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          CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED
        SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
                     TO A REQUEST FOR CONFIDENTIAL TREATMENT

                                                                   Exhibit 10.12

                                                                  EXECUTION COPY

                                                         As of November 18, 1998

COMPANIA PANAMENA DE AVIACION, S.A.
Avenida Justo Arosema 7 Calle 39
Aptdo. 1572
Panama 1
REPUBLIC OF PANAMA

     Re:  Letter Agreement No. 1 to Aircraft Lease Agreement dated as of
          November 18, 1998 between Aviation Financial Services Inc., Lessor,
          and Compania Panamena de Aviacion, S.A., Lessee - 1. Certain
          Conditions to Leasing

Gentlemen:

          Reference is made to that certain Aircraft Lease Agreement dated as of
November 18, 1998 (the "Lease") between Aviation Financial Services Inc., as
lessor ("Lessor"), and Compania Panamena de Aviacion, S.A., as lessee
("Lessee"), for the lease of one new Boeing Model 737-700 commercial aircraft
bearing manufacturer's serial number 30049 (the "Aircraft"). Terms not otherwise
defined herein shall have the meanings assigned to them in the Lease.

          Each Party hereby agrees that such Party shall preserve the
confidentiality of, and shall not disclose, the information set forth in this
Letter Agreement No. 1 to any other Person without obtaining the prior written
consent of the other Party; provided, however such Person may disclose such
information (i) to its attorneys and auditors and (ii) to the extent required by
applicable law; provided, further that Lessor shall not be required to seek such
consent of Lessee following the occurrence and during the continuance of an
Event of Default. In that connection and in order to preserve the
confidentiality of certain business terms of the Lease, Lessor and Lessee have
agreed that two special conditions to leasing should be enumerated in this
letter rather than in the body of the Lease. Those conditions relate to the
Aircraft Specification and to amendment of the existing leases of three Boeing
737-200 Aircraft presently leased to Lessee by Lessor's Affiliate Polaris
Holding Company, as follows:

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          1. Aircraft Specification and Interior Configuration.

          Lessor has agreed that the Aircraft will be delivered to Lessee
meeting the Aircraft Specification and Interior Configuration applicable to new
Boeing 737-700 Aircraft being delivered to Continental. Meeting such conditions
will require special amendment to the Purchase Agreement including Aircraft
Specification D6-38808-34, Revision A - July 16, 1998, which would otherwise be
applicable thereto and other modifications after delivery of the Aircraft
(collectively, the "Modifications"). Lessor will absorb up to **Material
Redacted** of the cost per Aircraft to accomplish such Modifications. Lessor and
Lessee have agreed that for any Modifications costs over **Material Redacted**,
Lessor will fund the Modifications up to a total of **Material Redacted** per
Aircraft, but with a corresponding increase in the monthly Basic Rent by an
amount equal to **Material Redacted** of the amount by which such Modifications
costs per Aircraft actually incurred by Lessor exceed **Material Redacted**.
Lessee agrees to fund any excess Modification cost which exceeds **Material
Redacted** without recourse to or reimbursement from Lessor or any lien upon or
ownership claim in the Aircraft.

          Lessor and Lessee agree to have their technical experts meet with
those of Continental and the Aircraft Manufacturer during the next 60 days in a
good faith effort to establish the most appropriate methodology for achieving
the Modifications. In order to implement those Modifications, it will be
necessary for Lessor to obtain certain BFE parts and components particular to
and furnished by Continental's BFE vendors. Accordingly, to the extent so
required, Lessee undertakes to make available for purchase by Owner or Lessor,
the BFE parts and components required for the Modifications contemplated herein
and to cause the vendors of such BFE parts to furnish any necessary technical
data or information and appropriate warranties. The Modifications will also
require incorporation (by supplements to the Purchase Agreement referenced
above) of a detailed aircraft technical specification similar to that utilized
by Boeing for the construction of B737-700 aircraft for Continental. Lessee will
be responsible for obtaining the technical information required to accomplish
the Modifications.

          2. Amendments to Existing Leases for Boeing 737-200 Aircraft.

          Lessee has agreed to lease the Aircraft pursuant to the Lease and to
lease a companion new Boeing 737-700 Aircraft for delivery in October, 1999 (the
two 737-700 Aircraft being hereinafter referred to as the "737-700 Aircraft") on
condition that the leases for three Boeing 737-200 Aircraft bearing Serial
Numbers 21359, 21612 and 21677 (the "737-200 Aircraft") be amended to provide
for reductions in the amount of monthly rentals commencing as of September 1,
1998 and for the addition of certain lease renewal options, all as more detailed
in that certain Letter of Intent No. 98323-03, dated September 8, 1998. Lessor
and Lessee have agreed that the rental reductions to be implemented as of
September 1, 1998 during the existing lease terms of the 737-200 Aircraft (but
not during the optional renewal terms) will not be accomplished by way of an
amendment to the amount of Basic Rent specified in the 737-200 Aircraft leases
but will be effected by way of a credit in the amount of **Material Redacted**
per month per aircraft to be applied as Basic Rent becomes due. Lessor confirms
that the lessor and headlessor of the leases for 737-200 Aircraft are in
agreement with the substance of such amendments and will cause GECAS to produce
and negotiate in good faith appropriate documentation to implement such
amendments as soon as reasonably possible after execution by Lessee of the Lease
for the Aircraft and the lease for the companion Boeing 737-700 Aircraft.

<PAGE>

          Lessor and Lessee have also agreed that in the event that Lessee does
not take delivery of either of the 737-700 aircraft after proper tender of
delivery by Lessor, Lessee shall immediately reimburse Lessor the full amount of
any and all rental credits applied to Lessee's Basic Rent obligations for the
737-200 Aircraft, as described in the paragraph above, and Lessor shall be
entitled to treat a failure by Lessee to make such reimbursement as an Event of
Default under the Lease.

          3. Delivery Delays.

          In the event of an Excusable Delay in the delivery of the Aircraft
past the Estimated Delivery Date, Lessor will, notwithstanding any provision of
the Lease to the contrary, pay Lessee **Material Redacted** for each day that
the Aircraft is so delayed commencing with (a) the 60th day in the case of an
Excusable Delay attributable to Lessor or (b) the 90th day in the case of an
Excusable Delay on the part of the Manufacturer, to and including the day
preceding the sixth (6th) monthly anniversary of the Estimated Delivery Date.