipulated Loss
                  Value and the other amounts  payable under Section  13(b),  if
                  not  already  paid by Lessee,  or, if already  paid by Lessee,
                  shall be applied to  reimburse  Lessee for its payment of such
                  Stipulated  Loss  Value,  and the  balance,  if  any,  of such
                  payments  remaining  thereafter  shall  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 13(c),
                  so much of such payments  remaining,  after  reimbursement  of
                  Lessor  and  Owner   Participant  for  reasonable   costs  and
                  expenses,  shall be paid  over to,  or  retained  by,  Lessee,
                  provided   that  Lessee   shall  have  fully   performed   or,
                  concurrently  therewith,  will  fully  perform  the  terms  of
                  Section 13(c) with respect to the Event of Loss for which such
                  payments are made.

                  As between  Lessor and Lessee,  the  insurance  payments  with
respect  to any  property  damage  loss not  constituting  an Event of Loss with
respect to the Airframe or an Engine will be applied in payment (or to reimburse
Lessee) for repairs or for replacement  property in accordance with the terms of
Sections 10 and 12, if not already paid for by Lessee, and any balance remaining
after  compliance  with such sections with respect to such loss shall be paid to
Lessee.

                  (c)  Insurance  for  Indemnities;  Continuation  of  Liability
Insurance. The insurance referred to in Section 15(a) shall in each case include
and insure (to the extent of the risks  covered by the  policies)  the indemnity
provisions of Section 9. For a period of  twenty-four  months after the last day
of the Lease Term,  or, if earlier,  the next  C-Check of the  Aircraft,  and at
Lessee's  cost,  Lessee  shall  continue  to name each  Indemnified  Party as an
additional insured under Lessee's  comprehensive  airline and war-risk liability
insurance  described  in  Exhibit  E to the  extent  of its  interest  under the
indemnities referred to in the preceding sentence.

                  (d)  Reports,  Etc.  Lessee  shall  furnish,  or  cause  to be
furnished,  to Lessor and Owner  Participant  (i) on or before the Delivery Date
and not later  than each  renewal  date of any  insurance,  and  otherwise  upon
reasonable  request,  a  Certificate  of  Insurance  in  the  same  form  as the
Certificate of Insurance delivered on the Delivery Date and a report,  signed by
"Insurance  Brokers,"  substantially  in the form of  Exhibit F, and (ii) on the
Delivery Date and no later than five (5) days prior to the date of expiration of
any  insurance  policy  referenced  in a  previously  delivered  certificate  of
insurance and a report of the Insurance Broker.

                  (e)  Self-Insurance.  Lessee  may not  self-insure  the  risks
required to be insured against pursuant to this Section 15, provided that Lessee
may self-insure  the risks required to be insured against  pursuant to Exhibit E
(except  total  loss)  by way  of  deductible,  premium  adjustment  or  similar
provisions,  in such  amounts as are  customarily  self-insured  with respect to
aircraft of the same type and used in the same  manner as the  Aircraft by major
international  air  carriers,  but in no event  in an  amount  greater  than the
Stipulated Deductible Amount per aircraft per occurrence.

                  (f) Additional  Insurance.  Lessee  acknowledges  that each of
Lessor and Owner Participant has an insurable interest in the Aircraft.  Each of
Lessor and Owner Participant shall have the right to obtain insurance in its own
name with respect to such insurable interest.  Lessee will render each of Lessor
and Owner  Participant  all reasonable  assistance  requested by Lessor or Owner
Participant,  as the case may be, in order that Lessor or Owner Participant,  as
the case may be, may adequately protect such insurable  interest.  Lessee agrees
that the  maximum  amounts  payable to it or to others for its  account or to be
applied  in  discharge  of its  obligations  by any  underwriter  or  carrier of
insurance  maintained  by Lessee  upon the  occurrence  of an Event of Loss with
respect to the Aircraft shall be limited to the Stipulated Loss Value unless the
maintenance of any such insurance in an amount in excess of such Stipulated Loss
Value in  respect  of  Lessee's  insurable  interest  in the  Aircraft  does not
prejudice  Lessor's  or any  Insured  Party's  interests  under  the  insurances
otherwise  required by this Section 15, or prevent  Lessor from  obtaining  such
insurances as it requires,  in which event nothing  herein shall prevent  Lessee
from effecting such additional insurance for its account.

                  (g) Application of Payments During Existence of a Default. Any
amount  referred  to in this  Section 15 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 any 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 Agreement and, if any such Default or 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 applied in accordance with the preceding sentence.

                  (h) Change of Practice or Insurers. In the event that there is
a material  change in the generally  accepted  aviation  insurance  practice and
custom with regard to the  insurance  of  aircraft or any  material  change with
respect to the insurance of aircraft  based or operated in any  jurisdiction  in
which the Aircraft may then be based or operated (whether relating to all or any
of the types of insurance  required to be effected  under this Section 15), such
that  Lessor  or Owner  Participant,  on the basis of  advice  received  from an
independent insurance advisor of international reputation (selected by Lessor or
Owner Participant and acceptable to Lessee),  shall be of the reasonable opinion
that the  insurance  required  pursuant to this  Section 15 is  insufficient  to
protect the respective  interests of Lessor,  Owner Participant and/or any other
Insured  Parties  (bearing  in mind the  nature  and route of  operation  of the
Aircraft),  the  insurance  requirements  set forth in this  Section 15 shall be
amended,  effective upon notice by Lessor or Owner  Participant to Lessee, so as
to include such additional or varied requirements as Lessor or Owner Participant
(upon the advice of such advisor) may reasonably  consider  appropriate in order
to ensure that the insurance as so varied shall provide comparable protection to
Lessor,  Owner  Participant and the other Insured Parties to that which it would
have done if such change had not occurred. In addition, if at any time Lessor or
Owner Participant  reasonably determines that any insurer or reinsurer providing
any of the insurances  required under this Section 15 is, or could reasonably be
expected to be, unable to meet its obligations as they fall due or may fall due,
Lessor or Owner  Participant  shall so notify  Lessee,  and Lessee and Lessor or
Owner  Participant,  as the case  may be,  shall  negotiate  in good  faith  the
selection of an alternative  insurer or reinsurer,  as the case may be, which is
reasonably acceptable to Lessor or Owner Participant,  and Lessee shall promptly
after such selection arrange for insurance with such insurer or reinsurer.

                  (i) Change of Circumstance.  If any change in circumstance has
occurred  and is  continuing  at any time and such change  materially  adversely
affects the insurance of the Aircraft or Airframe, then Lessee shall, as soon as
reasonably practicable, make such amendments, supplements or replacements to the
insurance  coverage  in place with  respect to the  Aircraft  as Lessor or Owner
Participant may reasonably request in light of such change in circumstances.

                  (j) Negative Undertakings. Lessee shall not (i) act or fail to
act, or cause,  permit or suffer an act or failure to act, whereby any insurance
required by this Section 15 would or might  reasonably be expected to be limited
or rendered in whole or in part invalid,  unenforceable or otherwise not in full
force and effect  (including  any limitation  resulting  from  inaccuracy of any
representation or warranty of Lessee,  or any illegal use of the Aircraft),  and
(ii)  without  limiting  the  foregoing,  use,  operate,  employ or  locate  the
Aircraft,  Airframe,  any  Engine or any Part,  or cause,  permit or suffer  the
Aircraft,  Airframe,  any Engine or any Part to be used,  operated,  employed or
located,  in any  place  or in any  manner  or for any  purpose  (x) in any area
excluded from coverage, or in any manner for any purpose that is not covered, by
any insurance  policy in effect or required by the terms of this Agreement to be
maintained  by Lessee or (y) that might  reasonably  be  expected to be excluded
from  coverage  under,  or to  invalidate  or in any way  limit  (including  any
limitation with respect to coverage of the specified  insured perils,  events or
circumstances) any such insurance policy.

                  (k) Failure to Insure. If at any time Lessee fails to maintain
insurance  in  compliance  with  this  Section  15,  each of  Lessor  and  Owner
Participant shall be entitled but not bound to do any of the following  (without
prejudice to any other  rights which it may have under this  Agreement by reason
of such failure):

                           (i) to pay any  premiums  due or effect  or  maintain
                  such insurance or otherwise remedy such failure in such manner
                  as Lessor or Owner Participant,  as the case may be, considers
                  appropriate  (and Lessee shall upon demand reimburse Lessor or
                  Owner Participant,  as the case may be, in full for any amount
                  so expended in that connection) and/or

                           (ii) at any time  while such  failure is  continuing,
                  require the  Aircraft to remain at any airport or, as the case
                  may be, upon provision by Lessor or Owner Participant,  as the
                  case may be, of  insurance  coverage  satisfactory  to Lessee,
                  proceed to and remain at any airport  designated  by Lessor or
                  Owner  Participant,  as the case may be, until such failure is
                  remedied to Lessor's and Owner Participant's satisfaction.

         SECTION 16.  Inspection.

                  (a) Maintenance Schedule.  During the Lease Term, Lessee shall
furnish Lessor with such information concerning the location, condition, use and
operation of the Aircraft as Lessor may reasonably request. Lessee shall provide
Lessor with maintenance  schedules relating to the Aircraft upon delivery of the
Aircraft and from time to time as such schedules are adjusted or updated. Lessee
shall give Lessor  reasonable prior notice of the date of, and any change in the
date of, any Major Checks,  in order to enable Lessor or Owner  Participant,  or
their respective agents,  representatives or designees, to inspect the Aircraft,
including,  without  limitation,  the Aircraft  Documentation  (should Lessor or
Owner Participant  choose to do so), at the time and place any such Major Checks
occur  and  to  make  a  reasonable   number  of  photocopies  of  any  Aircraft
Documentation.

                  (b) Reasonable  Inspections.  At all reasonable times, Lessor,
Owner Participant or their respective authorized representatives may inspect the
Airframe and Engines and inspect and make copies (at such Person's  expense,  or
if such inspection is made in connection with or following a Default or an Event
of Default,  at Lessee's expense) of the books and records of Lessee relating to
the  Airframe  and  Engines  and the  maintenance  of the  Airframe  and Engines
(including,  without  limitation,  any  Aircraft  Documentation,   the  Approved
Maintenance Program, and also including any airworthiness  directive and service
bulletin compliance records, component life status reports, and the then-current
aircraft  configuration),  and if such  inspection  is  made at the  time of any
maintenance operation, such Persons may inspect behind any panels, bays or other
apertures  which have  already  been  opened in the  course of such  maintenance
operation, provided that, so long as no Default or Event of Default has occurred
and is continuing, no exercise of such inspection right shall interfere with the
normal operation of the Aircraft by Lessee.

                  (c) No Duty to Inspect.  Neither Lessor nor Owner  Participant
shall  have any  duty to make any such  inspection  nor  shall  Lessor  or Owner
Participant  incur any liability or obligation by reason of making or not making
any such inspection.
                  (d) Follow-On Lease. Upon request by Lessor, Lessee shall from
time to time  during  the  Lease  Term  make the  Aircraft,  including,  without
limitation,  the  Aircraft  Documentation,  available  for  inspection  and/or a
reasonable  amount of photocopying  to Lessor's  designated  representatives  or
technical teams evaluating the Aircraft for use after the end of the Lease Term.
Lessor agrees to give Lessee at least five (5) Business  Days' advance notice of
any such inspection and to coordinate such  inspections with Lessee so as not to
unreasonably  interfere  with  Lessee's  operation  or  maintenance  or with its
personnel.

                  (e) Absolute Right. The right of Lessor and Owner  Participant
and their  respective  designated  representatives  to inspect the  Aircraft and
Aircraft  Documentation in accordance with this Section 16 during the Lease Term
shall be absolute.

         SECTION 17.  Assignment.

                  (a) Assignment by Lessee.  Lessee shall not assign,  convey or
otherwise transfer (each, an "assignment") any of its rights, title or interests
in and to the Aircraft or this  Agreement  without the prior written  consent of
Lessor.

                  (b) The Lessor may sell,  assign or transfer all or any of its
rights under this  Agreement and in the Aircraft (a  "Transfer")  and the Lessor
will,  other than in the case of an assignment  for security  purposes,  have no
further   obligation   under  this   Agreement   following   a   Transfer   but,
notwithstanding  any  Transfer,  will  remain  entitled  to the  benefit of each
indemnity under this Agreement.  In connection with any Transfer,  the following
conditions shall apply:

                           (i) Lessor shall give Lessee  written  notice of such
         Transfer  at least 10 Business  Days before the date of such  Transfer,
         specifying the name and address of the proposed purchaser,  assignee or
         transferee (the "Transferee");

                           (ii) the  Transfer  will  not  adversely  affect  the
         Lessee's  rights and interests in the Aircraft  and/or this  Agreement,
         not  subject  the  Lessee,  on the date of such  transfer,  to any Tax,
         claim,  liability or any other  obligation or expense to which it would
         not have been subject had such assignment or transfer not taken place;

                           (iii) the Transferee  will be a Citizen of the United
         States and have full  corporate  power and  authority to enter into and
         perform the transactions  contemplated by this Agreement on the part of
         "Lessor";

                           (iv)  on  the  Transfer   date  the  Lessor  and  the
         Transferee  shall enter into an  agreement or  agreements  in which the
         Transferee  confirms that it shall be deemed a party to this  Agreement
         and  agrees to be bound by all the terms of,  and to under  take all of
         the obligations of, the Lessor contained in this Agreement; and

                           (v) such  Transfer  shall not violate any  applicable
law.

                  (c) Upon any Transfer,  the Transferee  shall be deemed Lessor
for all purposes of this  Agreement,  each  reference  in this  Agreement to the
"Lessor" shall thereafter be deemed for all purposes to refer to the Transferee,
and the  transferor  shall be relieved of all  obligations of the "Lessor" under
this  Agreement  arising  after the time of such  Transfer  except to the extent
attributable to acts or events occurring prior to the time of such Transfer.

                  (d) Upon  compliance by Lessor and a Transferee with the terms
and  conditions  of Clause 17(b),  Lessee shall at the time of Transfer,  at the
specific  written  request of Lessor  and with  Lessor  paying  all of  Lessee's
out-of-pocket costs and expenses:

                           (i)  execute  and  deliver  to  Lessor  and  to  such
         Transferee an agreement,  in form and substance satisfactory to Lessor,
         Lessee and such Transferee, dated the date of such transfer, consenting
         to such transfer, agreeing to pay all or such portion of the Basic Rent
         and other  payments  under this  Agreement  to such  Transferee  or its
         designee  as such  Transferee  shall  direct,  and  agreeing  that such
         Transferee  shall  be  entitled  to  rely  on all  representations  and
         warranties  made by Lessee in this  Agreement or in any  certificate or
         document  furnished  by Lessee in  connection  with this  Agreement  as
         though such Transferee was the original "Lessor";

                           (ii)   execute   and   deliver   to  Lessor  or  such
         Transferee,  as the case may be, precautionary  Uniform Commercial Code
         financing  statements  or amendments  reflecting  the interests of such
         Transferee in the Aircraft and this Agreement;

                           (iii)  deliver  to Lessor  and to such  Transferee  a
         certificate,  signed by a duly authorized officer or Lessee,  dated the
         date of such  transfer,  to the  effect  that no Event of  Default  has
         occurred and is continuing  or, if one is then  continuing,  describing
         such Event of Default;

                           (iv)  cause  to  be  delivered  to  Lessor  and  such
         Transferee certificates of insurance and broker's letter of undertaking
         substantially in the form delivered on the Delivery Date, detailing the
         coverage  and  confirming  the  insurers'  agreement  to the  specified
         insurance  requirements  of this  Agreement  and listing the Lessor and
         Transferee  as  additional  insureds  and the  Transferee  as sole loss
         payee;

                           (v) deliver to Lessor and such Transferee information
         on the location of the  Airframe and Engines at all times  requested by
         Lessor in order to permit the Transfer to take place at a time and on a
         date  so as to  eliminate  or  minimize  any  Taxes  applicable  to the
         Transfer; and

                           (vi)  such   other   documents   as  Lessor  or  such
         Transferee  may  reasonably  request,  so long as such documents do not
         adversely  affect the rights or  obligations of Lessee under this Lease
         or otherwise adversely effect Lessee.

                  (e)  Collateral   Assignment.   Notwithstanding   any  of  the
foregoing,  it is  understood  and agreed  that  Lessor  may,  without the prior
written  consent of Lessee  but with prior  notice to the  Lessee,  mortgage  or
pledge and/or assign all or any portion of its right,  title and interest in and
to this Agreement,  the Aircraft or any Rent due hereunder to any Lender. Lessee
shall  acknowledge  in writing any such  mortgage,  pledge or  assignment  by an
acknowledgment in a form reasonably  satisfactory to the Lessee.  Upon notice to
the Lessee from any Lender under any such mortgage,  pledge or assignment,  such
Lender may require  that all Rent shall be paid  directly to such Lender  and/or
that the Aircraft be returned to such Lender,  but, in the case of the return of
the  Aircraft,  only upon  completion  or  termination  of this  Agreement.  Any
acknowledgment from the Lessee shall include,  without limitation,  an agreement
of the Lessee that:

                  (i)      upon such mortgage, pledge or assignment, all rights 
                           of    the   Lessor   hereunder   (including   without
                           limitation,  all rights to be named as loss payee and
                           an additional insured under any policies of insurance
                           maintained pursuant to Section 15 hereof, all  rights
                           to  receive  monies,  reports,  certificates  and any
                           other  information  pursuant  to  the  terms  of this
                           Agreement and all rights to  indemnification)  shall,
                           to the extent provided for in the mortgage, pledge or
                           assignment, be exercisable  by such Lender,  and such
                           Lender shall be deemed an Indemnified Party and a Tax
                           Indemnitee for all purposes of this Agreement;

                  (ii)     the rights of such Lender shall not be subject to any
                           defense, counterclaim, or set-off that the Lessee may
                           have or assert against Lessor;

                  (iii)    such Lender shall not be liable for  any of  Lessor's
                           obligations hereunder;

                  (iv)     subject  to  the  terms  of  the  mortgage, pledge or
                           assignment, such Lender may require that all  Rent be
                           paid directly to such  party  (or its designee),  and
                           Lessee  agrees  that  upon   receipt  of such notice,
                           Lessee shall pay directly to such Lender all Rent due
                           or to become due hereunder; and

                  (v)      Lessee shall comply,  at the Lessor's  expense,  with
                           all reasonable  requests of Lessor and such Lender in
                           connection   with  any  such   mortgage,   pledge  or
                           assignment   including,   without   limitation,   the
                           execution of all consents  and  amendments  in a form
                           reasonably acceptable to Lessee and the making of any
                           and all registrations and filings.

Lessee agrees, from and after any such mortgage,  pledge or assignment,  to pay,
as Supplemental Rent, any indemnity  obligations which Lessor shall be obligated
to pay under any related loan documentation  which constitute breakage costs (to
the extent arising in connection with an Event of Default hereunder),  increased
costs or withholding taxes, in each case to the extent such indemnities were, at
the time of their grant to such Lender similar to  indemnities  granted to other
similar   lenders  in  the  debt  markets   generally   (by   execution  of  the
acknowledgment  the  Lessee  agrees  to be bound to  reimburse  Lessor  for such
indemnities).

                  (f) The Owner  Participant may sell, assign or transfer all or
any of its rights under this  Agreement  and in the Aircraft (an "OP  Transfer")
and the Owner  Participant will have no further  obligation under this Agreement
following  an OP  Transfer  (except  with  regard  to a breach by Lessor of this
subpart (f)) but,  notwithstanding any OP Transfer,  will remain entitled to the
benefit  of each  indemnity  under this  Agreement.  In  connection  with any OP
Transfer, the following conditions shall apply:

                           (i)  Owner  Participant  shall  give  Lessee  written
         notice of such OP Transfer at least 3 Business  Days before the date of
         such OP  Transfer,  specifying  the name and  address  of the  proposed
         purchaser, assignee or transferee (the "OP Transferee");

                           (ii) the OP Transfer  will not  adversely  affect the
         Lessee's  rights and interests in the Aircraft  and/or this  Agreement,
         nor  subject  the  Lessee  to any Tax,  claim,  liability  or any other
         obligation  or expense to which it would not have been subject had such
         assignment or transfer not taken place;

                           (iii)  the OP  Transferee  will be a  Citizen  of the
         United States (including,  for purposes hereof, through compliance with
         14 C.F.R.  ss.  47.7(c)(3)) and have full corporate power and authority
         to  enter  into  and  perform  the  transactions  contemplated  by this
         Agreement on the part of "Owner Participant"; and

                           (iv) on the OP Transfer  date,  the Lessor and the OP
         Transferee  shall enter into an agreement or agreements in which the OP
         Transferee  confirms that it shall be deemed a party to this  Agreement
         and  agrees to be bound by all the terms of,  and to under  take all of
         the obligations of, the Owner Participant contained in this Agreement.

Upon any OP Transfer,  the OP Transferee  shall be deemed Owner  Participant for
all purposes to refer to the OP Transferee, and the transferor shall be relieved
of all obligations of the "Owner Participant" under this Agreement arising after
the time of such OP  Transfer,  except  to the  extent  attributable  to acts or
events occurring prior to the time of such OP Transfer.

                  (g)  Successors  and Assigns.  Subject to the  foregoing,  the
terms and  provisions of this  Agreement  shall be binding upon and inure to the
benefit of Lessor, Owner Participant, Lessee and their respective successors and
permitted assigns.

         SECTION 18.  Early Termination.  Lessee may  not  terminate  the  Lease
prior to the Expiry Date.

         SECTION 19. Events of Default.  Lessor,  Owner  Participant  and Lessee
agree that it is a fundamental term and condition of this Agreement that none of
the following  events shall occur during the Lease Term and that the  occurrence
of any of the following  events shall  constitute a  repudiatory  breach of this
Agreement  and 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 Government Entity):

                  (a) Failure to Pay Basic Rent, Renewal Rent or Stipulated Loss
Value.  Lessee shall have failed to make any payment of Basic Rent, Renewal Rent
or  Stipulated  Loss  Value in  accordance  with  this  Agreement  and the other
Operative  Documents  when the same shall have  become due and  payable and such
failure shall continue for three (3) Business Days from such due date.

                  (b) Failure to Pay Supplemental Rent. Lessee shall have failed
to make any payment of  Supplemental  Rent (other than as specified in paragraph
(a) above) in accordance  with this Agreement or the other  Operative  Documents
when the same shall have become due and such failure shall continue for five (5)
Business Days from such due date.

                  (c)  Insurance.

                           (i) Lessee  shall have failed to carry and  maintain,
                  or cause to be carried and  maintained,  on or with respect to
                  the  Aircraft,  any  insurance  required to be  maintained  in
                  accordance with the provisions of Section 15; or

                           (ii) The  Aircraft  shall be  operated at a time when
                  any  insurance  required  under  Section  15  shall  not be in
                  effect.

                  (d) Return. Lessee shall have failed to return the Aircraft at
the end of the Lease Term  pursuant to the  provisions  of, and in the condition
required by, Section 7.

                  (e)  Unauthorized  Transfer.  There shall be any  unauthorized
transfer of possession of the Aircraft, Airframe or any Engine by Lessee.

                  (f) Certain Covenants. Lessee shall have failed to comply with
its obligations under Section 6(a), 6(b), 10(a), 10(b), 10(d)(ii) or 11.

                  (g) Other Covenants.  Lessee shall have failed to comply with,
observe or perform,  and shall fail to cause to be complied  with,  observed and
performed,  any of its covenants,  agreements or obligations  hereunder or under
any other  Operative  Document,  except  to the  extent  provided  above in this
Section 19, and such failure shall continue for 30 days after the earlier of (i)
the date of written notice  thereof to Lessee or (ii) the date Lessee,  assuming
exercise of reasonable diligence, should have known of such failure.

                  (h)  Representations  and Warranties.  Any  representation  or
warranty made by Lessee  herein or in any other  Operative  Document  shall have
proven to have been incorrect,  inaccurate or untrue in any material  respect as
of the time made.

                  (i)  Authorizations.   Lessee  shall  no  longer  possess  the
Authorizations  required  hereunder  or under any other  Operative  Document  or
material for the conduct of its business as a commercial  passenger  air carrier
in the Lessee  Jurisdiction or for the performance of its obligations  hereunder
or under any other Operative  Document,  or any such Authorizations are revoked,
canceled,  adversely modified or otherwise terminated,  or the continued use and
exercise thereof is prevented.

                  (j) Voluntary Bankruptcy, Etc. Lessee shall have (i) commenced
any  proceeding  or filed any  petition  seeking  relief  under  any  applicable
bankruptcy, insolvency, liquidation, examination,  administration,  receivership
or other similar law, (ii) consented to or acquiesced in the  institution of, or
failed to contravene in a timely and appropriate  manner, any such proceeding or
the  filing  of  any  such  petition,  (iii)  applied  for or  consented  to the
appointment of a receiver, examiner, trustee, custodian, sequestrator or similar
official for itself or for a  substantial  part of its property or assets,  (iv)
filed an answer  admitting the material  allegations of a petition filed against
it in any such proceeding, (v) proposed or entered into any composition or other
arrangement,  or made a general  assignment,  for the  benefit of  creditors  or
declared a moratorium on the payment of  indebtedness,  (vi) become insolvent or
suspended payments on, become unable to, admitted in writing its inability to or
failed  generally to pay, any material  portion of its debts as they become due,
(vii) sought its own  liquidation,  reorganization,  dissolution  or winding up,
(viii) suspended  payment  procedures or (ix) taken any corporate action for the
purpose of effecting any of the foregoing.

                  (k) Involuntary Bankruptcy,  Etc. A proceeding shall have been
commenced  or a petition  shall have been  filed,  in either  case,  without the
consent or application of Lessee,  seeking (i) relief in respect of Lessee or of
a substantial  part of its property or assets under any  applicable  bankruptcy,
insolvency, liquidation,  examination,  administration,  receivership or similar
law,  (ii)  the  appointment  of  a  receiver,   examiner,  trustee,  custodian,
sequestrator  or similar  official for Lessee or for a  substantial  part of its
property  or assets or (iii) the  liquidation,  reorganization,  dissolution  or
winding up of Lessee; and such proceeding or petition shall continue undismissed
for 60 days or an order or decree  approving  or ordering  any of the  foregoing
shall be issued and shall not immediately be stayed.

                  (l)  Indebtedness.  Lessee shall have failed to pay any amount
in respect of any  Indebtedness,  or any interest or premium  thereon,  when due
(whether by a scheduled maturity, required prepayment,  acceleration,  demand or
otherwise),  or  Lessee  shall  fail to  perform  or to  comply  with any  other
covenant,  agreement or  condition  contained  in any  agreement  or  instrument
relating  to such  Indebtedness,  and such  failure  to pay or to  perform or to
comply shall continue after the applicable  grace period,  if any,  specified in
the agreement or instrument  relating to such  Indebtedness,  if, as a result of
any  such  failure,  the  maturity  of such  Indebtedness  is  capable  of being
accelerated  and if the aggregate  outstanding  amount of all such  Indebtedness
exceeds,  in the aggregate  together with any other  Indebtedness  in respect of
which  Lessee has failed to make any  payment or in respect of which  Lessee has
otherwise failed to perform or comply, US$500,000 (or the equivalent thereof).

                  (m) Government Action. The franchises,  concessions,  permits,
rights or  privileges  required for the conduct of the business or operations of
Lessee shall have been revoked, canceled or otherwise terminated or the free and
continued use or exercise thereof  curtailed,  prevented or modified in a manner
that materially  adversely  affects  Lessee's ability to perform its obligations
under any Operative Document.

                  (n)  Judgments.  One or more  judgments  are rendered  against
Lessee that either (i) imposes or impose on Lessee at any given point in time an
obligation or  obligations  for the payment of money in excess of US$500,000 (or
the  equivalent  thereof) in the aggregate or (ii) grants or grant to any Person
equitable relief of any nature that could, if enforced,  have a material adverse
effect on Lessee's ability to perform any of its obligations under any Operative
Document  and,  in the case of any such  judgment or  judgments,  the same shall
remain  undischarged for a period of thirty (30) days or more, during which time
execution of such  judgment or  judgments  shall not be  effectively  stayed nor
adequate bonding fully covering such judgment or judgments exist.

                  (o) Cross Default.  Any lease,  conditional sale,  installment
sale or forward  purchase  agreement  of the Lessee in respect of an aircraft is
terminated as a consequence of an event of default or termination event (however
described).

                  (p)  Adverse  Change.  Any event or  series  of events  occurs
which, in the reasonable  opinion of the Lessor or Owner  Participant,  causes a
material  adverse effect on the financial  condition or operations of the Lessee
and  its  Affiliates  or on the  ability  of  the  Lessee  to  comply  with  its
obligations under this Agreement.

                  (q)  Letter of Credit.  Any  Letter of Credit  ceases to be in
full force and effect or is  repudiated or canceled by the Letter of Credit Bank
and  Lessee  shall  have  failed  to  provide a  substitute  Letter of Credit or
Security Deposit as required by Section 3(d) hereof.

         SECTION 20.  Remedies.  Upon the occurrence of any Event of Default and
so long as the same shall be continuing,  Lessor shall have the right, effective
upon notice to Lessee,  to terminate this  Agreement and all of Lessee's  rights
hereunder; and at any time thereafter Lessor may do all or any of the following,
at its option and in its sole  discretion  (in addition to such other rights and
remedies which Lessor may have under applicable law):

                  (a) Retake  Possession.  Upon the written demand of Lessor and
at Lessee's  expense,  cause Lessee to return promptly,  and Lessee shall return
promptly, the Airframe and Engines or such part of the Aircraft 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 7 as if such
Airframe and Engines were being returned at the expiration of the Lease Term, or
Lessor,  acting in its  individual  capacity or as attorney  for Lessee,  at its
option,  may enter upon the premises  where the Airframe or an Engine is located
and take  immediate  possession of and remove the same (together with any engine
which is not an Engine but which is  installed on the  Airframe,  subject to all
the rights of the owner,  lessor,  lienor or secured  party of such engine,  and
such engine shall be held for the account of any such owner,  lessor,  lienor or
secured party or, if owned by Lessee, may, at the option of Lessor, be exchanged
with Lessee for an Engine in accordance  with the provisions of Section 7(b)) by
summary proceedings or otherwise,  and Lessee waives any right it may have under
applicable law to a hearing prior to repossession  of the Aircraft,  Airframe or
any Engine or Part, all without liability accruing to Lessor for or by reason of
such entry or taking of possession or removing  whether for the  restoration  of
damage to property caused by such action or otherwise.

                  (b)  Termination  or  Enforcement.   Rescind  this  Agreement,
terminate this Agreement  and/or 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 and/or exercise any other power,  right or remedy which
may be available to Lessor  hereunder or under  applicable law. Without limiting
the  generality of the foregoing,  Lessor shall have the right,  without need of
any  consent,  authorization  or action of Lessee,  to cause the  Aircraft to be
deregistered by the Aviation  Authority,  and to be made ready for export and to
be exported out of the Lessee Jurisdiction, and to cause all rights of Lessee in
respect of the Aircraft and this Lease under or in connection  with or resulting
from the  registration of the Aircraft with the Aviation  Authority or otherwise
under  or  in  connection   with  or  resulting  from  any  law  in  the  Lessee
Jurisdiction,   to  be  terminated  and  extinguished.  In  furtherance  of  the
foregoing,  Lessor shall be entitled and empowered to act in the name and in the
place of Lessee with respect to the  Aircraft as may be necessary or  desirable,
in Lessor's sole discretion,  including, without limitation, with respect to the
execution  of  documents  and  instruments,   to  effect  such   deregistration,
exportation, termination and extinguishment.

                  (c) Application of Funds. Without limiting any other provision
of this  Agreement  or of any other  Operative  Document,  Lessor shall have the
right to withhold or set off  against  all amounts  otherwise  payable to Lessee
hereunder,  all as security for Lessee's  obligations and liabilities under this
Agreement and the other Operative Documents, and to use and apply in whole or in
part any or all of such amounts and setoffs to and against such  obligations and
liabilities  of Lessee (in whatever  order and  according  to whatever  priority
Lessor may choose),  and any such use,  application or setoff shall be absolute,
final and irrevocable.

                  (d) Damages.  In addition to Lessor's  rights under Section 9,
Lessor may recover from Lessee, and Lessee shall on demand pay, damages to equal
the sum of:

                           (i) all accrued and unpaid Rent payable  hereunder in
                  respect  of any  period  prior to  Return of the  Aircraft  to
                  Lessor in the condition  and otherwise in the manner  required
                  under Section 7 together with Break Amount, if any;

                           (ii)  all   Expenses   incurred   by  Lessor,   Owner
                  Participant and any other Indemnified Party in connection with
                  such Event of Default or the  exercise  of  Lessor's  remedies
                  with respect thereto, including, without limitation, all costs
                  and expenses incurred in connection with recovering possession
                  of the Airframe or any Engine or in placing  such  Airframe or
                  Engine  in  the  configuration,  condition  and  airworthiness
                  required by Section 7 and all lost Rent  payments  during such
                  recovery and reconditioning;

                           (iii)  all  incidental  and   consequential   damages
                  incurred   by  Lessor,   Owner   Participant   and  any  other
                  Indemnified  Party in  connection  with such Event of Default,
                  including, without limitation, all losses (including,  without
                  limitation,   reasonable  lost  profits)  suffered  by  Lessor
                  because of Lessor's  inability  to place the Aircraft on lease
                  with  another  lessee on terms as  favorable to Lessor as this
                  Agreement or because  whatever use, if any, to which Lessor is
                  able to put the  Aircraft  upon its return to  Lessor,  or the
                  amount received by Lessor upon a sale or other disposal of the
                  Aircraft,  is not as  profitable  to  Lessor  as  leasing  the
                  Aircraft in accordance  with the terms of this Agreement would
                  have been, including,  without limitation,  in each case, lost
                  Rent payments during any remarketing period; and

                           (iv) all  reasonable  and actual legal fees and other
                  reasonable  costs  and  Expenses  incurred  by  Lessor,  Owner
                  Participant and any other  Indemnified  Party by reason of the
                  occurrence of any Event of Default or the exercise of Lessor's
                  remedies with respect thereto.

         SECTION  21.  Transaction  Expenses.   Except  as  expressly  otherwise
provided  herein,  each of Lessor,  Owner  Participant 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.

         SECTION 22. No Setoff, Counterclaim, Etc. This Agreement is a net lease
and  Lessee's  obligation  to pay Rent  under  this  Agreement  and  each  other
Operative  Document  to  which  it is a  party  is and  shall  be  absolute  and
unconditional and shall not be abated, suspended,  diminished, reduced, delayed,
discontinued or otherwise affected by any condition,  circumstance, act or event
of any kind whatsoever, including, without limitation, any of the following:

                  (i) any right of setoff, deduction, counterclaim,  recoupment,
         defense,  suspension,  deferment or other right (including any right of
         reimbursement) which Lessee may have against Lessor, Owner Participant,
         Airframe  Manufacturer,  Engine  Manufacturer,  any Insured Party,  any
         Inspecting  Party,  any  Indemnified  Party or any other Person for any
         reason  whatsoever,  including  any  claim  Lessee  may  have  for  the
         foregoing, any present or future law to the contrary notwithstanding;

                  (ii) the  unavailability,  interruption or cessation in use of
         the Aircraft for any reason,  including (A) any requisition  thereof or
         any restriction,  prohibition or curtailment of,  interference with, or
         other restriction against, Lessee's use, operation or possession of the
         Aircraft  (whether by law,  any  Government  Entity or other  Person or
         otherwise) and (B) any damage to or loss or  destruction  (including an
         Event of Loss except as otherwise  expressly provided in Section 13(b))
         of or to the Aircraft and (C) the removal of the Aircraft  from service
         to correct  deficiencies  described in Section 2 or to permit the Final
         Inspection or Return of the Aircraft;

                  (iii) any defect in the title, airworthiness, merchantability,
         fitness for any purpose, condition,  design, specification or operation
         of any kind or  nature of the  Aircraft,  or the  ineligibility  of the
         Aircraft  for  any  particular  use or  trade  or for  registration  or
         documentation under the laws of any jurisdiction;

                  (iv) any amendment or  modification of or supplement to any of
         the Operative Documents,  any agreements relating to any thereof or any
         other instrument or agreement applicable to the Aircraft,  the Airframe
         or any Engine,  or any  assignment  or transfer of any thereof,  or any
         furnishing or acceptance of any additional security,  or any failure or
         inability to perfect any security;

                  (v) any insolvency, bankruptcy,  reorganization,  arrangement,
         readjustment   of   debt,   dissolution,   liquidation,   receivership,
         administration  or similar  proceedings by or against  Lessee,  Lessor,
         Owner Participant, any Indemnified Party or any other Person;

                  (vi) the  invalidity,  unenforceability  or  impossibility  of
         performance of this Agreement,  any other Operative  Document or any of
         the terms  hereof or thereof,  the lack of power or authority of Lessee
         to enter into this Agreement or any other  Operative  Document,  or any
         other defect in this Agreement or any other Operative Document;

                  (vii) any breach by Lessor, Owner Participant, any Indemnified
         Party or any other Person of any representation,  warranty or covenant,
         express or implied, made or alleged to be made to Lessee;

                  (viii) any right, claim, bill, action or suit whatsoever by or
         against  or on the  part  of  Lessee,  including,  without  limitation,
         whether arising out of legal action or otherwise,  at law or in equity,
         whether affirmative,  negative or defensive in nature for or on account
         of the legality,  validity,  enforceability  or otherwise  arising as a
         result of (x) this Agreement or any other Operative  Document or any of
         the terms or conditions  hereof or thereof,  (y) any express or implied
         warranty or (z) any contract,  agreement or transaction  between Lessee
         and Lessor or any other Person, whether direct or indirect,  written or
         oral;

                  (ix) any waiver, consent, change, extension, indulgence or any
         action  or  inaction  under or in  respect  of any such  instrument  or
         agreement or any exercise or nonexercise of any right, remedy, power or
         privilege  in  respect  of any such  instrument  or  agreement  or this
         Agreement or any other Operative Document;

                  (x) any transfer of any  interest in this  Agreement or in the
         Aircraft by Lessor or any Indemnified  Party or any change of ownership
         of Lessor, Owner Participant or any Indemnified Party; or

                  (xi) any other  circumstance,  happening or event  whatsoever,
         whether or not similar to the  foregoing,  which but for this provision
         would or might  have the  effect  of  terminating  or in any  other way
         affecting  any  obligation  of Lessee  hereunder,  it being the express
         intention  of Lessor,  Owner  Participant  and Lessee that all Rent and
         other amounts payable by Lessee  hereunder or under any other Operative
         Document  shall be payable in all events,  unless the obligation to pay
         the same shall be terminated pursuant to the express provisions of this
         Agreement.

         Lessee hereby waives,  to the extent  permitted by applicable  law, any
and all rights which it may have or which at any time hereafter may be conferred
upon Lessee, by law or otherwise,  to terminate,  cancel, quit or surrender this
Agreement or any other Operative Document, or to abate,  suspend,  defer, reduce
or  otherwise  fail to comply in full with any  obligation  imposed  upon Lessee
hereunder  or  thereunder  or in relation  hereto,  except  termination  of this
Agreement in accordance with the express  provisions  hereof.  Each Rent payment
made by Lessee  shall be final,  and Lessee shall not seek to recover all or any
part of any such payment for any reason whatsoever.

         Nothing in this Section 22 shall be construed to limit Lessee's  rights
and  remedies  in the event of  Lessor's  or Owner  Participant's  breach of its
representation and warranty of quiet enjoyment as set forth in Section 5(a)(iii)
or to limit  Lessee's  rights  and  remedies  to pursue  any  claims it may have
against Lessor, Owner Participant or any other Person.
         SECTION 23.  Further Assurances, Etc.

                  (a) Further Assurances. Without limiting the other obligations
and  liabilities  of  Lessee  under  this  Agreement  and  the  other  Operative
Documents,  Lessee  agrees to promptly and duly execute and deliver to Lessor or
Owner  Participant  such further  documents and assurances and take such further
action as Lessor or Owner  Participant may from time to time reasonably  request
in order to  effectively  carry out the intent and purpose of this Agreement and
the other Operative  Documents and to establish,  perfect and protect the rights
and  remedies  created or intended to be created in favor of Lessor or any other
Person  hereunder  and  thereunder,   including,  without  limitation,  (x)  any
explanations,  clarifications or translations (into English) requested by Lessor
or Owner  Participant  relating  to the  information  required to be provided by
Lessee under Section 6(c),  and (y) the execution and delivery of supplements or
amendments  hereto, in recordable form,  rendering subject to this Agreement any
Replacement Engine and the recording or filing of counterparts hereof or thereof
or of  other  appropriate  materials,  in  accordance  with  the  laws  of  such
jurisdictions  as Lessor or Owner  Participant  may from time to time reasonably
deem advisable.

                  (b) Lessor's  Performance of Lessee's  Obligations.  If Lessee
fails  to make  any  payment  of Rent or fails to  perform  or  comply  with any
agreement,  covenant or obligation  contained  herein or in any other  Operative
Document,  Lessor  or  Owner  Participant  shall  have  the  right,  but not the
obligation,  at its election and without waiver of any of its rights or remedies
against Lessee, to perform or comply with such covenant, agreement or obligation
and/or pay such amount, and the amount of such payment and any Expenses incurred
by  Lessor  or  Owner  Participant  in  connection  with  such  payment  or  the
performance of or compliance with such agreement, covenant or obligation, as the
case may be,  together with  interest at the Past Due Rate,  shall be payable by
Lessee to  Lessor,  or Owner  Participant,  as the case may be,  upon  demand as
Supplemental  Rent.  The  taking of any  action  by Lessor or Owner  Participant
pursuant to this Section  23(b) shall not  constitute a waiver or release of any
obligation  of Lessee  hereunder nor a waiver of any Default which may arise out
of  Lessee's  nonperformance  of such  obligation,  nor an election or waiver by
Lessor of any right or remedy  available  to Lessor under or in relation to this
Agreement.

                  (c)  No Implied Waivers; Rights Cumulative.

                           (i) No failure on the part of Lessor to exercise  and
                  no delay in exercising any right,  power,  remedy or privilege
                  under any Operative  Document or provided by statute or at law
                  or  in  equity  or  otherwise   shall  impair,   prejudice  or
                  constitute  a  waiver  of any such  right,  power,  remedy  or
                  privilege  or be construed as a waiver of any Event of Default
                  or as an acquiescence thereto, nor shall any single or partial
                  exercise of any such right, power, remedy or privilege impair,
                  prejudice or preclude any other or further exercise thereof or
                  the exercise of any other right,  power,  remedy or privilege.
                  No acceptance of partial payment or performance shall, whether
                  or not expressly stated, be or be deemed to be a waiver of any
                  Event of Default then  existing or a waiver or release of full
                  payment  and  performance.  No  notice  to or demand on Lessee
                  shall in any  case  entitle  Lessee  to any  other or  further
                  notice  or  demand  in  other  or  similar   circumstances  or
                  constitute  a waiver  of the  right of  Lessor to any other or
                  further action in any circumstances without notice or demand.

                           (ii)  Nothing  contained  in any  Operative  Document
                  shall  be  construed  to limit  in any way any  right,  power,
                  remedy or privilege of Lessor hereunder or under any Operative
                  Document  or now or  hereafter  existing  at law or in equity.
                  Each and every right,  power,  remedy and  privilege of Lessor
                  under the Operative  Documents (x) shall be in addition to and
                  not in limitation of, or in substitution for, any other right,
                  power,  remedy or privilege under any Operative Document or at
                  law or in equity,  (y) may be  exercised  from time to time or
                  simultaneously and as often and in such order as may be deemed
                  expedient  by  Lessor  and (z)  shall  be  cumulative  and not
                  mutually  exclusive,  and the  exercise  of one  shall  not be
                  deemed a waiver of the right to exercise any other.

                           (iii)  Lessee  hereby  agrees and  acknowledges  that
                  nothing contained herein or in any Operative Document shall be
                  construed  to require in any way,  Lessor to take any  action,
                  upon a Default  by Lessee  of this  Agreement,  or a breach by
                  Lessee of any  provision of any Operative  Document,  to limit
                  the damages suffered by Lessor as a result of any such Default
                  or breach as the case may be.

                  (d)  Warranties.  Lessor agrees that it will assign to Lessee,
for the  duration  of the Lease Term so long as no Event of  Default  shall have
occurred and be continuing, the benefit of any assignable warranties (including,
without  limitation,  any repair  warranties  on any  Engines or Parts) from the
Airframe  Manufacturer,  Engine  Manufacturer or manufacturer or supplier of any
Part for which Lessor has an interest (but only to the extent of such interest).

         SECTION 24.  Confidentiality.  Each of Lessee,  Owner  Participant  and
Lessor shall keep this  Agreement  and each other  Operative  Document,  and all
terms and provisions hereof and thereof, confidential and shall not disclose, or
cause to be disclosed, the same to any Person, without the prior written consent
of the other,  except (a) to prospective and permitted  transferees of Lessor's,
Owner Participant's or Lessee's interests or their respective counsel or special
counsel,  certified public accountants,  independent  insurance brokers or other
agents,  (b)  in  connection  with  any  administration  or  enforcement  of any
provisions of this Agreement or any other  Operative  Document by Lessor,  Owner
Participant or Lessee,  (c) to its  Affiliates,  (d) to its advisors,  insurance
brokers and  accountants,  or (e) as may be required  by any  statute,  court or
administrative  order or decree or governmental ruling or regulation,  including
insurance regulatory bodies,  banking examiners and other government  officials;
provided,  however,  that  any and all  disclosures  of all or any  part of such
documents  and  provisions  which are permitted by this Section 24 shall be made
only to the extent  necessary to meet the specific  requirements or needs of the
Persons to whom such disclosures are hereby permitted.

         SECTION 25.  Governing Law and Jurisdiction.

                  (a)  Governing  Law. THIS  AGREEMENT AND EACH OTHER  OPERATIVE
DOCUMENT,  UNLESS OTHERWISE  EXPRESSLY PROVIDED THEREIN,  SHALL IN ALL RESPECTS,
INCLUDING ALL MATTERS OF CONSTRUCTION,  VALIDITY AND PERFORMANCE, BE GOVERNED BY
AND CONSTRUED AND ENFORCED IN ACCORDANCE  WITH THE INTERNAL LAWS OF THE STATE OF
ILLINOIS. THIS LEASE IS BEING DELIVERED IN THE STATE OF ILLINOIS.

                  (b)  Nonexclusive  Jurisdiction  in  Illinois.  Lessee  hereby
irrevocably  consents that any legal action or  proceeding  against it or any of
its assets arising out of or relating to this  Agreement or any other  Operative
Document may be brought in any jurisdiction where it or any of its assets may be
found and in the courts of the State of Illinois and U.S. Federal Courts for the
Northern  District of Illinois and by execution  and delivery of this  Agreement
Lessee hereby irrevocably  submits to and accepts with regard to any such action
or  proceeding,  for  itself  and  in  respect  of  its  assets,  generally  and
unconditionally, the jurisdiction of the aforesaid courts and irrevocably agrees
to be bound by any judgment rendered  thereby.  Nothing herein shall prevent any
party from  bringing any legal action or  proceeding  or obtaining  execution of
judgment in any other appropriate  jurisdiction.  Lessee,  Owner Participant and
Lessor further agree that a final  judgment in any action or proceeding  arising
out of or relating to this  Agreement or any other  Operative  Document shall be
conclusive  and  may be  enforced  in any  other  jurisdiction  by  suit  on the
judgment,  a certified or exemplified copy of which shall be conclusive evidence
of the fact and the amount of the indebtedness or liability  therein  described,
or in any other manner  provided by law. Each of Lessee,  Owner  Participant and
Lessor hereby  irrevocably  waives,  to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding  arising out of or relating to this  Agreement or any other
Operative  Document  brought  in any  court  in  Illinois,  and  hereby  further
irrevocably waives any claim that any such suit, action or proceeding brought in
any court in Illinois has been brought in an inconvenient forum.  LESSEE,  OWNER
PARTICIPANT AND LESSOR HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL  PROCEEDING TO
WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT.

         SECTION 26.  Miscellaneous.

                  (a)  Amendments.  No provision of this  Agreement or any other
Operative  Document may be amended,  changed,  waived or discharged  orally, but
only by an  instrument  in  writing  specifying  the  provision  intended  to be
amended,  changed,  waived or  discharged  and  signed by each  party  hereto or
thereto;  and no provision of this  Agreement  or any other  Operative  Document
shall be varied,  contradicted  or  explained by any oral  agreement,  course of
dealing  or  performance  or  other  matter  not  specifically  set  forth in an
agreement in writing and signed by each party hereto or thereto.

                  (b) Severability.  If any provision hereof or of any Operative
Document should be held invalid,  illegal or unenforceable in any respect in any
jurisdiction,  then,  to the extent  permitted  by law (i) all other  provisions
hereof or thereof shall remain in full force and effect in such jurisdiction and
(ii) such  invalidity,  illegality  or  unenforceability  shall not  affect  the
validity,   legality  or   enforceability   of  such   provision  in  any  other
jurisdiction.

                  (c) Counterparts.  This Agreement,  any Operative Document and
any  amendments,  waivers,  consents  or  supplements  hereto or thereto  may be
executed in any number of counterparts,  each of which when so executed shall be
deemed to be an original, and all of which counterparts,  taken together,  shall
constitute one and the same instrument.

                  (d) Chattel Paper. To the extent,  if any, that this Agreement
constitutes  chattel paper (as defined in the Uniform  Commercial Code in effect
from time to time in any applicable  jurisdiction) no security  interest in this
Agreement may be created  through the transfer or possession of any  counterpart
other than the original executed  counterpart,  which shall be identified as the
counterpart  containing the receipt therefor executed by Lessor on the signature
page thereof.

                  (e)  Time of the  Essence.  Subject  to the  periods  of grace
referred  to in  Section  19,  time  shall  be of the  essence  as  regards  the
performance  by Lessee of its  obligations  under this  Agreement and each other
Operative Document.

                  (f) Notices. All notices, requests and other communications to
Lessee,  Lessor,  Owner  Participant or any other Person  hereunder or under any
other  Operative  Document  shall be in  writing  (for this  purpose,  "writing"
includes telecopy or similar electronic transmissions), shall refer specifically
to this  Agreement  or such other  Operative  Document,  as the case may be, and
shall be personally  delivered or sent by telecopy or other  similar  electronic
facsimile  transmission,  or sent by overnight  courier  service (e.g.,  Federal
Express),  in each case to the respective  address and telecopy number,  if any,
specified in Schedule 3 or such other address or telecopy  number as such Person
may  hereafter  specify by notice to the other party or to the  parties  hereto.
Each  such  notice,  request  or other  communication  shall be  effective  when
received or, if by  telecopier or other similar  electronic  transmission,  when
"confirmed" by the sending  telecopy or similar machine and written  evidence of
such confirmation is produced by such machine,  provided that any such notice by
telecopy so "confirmed"  after 6:00 p.m., for the recipient,  shall be effective
on the next succeeding local Business Day.

                  (g) Entire  Agreement.  This Agreement  constitutes the entire
agreement  between  the  parties  concerning  the  subject  matter  hereof,  and
supersedes all previous proposals, agreements, understandings,  negotiations and
other  written  and  oral   communications  in  relation  hereto.   The  parties
acknowledge  that  there  have been no  representations,  warranties,  promises,
guarantees or agreements, express or implied, except as set forth herein.

                  (h) True Lease.  Lessee,  Owner  Participant  and Lessor agree
that this Lease is to be treated as a true  operating  lease for federal  income
tax  purposes,  that Lessor is the owner of the Aircraft for federal  income tax
purposes and all other  purposes and that the interest of Lessee in the Aircraft
is that of a lessee only.



<PAGE>


         IN WITNESS WHEREOF,  Lessee,  Owner  Participant and Lessor have caused
this  Agreement  to be executed by their  respective  officers as of the day and
year first above written.

HELLER FINANCIAL LEASING, INC.,
Owner Participant



By:
Title:



FRONTIER AIRLINES, INC.,
Lessee



By:
Title:




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


By:
Title:




<PAGE>


         RECEIPT OF THIS ORIGINAL  COUNTERPART OF THE FOREGOING  LEASE AGREEMENT
IS HEREBY ACKNOWLEDGED ON THIS _____ DAY OF _______________, 1998.


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



By:
Title:

<PAGE>


                                  Exhibit A to
                                 Lease Agreement


                        TECHNICAL ACCEPTANCE CERTIFICATE


         Lessee hereby  acknowledges to Lessor, in accordance with the terms and
conditions of the Lease Agreement,  dated as of November 23, 1998 (the "Lease"),
between  First  Security  Bank,  National  Association,  not in  its  individual
capacity,  but solely as Owner  Trustee,  Heller  Financial  Leasing,  Inc.  and
FRONTIER  AIRLINES,  INC.,  that  the  following  Aircraft  meets  the  delivery
conditions  specified  in the  Lease  and that we accept  the  condition  of the
Aircraft for all  purposes of the Lease  (subject to the  provisions  of Section
2(b)(ii) of the Lease).

Aircraft:

Registration Mark:                  N308FL
Manufacturer's Serial Number:       28738

with two installed CFM56-3C-1 engines, Engine Manufacturer's Serial Numbers:

Position 1:       858766
Position 2:       858767

<PAGE>


         IN WITNESS  WHEREOF,  Lessor,  Owner  Participant  and Lessee have each
caused this receipt to be duly executed on the above date.


HELLER FINANCIAL LEASING, INC.
as Owner Participant



By:
Title:



FRONTIER AIRLINES, INC.,
as Lessee



By:
Title:



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



By:
Title:


<PAGE>



                                  Exhibit C to
                                 Lease Agreement
                                   (MSN 28738)

                       FORM OF LEASE SUPPLEMENT NO. [___]

         THIS LEASE  SUPPLEMENT  NO.[___],  dated  [___________],  (this  "Lease
Supplement"),  is entered  into  between  FRONTIER  AIRLINES,  INC.,  a Colorado
corporation  having its  principal  place of business  at 12015 E. 46th  Avenue,
Denver,  Colorado 80239 ("Lessee"),  FIRST SECURITY BANK, NATIONAL  ASSOCIATION,
not in its  individual  capacity,  but solely as Owner Trustee  ("Lessor"),  and
HELLER FINANCIAL LEASING, INC., ("Owner Participant").


                                  WITNESSETH:

         WHEREAS,  Lessor,  Owner Participant and Lessee have heretofore entered
into that certain Lease  Agreement  dated as of November __, 1998 (the "Lease"),
which  provides  for the  execution  and  delivery  from  time to time of  Lease
Supplements  (this and all other  capitalized  terms used but not defined herein
shall have the respective  meanings,  and shall be interpreted  and construed in
the manner set forth or  incorporated  by  reference  in Section 1 of the Lease)
substantially  in the form hereof for the purpose of leasing the Aircraft  under
the Lease as and when delivered by Lessor to Lessee in accordance with the terms
thereof; [and]

         1WHEREAS,  the Lease  relates to the  airframe  and  engines  described
below,  and a  counterpart  of the Lease is  attached to and made a part of this
Lease Supplement; [and]

         This  Lease   Supplement   No.  [___]  has  been  executed  in  several
counterparts.  To the  extent,  if any,  that  this  Lease  Supplement  No.[___]
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
Lease  Supplement  No.[___] may be created through the transfer or possession of
any  counterpart  other than the original  executed  counterpart  containing the
receipt therefor executed by Lessor or, if Lessor has assigned its rights to any
Person in accordance with the Lease Agreement, such Person on the signature page
thereof.

         2The Lease relates to the Airframe and Engines  described  below, and a
counterpart  of the Lease,  attached and made a party of Lease  Supplement No. 1
dated ________________, to the Lease Agreement, has been recorded by the Federal
Aviation  Administration  on  ________________,  as one  document  and  assigned
Conveyance No.
----------------.

                                   AGREEMENT:

         NOW,  THEREFORE,  in consideration of the foregoing  premises,  and for
other good and valuable consideration the adequacy of receipt of which is hereby
acknowledged,  and pursuant to Section [2] [13(c)] [__] of the Lease, Lessor and
Lessee hereby agree as follows:

         3[1.  Lessor  hereby  delivers and leases to Lessee,  and Lessee hereby
accepts  and leases from  Lessor,  under the Lease as hereby  supplemented,  the
Boeing Model 737-3U3 aircraft (the "Aircraft"),  which consists of the following
components:

(a)      Airframe:  U.S. Registration No. N308FL; Manufacturer's  Serial  Number
         28738

(b)      Two CFM International,  Inc. CFM56-3C-1 Engines, initially installed on
         such  airframe  at delivery to Lessee,  bearing  Engine  Manufacturer's
         Serial Numbers 858766 and 858767 (each of which Engines has 750 or more
         rated takeoff horsepower); and

(c)      Garrett GT CP85-129 APU bearing Manufacturer's Serial Number P-200.

         2. The  "Delivery  Date" for all  purposes of the Lease is the date set
forth in the opening paragraph of this Lease Supplement.

         3.       The Lease Term shall commence on the Delivery Date.

         4. Lessee  hereby  confirms its  agreement to pay Rent  throughout  the
Lease Term in the amounts,  to the Persons and otherwise in accordance  with the
provisions of Section 3 of the Lease and in accordance with the other provisions
of the Lease and the other Operative Documents.

         5.       Lessee hereby confirms to Lessor  that Lessee has accepted the
Aircraft for all purposes hereof  and  of  the Lease  and  the  other  Operative
Documents.

1.     The following-described property has been installed on and made a part of
the Aircraft  and  is  the property  of Lessor and is hereby made subject to the
Lease:

 [Describe property]

         [6.][2.] A number of  counterparts  of this Lease  Supplement have been
executed,  each of which shall be deemed an original  and all of which  together
shall  constitute but one and the same  agreement.  To the extent,  if any, that
this Lease  Supplement  constitutes  chattel  paper (as  defined in the  Uniform
Commercial  Code) no security  interest in this Lease  Supplement may be created
through the transfer or  possession of any  counterpart  other than the original
executed  counterpart,  which shall be identified as the counterpart  containing
the receipt therefor executed by Lessor or, if Lessor has assigned its rights to
any Person in  accordance  with the Lease,  such  Person on the  signature  page
thereof.

         [7.][3.] All of the provisions of the Lease are hereby  incorporated by
reference  in  this  Lease  Supplement  on and  as of the  date  of  this  Lease
Supplement, to the same extent as if fully set forth herein.

         [8.][4.] THIS LEASE  SUPPLEMENT  SHALL IN ALL  RESPECTS,  INCLUDING ALL
MATTERS OF CONSTRUCTION,  VALIDITY AND PERFORMANCE, BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS.
THIS LEASE SUPPLEMENT IS BEING DELIVERED IN THE STATE OF ILLINOIS.



<PAGE>


         IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement
No.  [____]  to be  duly  executed  on and as of the day and  year  first  above
written.


HELLER FINANCIAL LEASING, INC.,
as Owner Participant


By:
Title:

FRONTIER AIRLINES, INC.,
as Lessee


By:
Title:

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


By:
Title:

               [THIS COUNTERPART IS NOT THE ORIGINAL COUNTERPART.]

         [RECEIPT OF THIS ORIGINAL COUNTERPART OF THE FOREGOING LEASE SUPPLEMENT
NO. [___] IS HEREBY ACKNOWLEDGED ON THIS ___ DAY OF _______________, 199_.]


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


By:
Title:

<PAGE>


                                  Exhibit E to
                                 Lease Agreement
                                   (MSN 28738)

                             INSURANCE REQUIREMENTS


                  (a) At all times during the Lease Term, and until the Aircraft
is returned to Lessor in the  condition and manner  required by this  Agreement,
Lessee shall maintain or cause to be maintained with respect to the Aircraft, at
its own expense, comprehensive airline liability (including, without limitation,
third-party and passenger,  bodily injury,  property damage,  product liability,
cargo,  mail,  baggage  (checked and  unchecked),  premises and hangar  keepers'
liability) insurance (exclusive of the Airframe Manufacturer's product liability
insurance),  (i) in an amount not less than the  greater  of (y) the  amounts of
comprehensive  airline  liability  insurance  from  time to time  applicable  to
aircraft owned or leased and operated by Lessee of the same type as the Aircraft
and (z)  $400,000,000,  provided that if Lessor, on the basis of advice received
from an independent insurance advisor of international reputation, believes that
such limit  should be revised  upwards  based on amounts  then  customary in the
industry  generally,  it shall be replaced by such higher limit (if any) as such
advisor may consider appropriate in the light of circumstances prevailing in the
commercial airline industry at that time, (ii) of the type and covering the same
risks usually carried by air carriers owning or operating  similar  aircraft and
engines and covering risks of the kind  customarily  insured against by such air
carriers,  (iii) with  insurers  of  recognized  reputation  and  responsibility
reasonably acceptable to Lessor and (iv) that names each Indemnified Party as an
additional  insured and otherwise  complies with the  requirements set forth in,
and is consistent  with the issuance of a valid  certificate  of insurance and a
report of the Insurance Broker.

                  (b) Insurance  Against  Expense or Damage to the Aircraft.  At
all times during the Lease Term, and until the Aircraft is returned to Lessor in
the condition and manner  required by this  Agreement,  Lessee shall maintain or
cause to be  maintained,  with  respect  to the  Aircraft,  at its own  expense,
all-risk aircraft hull insurance covering the Aircraft, all-risk property damage
insurance covering Engines and Parts while temporarily removed from the Aircraft
and  all-risk  spares  insurance  (i) for an  agreed  value  not  less  than the
Stipulated  Loss Value for the Aircraft in respect of all-risk  hull  insurance,
(ii) for the full  replacement  value,  in respect of all-risk  property  damage
insurance,  (iii) of the type and covering the same risks usually carried by air
carriers owning or operating  similar aircraft and engines and covering risks of
the kind customarily insured against by such air carriers,  (iv) confirming that
the insurers  shall not be entitled to replace the Aircraft or Airframe upon the
occurrence  of an Event of Loss  with  respect  thereto,  (v) with  insurers  of
recognized  reputation and  responsibility  reasonably  acceptable to Lessor and
(vi) that names Lessor as the sole loss payee and  otherwise  complies  with the
requirements  set forth  in,  and is  consistent  with the  issuance  of a valid
certificate  of  insurance  in form and  substance  reasonably  satisfactory  to
Lessor.  Lessee  agrees that it will not adjust or settle any claim with respect
to the  insurances  provided  hereunder  without  the  consent of Lessor  (which
consent shall not be unreasonably withheld);  provided that, so long as no Event
of Default  shall have  occurred and be  continuing,  such consent  shall not be
required  in respect of claims  which do not  exceed the  Stipulated  Deductible
Amount.

                  (c) War-Risk,  Hijacking and Related Perils Insurance.  At all
times during the Lease Term, and until the Aircraft is returned to Lessor in the
condition and manner  required by this Agreement,  and, for liability  coverage,
Lessee shall maintain or cause to be  maintained,  with respect to the Aircraft,
at its own expense, worldwide (subject to standard insurance market geographical
limits) coverage of war-risk, hijacking and related perils insurance of the type
and in substantially  the amounts carried by air carriers  operating the same or
comparable  models of  aircraft  in such areas (i) in no event in an amount less
than (x) $400,000,000 with respect to liability  coverage and (y) the Stipulated
Loss Value with  respect to hull  coverage and (z) full  replacement  value with
respect to property damage coverage,  (ii) in any event,  covering the perils of
(u) 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, (v) strikes,  riots,  civil
commotions or labor disturbances, (w) 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,  (x) any
malicious act or act of sabotage,  (y) confiscation,  nationalization,  seizure,
restraint,  detention,  appropriation,  requisition for title or use by or under
the  order  of any  government  (other  than  the  government  of the  State  of
Registration)  (whether  civil,  military  or  de  facto)  or  public  or  local
authority,  and (z) hijacking,  or any unlawful seizure or wrongful  exercise of
control of any aircraft or crew in flight (including any attempt at such seizure
or control) made by any Person or Persons on board any aircraft  acting  without
the consent of the  insured  (including  if  committed  by Persons  engaged in a
program of irregular  warfare for  terrorist  purposes),  (iii) with insurers of
recognized  reputation and  responsibility  reasonably  acceptable to Lessor and
(iv) that names each Indemnified Party as an additional  insured with respect to
liability insurance and, for hull coverage only, names Lessor or its designee as
the sole loss payee and otherwise  complies with the  requirements set forth in,
and is consistent  with the issuance of a valid  certificate  of insurance and a
report of the Insurance Broker.  Lessee agrees that it will not adjust or settle
any claim with respect to the insurances  provided hereunder without the consent
of Lessor (which consent shall not be unreasonably withheld);  provided that, so
long as no Event of Default shall have occurred and be continuing,  such consent
shall not be  required in respect of claims  which do not exceed the  Stipulated
Deductible Amount.

                  (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.  $400,000,000  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)      in the case of the  insurance  required by  paragraph
                           (a),  name  each  Indemnified   Party  as  additional
                           assureds for their  respective  rights and interests,
                           warranted,  each as to itself  only,  no  operational
                           interest;

                  (ii)     in the case of the  insurance  required by  paragraph
                           (b),  provide that any loss shall be settled with the
                           Lessee  and  shall  for  amounts  in  excess  of  the
                           Stipulated Deductible Amount be payable in Dollars to
                           the Lessor as Loss Payee;

                  (iii)    in the case of the  insurance  required by  paragraph
                           (a),  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)     in the case of the  insurance  required by  paragraph
                           (a),  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 Indemnified Party or
                           Lessee  have the  benefit  so as to reduce the amount
                           payable  to  the   Additional   Insureds  under  such
                           policies;

                  (v)      in the case of the  insurance  required by  paragraph
                           (b),  contain  a  50/50%  clause  per  AVS 103 or its
                           equivalent;

                  (vi)     shall  provide  that  in  respect  of the  respective
                           interests of each Indemnified  Party in such policies
                           the insurance shall not be invalidated or impaired by
                           any  action  or  inaction  of  Lessee  or  any  other
                           Indemnified  Party and shall  insure  the  respective
                           interests of each Indemnified  Party, 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 Indemnified Party;

                  (xi)     provide  that  an  Indemnified  Party  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 Indemnified Party;

                  (xii)    provide that the Insurances shall continue  unaltered
                           for the  benefit  of each  Indemnified  Party  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)   in the case of the  insurance  required by  paragraph
                           (a),  accept and insure the  indemnity  provisions of
                           the Lease (Section  15(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.



<PAGE>


                                  Exhibit I to
                                 Lease Agreement
                                   (MSN 28738)


                         FORM OF AIRCRAFT STATUS REPORT
              REPORT FOR THE CALENDAR MONTH ENDED _______________,

Aircraft Type:  B737-3U3                     Actual Registration:       _______
Lessor:  First Security Bank, National       Manufacturer Serial Number:  28738
         Association, not in its individual
         capacity but solely as Owner Trustee

AIRFRAME                During Period         Since New         Since C/D

Flight Hours:              ______               ______            ______
Cycles:                    ______               ______            ______

ORIGINAL ENGINES

                                         Position 1              Position 2


Serial Number of Original Engine:          ______                   ______
Location of Original Engine:               ______                   ______
Flight Hours Since New:                    ______                   ______
Cycles Since New:                          ______                   ______
Flight Hours During Period:                ______                   ______
Cycles During Period:                      ______                   ______
Flight Hours Since Last Shop Visit:        ______                   ______
Cycles Since Last Shop Visit:              ______                   ______
Engine Cycle Limit:                        ______                   ______
Cycles Remaining for Limit:                ______                   ______
Serial Number of Engine Installed:         ______                   ______

LANDING GEAR
                           During Period        Since New        Since Overhaul

Landing Gear Cycles:          ______              _______            _______

ORIGINAL APU

Serial Number of Original APU:              ______
Location of Original APU:                   ______
Flight Hours During Period:                 ______
Flight Cycles During Period:                ______
Flight Hours Since Last Shop Visit:         ______
Cycles Since Last Shop Visit:               ______
Serial Number of APU Installed:             ______

TECHNICAL ACTIVITY

Engine/APU Removals (if any):______

                                            Off       On

Serial Number:                             ______   ______
Date:                                      ______   ______
Flight Hours Since New:                    ______   ______
Flight Cycles Since New:                   ______   ______
Reason:                                                                         
        



<PAGE>


     LESSEE WILL DESCRIBE ANY MAJOR REPAIRS,  MAJOR MODIFICATIONS,  INCIDENTS OR
     ACCIDENTS TO AIRCRAFT DURING PERIOD WITHIN THIRTY DAYS FOLLOWING THE PERIOD






We certify that the above  information  is true,  correct and complete as of the
date hereof, _________, 19__.



FRONTIER AIRLINES, INC.



By:
Title:

<PAGE>


                                  Schedule 1 to
                                 Lease Agreement
                                   (MSN 28738)


                             PERMITTED JURISDICTIONS


Anywhere in the world,  other than (1) those areas excluded  pursuant to Section
15(l) of the Lease  Agreement,  (2)  Afghanistan,  Chad,  Ethiopia,  Iran, Iraq,
Lebanon,  Libya, Mali, Niger, Nigeria,  Pakistan,  Somalia,  Sudan, Syria, Yemen
(North and South),  Yugoslavia (as was) and Zaire and (3) any other jurisdiction
that shall become subject to a U.S. or United Nations sanction or prohibition.

<PAGE>


                                  Schedule 2 to
                                 Lease Agreement
                                   (MSN 28738)

                               DELIVERY CONDITIONS

                The Aircraft will be delivered in the condition  required by the
Purchase Agreement.


<PAGE>


                              Annex A to Schedule 2
                              (Delivery Conditions)


                                DELIVERY RECEIPT

         Lessee  hereby  accepts  and  acknowledges   receipt  from  Lessor,  in
accordance  with the terms and  conditions of the Lease  Agreement  (MSN 28738),
dated as of November  23,  1998 (the  "Lease"),  between  FIRST  SECURITY  BANK,
NATIONAL  ASSOCIATION,  not in its  individual  capacity  but  solely  as  Owner
Trustee, HELLER FINANCIAL LEASING, INC.
and FRONTIER AIRLINES, INC. of one (1) Boeing Model B737-3U3.

Aircraft:
Manufacturer:              The Boeing Company
Model:                     737-3U3

Registration No.:  N308FL
U.S. Manufacturer's Serial Number:  28738

with two installed CFM56-3C-1 engines, Engine Manufacturer's Serial Numbers:

Position 1:  858766
Position 2:  858767

in [place] on [Date], at        /a.m.//p.m./

<PAGE>


         IN WITNESS  WHEREOF,  Lessor,  Owner  Participant  and Lessee have each
caused this receipt to be duly executed on the above date.

HELLER FINANCIAL LEASING, INC.,
as Owner Participant


By:
Title:


FRONTIER AIRLINES, INC.,
as Lessee


By:
Title:



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


By:
Title:


<PAGE>


                                  Schedule 3 to
                                 Lease Agreement
                                   (MSN 28738)


                             ADDRESSES AND ACCOUNTS



(1)                                             (2)
Addresses                                       Accounts:   As advised by Lessee
Lessee                                                      from time to time

FRONTIER AIRLINES, INC.
12015 E. 46th Avenue
Denver, Colorado 80239
Attention:  General Counsel

Facsimile:  (303) 371-7007                      Account No: As advised by Lessee
Telephone:  (303) 371-7400                                  from time to time



Principal place of business:
12015 E. 46th Avenue
Denver, Colorado 80239



<PAGE>



(1)                                             (2)
Addresses                                       Accounts
Lessor

FIRST SECURITY BANK, NATIONAL ASSOCIATION       First Security Bank, N.A.
79 South Main Street                            ABA No. 124-0000-12
Salt Lake City, Utah 84111                      Acct No. 051-0922115
Attn:  Corporate Trust Department
Fax No.: 801-246-5053
Tel No.: 801-246-5826


Owner Participant
Heller Financial Leasing, Inc.
500 West Monroe Street                          First Chicago
Chicago, Illinois 60661                         ABA No. 071000013
Attn:  Managing Director-Aircraft Finance 
Division                  
Fax No.: (312) 441-7378
Tel No.: (312) 441-7083

     with a copy to:

Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
Attn:  Legal Services Division
Fax No.: (312) 441-7208
Tel No.: (312) 441-6798

   with a further copy to:

Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Suite 2600
Chicago, Illinois  60601
Attn:    Dean N. Gerber
Telephone:        (312) 609-7500
Facsimile:        (312) 609-5005




<PAGE>


                                  Schedule 4 to
                                 Lease Agreement
                                   (MSN 28738)


                             FILINGS AND RECORDINGS



Document                                        Authority

Lease                                           FAA

Lease Supplement No. 1                          FAA

Application for Aircraft Registration           FAA

UCC-1 Financing Statements                      Secretary of State of Colorado

<PAGE>


                                  Schedule 5 to
                                 Lease Agreement
                                   (MSN 28738)

                                RETURN CONDITIONS

The  Aircraft  shall be  returned  in at least as good of  operating  condition,
ordinary  wear and tear  excepted,  as on the Delivery  Date,  with all items of
equipment, Engines, APU's, systems and appliances fully functional and operating
in  accordance  with  manufacturer  specifications.  At the time of return,  the
Aircraft shall conform to the following standards:

A.       The Aircraft  shall be returned free and clear of all Liens (other than
         Lessor  Liens) and rights of third  parties  under  pooling,  exchange,
         overhaul, repair or other similar agreements and arrangements.

B.       The  Aircraft  shall not have been  discriminated  against  whether  by
         reason of its leased status or otherwise in maintenance, use, operation
         or in any other manner whatsoever, including, without limitation, as to
         the type of maintenance program applicable to the Aircraft,  any Engine
         or as to compliance with Airworthiness Directives.

C.       The Airframe shall have at least 3,500 hours or 12 months, whichever is
         more limiting, remaining until the next scheduled inspection.

D.       The  Aircraft  shall  be  returned  fresh  from the next due "C" Check.
         During the accomplishment of the "C" Check,  Lessee shall  comply  with
         Lessor's reasonable requests, subject  to  availability of manpower and
         materials, to accomplish  work  which  is  beyond  the  scope  of  that
         required by the Return  Conditions,  provided that (i) the magnitude of
         the work is not  so  large  as  to  reasonably  be  expected to disrupt
         Lessee's operation, (ii) Lessor  provides  at  least  45  days  advance
         written notice for any  significant  maintenance or modification tasks,
         (iii) work will be requested early enough to allow for the ordering and
         delivery of any  required  parts,  and  (iv)  Lessee's  cost  for  such
         additional  work  is  reimbursed by Lessor at Lessee's reasonable cost.
         If the requested work delays the return  of  the  Aircraft  beyond  its
         Expiry Date, the Lease shall continue to be in effect.  Provided Lessee
         is making all reasonable efforts to complete the work prior to  return,
         Lessee shall owe no additional rent for the delay period.

E        Any deviations  from Boeing MPD tasks shall be brought into  compliance
         with the MPD prior to return.

F.       The  Aircraft  shall be  returned  with a valid and  current  Transport
         Category  Airworthiness  Certificate issued by the Aviation  Authority,
         suitable for operation under 14 C.F.R. Part 121 of the FAA Regulations.
         The Aircraft,  Engine and Parts as well as their records shall meet all
         regulatory  requirements for continued airworthiness in compliance with
         all Aviation Authority requirements.

G.       The Aircraft  shall have all  temporary  repairs  replaced by permanent
         repairs per the manufacturer's  repair manual. The fuselage,  wings and
         empennage  shall be free of significant  dents,  abrasions and loose or
         pulled rivets.

H.       There  shall  be  no  evidence  of  untreated,  improperly  treated  or
         noticeable  corrosion.  All CPCP  inspections will be current and up to
         date,  in  accordance  with  manufacturer  specifications  and Aviation
         Authority requirements.

I.       The  Aircraft   shall  be in  compliance  with all  Aviation  Authority
         requirements  for operation as a transport  category aircraft including
         all Aviation  Authority issued  airworthiness  directives  ("AD's") and
         manufacturer  alert   service  bulletins  that are issued  prior to the
         Expiry  Date  and  are  applicable  to the  Aircraft,  without  special
         deferment,   exemption   or  alternate   means  of   compliance,   with
         terminating  action   accomplished for all AD's and manufacturer  alert
         service  bulletins   which  require  that  the  terminating  action  be
         accomplished  prior  to one hundred  eighty days after the Expiry Date.
         The Aircraft  shall  conform to its Type  Certificate  Data Sheet.  All
         major  modifications   and repairs  accomplished  on the Aircraft shall
         have been performed  in accordance with FAA approved data that is to be
         redelivered with the  Aircraft  Documentation.  Any  deficiencies  with
         respect to Aviation  Authority requirements shall be corrected prior to
         the return of the Aircraft at Lessee's cost.

J.       There shall be no open,  outstanding,  or deferred  maintenance  items,
         scheduled or unscheduled, routine or non-routine, against the Aircraft.

K.       The Aircraft shall be clean, cosmetically acceptable,  all compartments
         reasonably free of foreign objects, accumulated dirt, grime, grease and
         liquids,  and be  prepared  for  immediate  placement  into  commercial
         service. Any deterioration of paint or other protective coatings due to
         leakage,  impact  damage or other  presence  of  foreign  materials  or
         liquids shall be repaired and replaced per manufacturer specifications.

L.       Each Engine shall be returned in serviceable condition with maintenance
         records that are satisfactory to Lessor.

M.       Each Engine shall be returned  with not more than 5,000 hours since its
         last major shop visit and shall have at least  5,000  cycles  remaining
         until next  scheduled  shop visit  based upon disk life limits or other
         hard-time  requirements.  For purposes hereof, "major shop visit" shall
         mean a full performance  restoration in which all modules are inspected
         and/or repaired and overhauled.

N.       Each  Engine  shall  pass power  assurance  performance  tests  without
         operational   limitations   in  accordance   with  the   manufacturer's
         maintenance  manual.  The Aircraft and its Engine's shall be capable of
         certificated full rated performance without limitations  throughout the
         entire operating envelope as defined by the Aviation Authority approved
         Aircraft Flight Manual.

O.       Each Engine shall pass a complete video borescope inspection, conducted
         by  Lessor  at  Lessee's  cost,  of  all  accessible   Engine  sections
         (accessible  whether by borescope  port or other  means) in  accordance
         with  manufacturer  specifications.  If  any  Engine  fails  to  pass a
         borescope inspection, Lessee must correct each found defect at its sole
         expense.  In the event Lessee shall cause any Engine to be removed from
         any Aircraft to accomplish repairs by the above,  Lessee shall bear all
         costs associated with the installation and lease of a loaner engine and
         reinstallation of the respective Engine.

P.       No  Engine  shall  be on  engineering  watch or on a  reduced  interval
         inspection   of any nature that could lead to premature  removal of the
         Engine.  If  Engine  historical  records,  engine power assurance runs,
         borescope   inspection  or trend  monitoring  data  indicate a level of
         performance   deterioration  or oil  consumption,  or  acceleration  in
         performance  deterioration or oil consumption,  which based on Lessee's
         specifications  and/or experience, would require shop maintenance to be
         performed  prior  to 5000 engine  flying hours  (assuming a l.5 hour to
         cycle utilization)   after return,  Lessee shall correct or cause to be
         corrected,   such   conditions  as  necessary  to  rectify  all  Engine
         performance parameters  in accordance with manufacturer specifications.
         In the event  Lessee   shall  cause any Engine to be  removed  from the
         Aircraft to  accomplish   repairs by the above,  Lessee  shall bear all
         costs  associated with  the  installation  and lease of a loaner engine
         and reinstallation of the respective Engine.

Q.       All  Landing  Gear  shall  have not less than 24 months or 25% of their
         normal overhaul interval  (whichever is greater)  remaining before next
         scheduled   overhaul  or  replacement   in  accordance   with  Lessee's
         maintenance program.

R.       The APU shall have not more than 1,500 hours since its last hot section
         inspection and shall be returned in serviceable condition.

S.       The components  that  are controlled by calendar time,  flight hours or
         flight cycles shall  be returned in  serviceable  condition.  Each such
         component  shall   have a minimum  of 12  months,  3500  hours and 1200
         cycles remaining  until next scheduled overhaul, repair or replacement.
         Controlled parts  which have a scheduled  maintenance  interval of less
         than 12  months,   3500  hours  and  1200  cycles  shall  have the full
         scheduled    maintenance   interval   remaining  until  next  scheduled
         maintenance.   All such  components  shall be supported by  maintenance
         records which  satisfy all Aviation Authority  requirements  (including
         records of last   overhaul for those items  requiring to be  overhauled
         per Lessee's maintenance program and/or per the Boeing MPD).

T.       Complete and  current maintenance records, as specified in Attachment 1
         to Annex A,  which  comply  with all  Aviation  Authority  requirements
         shall be  returned with the Aircraft.  Maintenance  records required to
         be   maintained  by the  Aviation  Authority  shall  be in the  English
         language   and include  complete  documentation  for all  airworthiness
         directives,   life limited parts (including  back-to-birth  records for
         all  internal   Engine  life  limited  parts)  and  major  repairs  and
         alterations in  accordance with Aviation  Authority  requirements.  For
         each AD that is  applicable to the Aircraft,  the records shall include
         the current status  of the Aircraft,  the date of  compliance,  and the
         method of compliance  with appropriate  supporting  documentation.  Any
         deficiencies with  Aviation Authority  requirements are to be corrected
         prior to return of the Aircraft at Lessee's cost.

U.       Any  manufacturer  no-charge  service  bulletin  parts which Lessee has
         received but not installed for the Aircraft shall be returned to Lessor
         with the Aircraft.

V.       All windows shall be free of delamination,  blemishes, and crazing that
         is beyond maintenance manual limits.

W.       All  doors  shall  be  free  moving,  correctly  rigged and fitted with
         serviceable seals.

X.       All ceiling,  sidewall and bulkhead panels shall be clean and free from
         significant or unserviceable damage. All seats shall be serviceable and
         in good overall condition in accordance with  international air carrier
         standards.

Y.       All flight  control  surfaces and wing leading edges shall be free from
         damage that is beyond serviceable limits.

Z.       All cargo  compartment  floor,  sidewall and ceiling panels shall be in
         serviceable  condition in  accordance  with Boeing  maintenance  manual
         limits.

AA.      The  entire  fuselage,  vertical  stabilizer  including  wing  to  body
         fairings,  engine  cowls and wheel well  doors  shall be  prepared  for
         painting by sanding or stripping  as needed  (including  stripping  any
         areas which have more than one layer of paint) and repainted in a paint
         scheme as selected by Lessor.


<PAGE>


                              Annex A to Schedule 5
                               (Return Conditions)




                                Delivery Receipt

         Lessor  hereby  accepts  and  acknowledges   receipt  from  Lessee,  in
accordance  with the terms and  conditions  of the Lease  Agreement  dated as of
November  __,  1998  (the  "Lease"),   between  First  Security  Bank,  National
Association, not in its individual capacity, but solely as Owner Trustee, Heller
Financial  Leasing,  Inc.  and Frontier  Airlines,  Inc. of one (1) Boeing Model
737-3U3.

Aircraft:
Manufacturer:                       The Boeing Company
Model:                              737-3U3
Registration Mark:                  N308FL
Manufacturer's Serial Number:       28738

with two installed General Electric  CFM56-3C-1 engines,  Engine  Manufacturer's
Serial Numbers:

Position 1:  858766
Position 2:  858767

together  with the Aircraft  Documentation  described in Attachment 1 hereto and
with the  operating  times and cycles as  accumulated  on the Aircraft up to the
time of redelivery as described in Attachment 2 hereto, in [place] on [Date], at
/a.m.//p.m./

<PAGE>




         IN WITNESS WHEREOF,  Lessor and Lessee have each caused this receipt to
be duly executed on the above date.

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


By:
Title:


FRONTIER AIRLINES, INC.,
as Lessee


By:
Title:

<PAGE>


                                  Attachment 1
                            to Annex A to Schedule 5
                               (Return Conditions)

                             Aircraft Documentation

A.       Certificates
         1.   Certificate of Airworthiness
         2.   Noise Certificate
         3.   Radio License Certificate
         4.   Export Statement of Airworthiness (on delivery only)
         5.   Original Export Certificate of Airworthiness from FAA delivered in
              connection with original delivery of Aircraft from Boeing
         6.   Certificate of Sanitary Construction of Galleys

B.       Aircraft Status Records
         1.   Technical Log Books
         2.   Airframe Maintenance Status Report
         3.   Manufacturer's Service Bulletin Status Report
         4.   Airworthiness Directive Compliance Report 
              (terminated and repetitive)
         5.   Local Modification Status Report List
         6.   Last Weighing Report
         7.   Last Compass Swing

C.       Aircraft Maintenance Records
         1.   Test Flight Reports
         2.   All Boeing "C" Checks and last lower level maintenance check 
         3.   WorkCards for each C-Check  multiple (or segment) 
         4.   Modification  records including  accomplishing  documents 
         5.   CPCP compliance  report 
         6.   Aging Aircraft compliance report

D.       Aircraft History Records
         1.   Aircraft Structural Repair History (if applicable)
         2.   Service Difficulty Report (if applicable)
         3.   Accident or Incident Report (if applicable)
         4.   Damage Chart

E.       Engine Records
         1.   Log Books
         2.   Last overhaul and repair documents for each module
         3.   Airworthiness Directive Compliance Report 
              (terminated and repetitive)
         4.   Manufacturer's Service Bulletin Status Report
         5.   Engine Disk Sheet
         6.   Engine Data Submittal Sheet
         7.   Condition Monitoring Status Report

F.       APU Records
         1.   Log Book
         2.   Last overhaul and repair documents
         3.   Manufacturer's Service Bulletin Status Report

G.       Component Records (including components installed on Engines and APU)
         1.   Time  Monitored   Component  Status  Report  with  installed  part
              numbers,   serial   numbers,   remaining   hours  and  cycles  (if
              applicable)
         2.   Serviceability  tags  or  back-up  documentation  for   components
              replaced since delivery from Boeing 
         3.   Serialized  latest shop  records on the JAR Form 1, as applicable,
              including all serviceable tags, release  to  service,  and  repair
              orders detailing maintenance checks, inspections,  tests, repairs,
              replacements,   restorations,   overhauls,    modifications    and
              refurbishments

H.       Manuals
         1.   Airplane Flight Manual
         2.   Quick Reference Handbook
         3.   Aircraft Operating Manual
         4.   Weight and Balance Manual Supplement
         5.   Wiring Diagram Manual (microfilm)
         6.   Illustrated Parts Catalog (microfilm)
         7.   Aircraft Maintenance Manual (microfilm)
         8.   CFMI Illustrated Parts Catalog
         9.   Systems Schematic Manual
         10. Minimum Equipment List

I.       Miscellaneous Technical Documents
         1.   Maintenance Program Specifications/Requirements/Schedule
         2.   Interior Configuration Drawings
         3.   Loose Equipment Inventory List



<PAGE>


                                  Attachment 2
                            to Annex A to Schedule 5
                               (Return Conditions)

                                 Aircraft Status

Aircraft Type:                                  737-3U3
Manufacturer Serial/Registration Number:        28738 / [REG#]

AIRFRAME
                                               During            Since
                                               Period             New 

Airframe Flight Hours:
Airframe Cycles:                                                                

ENGINES
                                                Position 1          Position 2
Serial Number of Original Engine*:
Present Location of Original Engine*:
Engine Flight Hours Since New:
Cycles Since New:

Engine Flight Hours Performed
  During Period:
Engine Cycles Flown During Period:

Date of Last Basic Shop Visit:
Engine Flight Hours Since
  Last Basic Shop Visit:
Engine Cycles Flown Since
  Last Basic Shop Visit:

Serial Number of Installed Engine:

* or Replacement Engine, if applicable

LANDING GEAR                                   During            Since
                                               Period             New 
Main
Main
Nose                                                                            
APU

Serial Number of APU:
Present Location of APU:
Serial Number of Installed APU:
                                               During            Since
                                               Period             New
APU Flight Hours (Original APU):
APU Cycles (Original APU):
Date of Last Basic Shop Visit:
APU Flight Hours Since
  Last Basic Shop Visit:
APU Cycles Since Last Basic Shop Visit:                                     

TECHNICAL ACTIVITY

Engine Removals (if any)
                                            APU
Serial Number:
Date:
Hours:
Cycles:                                                                         

REASON


MAINTENANCE CHECKS COMPLETED

                  Number             Date              Hours             Cycles

-A Check
 S-A Check
- "C" Check
 S - "C" Check
 SI Check                                                                       

NEXT CHECKS DUE
                         Number (E) Date (E)Hours (E)         Cycles (E)

- "C" Check*
 S - "C" Check*
 SI Check                                                                    


AD's AND SB's INCORPORATED INCLUDED IN RETURN RECORDS



                                                     EXHIBIT B

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