UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

                                    FORM 10-Q

 QUARTERLY REPORT UNDER SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934


                For the Quarterly Period Ended September 30, 1997

                         Commission File Number: 0-20360


                                 RENO AIR, INC.
             (Exact name of registrant as specified in its charter)


                                Nevada 88-0259913
        (State or other jurisdiction (IRS Employer Identification Number)
                        of incorporation or organization)


                                 220 Edison Way
                               Reno, Nevada 89502
                    (Address of principal executive offices)


                                 (702) 686-3835
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 of the  Securities  Exchange  Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

Yes   X                                 No

Number of shares of common stock, $.01 par value, of registrant outstanding at
September 30, 1997: 10,542,075.



                                     <PAGE>



                                 RENO AIR, INC.
    ------------------------------------------------------------------------

                                      INDEX



PART I.  FINANCIAL INFORMATION

Item 1.           Financial Statements

                  Balance Sheets - September 30, 1997 and
                  December 31, 1996                                         4

                  Income Statements -
                  Three Months and Nine Months Ended
                         September 30, 1997 and 1996                        5

                  Statements of Cash Flows -
                  Nine Months Ended September 30, 1997 and 1996             6

                  Notes to Financial Statements                             7

Item 2.           Management's Discussion and Analysis of Financial
                  Condition and Results of Opeartions                       8

PART II.  OTHER INFORMATION

Item 2.           Changes in Securities and Use of Proceeds                15

Item 6.           Exhibits and Reports on Form 8-K                         15

SIGNATURES                                                                 16



<PAGE>
<TABLE>
<CAPTION>


                                                  RENO AIR, INC.
                                           CONDENSED BALANCE SHEETS AT
                                     SEPTEMBER 30, 1997 AND DECEMBER 31, 1996

                                                                                 September 30,         December 31,
                                                                                     1997                  1996
                                                                               --------------      ------------------
                                                                                  (unaudited)
<S>                                                                                <C>                <C>                   

ASSETS
CURRENT ASSETS:
     Cash and cash equivalents                                                     $ 5,905,082        $ 16,221,297
     Short-term investments                                                          1,501,607           2,318,407
     Accounts receivable, net                                                       30,099,707          18,834,788
     Inventories and operating supplies                                              3,339,088           2,109,364
     Prepaid expenses and other                                                     24,514,434          17,033,968 
                                                                                    ----------          ---------- 
         Total current assets                                                       65,359,918          56,517,824 
                                                                                    ----------          ----------
PROPERTY AND EQUIPMENT:
     Flight equipment                                                               87,026,949          63,974,552
     Ground property and equipment                                                  11,031,435           8,377,217 
                                                                                    ----------           --------- 
                                                                                    98,058,384          72,351,769
     Less - Accumulated depreciation                                               (18,400,374)        (11,253,987)
                                                                                    ----------          ----------      
     Property and equipment, net                                                    79,658,010          61,097,782 
                                                                                    ----------          ----------
RESTRICTED CASH AND INVESTMENTS                                                      5,025,915           6,519,249
DEPOSITS AND OTHER NONCURRENT ASSETS                                                22,997,234          19,571,557 
                                                                                    ----------          ---------- 
                                                                                  $173,041,077        $143,706,412 
                                                                                  ============        ============ 
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
     Accounts payable                                                             $ 20,757,962        $ 19,071,306
     Accrued liabilities                                                            20,348,152          19,775,738
     Air traffic liability                                                          31,477,093          21,392,594
     Current maturities of long-term debt and capital leases                        11,619,911           5,309,758
     Current portion of deferred lease payable                                       1,090,215           1,465,827 
                                                                                     ---------           --------- 
        Total current liabilities                                                   85,293,333          67,015,223 
                                                                                    ----------          ---------- 
LONG-TERM DEBT AND CAPITAL LEASES                                                   61,043,858          50,698,058
OTHER NONCURRENT LIABILITIES                                                        13,617,227          13,862,332
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
     Common stock, $.01 par value:  30,000,000 shares authorized;
        10,542,075 and 10,333,446 shares issued and outstanding
        at September 30, 1997 and December 31, 1996, respectively                      105,421             103,334
     Additional paid-in capital                                                     33,536,690          32,607,130
     Accumulated deficit                                                           (20,555,452)        (20,579,665)
                                                                                   -----------         ----------- 
Total shareholders' equity                                                          13,086,659          12,130,799 
                                                                                    ----------          ---------- 
                                                                                  $173,041,077        $143,706,412 
                                                                                  ============        ============ 


                     The accompanying notes are an integral part of the financial statements.



</TABLE>

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<CAPTION>



INCOME STATEMENTS
                                                       RENO AIR, INC.
                                                     INCOME STATEMENTS
                                                  FOR THE NINE MONTHS AND
                                       THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
                                                        (Unaudited)

                                                     Nine months ended                          Three months ended
                                                       September 30,                               September 30,
                                          ----------------------------------------- -----------------------------------------
                                                    1997                  1996                  1997                  1996
                                          -------------------- -------------------- -------------------- --------------------
<S>                                           <C>                 <C>                 <C>                  <C>   
                                                                                     
OPERATING REVENUES:
     Passenger                                $   275,344,871     $    251,856,374    $      99,582,718    $      96,673,915
     Other                                         16,942,393           12,600,027            5,598,831            4,046,723 
                                              ---------------     ----------------    -----------------    ----------------- 
         Total operating revenues                 292,287,264          264,456,401          105,181,549          100,720,638 
                                              ----------------    ----------------    -----------------    ----------------- 

OPERATING EXPENSES:
     Salaries, wages and benefits                  50,128,276           40,586,441           17,942,853           15,544,614
     Aircraft fuel and oil                         51,785,986           48,269,372           17,545,414           18,894,508
     Aircraft leases                               52,138,897           44,713,350           18,022,978           16,233,471
     Maintenance                                   24,798,650           19,705,815            9,150,488            7,575,312
     Handling, landing and airport fees            29,472,775           25,633,437           10,305,903            9,340,724
     Advertising, sales and distribution           21,974,378           23,346,141            6,899,810            8,662,966
     Commissions                                   15,581,959           14,881,212            5,619,051            5,560,222
     Facility leases                               10,254,710            8,320,222            3,664,438            2,946,754
     Insurance                                      4,719,137            5,858,525            1,496,509            1,905,683
     Communications                                 4,098,812            3,245,184            1,358,110            1,227,978
     Depreciation and amortization                  7,311,840            3,976,289            2,610,483            1,608,953
     Other                                         18,848,116           17,571,256            6,164,064            6,940,512 
                                              ---------------      ---------------    -----------------    ----------------- 
        Total operating expenses                  291,113,536          256,107,244          100,780,101           96,441,697
                                              ---------------      ---------------    -----------------    -----------------
OPERATING INCOME                                    1,173,728            8,349,157            4,401,448            4,278,941 
                                              ---------------      ---------------    -----------------    ----------------- 

NONOPERATING INCOME (EXPENSE):
     Interest expense                             (3,806,918)          (2,842,636)          (1,371,769)          (1,190,227)
     Interest income                                1,556,831            2,227,819              531,202              775,433
     Gains on sales of fixed assets, net            1,279,272              944,875            1,279,272              944,875
     Other, net                                     (178,700)             (44,597)             (43,044)              138,265 
                                              ---------------      ---------------    -----------------    ----------------- 
        Total nonoperating income (expense)       (1,149,515)              285,461              395,661              668,346 
                                              ---------------      ---------------    -----------------    ----------------- 
NET INCOME BEFORE INCOME TAXES                        24,213            8,634,618             4,797,109            4,947,287
INCOME TAX PROVISION                                       -              336,776                    -               199,455 
                                              --------------       ---------------    -----------------    -----------------   
NET INCOME                                    $       24,213       $    8,297,842     $       4,797,109    $       4,747,832 
                                              ==============       ===============    =================    ================= 
NET INCOME PER COMMON SHARE AND COMMON
     SHARE EQUIVALENT
     PRIMARY                                  $            -       $         0.76     $            0.44    $            0.43       
                                              ==============       ==============     =================    =================
     FULLY DILUTED                            $            -       $         0.74     $            0.40    $            0.39
                                              ==============       ==============     =================    =================

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
 AND COMMON SHARE EQUIVALENTS OUTSTANDING
     PRIMARY                                      10,695,869           10,896,249            10,850,435           10,993,441   
                                              ===============      ==============        ===============    ================     
     FULLY DILUTED                                10,695,869           13,893,574            13,725,435           13,874,921 
                                              ===============       ===============      ================   ================ 


                          The accompanying notes are an integral part of the financial statements.

                                

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<CAPTION>




                                                   RENO AIR, INC.
                                              STATEMENTS OF CASH FLOWS
                                  NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
                                                  (Unaudited)

                                                                                                Nine Months Ended
                                                                                                  September 30,
                                                                                    ---------------------------------------
                                                                                                    
                                                                                                1997               1996
                                                                                    -------------------  ----------------    
<S>                                                                                         <C>                <C> 

 OPERATING ACTIVITIES:

 Net Income                                                                            $       24,213      $    8,297,842
 Adjustments to reconcile net income to net cash provided by
     (used in) operating activities:
         Depreciation and amortization                                                       7,311,840           4,349,594
         Common stock issued or to be issued for 401(k) Plan                                   315,300             120,000
         Gains on sales of fixed assets, net                                               (1,279,272)           (944,875)
         Amortization of deferred lease credits                                              (131,579)           (118,079)
         Amortization of debt issuance costs                                                   177,482             177,504
 Changes in operating assets and liabilities:
         Increase in accounts receivable                                                  (11,264,919)        (10,942,463)
         Increase in inventories and operating supplies                                    (1,229,724)           (532,190)
         Increase in prepaid expenses and other current assets                             (7,480,466)         (2,741,474)
         Decrease (increase) in restricted cash                                              1,493,334         (5,425,799)
         Increase in deposits and other noncurrent assets                                  (3,603,159)         (4,589,852)
         Increase in accounts payable                                                        1,686,656           3,188,465
         Increase in accrued liabilities                                                       572,414           8,626,255
         Decrease in fuel purchase agreement                                                         -         (1,841,226)
         Increase in air traffic liability                                                  10,084,499          10,749,686
         (Decrease) increase in deferred leases and other noncurrent liabilities              (489,138)          4,559,256 
                                                                                           -----------         ----------- 
             Net cash (used in) provided by operating activities                            (3,812,519)         12,932,644 
                                                                                           -----------          ---------- 

 INVESTING ACTIVITIES:
     Proceeds from sales of short-term investments                                           2,318,407           2,944,188
     Proceeds from sales of fixed assets                                                     2,750,000           2,500,000
     Purchases of property and equipment                                                   (24,525,837)        (39,970,633)
     Purchases of short-term investments                                                    (1,501,607)         (1,973,793)
                                                                                          ------------        ------------ 
             Net cash used in investing activities                                         (20,959,037)        (36,500,238)
                                                                                          ------------         ----------- 
  FINANCING ACTIVITIES:
     Proceeds from exercise of stock options and warrants                                      616,347           1,189,376
     Proceeds from issuance of notes payable                                                18,916,798          15,183,000
     Repayments of long-term debt and capital leases                                        (5,077,804)         (1,178,292)
                                                                                           ----------          ---------- 
             Net cash provided by financing activities                                      14,455,341          15,194,084 
                                                                                           ----------          ---------- 
 DECREASE IN CASH AND CASH EQUIVALENTS                                                     (10,316,215)         (8,373,510)
 CASH AND CASH EQUIVALENTS at beginning of period                                           16,221,297          34,985,808 
                                                                                           -----------          ---------- 
 CASH AND CASH EQUIVALENTS at end of period                                            $     5,905,082       $  26,612,298 
                                                                                       ===============       ============= 


    The accompanying notes are an integral part of the financial statements.







</TABLE>

<PAGE>








                                 RENO AIR, INC.

                          NOTES TO FINANCIAL STATEMENTS


NOTE A - BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting  principles for interim financial information
and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information  and footnotes  required by generally
accepted accounting principles for complete financial statements. In the opinion
of management,  all  adjustments  (consisting of normal  recurring  adjustments)
considered necessary for a fair presentation have been included.  The results of
operations  for the three and nine month periods ended  September 30, 1997,  are
not  necessarily  indicative  of the results  that will be realized for the full
year.  For further  information,  refer to the  financial  statements  and notes
thereto contained in the Form 10-K for the year ended December 31, 1996.

Certain  reclassifications  have  been  made  to the  prior  periods'  financial
statements to conform those statements to the current periods' presentation.

NOTE B - INCOME PER COMMON SHARE

Income per share is  computed by dividing  the net income  available  for common
stock by the  weighted  average  number of shares of common  stock and  dilutive
common stock equivalents assumed outstanding during the period.

In February 1997, the Financial  Accounting Standards Board issued Statement No.
128,  Earnings per Share,  which is required to be adopted by December 31, 1997.
At that time,  the Company will be required to change the method  currently used
to compute  earnings per share and to restate all prior  periods.  Under the new
requirements  for calculating  basic earnings per share,  the dilutive effect of
stock options and warrants will be excluded. The impact is expected to result in
a two cent increase and no change,  respectively,  in primary earnings per share
for the three and nine months ended September 30, 1997, and three cent and five
cent increases,  respectively,  in the primary  earnings per share for the
three and nine months ended September 30, 1996. For fully diluted  earnings per
share, the  impact  is  expected  to  result  in a one  cent  decrease  and no
change, respectively,  in  earnings  per  share  for the  three  and nine months
ended September 30, 1997, and one cent and two cent decreases, respectively, in
earnings per share for the three and nine months ended September 30, 1996.

NOTE C - COMMITMENTS

     In September  1997, Reno Air purchased one of its leased MD-83 aircraft for
$17.5 million in exchange for debt,  cash and certain credits from the lessor of
that  aircraft.  The debt is comprised of a $15.5  million  secured note payable
that  matures in  September  2002.  Interest on the note is at 30-day LIBOR plus
2.80 percent.

     In September  1997,  the Company sold one spare  aircraft  engine for $2.75
million  in cash,  and  recognized  a gain on this  sale of  approximately  $1.3
million, which is included in nonoperating income.

     In October  1997,  Reno Air entered  into a letter  agreement  to lease two
MD-90  aircraft.  The lease terms are 18 years each and are expected to commence
in January 1998.

NOTE D - SHAREHOLDERS' EQUITY

     In October 1997, the Company issued 1,400,000 shares of Series A Cumulative
Convertible  Exchangeable Preferred Stock, par value $0.001 per share, for $33.6
million,  net of issuance discounts of $1.4 million (the "Preferred Stock"). The
issuance  excludes  200,000  shares  of the  Preferred  Stock  which may be sold
pursuant  to an  over-allotment  option  which  expires in  November  1997.  The
Preferred  Stock has a  liquidation  preference  value of  $25.00  per share and
accrues dividends  payable  quarterly in arrears beginning  December 15, 1997 at
the rate of 9% per annum of such  liquidation  preference  value.  The Preferred
Stock may be converted into shares of the Company's  common stock at any time at
the option of the holders  thereof at a conversion  price of $8.625 per share of
common stock,  subject to adjustment upon the occurrence of certain events.  The
Company  may  redeem  the  Preferred  Stock,  in whole  or in part,  on or after
December 20, 2000 at prescribed  redemption  prices. The Preferred Stock is also
exchangeable  at the Company's  option  beginning on December 15, 1999,  for the
Company's 9% Convertible Subordinated Debentures, due December 15, 2004.

<PAGE>




Item 2.  Management's Discussion and Analysis Of Financial Condition and Results
         of Operations

Overview

     The  Company  recognized  record  profits  in the  third  quarter  of 1997;
however,  results for the nine months ended  September  30,  1997,  continued to
reflect  the net losses  realized in the first half of the year.  The  Company's
results in the first  quarter of 1997 were  significantly  impacted by unusually
harsh  weather  and by fuel prices  that were  substantially  higher than in the
first quarter of 1996. The Company's  results in the second quarter of 1997 were
significantly  impacted  by a shortage  of engines  that  forced the  Company to
temporarily  ground as many as three aircraft at one time.  Results in the third
quarter  were  impacted  by the cost of leasing  additional  spare  engines on a
short-term  basis.  The engine  shortage  was  resolved in the third  quarter as
engines were returned from  overhaul,  which allowed the Company to sell a spare
engine in September 1997.

         In the first quarter of 1997, the Company  commenced  scheduled service
from Gulfport/Biloxi,  Mississippi to St. Petersburg,  and Sanford,  Florida and
Atlanta,  Georgia, under a limited revenue guarantee agreement. The Company also
commenced daily service from Reno to Detroit. In the second quarter of 1997, the
Company significantly increased its service to Las Vegas, creating a hub linking
seven existing Reno Air cities in the  Southwestern  United States.  The Company
also  increased  its  service  to Detroit  and its  seasonal  summer  service to
Anchorage,   Alaska,  and   re-instituted   service  between  Reno and  Ontario,
California.  In the third quarter of 1997,  the Company  added  service  between
Oklahoma  City and Las Vegas,  with  direct and  connecting  service to the West
Coast.

     In 1996, the Company increased its usage of Teletech,  Inc. ("Teletech") to
supplement  the  Company's  internal  reservations  capacity,  thus boosting its
direct  sales.  This   significantly   increased  the  Company's  call  handling
capability.  In April 1997,  the  Company  opened its second  reservations  call
center to replace  Teletech.  This call  center,  located in Las Vegas,  has the
capacity to more than double the Company's  internal  call handling  capability,
and provides  important backup in event of service outages at the Company's Reno
facility.  Although the  replacement  of Teletech  with the  increased  internal
reservations  capability of the Las Vegas  facility is expected to reduce costs,
the Company incurred increased  personnel training and reservations costs in the
second quarter of 1997 as a result of the transition.

     The  Company  has  contracted  with SABRE to  provide  the  Company's  host
reservation  database system for a seven-year term. The Company  implemented the
SABRE  system  on  November  4,  1997.   The   transfer  has  created   one-time
implementation costs and temporary  disruption in the Company's  reservation and
yield management operations,  which will negatively impact the Company's results
in the fourth quarter. Management expects to obtain substantial cost savings and
efficiencies as the SABRE system become fully operational.

     On April 23, 1997, the Company's flight  attendants  became  represented by
the  International  Brotherhood of Teamsters ("IBT") and, on September 22, 1997,
the Company's  pilots  became  represented  by the Air Line Pilots  Associations
("ALPA").  The Company is  negotiating a contract  with the IBT and  anticipates
commencing  contract talks with ALPA in January 1998.  Management cannot predict
when any contracts  might be entered into, or the extent to which such contracts
will contain  terms  different  from the  Company's  current work and pay rules.
Unionization of the Company's employees  restricts the Company's  flexibility in
dealing with such  employees,  which could result in a material  increase in its
labor costs. The Company's other employees are not represented by a union.

     Congress  has  adopted  changes to the federal  transportation  excise tax,
which had been 10% of a ticket's fare. The new  legislation  reduced this tax to
9%,  and  will  eventually  reduce  this  tax to 7.5%;  but it also  imposes  an
additional  surcharge  of $1,  which  eventually  increases to $3, for each trip
segment flown.  This initial structure became effective on October 1, 1997, with
the full  changes  being  phased  in  through  the year  2002.  The  legislation
increases the taxes on lower fare tickets.  Management cannot predict the extent
the new taxes will be passed on to  passengers,  because  fares  continue  to be
volatile in response to industry conditions and competitors' fare actions.  Many
airlines,  including the Company, are absorbing some of the per segment charges;
for  instance,  when a passenger's  itinerary  includes two or more segments but
could also have been flown with fewer segments.

     On October 7, 1997,  the  Company  reduced the  commission  it pays on most
travel agency sales from 10% to 8% in order to remain competitive with the major
airlines.

     In July 1997,  the  Company  introduced  its own  frequent  flyer  program,
QQuickmiles(TM). The Company is accruing for frequent flyer reward expense based
on the incremental  cost of awards that may be redeemed.  Since this program was
implemented  during the third quarter,  the amount of reward expense  recognized
has been minimal.

     The Company's fuel prices  (including taxes but excluding  into-plane fees)
generally  decreased from a high of 93 cents per gallon in January 1997 to a low
of 67 cents in July,  and have  since  climbed to 71 cents in  September  and 74
cents in October 1997.

     The Boeing  Company has  acquired  the  McDonnell  Douglas  Company,  which
manufactured the Company's MD-80 and MD-90 series  aircraft.  The Boeing Company
has  announced  its intention to  discontinue  production  of these  aircraft in
mid-1999; however, The Boeing Company announced that it will continue to provide
spare parts and engineering support for these aircraft. Although management does
not expect the Company to suffer any material  adverse  impact from these events
in the foreseeable  future,  there can be no assurance that the Company will not
suffer financially or operationally on account of these events.

         The  Company's  business is  characterized,  as is true for the airline
industry  generally,  by high fixed costs  relative to revenues,  and low profit
margins.  A slight  change in fare levels or load factors can have a substantial
impact on the  Company's  revenues.  Generally,  approximately  one-half  of the
Company's  tickets are sold within the two weeks  preceding  the date of travel.
Accordingly, any changes in the Company's competitive environment (for instance,
changes in fares or service  offered by its  competitors)  can have an immediate
and  significant  financial  impact on the Company.  In addition,  the Company's
business is highly  sensitive to general economic  conditions.  Any reduction in
airline  passenger  traffic  (whether  general or specific to the  Company)  may
materially and adversely affect the Company's financial position.

     The Company has  implemented  a year 2000  compliance  program  designed to
ensure that the Company's computer systems and applications will properly manage
dates beyond 1999. The Company believes that it has allocated adequate resources
for this  purpose  and  expects  its year 2000  date  conversion  program  to be
completed on a timely basis.  However there can be no assurance that the systems
of other parties upon which the Company's businesses also rely will be converted
on a timely basis. The Company's business,  financial  condition,  or results of
operations could be materially  adversely affected by the failure of its systems
and  applications  or those  operated by other  parties to  properly  operate or
manage dates beyond 1999.

         This Quarterly Report on Form 10-Q contains forward-looking  statements
within the meaning of Section 27A of the  Securities  Act and Section 21E of the
Securities  Exchange Act of 1934, as amended (the  "Exchange  Act").  Generally,
such  statements  are  indicated  by  words  or  phrases  such as  "anticipate,"
"expect,"  "intend,"  "management  believes" and similar words or phrases.  Such
statements  are  based  on  current  expectations  and  are  subject  to  risks,
uncertainties  and assumptions.  Certain of these risks are described under Item
1.  "Cautionary  Statements" in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996. Should one or more of these risks or uncertainties
materialize,  or should underlying  assumptions prove incorrect,  actual results
may vary  materially  from those  anticipated,  expected,  intended  or believed
results.


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<CAPTION>




Selected Operating Statistics

                                                  
                                                      Quarter            Quarter                            Quarter
                                                       Ended              Ended            Percent           Ended         Percent
                                                  Sept. 30, 1997      Sept. 30, 1996      Change (1)    June 30, 1997    Change (2)
                                                 ------------------------------------------------------------------------ ---------
<S>                                            <C>                   <C>             <C>              <C>                   <C>    

Revenue passengers (4)                              1,518,293            1,390,089          9.2            1,404,943          8.1
 Revenue Passenger Miles (RPMs)(000s)(5)              876,278              848,278          3.3              802,508          9.2
 Available Seat Miles (ASMs)(000s)(6)               1,253,986            1,239,825          1.1            1,161,784          7.9
 Passenger load factor (percent)(7)                     69.88                68.42          2.1                69.08          1.2
 Breakeven load factor (percent)(8)                     66.51                65.06          2.2                68.91         (3.5)
 Passenger revenue per RPM (cents)                      11.36                11.40         (0.4)               11.40         (0.4)
 Passenger revenues per ASM (cents                       7.94                 7.80          1.8                 7.87          0.9
 Operating expenses per ASM (cents)                      8.04                 7.78          3.3                 8.34         (3.6)
 Aircraft in service at end of period                      30                   29          3.4                   30          0.0  
 Average aircraft length of haul (miles)                  511                  536         (4.7)                 513         (0.4)
 Average passenger length of haul (miles)                 577                  610         (5.4)                 571          1.1
 Average cost of fuel per gallon (9)           $         0.69        $        0.79        (12.7)      $         0.71         (2.8)
                                                
                                                    Nine Months        Nine Months
                                                       Ended              Ended           Percent
                                                  Sept. 30, 1997     Sept. 30, 1996       Change
                                                                                            (3)
                                                 ----------------- --------------------  -----------
 
 Revenue passengers (4)                             4,196,111            3,786,877         10.8
 Revenue Passenger Miles (RPMs)(000s)(5)            2,401,404            2,263,359          6.1
 Available Seat Miles (ASMs)(000s)(6)               3,532,581            3,356,248          5.3
 Passenger load factor (percent)(7)                     67.98                67.44          0.8
 Breakeven load factor (percent)(8)                     67.97                65.22          4.2
 Passenger revenue per RPM (cents)                      11.47                11.13          3.1
 Passenger revenues per ASM (cents)                      7.79                 7.50          3.9
 Operating expenses per ASM (cents)                      8.24                 7.63          8.0
 Aircraft in service at end of period                      30                   29          3.4
 Average aircraft length of haul (miles)                  514                  541         (5.0)
 Average passenger length of haul (miles)                 572                  598         (4.3)
 Average cost of fuel per gallon (9)           $         0.75       $         0.74          1.4
                                                                                  

 (1) Percent change from the quarter ended September 30, 1996 to the quarter ended September 30, 1997.
 (2) Percent change from the quarter ended June 30, 1997 to the quarter ended September 30, 1997.
 (3) Percent change from the nine months ended September 30, 1996 to the nine months ended September 30, 1997.
 (4) The number of trip segments flown by paying passengers.
 (5) The number of seat miles flown by paying passengers.
 (6) The number of seat miles available for paying passengers.
 (7) RPMs divided by ASMs.
 (8) The passenger load factor that would have resulted in the Company breaking even on a net income basis during the period
     assuming yield, other operating revenues and total expenses remained constant.
 (9) Jet fuel prices for the respective period, excluding into-plane service charges.



</TABLE>

<PAGE>





Results of  Operations - Nine Months Ended  September  30, 1997 Compared to Nine
Months  Ended  September  30, 1996 and Three  Months  Ended  September  30, 1997
Compared to Three Months Ended September 30, 1996

     General.  The Company's  operations  (as measured by available  seat miles)
increased by 5.3% in the first nine months of 1997 as compared to the first nine
months of 1996.  Operating  income grew slightly in the third quarter of 1997 as
compared to the third quarter of 1996.  The Company's  operating  income for the
nine-months ended September 30, 1997, was significantly  reduced year over year,
as a result of the Company's financial  performance in the first two quarters of
1997.

     In the first quarter,  an historic January flood shut down the Reno, Nevada
airport and the Company's only reservations facility at that time for a two day
period.  The closing of the airport and a  substantial  portion of the Company's
operation  occurred during a period of record passenger travel demand during the
New Year's holiday.  This caused a substantial reduction in available seat miles
below plan,  reducing  revenues and increasing  costs per seat mile. The Company
also  experienced  decreased  load  factors  during the quarter due to travelers
avoiding travel to or over Reno as a result of the negative  publicity about the
flood.

     In the second  quarter,  the Company  grounded up to three  aircraft at one
time  (losing  a total of 143 days of  aircraft  utilization)  as a result  of a
shortage of engines. The shortage was attributable to delays in engine overhauls
caused by an  industry-wide  shortage of spare parts,  the sudden  recall of two
spare engines leased from another  airline,  a higher than average  frequency of
unscheduled  engine  changes,  and  an  industry-wide  limited  availability  of
JT8D-219  spare  engines for lease.  In  addition to an increase in  maintenance
expenditures,  these  factors  led to a  decrease  in fleet  utilization  and an
increase in overall unit costs.

         The  Company's   average   aircraft   utilization  has  increased  from
approximately 9.4 hours per day in the first quarter of 1997 to 9.5 hours in the
second  quarter  and to 10.0  hours  in the  third  quarter,  each  such  period
reflecting slightly lower utilization than in the comparable periods of 1996.

     Results in the third quarter, although an improvement compared to the third
quarter  of  1996,  were  adversely  impacted  by  increased  costs  of  leasing
additional  engines on a short term basis to improve the  Company's  operational
reliability   and  a  general  cost  increase   resulting  from   infrastructure
development intended to improve the Company's long-term profitability.

     Net Income.  For the nine months  ended  September  30,  1997,  the Company
realized  net income of  $24,213,  as  compared  to net  income of $8.3  million
realized in the first nine months of 1996. The significant  decline in financial
results was due primarily to unusually  harsh weather  conditions,  the historic
flood in Reno,  the engine  shortage,  increased  costs of fuel in the first and
second  quarters  of 1997,  and other  operating  cost  increases.  The  Company
realized  net income of $4.8 million in the third  quarter of 1997,  including a
gain of $1.3  million  on the sale of a spare  engine,  which is  classified  as
nonoperating  income. For the three months ended September 30, 1996, the Company
realized net income of $4.7 million  including a gain of $945,000 on the sale of
a spare engine.

     Revenue.  The Company's  operating revenues increased by 10.5% in the first
nine months of 1997,  as compared to the same period of 1996, on a 5.3% increase
in operations, as measured by available seat miles. The Company's year-over-year
growth is  primarily  attributable  to growth  in the first  quarter  of 1997 as
compared  to the  first  quarter  of 1996,  which  resulted  from the  Company's
significant   expansion  of  operations  beginning  April  1996.  The  Company's
operations (as measured by available seat miles) declined slightly in the second
quarter of 1997 as compared to the second quarter of 1996, primarily because the
Company's 1997 summer  expansion  occurred in May (as compared to early April in
1996),  and a  significant  number of flights  were  cancelled on account of the
engine shortage.  The Company's operations in the third quarter expanded by 1.1%
from 1996 to 1997.

     Passenger revenue per available seat mile increased 3.9% from 7.50 cents to
7.79 cents from the first nine  months of 1996 to the first nine months of 1997,
primarily due to a 3.1% increase in passenger  yield,  year over year, and a 0.8
percent  increase in load  factor.  Passenger  revenue per  available  seat mile
increased  1.8% in the third quarter of 1997 as compared to the third quarter of
1996  primarly due to a 2.1 percent increase in load factor,  offset by a slight
decline in yields.

     The increase in  passenger  yield from 11.1 cents for the first nine months
of 1996 to 11.5 cents for the first nine  months of 1997 was  attributable  to a
higher fare  environment  on the West  Coast,  despite  reimposition  of the 10%
federal  transportation  excise tax on March 10, 1997. The tax was not in effect
for  seven  and a half  months  in 1996 and for two and a half  months  in 1997.
Yields declined slightly from the first quarter of 1997 to the second quarter of
1997, due to the reimposition of the 10% excise tax. Yields in the third quarter
of 1997 declined  slightly as compared to the second quarter of 1997 and also as
compared  to the third  quarter  of 1996.  As  discussed  above,  the excise tax
structure changed on October 1, 1997.  Management does not expect this change to
materially impact the Company's results in the fourth quarter of 1997.

     The  Company's  load factor  increased in the third  quarter and first nine
months of 1997 as compared to the comparable periods in the prior year.

     Other revenue accounted for 5.8% of the Company's total revenues during the
first nine months of 1997, as compared to 4.8% for the same period in 1996,  due
primarily to  increases in charter revenues and rent from the lease of an MD-80
aircraft owned by the Compmany.

     Operating Expenses. While the Company's scope of operations (as measured by
available  seat miles)  increased 5.3% from the first nine months of 1996 to the
first nine months of 1997, the Company's  operating  expenses  increased  13.7%.
Most items of expense,  including  maintenance,  salaries,  aircraft  leases and
depreciation  increased on a percentage basis more than the increase in scope of
operations,   due  to  the  unusually   high  number  of  flight   cancellations
attributable to the flood and the engine  shortages (these  occurrences  reduced
the  Company's  operations,  without a  comparable  reduction  in  expense),  an
approximately 3% decline in aircraft  utilization and a 5.0% decrease in average
aircraft stage length.  Salaries also increased in substantial  part because the
Company incurred up-front expenses related to future growth,  including:  hiring
and training over 250 reservation agents for the opening of the Company's second
reservations  center in Las  Vegas;  increases  in other  staffing  levels;  and
preparing to switch reservations database systems in the fourth quarter of 1997.
Depreciation  and  amortization  expense  almost  doubled  when  compared to the
nine-month  period in 1996 primarily as a result of the Company's  purchase of a
second aircraft in July 1996 and construction of a hangar in Reno, Nevada, which
was completed in late 1996.

     Fuel  expenses  increased  7.3% from the first  nine  months of 1996 to the
first nine months of 1997  primarily  due to increased  fuel prices in the first
quarter of 1997.  During the first nine months of 1997,  fuel prices  (including
taxes but excluding  into-plane  fees)  declined from an average of 93 cents per
gallon in January to 71 cents per gallon in  September.  The  Company  purchases
approximately  eight million gallons of fuel per month;  at that volume,  the 22
cents per gallon difference  between January 1997 and September 1997 fuel prices
represents a decrease of  approximately  $1.8 million in the  Company's  monthly
fuel  expense.  In June 1997,  the  Company  contracted  to  purchase 12 million
gallons of fuel for delivery between August 1, 1997 and January 31, 1998, at the
Company's Reno and Las Vegas hubs at an average  purchase price of approximately
70 cents  per  gallon  (including  taxes but  excluding  into-plane fees).  This
purchase  represents   approximately  25%  of  the  Company's  anticipated  fuel
requirement  during the  delivery  period.  The Company  may enter into  similar
advance bulk purchases or utilize fuel price hedges in the future.

     The Company's maintenance expense increased during the first nine months of
1997 as  compared  to the 1996 period as a result of  increased  overhaul  costs
attributable in part to a slight aging of the Company's  fleet (which  increases
the cost of annual airframe maintenance checks),  refurbishment of the interiors
of many of the  Company's  aircraft and a rate of  unscheduled  engine  removals
higher than the Company's historical average. Insurance costs for the first nine
months of 1997 declined on an absolute basis year-over-year due to the Company's
obtaining lower insurance rates.  Commissions expense increased, on a percentage
basis,  less than the  increases  in  operations  and  revenues  due to a larger
percentage of the Company's sales being handled internally.

     For the reasons discussed above, the Company's cost per available seat mile
increased  from 7.6 cents in the first  nine  months of 1996 to 8.2 cents in the
first nine months of 1997.  This cost increase  more than offset higher  revenue
per ASM experienced during the period, resulting in the Company's breakeven load
factor increasing from 65.2% to 68.0%,  period over period. In the third quarter
1997,  the  Company's  cost per  available  seat mile  decreased to 8.0 cents as
compared  to 8.3 cents in the  second  quarter of 1997,  but were  higher  when
compared  to 7.8 cents in the third  quarter of 1996.  Management  believes  the
increase  in  unit  costs  in the  third  quarter  is in  part  attributable  to
infrastructure developments intended to position the Company for further growth.
Management continues to focus on reducing the Company's  controllable unit costs
through increased aircraft utilization and other measures.

<PAGE>
<TABLE>
<CAPTION>



              Operating Expenses as a Percent of Operating Revenues

     The following  table sets forth the  components of the Company's  operating
expenses,  expressed as a percentage  of operating  revenues for the nine months
and three months ended September 30, 1996 and 1997.

                                                             Nine Months               Three Months
                                                           Ended Sept. 30,            Ended Sept. 30,
                                                         ------------------          ----------------
<S>                                                       <C>        <C>             <C>       <C>   

                                                           1996       1997           1996       1997
                                                           ----       ----           ----       ----
Salaries, wages and benefits                               15.3%      17.2%          15.4%      17.1%    
Aircraft fuel and oil                                      18.3       17.7           18.8       16.7
Aircraft leases                                            16.9       17.8           16.1       17.1
Maintenance                                                 7.5        8.5            7.5        8.7
Handling, landing and airport fees                          9.7       10.1            9.3        9.8
Advertising, sales and distribution                         8.8        7.5            8.6        6.6
Commissions                                                 5.6        5.3            5.5        5.3
Facility leases                                             3.1        3.5            2.9        3.5
Insurance                                                   2.2        1.6            1.9        1.4
Communications                                              1.2        1.4            1.2        1.3
Depreciation and amortization                               1.5        2.5            1.6        2.5
Other operating expenses                                    6.7        6.5            7.0        5.8
                                                           ----       ----           ----       ----
                                                           96.8%      99.6%          95.8%      95.8%
                                                           =====      =====          =====      =====
</TABLE>

<TABLE>
<CAPTION>
               Operating Expenses per Available Seat Mile

     The following table sets forth the Company's unit costs (operating expenses
per  available  seat mile,  in cents) for the nine months and three months ended
September 30, 1996 and 1997.
                                                             Nine Months               Three Months
                                                            Ended Sept. 30,           Ended Sept. 30,
                                                           ----------------          ---------------
<S>                                                        <C>         <C>            <C>         <C>
 
                                                           1996        1997           1996        1997
                                                           ----        ----           ----        ----
Salaries, wages and benefits                               1.21        1.42           1.25        1.43
Aircraft fuel and oil                                      1.44        1.47           1.52        1.40
Aircraft leases                                            1.33        1.48           1.31        1.44
Maintenance                                                0.59        0.70           0.61        0.73
Handling, landing and airport fees                         0.76        0.83           0.75        0.82
Advertising, sales and distribution                        0.70        0.62           0.70        0.55
Commissions                                                0.44        0.44           0.45        0.45
Facility leases                                            0.25        0.29           0.24        0.29
Insurance                                                  0.17        0.13           0.15        0.12
Communications                                             0.10        0.12           0.10        0.11
Depreciation and amortization                              0.12        0.21           0.13        0.21
Other operating expenses                                   0.52        0.53           0.57        0.49
                                                           ----        ----           ----        ----
                                                           7.63(cents) 8.24(cents)    7.78(cents) 8.04(cents)
                                                           ====        ====           ====        ====
                                                         
</TABLE>
<PAGE>

Liquidity and Capital Resources

     As of  September  30,  1997,  the  Company's  cash,  cash  equivalents  and
short-term investments totaled $7.4 million, as compared to $18.5 million at the
beginning of the year. On October 9, 1997,  the Company  realized  approximately
$33.6 million (net of issuance  discounts but before deduction of other offering
expenses) from the sale of $35 million liquidation preference of a new series of
preferred  stock.  The preferred stock accrues  dividends at a rate of 9% and is
convertible  into  common  stock at an  initial  conversion  price of $8.625 per
share. The preferred stock is not reflected on the Company's September 30, 1997,
balance  sheet.  As of September  30, 1997, on a pro forma basis as adjusted for
the  completion  of the  sale of the  preferred  stock  (but  not  adjusted  for
operating  results since that date) the Company had cash,  cash  equivalents and
short-term  investments  of $41.0  million  and  stockholder's  equity  of $46.7
million.

     Operating activites accounted for approximately $3.8 million of the decline
in cash from January 1 to September 30, 1997.  Increases in accounts  receivable
and prepaid expenses, including aircraft maintenance deposits and fuel purchased
for future delivery were offset in part by depreciation charges and increases to
the air traffic  liability.  During the nine months  ended  September  30, 1996,
operating activities  generated  approximately $13.0 million of cash. Net income
contributed  $8.3 million and  depreciation  expense  contributed  $4.3 million.
Increases  in  accounts  receivable,   prepaids  and  deposits  were  offset  by
corresponding increases in air traffic liability, accounts payable and accruals.

     Cash provided by financing  activities during the nine-month period totaled
$14.5  million,  as proceeds  from  issuance of $18.9  million of notes  payable
(primarily  to finance the  Company's  acquisitions  of an aircraft  and a spare
aircraft engine),  were partly offset by $5.1 million of principal payments made
on the Company's  long-term debt and capital  leases.  Proceeds from exercise of
Company stock options provided $616,000.

     Cash used in investing  activities  during the nine-month  period was $21.0
million, as the proceeds from sales of a spare engine and short-term investments
of $3.5 million,  net, were offset by the Company's acquisition of $24.5 million
of property  and  equipment  (including  the  purchase of an aircraft  for $17.5
million).

     As of August 8, 1997,  the Company  entered into a Revolving Line of Credit
Loan  Agreement  (the  "Loan  Agreement")  with U.S.  Bank of  Nevada.  The Loan
Agreement  provides  for a  revolving  line of  credit  (the  "Revolving  Credit
Facility") in the aggregate principal amount of up to $10 million. The Revolving
Credit Facility bears interest at the Company's option at a rate equal to either
(i) the Prime Rate, plus 0.50% or (ii) LIBOR,  plus 2.65%.  The Revolving Credit
Facility  will  mature on August 6,  1998.  Prepayments  are  permitted  without
penalty.  Repayment  of the  Revolving  Credit  Facility  is  secured by a first
priority  lien on the  Company's  unencumbered  spare  parts and  certain  other
assets.  The Loan Agreement  requires the Company to satisfy  certain  financial
tests during the term of the Revolving Credit Facility,  including  minimum debt
service coverage,  average funded debt to EBITDA,  and adjusted cash flow. As of
November 10, 1997, no amounts were outstanding under such facility.

         As of  October 1,  1997,  the  Company's  fleet  totaled  31  aircraft,
including  one aircraft  leased to another  airline.  The Company owned three of
such aircraft, an MD-87 and two MD-83 aircraft,  and leased the remainder of the
fleet under operating leases with initial terms of between one and 18 years. One
MD-83 aircraft owned by the Company has been leased to an  unaffiliated  carrier
through  June 1998,  at which time the Company  expects to place the aircraft in
service.  The other MD-83 aircraft was previously  leased by the Company and was
purchased  in  September  1997 using $15.5  million of five year debt  financing
bearing interest at LIBOR plus 2.8%. In March 1997, the Company took delivery of
an MD-87  aircraft  under a six-year  lease.  The Company has also  renewed four
aircraft leases.

     The Company  leased one  additional  spare engine in March 1997,  and three
additional spare engines in May and June 1997, for terms ranging from six months
to three years.  Also, in June 1997, the Company  purchased an additional  spare
engine with financing of $2.8 million,  due in October 2002. As noted above, the
Company sold a spare engine in September 1997.

     In October 1997, the Company agreed to lease two additional  MD-90 aircraft
under 18 year leases commencing in January 1998, subject to certain  conditions.
The Company is also negotiating to acquire two MD-82 aircraft.
 
    Management  believes  that the Company's  current cash position  (including
proceeds from the sale of the Preferred Stock), together with expected cash flow
generated from operations, available lines of credit,and anticipated funding for
capital  expenditures  mentioned  above will be sufficient to meet the Company's
obligations and capital  requirements for the next twelve months.  Nevertheless,
airline results are highly  sensitive to various factors  including the price of
fuel and the actions of competing  airlines,  either of which can materially and
adversely affect the Company's liquidity and cash flows. The Company may seek to
raise  additional  funds  through sales of equity or debt (secured or unsecured)
securities,  or the sale and leaseback of assets,  including  aircraft and spare
engines.



<PAGE>




                           PART II. OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         On  October  10,  1997,  the  Company  sold  $35  million   liquidation
preference value of a new series of Series A Cumulative Convertible Exchangeable
Preferred Stock (the "Preferred Stock"), realizing net proceeds of approximately
$33.6 million. The stock was issued in a private placement to SBC Warburg Dillon
Read, Inc., as initial purchaser, who remarketed the shares to institutional and
other qualified buyers.

         The Preferred  Stock was sold by the Company at its stated  liquidation
preference,  less a 4% discount to the  initial  purchaser.  The Company and the
initial purchaser relied on the exemption provided under Rule 144A, based on the
qualifications  of the  initial  purchaser  and of the  institutions  and  other
qualified buyers to whom it remarketed the stock.

     The  information  set  forth  under  Item 1 in the  Company's  Registration
Statement  on Form  8-A,  dated  November  13,  1997,  is here  incorporated  by
reference.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

A.  Exhibits                                                       

    3.1     Certificate of  Designations  for the Company's 
            Series A Cumulative Convertible  Exchangeable
            Preferred Stock (Incorporated by reference
            to Exhibit 3 to the Company's Form 8-A Registration
            Statement filed on November 13, 1997 (the "1997
            Form 8-A")
    3.2     By-laws of the Company  (Incorporated by reference to
            Exhibit 2 to the 1997 Form 8-A)
    10.1    Revolving Line of Credit Loan Agreement with U.S. Bank
    10.1(a) Revolving Line of Credit Promissory Note
    10.1(b) Security Agreement
    10.2    MultiHost Agreement with The SABRE Group, Inc.
            (Confidential treatment has been requested for portions
            of this Agreement)
    10.3    Reno Air, Inc. Employee Stock Incentive Plan
    10.4    Reno Air, Inc. Director Stock Option Plan
    10.5    Employment Agreement with B. J. Rone
    11      Statement Re: Computation of Earnings Per Share
            for the Three and Nine Months ended September 30, 1997
            and September 30, 1996

B.          Reports on Form 8-K.

            None.


<PAGE>


SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                                  RENO AIR, INC.



DATE:  November 14, 1997                       By:   B.J. Rone
                                                     -----------------------
                                                        B. J. Rone
                                                  as Chief Financial Officer
                                                  and on behalf of Registrant






EXHIBIT 10.1

                            REVOLVING LINE OF CREDIT
                                 LOAN AGREEMENT

         THIS REVOLVING LINE OF CREDIT LOAN AGREEMENT (the  "Agreement") is made
effective as of the 8th day of August,  1997,  by and between RENO AIR,  INC., a
Nevada corporation (the "Borrower"), and U.S. BANK (the "Lender").

                              W I T N E S S E T H :

         WHEREAS,  Borrower is a national air carrier  providing  scheduled  air
transportation for passengers,  freight,  and mail and serving various cities in
the United States and Canada; and

         WHEREAS,  Lender  has  agreed to lend to  Borrower  certain  funds (the
"Loan") on a  revolving  line of credit  basis in an amount not to exceed at any
time TEN MILLION AND  NO/100THS  DOLLARS  ($10,000,000.00)  (the  "Maximum  Loan
Amount")  for the  purpose of  providing  Borrower  with  funds to  support  its
operational needs and to finance the purchase of fixed assets.

         NOW,  THEREFORE,  IN CONSIDERATION of the mutual covenants and promises
of the parties  and  subject to the  following  terms and  conditions,  Borrower
agrees to borrow from Lender, and Lender agrees to loan to Borrower the Loan for
the purposes provided herein. The Loan shall be evidenced by a Revolving Line of
Credit  Promissory Note (the "Note")  bearing even date herewith,  and repayment
thereof  shall be secured by a Security  Agreement  (the  "Security  Agreement")
under the terms of which Borrower  shall grant to Lender a security  interest in
certain  collateral  described  in Section 3 thereof  (the  "Collateral").  This
Agreement, the Note, the Security Agreement, and any and all other documents now
or  hereafter  executed by Borrower or any other  person or party in  connection
with or to  evidence  or  secure  payment  of the Loan are  sometimes  hereafter
collectively referred to as the "Loan Documents".

         A.  DISBURSEMENTS.

                 A.1 General.  Provided  that no Event of Default (as  hereafter
defined) then exists and is continuing hereunder, Lender shall disburse the Loan
from time to time at the request of Borrower  for the purposes  provided  herein
once the original of this Agreement,  the Note, the Security Agreement,  and all
other Loan  Documents,  all fully executed,  have been delivered to Lender,  and
once Borrower has paid Lender's reasonable attorney's fees and costs incurred in
connection   herewith.   Lender  shall  be  under  no  obligation  to  make  any
disbursements under the Loan after August 6, 1998.

                  A.2 Maximum  Availability.  The maximum  amount  available  to
Borrower  under the Loan at any time (the  "Maximum  Availability")  shall be an
amount equal to the lesser of (a) the Maximum Loan Amount;  or (b) the Specified
Value (as defined below) of the Collateral.
                  For purposes of this  Agreement and the other Loan  Documents,
the term  "Specified  Value" shall mean the amount  reasonably  determined  by a
qualified  aircraft parts  specialist  retained by Lender at Borrower's  expense
equal to fifty percent (50%) of the fair market value of the  Collateral,  based
upon an annual  evaluation of the items shown on the unencumbered  asset listing
provided annually by Borrower to Lender pursuant to Section B.3 below.

                  A.3  Conditions.  Lender shall be under no  obligation to make
the initial disbursement under the Loan until Borrower has caused to be provided
to Lender an opinion of Borrower's counsel in all respects acceptable to Lender,
as to the  following:  (a) that  Borrower is duly  organized and existing and in
good standing to transact business in Nevada;  (b) that all conditions  required
by Borrower's  organizational  documents to authorize Borrower to enter into the
Loan  transaction and execute the Loan Documents have been  satisfied;  (c) that
all  licenses,  permits  and other  governmental  permits  necessary  to conduct
Borrower's  business  (where  the  failure  to  maintain  the same  would have a
material  adverse effect upon its  operations  ("Material  Adverse  Effect")) as
presently conducted are in effect; (d) that the Loan Documents constitute valid,
legal and  enforceable  obligations of Borrower in accordance  with their terms;
and (e) that  Borrower's  execution of the Loan Documents and performance of its
obligations  thereunder  shall not  constitute  a default by Borrower  under the
terms of any license,  permit or approval held by Borrower,  or any agreement to
which Borrower is a party.

                  A.4 Loan Fees.

                      (a) Facility Fee. As a condition of Lender's obligation
to make the initial  disbursement under the Loan, Borrower shall pay to Lender a
facility fee in the sum of $25,000.00 upon the execution of this Agreement.

                      (b) Non-Usage  Fee.  On the  first  day of  November,
February, May, and August of each year, commencing on the first day of November,
1997, Borrower shall pay to Lender in arrears a non-usage fee in an amount equal
to one-quarter of one percent (0.25%)per annum (i.e. 0.0625% per quarter) of the
difference between the Maximum Loan Amount and average outstanding amount of the
Loan,  during  the  previous  three-month  period  in each  case  as  reasonably
determined by Lender.  The  calculation of such non-usage fee shall be exclusive
of any out-of-debt periods required under Section A.5 below.

                  A.5 Out of Debt  Requirement.  The Loan  shall have a zero (0)
balance for two (2) periods of thirty (30) consecutive days each during the term
of the  Loan.  At lease one of such out of debt  periods  must  occur  after the
initial disbursement under the Loan.

                  A.6 Additional  Filings. In the event that Borrower desires to
use  proceeds of the Loan for the  purchase of  aircraft,  airframes or aircraft
engines,  as a condition  thereof  Borrower  shall execute and deliver to Lender
such  documents  and  instruments  as Lender  shall  reasonably  determines  are
necessary  to insure that  Lender has a first lien  security  interest  therein,
including, without limitation, filings with the Federal Aviation Administration.

         B.       REPRESENTATIONS, COVENANTS, AND WARRANTIES.

                  Borrower  hereby  unconditionally  represents,  covenants  and
warrants as follows:

                  B.l  Power.  If  Borrower  or any  signatory  who signs on its
behalf is a corporation,  partnership, limited liability company, or trust, that
it is a corporation  duly  incorporated,  or a  partnership,  limited  liability
company,  or trust duly organized,  and in any event validly  existing under the
laws of the state of its  incorporation  or origination and duly qualified to do
business in the State of Nevada, with requisite power and authority to (i) incur
the indebtedness evidenced by the Note; (ii) enter into this Agreement and grant
the Security  Agreement;  (iii) enter into any other Loan Documents executed and
delivered to Lender concurrently  herewith; and (iv) conduct its business and to
own and lease its assets.

                  B.2  Authority.  That this  Agreement,  the Note, the Security
Agreement  and all  other  Loan  Documents  executed  and  delivered  to  Lender
concurrently  herewith were executed in accordance with the requirements of law,
and,  if  Borrower or any  signatory  who signs on its behalf is a  corporation,
partnership,  limited  liability  company,  or  trust,  in  accordance  with any
requirements of its articles of incorporation, articles of partnership, articles
of organization  and/or  operating  agreement,  or declaration of trust, and any
amendments  thereto,  and  that  the  execution  of the  same,  and the full and
complete  performance  of the provisions  thereof,  is authorized by its bylaws,
articles of partnership, articles of organization and/or operating agreement, or
declaration  of trust,  or a  resolution  of its board of  directors,  partners,
members  and/or  managers or trustees,  and will not result in any breach of, or
constitute a default  under,  or result in the  creation of any lien,  charge or
encumbrance (other than those contained herein or in any instrument delivered to
Lender concurrently  herewith) upon any property or assets of Borrower under any
indenture,  mortgage,  deed of trust,  bank loan or  credit  agreement  or other
instrument  or  agreement to which  Borrower is a party or by which  Borrower is
bound or, if applicable, under Borrower's corporate charter, bylaws, articles of
partnership, articles of organization and/or operating agreement, or declaration
of trust. No governmental or other  authorization which has not been obtained is
required  for the  creation  of the  liens or the  enforcement  by Lender of its
remedies under the Loan Documents. Each of the Loan Documents, when executed and
delivered,  will constitute the legal, valid and binding obligations of Borrower
enforceable  against  Borrower  in  accordance  with its  terms,  except  as the
enforcement  thereof may be limited by  bankruptcy,  insolvency or other similar
laws affecting the rights of creditors generally.

                  B.3  Financial   Statements.   Any  and  all  balance  sheets,
statements of income or loss,  reconciliation  of surplus and financial  data of
any other kind heretofore  furnished Lender by or on behalf of Borrower are true
and  correct in all  material  respects,  and fully and  accurately  present the
financial condition of the subjects thereof as of the dates thereof, and, except
as otherwise  disclosed  to Lender in writing,  no material  adverse  change has
occurred in the  financial  condition  reflected  therein since the dates of the
most recent financial data submitted to Lender.  During the Loan term,  Borrower
shall provide Lender with: (i) copies of annual CPA audited financial statements
for Borrower  within 120 days following the end of each fiscal year; (ii) copies
of quarterly  internally  prepared  financial  statements for Borrower within 60
days  following  the end of each  fiscal  quarter;  (iii)  quarterly  and annual
compliance   certificates   executed  by  Borrower's  chief  financial   officer
certifying as to Borrower's compliance with the financial covenants described in
Section B.7 below, which certificates shall include  calculations  demonstrating
such  compliance  and  shall  accompany  the  quarterly  and  annual   financial
statements  described  in (ii) and (i) above,  respectively;  (iv)  copies of an
annual  unencumbered  asset list, in form  acceptable to Lender,  within 60 days
following  the end of  each  year;  and (v)  such  other  financial  information
relating to Borrower or the Collateral as Lender may reasonably request.

                  B.4 Litigation.  Except as otherwise  disclosed in Exhibit "A"
attached  hereto,  there are no actions,  suits or  proceedings  which  Borrower
reasonably  considers to be of a material  nature  (collectively  "Proceedings")
pending,  or to the  knowledge  of  Borrower  threatened,  against or  affecting
Borrower or Borrower's interest in the Collateral and no event ("Adverse Event")
has occurred (including specifically Borrower's execution of this Agreement, the
Note,  the  Security  Agreement or any of the other Loan  Documents)  which will
violate,  be in conflict with,  result in the breach of or constitute  (with due
notice or lapse of time, or both) a default under any material Legal Requirement
(as  hereafter  defined),  or result in the creation or  imposition of any lien,
charge or encumbrance of any nature  whatsoever on the Collateral other than the
liens and security  interests created by, or referred to in, the Loan Documents.
Borrower  shall  give  Lender  written  notice  of  any  pending  or  threatened
Proceedings  or any Adverse Event  promptly  after  Borrower  obtains  knowledge
thereof.

                  B.5 Documents and Other  Information.  All documents and other
information  delivered to Lender  pursuant to any of the Loan  Documents are and
will be complete and correct in all material respects at the time of delivery to
Lender.

                  B.6  Permits.  Before  requesting,  or being  entitled to, any
disbursement  of  the  Loan,   Borrower  shall  have  complied  with  all  Legal
Requirements.  Before requesting,  or being entitled to, any disbursement of the
Loan,  Borrower shall have complied with all  requirements  of the  governmental
entities with jurisdiction over the Collateral.

                  B.7 Financial Covenants. During the term of the Loan Borrower
shall:

                      (a)  maintain  a  Minimum  Debt  Service  Coverage  Ratio
(defined as [net  income  before  taxes,  depreciation,  amortization,  interest
expense, and specific aircraft lease expense on leased aircraft that converts to
ownership],  [interest  expense and current portion of long term debt (excluding
non-cash  obligations for current  portion of deferred leases  payable)]) of not
less than 1.25 to 1.00 to be measured annually; and

                      (b) maintain an Average Funded Debt to EBITDA Ratio
(defined as [interest  bearing  indebtedness][earnings  before interest,  taxes,
depreciation,  amortization,  and  specific  aircraft  lease  expense  on leased
aircraft  that  converts to  ownership])  of not greater than 7.00 to 1.00 to be
measured annually;

                      (c) maintain an Adjusted Cash Flow Ratio (defined as
[earnings before interest, taxes,depreciation, amortization, plus lease expense]
[current portion of long term debt (excluding  non-cash  obligations for current
portion of deferred leases payable), interest expense and lease expense]) of not
less than 0.85 to 1.00  tobe  tested  quarterly  on a rolling  four (4)  quarter
basis.  This  ratio  will  increase  to 1.00 to 1.00  for the  rolling  four (4)
quarters commencing March 31,1998;

                      (d) maintain a Minimum Current Ratio(defined  as [total
current assets][total current liabilities]) of not less than 0.75 to 1.00 to be
measured quarterly; and

                      (e) maintain  unencumbered Collateral (except for a
security  interest in favor of Lender)  having a fair  market  value of not less
than two hundred percent (200%) of the Maximum Loan Amount.

                  The foregoing representations, covenants, and warranties shall
survive until all sums payable pursuant to the Note or this Agreement,  or which
are secured by the Security  Agreement or any of the other Loan Documents,  have
been paid in full.

         C.       DEFAULT.

                  C.l Events of Default. Any of the following shall constitute a
default hereunder (an "Event of Default"):

                      (a)  The failure of Borrower to make any payment required
hereunder,  under the Note, or under any other Loan Document within fifteen (15)
days after written notice to Borrower that such payment is due;

                      (b)  The false or misleading nature of any representation
or warranty of Borrower contained herein or in any representation to Lender
concerning the financial condition of Borrower;

                      (c) The failure of Borrower to fully perform or comply
with any and all  covenants  and  agreements  hereunder  or under the other Loan
Documents;  provided, however, that such failure shall notbe an Event of Default
hereunder if such failure is not specifically  covered elsewhere in this Section
or in any of the other Loan  Documents,  such  failure  does not  relate,in  the
judgment of Lender,  to a matter which is of an emergency  nature,  and Borrower
performs or complies  with such  covenant or agreement  within  thirty(30)  days
after  performance  thereof or  compliance  therewith is due. If such failure is
specifically  covered  elsewhere  herein or in the Note or any of the other Loan
Documents,  the foregoing  30-day grace period shall not be applicable in such a
situation and the grace period,  notice  requirement and/or cure period, if any,
set forth in such other reference shall control;

                      (d) The failure of Borrower to perform as required under
any other Loan Document (other than to make a payment due  thereunder),  subject
to any applicable notice requirement and opportunity to cure; provided, however,
if such other Loan Document contains no such notice  requirement,  then a thirty
(30) day notice requirement and opportunity to cure shall apply;

                      (e) The admission by Borrower in writing of its inability
to pay its debts  generally  as they  become due, or the filing by Borrower of a
petition or action for relief under an bankruptcy,  reorganization or insolvency
law, or any other law or laws for the relief of, or relating to, debtors;

                      (f) The filing of any involuntary  petition under any
bankruptcy  or  insolvency  law  against  Borrower,  or  the  appointment  of  a
custodian,  receiver or trustee to take  possession  of the assets of  Borrower,
unless such petition or appointment is or has been set aside or withdrawn within
ninety (90) days from the date of such filing or appointment;

                      (g) The filing by or against Borrower of a petition
seeking the  liquidation or dissolution of such Borrower or the  commencement of
any other  procedure to liquidate or dissolve such Borrower (if such petition or
procedure is not  dismissed or  terminated  within  ninety (90) days after it is
filed or otherwise  commenced),  or the  occurrence  of any event,  condition or
circumstance  which  causes the  liquidation  of such  Borrower  (if such event,
condition or  circumstance is not cured within ninety (90) days after it arises)
or

                      (h) Any Event of Default by Borrower under that certain
Promissory   Note  Secured  By  Deed  of  Trust  in  the  principal   amount  of
$2,600,000.00  dated  February 11, 1997, or under any loan document  executed in
connection therewith.

         For the purpose of paragraph C.1,  whenever Borrower is provided with a
period of time within  which to cure any Event of Default,  and such  default is
not  reasonably  susceptible  to cure within  such  period of time,  it shall be
deemed cured if Borrower  commences  curative action within such time period and
diligently pursues such action thereafter.

                  C.2  Acceleration.  Upon the occurrence of an Event of Default
hereunder,  the entire unpaid balance of the Note including all accrued interest
shall,  at the option of Lender,  become  immediately due and payable and Lender
shall have such rights of enforcement as may be afforded by law,  hereunder,  or
under the Note, the Security Agreement or any of the other Loan Documents.

         D. REMEDIES.

                  D.l  General.  Upon the  occurrence  of an  Event  of  Default
hereunder  (subject to any  applicable  notice  requirement  and  opportunity to
cure),  Lender shall have all rights and remedies  available to Lender under the
law,  hereunder  or under the Note  (including  but not  limited to the right to
accelerate the Note) or any of the other Loan Documents.

                  D.2 Curing of Defaults by Disbursement. Upon the occurrence of
an Event of Default which may be cured by the payment of money, Lender,  without
waiving any right of acceleration or foreclosure under the Note which Lender may
have by reason of such  default,  or any other  right  Lender  may have  against
Borrower because of such default, shall have the right to make such payment from
the Loan, thereby curing the default.

                  D.3 Remedies are  Cumulative.  All remedies of Lender provided
for herein are  cumulative  and shall be in addition to any and all other rights
and remedies  provided in the Note,  the Security  Agreement or any of the other
Loan Documents or by law. The exercise of any rights of Lender  hereunder  shall
not in any way constitute a cure or waiver of a default  hereunder or elsewhere,
or  invalidate  any act done  pursuant  to any notice of default,  or  prejudice
Lender in the exercise of any of its other rights hereunder or elsewhere unless,
in the exercise of said rights, Lender realizes all amounts owed to it hereunder
and under the Note, the Security Agreement and the other Loan Documents.

                  D.4 Right of Contest. Borrower shall have the right to contest
in good faith any claim,  demand,  levy,  or  assessment  by a third party,  the
assertion  of which would  constitute  an Event of Default  hereunder.  Any such
contest shall be prosecuted diligently and in a manner not prejudicial to Lender
or  the  rights  of  Lender  hereunder.  In the  event  that  Lender  reasonably
determines that such claim,  demand,  levy or assessment  could adversely affect
Lender's  interest  in the  Collateral,  upon demand by Lender,  Borrower  shall
deposit funds with Lender or obtain and record a bond  satisfactory to Lender in
an amount  sufficient  to cover any amounts  which may be owing in the event the
contest  may be  unsuccessful.  Borrower  shall make such  deposit or obtain and
record such bond,  as the case may be,  within  fifteen  (15) days after  demand
therefor  and,  if made by payment of funds to Lender,  the amount so  deposited
shall be disbursed in accordance  with the resolution of the contest to Borrower
or the adverse claimant.

                  D.5 Additional  Fee. In the event that the Loan is not paid in
full on the Maturity Date (as defined in the Note),  then Borrower agrees to pay
an additional loan fee to Lender upon demand in an amount equal to three percent
(3%) per annum of the then  outstanding  balance of principal,  pro-rated  daily
from the Maturity Date to the date of payment in full.

         E.  MISCELLANEOUS.

                  E.l No Waiver.  No waiver of any Event of Default by  Borrower
hereunder shall be implied from any subsequent omission by Lender to take action
on account  thereof,  and no express  waiver  shall  affect any Event of Default
other than that  specified in the waiver and the waiver shall be operative  only
for the time and to the extent therein stated. Waivers of any covenant, term, or
condition  contained herein shall not be construed as a waiver of any subsequent
breach of the same  covenant,  term or  condition.  The  consent or  approval by
Lender to or of any act by Borrower  requiring further consent or approval shall
not be deemed to waive or render  unnecessary  the  consent or approval to or of
any subsequent similar act.

                  E.2 No Third Parties  Benefitted.  This  Agreement is made and
entered  into  for  the  sole   protection   and  benefit  of  Lender  (and  any
participating lender) and Borrower.  All conditions of the obligations of Lender
to make advances hereunder are imposed solely and exclusively for the benefit of
Lender and may be freely  modified by Lender with the concurrence of Borrower or
waived by Lender  in whole or in part at any time if in its sole  discretion  it
deems it advisable to do so. No person other than  Borrower  shall have standing
to  require  Lender  to make  any  Loan  advances  or be a  beneficiary  of this
Agreement or of any of the advances to be made hereunder.

                  E.3  Plural Borrowers Jointly and Severally Liable.
[Intentionally Omitted.]

                  E.4 Notices. All notices or other  communications  required or
permitted to be given  hereunder  shall be in writing and shall be considered as
properly  given if mailed by first class United  States mail,  postage  prepaid,
registered or certified with return receipt requested, or by delivering the same
by a nationally  recognized overnight courier service to the intended addressee,
or by telefax.  Notice so mailed  shall be  effective  three (3)  business  days
following its deposit,  and notice by courier  service shall be effective on the
first  business  day after  received.  Notice given in any other manner shall be
effective  only if and when received by the  addressee.  For purposes of notice,
the addresses of the parties shall be as set forth on the signature page hereof;
provided,  however, that either party shall have the right to change its address
for notice  hereunder to any other location by the giving of notice to the other
party in the manner set forth above.

                  E.5 Expenses.  Borrower shall pay promptly all costs, charges,
and expenses  incurred by Lender in connection with the Loan,  including but not
limited to commitment fees, loan fees,  reasonable  costs of inspection,  filing
fees, processing fees, appraisal fees, reasonable attorneys' fees (up to the sum
of $________),  personal property taxes and insurance premiums,  and any and all
fees in consideration of Lender's commitment to provide the Loan.

                  E.6  Actions.  Lender  shall  have the  right to  appear in or
defend any action or  proceeding  purporting  to affect the  Collateral,  or the
rights, duties, or liabilities of the parties hereunder,  or the disbursement of
any funds. In connection therewith, Lender may incur and pay costs and expenses,
including  reasonable  attorneys' fees, and, if Lender is the prevailing  party,
Borrower shall pay to Lender on demand all such costs and expenses and Lender is
authorized to disburse funds from the Loan for such purpose.

                  E.7  Commissions  and Brokerage  Fee. The parties  hereto each
represent  and  warrant to the other that there are no  commissions,  charges or
brokerage fees owed to any third party in connection with the Loan. In the event
that such representation or warranty is incorrect,  then the party incurring any
such commission,  charge or fee shall pay the same and shall indemnify the other
party from any loss or damage resulting therefrom.

                  E.8 Applicable  Law. This  Agreement  shall be governed by and
construed in accordance with the laws of Nevada,  except as preempted by federal
law.

                  E.9 Heirs,  Successors and Assigns.  This  Agreement  shall be
binding  upon and inure to the  benefit of the heirs,  successors,  assigns  and
personal representatives of the parties hereto; provided, however, that Borrower
shall not assign  its rights  hereunder  in whole or in part  without  the prior
written consent of Lender, which such consent shall not be unreasonably withheld
by Lender.  Any such assignment  without consent shall be void.  Lender may from
time to time sell participations in the Loan to any person (including affiliates
of Lender) without notice to or the consent of Borrower.  In connection with the
sale  of   participations,   Lender  is   authorized  to  provide  to  potential
participants  information regarding the Collateral and Borrower which Lender may
have in its possession. No such sale of participations shall, without Borrower's
written consent, relieve Lender of its obligations hereunder.

                  E.10 Time.  Time is of the essence of this  Agreementand  each
and every provision hereof in which time is an element.

                  E.11 Legal Requirements.  "Legal  Requirements" shall mean (i)
any  and  all  present  and  future  judicial  decisions,   statutes,   rulings,
directions,  rules,  regulations,  permits,  certificates  or  ordinances of any
governmental  authority  in any way  applicable  to Borrower or the  Collateral,
including the ownership, use, possession, operation, maintenance, alteration, or
repair thereof,  (ii) Borrower's presently or subsequently  effective bylaws and
articles of incorporation or partnership,  limited  partnership,  joint venture,
trust or other form of business association agreement,  (iii) any and all terms,
provisions and  conditions of any  commitment  between Lender and Borrower which
are to be  performed  or observed by  Borrower,  and (iv) any and all leases and
other contracts  (written or oral) of any nature that relate, in any way, to the
Collateral  and to which Borrower may be bound,  including,  but not limited to,
the Lease.

                  E.12  Relationship  of  Parties.   The  relationship   between
Borrower and Lender is, and at all time shall remain,  solely that of debtor and
creditor,  and shall  not be, or be  construed  to be, a joint  venture,  equity
venture,  partnership or other  relationship  of any nature,  and Lender neither
undertakes  nor assumes any  responsibility  or duty to Borrower or to any other
person with respect to the Collateral or the Loan, except as expressly  provided
in the Loan  Documents;  and  notwithstanding  any other  provision  of the Loan
Documents:  (a) Lender is not, and shall not be construed  as, a partner,  joint
venturer, alter ego, manager,  controlling person or other business associate or
participant  of any kind of Borrower or its  partners and Lender does not intend
to ever  assume  such  status;  (b)  Lender  shall in no event be liable for any
debts,  expenses or losses  incurred or sustained  by  Borrower;  and (c) Lender
shall not be deemed  responsible for or a participant in any acts,  omissions or
decisions of Borrower or its partners.

                  E.13  Attorneys'  Fees and Costs.  If any legal  action or any
arbitration  or other  proceeding  (including a  proceeding  in  bankruptcy)  is
brought for the enforcement of this Agreement or because of an alleged  dispute,
Event of Default or  misrepresentation  in connection with any of the provisions
of this  Agreement,  the  successful  or  prevailing  party shall be entitled to
recover  reasonable  attorneys'  fees and other costs incurred in that action or
proceeding, in addition to any other relief to which he may be entitled.

                  E.14 Expiration of Commitment. Lender's obligation to disburse
the Loan is further  conditioned  upon the  execution of this  Agreement and the
other Loan Documents on or before August 31, 1997.

                  E.15  Interpretation.  This  Agreement  shall not be construed
against  the party  preparing  it,  but shall be  construed  as if both  parties
jointly  prepared this Agreement and any  uncertainty and ambiguity shall not be
interpreted against any one party.

                  E.16  Partial  Invalidity.  In the event that any of the terms
hereof  shall be held to be invalid or  unenforceable  by any court of competent
jurisdiction,  such fact shall not affect the validity or  enforceability of the
remaining terms hereof.

                  E.17  Reasonableness  Standard.  Except as otherwise  provided
herein,  whenever  Lender's  consent or approval is required in this  Agreement,
such consent or approval shall not be unreasonably withheld or delayed.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
date first above written.

Reno Air, Inc.                             RENO AIR, INC., a Nevada corporation,
220 Edison Way
Reno, Nevada 89502                         By:    B.J. RONE
                                                --------------------------
                                                   B.J. RONE
                                           Its:   Senior Vice President and
                                                  Chief Financial Officer

                                                        "Borrower"

U.S. Bank                                  U.S. BANK
Commercial Services Group
1 East Liberty Street
Reno, Nevada 89501
                                           By:   JACK W. PRESCOTT
                                           Its:  Vice President

                                                      "Lender"


<PAGE>




                                                                EXHIBIT 10.1(a)

                            REVOLVING LINE OF CREDIT
                                 PROMISSORY NOTE


$10,000,000.00                                                   August 8, 1997


         FOR VALUE RECEIVED,  at the times hereinafter  stated,  the undersigned
(the  "Borrower")  promises to pay to U.S.  BANK, or order  ("Lender"),  at U.S.
Bank,  Commercial  Services  Group, 1 East Liberty Street,  Second Floor,  Reno,
Nevada 89501,  or at such other place as the holder hereof may from time to time
designate  in writing,  in legal  tender of the United  States of  America,  the
principal sum of TEN MILLION AND  NO/100THS  DOLLARS  ($10,000,000.00),  or such
lesser  amount  as may be  outstanding  under  the loan  (the  "Loan")  advanced
pursuant to the terms of that certain Revolving Line of Credit Loan Agreement of
even date  herewith  between  Lender and Borrower (the "Loan  Agreement"),  with
interest from the date or dates of disbursement on the unpaid principal  balance
from time to time  outstanding,  at the interest  rate per annum (the  "Interest
Rate") selected by Borrower  pursuant to the terms of Addendum "A" to this Note,
such interest rates being either:

                  (A) The Prime Rate, plus one-half of one percent  (0.50%),  as
the same may fluctuate from time to time; or

                  (B)  IBOR,  plus  two and  sixty-five  one-hundredths  percent
(2.65%).

         Interest  shall be  computed  on the  basis of a  360-day  year for the
actual days elapsed.

         All disbursements, repayments and interest rate option selections shall
be entered by Lender on Schedule "I" attached  hereto and by this reference made
a part hereof.  Any  capitalized  words or terms used but not otherwise  defined
herein shall have the  meanings  ascribed to such words or terms in Addendum "A"
attached hereto.

         Principal and interest shall be due and payable as follows:

                  (a) Interest on Prime Rate  Disbursements.  For those portions
of the Loan which bear interest as Prime Rate Disbursements,  Borrower shall pay
interest only in arrears on the first day of each month, commencing on the first
day of the first month  following the date hereof,  and  continuing on the first
day of each month thereafter.

                  (b) Interest on IBOR Rate Disbursements. For those portions of
the Loan which bear  interest  as IBOR Rate  Disbursements,  Borrower  shall pay
interest only on the last day of applicable IBOR Borrowing Period.

                  (c)  Principal.  All  accrued  and  unpaid  interest  and  the
outstanding principal balance shall be due and payable in full on August 6, 1998
(the  "Maturity  Date").  In  addition,  in the  event  that  Lender  reasonably
determines  at any time  that the  outstanding  principal  balance  exceeds  the
Maximum  Availability (as defined in the Loan Agreement),  Borrower shall within
ten (10) days following  written  demand by Lender,  make a payment of principal
hereunder in an amount  necessary to reduce the  outstanding  principal  balance
hereunder to the Maximum Availability.

         At no time shall the  Interest  Rate  exceed the legal rate of interest
permitted  to be charged by the Lender.  In the event any law  precludes  Lender
from  charging the Interest  Rate  otherwise  permitted  hereunder,  the rate of
interest  hereunder for the period  during which such rate is unlawful  shall be
the  highest  rate  permitted  by law.  The  rate of  interest  hereunder  shall
immediately  increase to the rate  permitted  hereunder  as soon as permitted by
law. Any interest  which would  otherwise  have become due to Lender but for the
application of any law,  shall,  to the extent legally  permitted,  be repaid to
Lender in equal monthly  installments  above the interest  otherwise due at such
time, so that the interest otherwise due to Lender hereunder,  but not permitted
by law,  shall be fully repaid to Lender by the  Maturity  Date.  Such  payments
shall be made at the time and in the manner set forth  herein for the payment of
interest.

         This Note is issued  pursuant to the Loan  Agreement and is secured by,
among other instruments, a Security Agreement (the "Security Agreement") of even
date herewith  between  Borrower as Debtor and Lender as Secured Party, in which
Borrower grants to Lender a security  interest in certain  collateral  described
therein.

         Except as  otherwise  provided in Addendum  "A" hereto with  respect to
IBOR Rate Disbursements, Borrower shall have the right to prepay without penalty
all or any portion of the Loan. Upon each such  prepayment,  Borrower shall also
pay all accrued interest on the principal  amount prepaid.  All payments on this
Note shall be applied first to accrued interest and the balance to principal and
if interest is unpaid,  it shall bear  interest  like  principal at the interest
rate then in effect thereunder.  Borrower  acknowledges that the foregoing,  and
other  provisions  of this Note,  shall  result in  compounding  of interest and
Borrower  agrees thereto  pursuant to the provisions of Nevada Revised  Statutes
99.050.

         Borrower  agrees with Lender that it would be  extremely  difficult  or
impracticable  to fix the  actual  damages  of  Lender  in the  event  that  any
installment  of interest or principal  hereunder  shall not be paid when due and
that Lender will incur extra  administrative  expenses and loss of use of funds;
therefore,  Borrower  agrees to pay  Lender,  in the event a payment is not made
within  fifteen  (15) days of the date it was due, an amount equal to 2% of such
late  installment.  Acceptance  of such amount by Lender shall be in lieu of its
actual damages for any such  delinquent  payment of an  installment.  Nothing in
this Note shall be  construed  as an express or implied  agreement  by Lender to
forbear in the collection of any delinquent  payment,  or be construed as in any
way giving the  Borrower the right,  express or implied,  to fail to make timely
payments hereunder, whether upon payment of such damages or otherwise. The right
of the holder hereof to receive  payment of such damages,  and receipt  thereof,
are without  prejudice  to the right of such holder to collect  such  delinquent
payments  and any  other  amounts  provided  to be paid  hereunder  or under any
security  for this Note or to declare a default  hereunder or under any security
for this Note.

         Failure  to  make  any  payment  of  principal  and/or  interest  or to
otherwise perform  hereunder or under any other promissory note executed,  or to
be executed,  by Borrower in favor of Lender, or an Event of Default by Borrower
under  the  terms of the Loan  Agreement,  the  Security  Agreement,  any  other
agreement or instrument securing the indebtedness evidenced hereby, or any other
obligations  of  Borrower  to the  holder  hereof,  shall  constitute  a default
hereunder and shall,  without notice, at the option of the holder hereof,  cause
all of the unpaid  principal of this Note, with interest accrued thereon and any
other  sums due  under  the Loan  Agreement,  the  Security  Agreement  or other
instruments,  to become  immediately due and payable.  Upon the occurrence of an
Event of Default under the Loan  Agreement,  at the option of the holder hereof,
all amounts  then  unpaid  under this Note,  the Loan  Agreement,  the  Security
Agreement or any other instrument  securing the Note or the Loan Agreement shall
bear  interest from the date of default until such default is cured at a default
rate equal to five percent (5%) above the applicable Interest Rate (the "Default
Rate") and shall be  immediately  due and payable.  Delay or failure to exercise
said options shall not  constitute a waiver of the right to exercise same at any
time thereafter or in the event of any subsequent default.

         The acceptance of any payment  hereunder  which is less than payment of
all amounts  then due and payable  shall not  constitute  a waiver of any of the
rights or options of the holder  hereof or to the  exercise of those  rights and
options at the time of such  acceptance or at any  subsequent  time.  Principal,
interest and any fees  hereunder  shall be payable in lawful money of the United
States of America in immediately  available funds free and clear of, and without
deduction for, any and all present and future taxes, withholdings,  and costs or
reserves.

         In the event that suit be brought hereon, or an attorney be employed or
expenses  be  incurred  to compel  payment  of this Note or any  portion  of the
indebtedness  evidenced  hereby,  whether  or not any  suit,  proceeding  or any
judicial or non-judicial foreclosure proceeding be commenced,  Borrower promises
to pay all such expenses and  reasonable  attorneys'  fees,  including,  without
limitation, any attorneys' fees incurred in any bankruptcy proceeding.

         This Note shall be construed and enforced in  accordance  with the laws
of the State of Nevada,  except as may be  pre-empted  by federal law.  Borrower
agrees that Lender  shall have the rights and  remedies  available to a creditor
under  the laws of the  State  of  Nevada.  Borrower  consents  to the  personal
jurisdiction of the appropriate state or federal court located in Reno, Nevada.

         No waiver by Lender of any right or remedy shall be effective unless in
writing and signed by Lender,  and no such  waiver,  on one  occasion,  shall be
construed as a waiver on any other occasion. Borrower waives any right of offset
now or hereafter existing against the holder hereof.

         Borrower  hereby  waives  notice  of  intent  to  accelerate,   demand,
presentment  for payment,  protest and notice of protest and non-payment of this
Note;  waives  any and all lack of  diligence  or  delays in the  collection  or
enforcement  hereof;  and expressly  agrees to remain and continue bound for the
payment of the  principal,  interest and other sums provided for by the terms of
this Note, the Loan  Agreement or the Security  Agreement,  notwithstanding  any
extension of time for the payment of said principal or interest or other sum, or
any change in the amount agreed to be paid under this Note,  the Loan  Agreement
or in the  Security  Agreement,  or any change by way of  release or  surrender,
exchange or  substitution  for any collateral now held or which may hereafter be
held as security for this Note,  and waives all and every kind of notice of such
extension,  or change, and agrees that the same may be made without notice to or
joinder of Borrower.


                                      RENO AIR, INC., a Nevada corporation,



                                      By:    B.J. RONE



<PAGE>




                                                                EXHIBIT 10.1(b)

                               SECURITY AGREEMENT


         THIS AGREEMENT,  made and entered into this 8th day of August, 1997, at
Reno, Nevada, by and between RENO AIR, INC., a Nevada corporation, whose address
is 220 Edison Way, Reno, Nevada 89502,  hereinafter referred to as "Debtor", and
U.S. BANK, whose address is: 1 East Liberty Street,  Second Floor,  Reno, Nevada
89501, hereinafter referred to as "Secured Party".

                                                W I T N E S S E T H :

         1. CREATION OF SECURITY  INTEREST.  Debtor hereby pledges,  assigns and
transfers to Secured Party,  and grants to Secured Party a security  interest in
and to the collateral described herein (the "Collateral") pursuant to the Nevada
Uniform Commercial Code - Secured Transactions,  Nevada Revised Statutes Chapter
104 (the "UCC").

         2.       OBLIGATIONS SECURED.  The obligations secured by said security
interest (the "Secured  Obligations") are described as follows:

                  a. A  Revolving  Line of Credit  Promissory  Note of even date
herewith  wherein Debtor is maker,  and Secured Party is payee,  in the original
principal amount of $10,000,000.00,  together with any modifications, extensions
or renewals thereof ("the Note");

                  b. The payment or performance  of all of Debtor's  obligations
under that certain Revolving Line of Credit Loan Agreement of even date herewith
between  Debtor as  borrower,  and Secured  Party as lender,  together  with any
amendments thereof (the "Loan Agreement");

                  c. The  reasonable  expenses  and  costs  incurred  or paid by
Secured Party in the preservation,  enforcement and realization of the rights of
Secured Party  pursuant to the Note,  the Loan Agreement and under this Security
Agreement   including,   without  limitation,   attorneys'  fees,  court  costs,
litigation  expenses,  foreclosure  expenses,  witness fees,  and expert witness
fees; and

                  d. The  reasonable  expenses  and  costs  incurred  or paid by
Secured  Party in  performing  the  duties of  Debtor  pursuant  to the  Secured
Obligations and under this Security Agreement for the account of Debtor.

         3. DESCRIPTION OF COLLATERAL.The Collateral consists of all of Debtor's
right,  title and interest in and to all goods,  equipment  and  inventory,  now
owned by Debtor or hereafter  acquired by Debtor,  consisting  of: (a) avionics,
ground equipment, engine and airframe parts, and other aircraft parts, which are
not  subject  to any prior  security  interest  (including  any  purchase  money
security interest) or negative pledge or installed in airframes or engines;  (b)
aircraft  engines  and  airframes  which are not  subject to any prior  security
interest (including any purchase money security interest) or negative pledge and
in  connection  with Secured Party has  perfected  its security  interest  under
applicable federal law; and (c) all proceeds, insurance proceeds, substitutions,
replacements,  accessions and products of the items  described in (a) and (b) or
pertaining thereto.

         4. PURCHASE MONEY. Debtor acknowledges that the proceeds of the Secured
Obligations may be used to enable Debtor to acquire rights in, or the use of, or
to refinance debt used to acquire, certain of the Collateral.

         5. CLASSIFICATION OF Collateral.  Debtor acknowledges that, at the time
said  security  interest  attaches,  the  Collateral  consists  of goods,  being
inventory and equipment and the proceeds thereof.

         6.  TAXES,  ASSESSMENTS  AND  LIENS.  Debtor  agrees  to pay  prior  to
delinquency all taxes, charges, encumbrances,  liens and assessments against the
Collateral  unless Debtor is contesting  the payment  thereof in good faith and,
upon the failure of Debtor to do so,  Secured  Party may, at its option after an
Event  of  Default,  pay any of the same  and  shall  be the  sole  judge of the
legality or validity  thereof and the amount  necessary to  discharge  the same.
Debtor shall  reimburse  Secured Party on demand for any amounts paid by Secured
Party  pursuant to this  paragraph  6,  together  with  interest  thereon at the
highest rate of interest  then in effect under the Note from the date of payment
until the date of reimbursement.

         7.       OPERATION AND MAINTENANCE.  Debtor will operate, maintain,
protect and care for the Collateral.  Without limiting the generality of the
foregoing, Debtor will:

                  a. Except as to obsolete Collateral, service, repair, keep in
good running order and condition, store and shelter the Collateral;

                  b.  Operate  the   Collateral  in  a  careful  manner  and  in
compliance with all applicable laws,  rules and regulations,  all conditions and
requirements  of the  insurance  required  under  paragraph  11  hereof  and all
manufacturer's  instructions and warranty requirements,  where the failure to so
operate the Collateral would have a material adverse effect thereon; and

                  c. Not make any  alterations  or additions  which detract from
the Collateral's  economic value or functional utility except as may be required
by law.

         8. INSPECTION RIGHTS. Secured Party, through its employees,  agents and
representatives,  shall have the right to inspect the  Collateral  at reasonable
times during normal business hours and upon reasonable notice to Debtor.

         9. TRANSFER OF COLLATERAL. Without the prior written consent of Secured
Party,  Debtor shall not sell or transfer nor suffer any sale or transfer of the
Collateral,  nor any part thereof,  nor any interest of Debtor therein, if after
giving effect to any such sale or transfer,  the aggregate  Specified  Value (as
defined in the Loan  Agreement) of the remaining  Collateral  would be less than
two hundred  percent  (200%) of the Maximum  Loan Amount (as defined in the Loan
Agreement),  on such date. In the event that the foregoing  Specified Value test
is  maintained,  then upon sale or transfer of a portion of the  Collateral  the
security interest created hereunder shall be deemed to be released. In the event
that Debtor  desires to sell or transfer  any  specific  Collateral  or interest
therein,  provided  that Debtor  certifies to Secured Party  quarterly  that the
Specified  Value of the  remaining  Collateral  is at least equal to two hundred
percent  (200%) of the Maximum Loan Amount,  and Secured Party has no reasonable
basis to conclude  that such  certification  is  incorrect,  Secured Party shall
execute and  deliver  such  documents  as are  reasonably  required by Debtor to
release  the Secured  Party's  security  interest in and to that  portion of the
Collateral to be sold or  transferred.  Debtor shall pay all  reasonable  costs,
expenses and fees incurred by Secured Party in connection with such releases.

         10. DEBTOR'S REPRESENTATIONS,  COVENANTS AND WARRANTIES. In addition to
any other  representations,  covenants and warranties  contained herein,  Debtor
hereby represents, covenants and warrants to Secured Party as follows:

                  a.  That  Debtor  is the  owner  of the  Collateral,  has  not
previously  assigned,  transferred or granted any other security interest in the
Collateral  or any portion  thereof (and shall not do so in the future such that
giving  effect  to any  such  assignment,  transfer  or  security  interest  the
aggregate  Specified  Value of the  Collateral is less than two hundred  percent
(200%) of the Maximum Loan  Amount),  has full right,  power and  authority  and
capacity to grant to Secured Party a security  interest in the  Collateral,  and
shall defend the Collateral  against the claims and demands of all persons other
than Secured Party;

                  b. That  Debtor  is on the date  hereof  storing  or using the
Collateral at Reno and Las Vegas, Nevada, San Jose and Los Angeles,  California,
and Gulfport, Mississippi, and (except for portions of the Collateral shipped to
Debtor's  vendors for repairs or  portions  of the  Collateral  moved to another
location for immediate installation on an airframe or engine at such location or
removed from an airframe or engine at another  location  pending prompt shipment
to Debtor's  Vendors for repair or to one of the  locations  listed above) shall
not permanently  move the Collateral to any other  location,  except that Debtor
may  permanently  move the Collateral to any other domestic  location  served by
Debtor  if  Debtor  provides  Secured  Party  15  days  advance  notice  of such
relocation and agrees to pay the reasonable cost of Secured Party perfecting its
security interest in the Collateral located in such other location.

                  c. That Debtor shall give Secured Party prior  written  notice
of any proposed  change in the name or entity  under which Debtor is  conducting
its business.

         11.  INSURANCE.  Debtor  shall  provide and  maintain in full force and
effect, until all obligations secured hereby have been paid in full, a policy or
policies of  insurance  on the  Collateral  in an amount or amounts  customarily
insured  against by  corporations  engaged in the same or similar  business  and
similarly  situated as Debtor.  Such policy or policies shall name Secured Party
as a loss  payee as its  interest  may  appear  and shall  insure  against  loss
resulting from fire and such other hazards as are  customarily  insured  against
with respect to property which is similar to the  Collateral in function,  value
and use. Such policy or policies  shall be in form,  content and amount,  and be
issued by a company or  companies  acceptable  to Secured  Party.  Debtor  shall
provide Secured Party with evidence of such policy or policies and shall provide
Secured  Party with  evidence of renewal of such policy or policies at least ten
(10) days prior to expiration.  Any such policy shall provide that it may not be
canceled  without  at least  thirty  (30) days prior  written  notice to Secured
Party.

                  Within ten (10) days after  obtaining  knowledge of any damage
to any  portion of the  Collateral  in excess of  $250,000.00,  Debtor  shall so
notify Secured Party in writing.

                  Provided  that no Event of Default  then exists  hereunder  or
under any Secured Obligation  hereby,  Secured Party shall release any insurance
proceeds  resulting  from such  damage for the  purpose of  assisting  Debtor in
repairing such  Collateral or replacing such  Collateral with goods the quality,
value and  function of which is at least equal to that of the  Collateral  which
has been  damaged.  In the event that the cost of  repairing  or  replacing  any
damaged  Collateral is estimated to exceed the insurance  proceeds available for
such  purpose,  Debtor  agrees to pay such  excess  cost  unless  it  reasonably
determines  that such repair or  replacement  is not  necessary  for its ongoing
operations and Secured Party may condition its release of the insurance proceeds
upon the receipt of evidence  acceptable to Secured Party of Debtor's ability to
pay any such excess cost (the "Excess Cost").

                  If an Event of Default has  occurred and is  continuing,  then
Secured  Party may apply the  insurance  proceeds  to the payment of any Secured
Obligation, in such order as Secured Party may determine in its sole discretion.

         12.      EVENTS OF DEFAULT. The occurrence of an Event of Default under
the terms of the Loan Agreement shall constitute a default hereunder (an "Event
of Default").

         13. ACCELERATION.  Upon the occurrence of an Event of Default,  Secured
Party may, at its option, declare immediately due and payable all of the Secured
Obligations,  and the same shall  thereupon  become  immediately due and payable
without notice to or demand on Debtor.

         14. REMEDIES. The rights, powers and remedies given to Secured Party by
this Agreement shall be in addition to all rights,  powers and remedies given to
Secured Party by virtue of any statute or rule of law,  including all rights and
remedies of a secured party under the UCC, and, in addition,  shall include, but
not be limited to, the right to require Debtor to assemble the Collateral and to
make it  available  to the  Secured  Party  at a place to be  designated  by the
Secured  Party which is reasonably  convenient to the Debtor and Secured  Party.
Any  forbearance  or failure or delay by Secured Party in exercising  any right,
power or remedy hereunder shall not be deemed to be a waiver of any other right,
power or remedy, nor as a continuing waiver.

         15. POWERS OF ATTORNEY.  Debtor appoints  Secured Party the attorney in
fact of  Debtor  to  prepare,  sign,  file  and  record  one or  more  financing
statements,  applications for registration or certificate of ownership or title,
and  like  papers,  and to take  any  other  action  after  the  occurrence  and
continuance  of an Event of Default  deemed  necessary,  useful or  desirable by
Secured  Party  to  perfect  and  preserve  Secured  Party's  security  interest
hereunder.

         16.      TIME. Time is of the essence of this Agreement.

         17. BINDING  EFFECT.  This Agreement shall inure to the benefit of, and
be binding upon, the heirs, assigns,  transferees,  personal representatives and
successors in interest, in any capacity, of the parties hereto.

         18.  NOTICES.  Any notice which  either  party hereto deems  necessary,
useful or desirable  to give the other may be given by telefax or by  depositing
the notice or a copy thereof in the United States mails  addressed to such other
party  at  the  address  shown  herein.  Receipt  thereof  by the  addressee  is
conclusively  presumed on the business day next following the dispatch  thereof.
For purposes of Nevada Revised Statutes ("NRS")  104.9504(3),  the parties agree
that  mailing a written  notice to Debtor at the  address set forth on page 1 of
this Security  Agreement as the address of Debtor's chief place of business,  or
at such other  address as Debtor has notified  Secured  Party in writing,  which
notice  specifies  the  time and  place of any  public  or  private  sale of the
Collateral,  30 days  before the date such sale is to take place shall be deemed
to be reasonable notification of such sale.

         19. DEBTOR'S OBLIGATION TO MAKE COLLATERAL  AVAILABLE TO SECURED PARTY.
Upon the  occurrence and  continuance of an Event of Default,  the Secured Party
may require  Debtor to assemble the  Collateral and make it available to Secured
Party at a place within Washoe County, Nevada, to be designated by Secured Party
which is reasonably  convenient to both parties.  Without  removal Secured Party
may dispose of the Collateral on the Debtor's premises under NRS 104.9504.

         20.  ADDITIONAL  RIGHTS OF SECURED  PARTY.  If said  Collateral  or any
portion  thereof now or hereafter  consists of instruments,  documents,  chattel
paper,  accounts,  general  intangibles,  or goods in the  possession of Secured
Party, then upon the occurrence and continuance of an Event of Default:

                  a. At any time, and following fifteen (15) days written notice
to Debtor given in the manner provided in paragraph 18 above, and at the expense
of  Debtor,  Secured  Party,  in its  name or in the name of its  nominee  or of
Debtor, may, but shall not be obligated to:

                           (i)      notify any person obligated on any security
                  instrument or other paper subject to this Agreement of its
                  rights hereunder;

                           (ii) collect by legal  proceedings  or otherwise  all
                  dividends, interest, principal and other sums now or hereafter
                  payable upon or on account of the Collateral;

                           (iii)    perform any obligation of Debtor hereunder.

                  b.       Protest is waived.
                  c.       Debtor waives any right to require Secured Party to:

                           (i)  proceed against third persons;

                           (ii) proceed against or exhaust any Collateral,or

                           (iii) pursue any remedy available to Secured Party.

                  d.       Debtor warrants:

                           (i)  that the Collateral is true, genuine and all
                                that it purports on its face to be;

                           (ii) that the persons  whose  names  appear on the
                                Collateral  were the  persons  who executed the
                                Collateral;

                           (iii) that the Collateral is not overdue nor in
                                default; and

                           (iv) that there are no issuer's restrictions or liens
                                on the Collateral  except pursuant to the
                                Indenture  Agreement or otherwise permitted
                                hereunder nor on the transferability of the
                                Collateral.

         IN WITNESS  WHEREOF,  the parties  have  executed  and  delivered  this
Security Agreement the day and year first above written at the place specified.

                                          RENO AIR, INC., a Nevada corporation,


                                          By:  B. J. RONE
                                               B.J. RONE
                                          Its: Senior Vice President and
                                               Chief Financial Officer
                                                  "Debtor"

                                          U.S. BANK


                                          By:  JACK W. PRESCOTT

                                          Its:   Vice President
                                                 "Secured Party"


<PAGE>

                                                                   EXHIBIT 10.2




                               MULTIHOST AGREEMENT

                                     between

                                 RENO AIR, INC.

                                       and

                              THE SABRE GROUP, INC.




Confidential  treatment is being  requested  for portions of this exhibit  under
Rule  246.2  promulgated  under the  Securities  and  Exchange  Act of 1934,  as
amended.  *** indicates where  information has been omitted and filed separately
with  the  Securities  and  Exchange  Commission  pursuant  to the  request  for
confidential treatment.



<PAGE>




                                TABLE OF CONTENTS


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

2        Term...............................................................5

3        Licenses Granted...................................................5
         3.1      License to Use SABRE......................................5
         3.2      License to Copy SABRE Documentation.......................6
         3.3      License to Use the SDT and SABRE Marks....................6

4        Implementation and Acceptance......................................7
         4.1      Time of Essence...........................................7
         4.2      SABRE Implementation Timeline.............................7
         4.3      Designated Responsible Personnel..........................7
         4.4      Equipment Type Acceptance.................................7
         4.5      Hardware/Software Certification...........................8
         4.6      SDT to Establish Customer Database........................8
         4.7      Pre-Commencement Testing..................................9
         4.8      SABRE Testing and Acceptance..............................9
         4.9      Customer Not Ready.......................................10
         4.10     Customer Equipment.......................................10
         4.11     System Cutover Support...................................10
         4.12     Communication with SABRE.................................11
         4.13     Communications Protocol..................................11
         4.14     Schedule Changes.........................................11

5        Training..........................................................12
         5.1      Initial Training.........................................12
         5.2      Additional Training......................................12
         5.3      SABRE-Assisted Instruction ("SAI").......................12

6        SABRE Documentation...............................................13
         6.1      SABRE Training Manuals...................................13
         6.2      SABRE Operating Manual...................................13

7        Customer's Use of SABRE...........................................13
         7.1      SABRE for Internal Use Only..............................13
         7.2      Customer Employees to Use SABRE..........................14
         7.3      Restrictions on Installation/Use of Reservations
                  Terminals................................................14
         7.4      Customer Locations and Equipment Notice..................14

8        Database Support..................................................15
         8.1      The Customer Database....................................15
         8.2      Passenger Name Record Database...........................15
         8.3      SDT to Maintain Customer and SABRE Databases.............15
         8.4      Flight Availability Information..........................16
         8.5      Access to SABRE Restricted...............................16
         8.6      SDT Database Suppliers...................................17

9        SABRE System Performance..........................................17
         9.1      Performance Standards....................................17
         9.2      Routine SABRE Downtime...................................17
         9.3      Extended Downtime........................................18
         9.4      SABRE Errors and Problems................................18
         9.5      SABRE Performance Reports and Logs.......................18

10       Additional Services...............................................19
         10.1     ***......................................................19
         10.2     ***......................................................19
         10.3     Enhancement Program Hours................................19
         10.4     ***......................................................20
         10.5     ***......................................................20
         10.6     ***......................................................20

11       Release and Indemnification.......................................20
         11.1     Release..................................................20
         11.2     Indemnification of SDT...................................20
         11.3     Indemnification of Customer..............................21
         11.4     Notification of Claim....................................22
         11.5     No Implied Warranties....................................22
         11.6     Consequential Damages....................................22
         11.7     Limitation on Liability..................................23

12       SABRE Enhancements, New Functions and Modifications...............23
         12.1     SDT Changes to SABRE.....................................23
         12.2     Customer Changes to SABRE................................23
         12.3     SABRE Enhancement and New Function Implementation........24
         12.4     SDT Test of Enhancements and New Functions...............24

13       Charges...........................................................25
         13.1     Database Initiation Fee..................................25
         13.2     Implementation Fees......................................25
         13.3     PNRs.....................................................25
         13.4     Revenue Accounting System................................25
         13.5     Pricing..................................................26
         13.6     Minimum Monthly Fee......................................26
         13.7     Increase Provision.......................................26
         13.8     PNR for Past Date Investigation on CD-ROM................27
         13.9     Labor and Materials Rate.................................27
         13.10    Third Party Charge.......................................28
         13.11    Out of Cycle Processing..................................28
         13.12    Reimbursement to SDT for Travel Expenses.................28
         13.13    Deposit..................................................29
         13.14    Currency.................................................29

14       Taxes.............................................................29
         14.1     Taxes....................................................29
         14.2     Documentation of Taxes...................................29

15       Payment...........................................................30
         15.1     Projected Passengers Boarded.............................30
         15.2     Initial Invoice..........................................30
         15.3     Monthly Invoices.........................................31
         15.4     Monthly Invoice for System Changes.......................31
         15.5     Method of Payment........................................31
         15.6     Interest Charges.........................................31

16       Force Majeure.....................................................32

17       Title.............................................................32

18       Nondisclosure.....................................................32
         18.1     Proprietary Information..................................32
         18.2     Nondisclosure............................................33
         18.3     Return of Proprietary Information........................33
         18.4     Disclosure of Agreement..................................33
         18.5     Survival of Nondisclosure Duty...........................34

19       Injunctive Relief.................................................34

20       Termination and Default...........................................34
         20.1     Default..................................................34
         20.2     Rights Upon Termination..................................35
         20.3     Bankruptcy...............................................35

21       Duty to Cooperate.................................................36

22       Assignment........................................................36

23       Corporate Changes.................................................36

24       Relationship of Parties...........................................37

25       Exclusivity.......................................................37

26       Notices...........................................................37

27       Governing Law.....................................................38

28       Waiver............................................................38

29       Captions..........................................................38

30       Severability......................................................38

31       Additional Covenants..............................................39

32       No Third Party Beneficiaries......................................39

33       Surviving Sections................................................39

34       Entire Agreement..................................................40

EXHIBIT A: FUNCTIONAL DEFINITION..........................................A-1

EXHIBIT B: STANDARD RATES.................................................B-1

EXHIBIT C: ACKNOWLEDGMENT.................................................C-1

EXHIBIT D: APPROVED LOCATIONS FOR INSTALLATION OF
                    SABRE RESERVATIONS TERMINALS..........................D-1



<PAGE>



                               MULTIHOST AGREEMENT



         THIS MULTIHOST  AGREEMENT  (this  "Agreement") is made this 14th day of
April,  1997,  by  and  between  The  SABRE  Group,  Inc.  ("TSG"),  a  Delaware
corporation, by and through its SABRE Decision Technologies division ("SDT") and
Reno Air, Inc., a Nevada corporation ("Customer").

                                    RECITALS

         WHEREAS,  SDT provides multihost data processing services to commercial
airlines.  Such services include  computerized  reservations,  inventory control
flight operations, communications, and other services.

         WHEREAS,  Customer is a scheduled  air carrier  and, as such,  requires
multihost data processing  services that SDT can provide using SABRE,  and will,
by this Agreement, procure such services exclusively from SDT.

         WHEREAS,  SDT is willing to provide  such data  processing  services to
Customer in accordance with the terms of this Agreement.

         NOW, THEREFORE, SDT and Customer agree as follows:

1        Definitions
         For the purposes of this Agreement,  the following terms shall have the
meanings set forth below:

         1.1      "ATPCO" shall mean Airline Tariff Publishing Company.

         1.2 "Central Site" shall mean the data processing  facility  located in
Tulsa, Oklahoma.

         1.3      "Customer  Codeshare  Partners"  shall mean any airline  which
                  operates  regularly  scheduled,  passenger air  transportation
                  services  marketed under  Customer's  "QQ" designator code and
                  whose  participation under this Agreement has been approved in
                  advance and in writing by SDT.

         1.4      "Customer  Database"  shall mean  information  stored in SABRE
                  that  relates to Customer  and to  Customer's  air  schedules,
                  fares,  and  passengers,   including,   but  not  limited  to,
                  inventory  records of Customer's  flights,  and passenger name
                  records that include airline segments.

         1.5      "Equipment" shall mean the communications terminals,  terminal
                  controllers,  printers  and  modems,  including  any  software
                  protocols that modify the operation of such hardware,  used by
                  Customer to communicate with SABRE.

         1.6      "Funnel Flight" shall mean a flight (a)(i) for which a through
                  flight number has been assigned to two (2) or more  connecting
                  flights,  and (ii) for  which  the  through  flight  number is
                  different from the flight numbers of the component flights, or
                  (b) for which the assigned flight number has a single point of
                  origin and multiple  destinations or multiple points of origin
                  and a single destination.

         1.7      "Message" shall mean each time an enter key is pressed to send
                  information to the system and/or when information is generated
                  from an answerback or protected device.

         1.8      "New  Function"  shall mean any  modification  to SABRE that
                  adds a capability  not resident in SABRE on the SABRE
                  Implementation Date.

         1.9      "Other  Customer"  shall  mean any  other  air  carrier  which
                  obtains services from SDT which are  substantially  similar to
                  those received by Customer.

         1.10     "Passenger Boarded" shall mean a fare-paying passenger, either
                  confirmed space, space available,  or standby,  who is boarded
                  on a  Customer  flight or on a flight  operated  by a Customer
                  Codeshare  Partner under  Customer's "QQ" designator code or a
                  charter flight operated under  Customer's "QQ" designator code
                  and processed  through SABRE. A Passenger  Boarded on a direct
                  flight that makes one (1) or more intermediate stops,  whether
                  or not  including a change of  equipment,  shall be counted as
                  one (1) Passenger Boarded.  A passenger  traveling on a Funnel
                  Flight  shall  be  regarded  as more  than  one (1)  Passenger
                  Boarded.  A passenger  making a connection at an  intermediate
                  point by deplaning  from one (1) flight and  boarding  another
                  flight  shall be  considered  as more  than one (1)  Passenger
                  Boarded.

         1.11  "Performance  Standards" shall have the meaning assigned to it in
               Article 9.1.

         1.12     "SABRE" shall mean TSG's computerized  reservations system and
                  related  data  processing  services  used in  relation  to the
                  provision  of air  transportation  services.  As  provided  to
                  Customer  hereunder,  SABRE shall initially provide all of the
                  functions listed in Exhibit A to this Agreement.

         1.13     "SABRE  Acceptance  Criteria"  shall mean the  criteria  that
                  SABRE must meet,  as specified in Article 4.8 below, prior to
                  acceptance of SABRE by Customer.

         1.14     "SABRE  Acceptance  Date" shall mean the date on which
                  Customer and SDT jointly  agree that the SABRE  Acceptance
                  Criteria have been met.

         1.15     "SABRE  Commencement  Month"  shall mean the month in which
                  SABRE shall become operational for Customer.

         1.16     "SABRE Commencement Year" shall mean the calendar year in
                  which SABRE shall become operational for Customer.

         1.17     "SABRE Database" shall mean  information  stored in SABRE with
                  respect to air transportation,  including, but not limited to,
                  inventory records of airline flights,  passenger name records,
                  fare and schedule information and other information. The SABRE
                  Database  includes the Customer Database and similar databases
                  for other air carrier users of SABRE.

         1.18     "SABRE  Enhancements"  shall mean any modification to existing
                  SABRE  functions  that would change the method of operation or
                  display of the functions specified in Exhibit A.

         1.19     "SABRE  Implementation  Date"  shall  mean the date,  mutually
                  agreed between SDT and Customer (but which date shall,  in any
                  event,  be no later than  November 7, 1997),  by which (i) SDT
                  gives Customer access to the SABRE system for operational use,
                  and (ii) SDT billing of Customer  for use of the SABRE  system
                  begins.

         1.20     "Standard Rates" shall have the meaning set out in Exhibit B.

         1.21     "State" shall mean any of the fifty (50) states of the United
                  States of America.

         1.22     "TCN" shall mean Ticket Control Notification Capability.

         1.23     "TCP/IP" shall mean Transmission Control Protocol/Interface
                  Processes.

2        Term
         This  Agreement  shall become  effective  upon  execution and shall
         continue for a term of seven (7) years after the SABRE Implementation
         Date.

3        Licenses Granted
         3.1      License  to Use  SABRE.  SDT  hereby  grants to  Customer  and
                  Customer  accepts from SDT, for the term of this Agreement,  a
                  non-exclusive and non-transferable  license to use SABRE. Such
                  license shall include the use of SABRE (i) in connection  with
                  all of Customer's air transportation  operations, as currently
                  constituted  and as they may from time to time be  constituted
                  during  the  term  of  this  Agreement;  (ii)  for  any  SABRE
                  Enhancements  or New  Functions;  and (iii) on any  additional
                  Equipment of Customer which may from time to time be installed
                  by Customer,  provided,  however,  that the Equipment has been
                  certified by SDT as acceptable for use with SABRE.

         3.2      License to Copy  SABRE  Documentation.  SDT  hereby  grants to
                  Customer,  for the term of this Agreement, a non-exclusive and
                  non-transferable  license to copy for Customer's  internal use
                  any  documentation  provided to Customer  hereunder.  Customer
                  agrees that it shall not sell,  transfer or otherwise disclose
                  such documentation to any third party.

         3.3      License to Use the SDT and SABRE Marks.  SDT hereby  grants to
                  Customer,  for the term of this Agreement, a non-exclusive and
                  non-transferable  license  to use the  "SABRE"  trade name and
                  trademark  or the then current  trade name or trademark  being
                  used by SDT to describe its multihost  products  (collectively
                  referred to as the  "Trademarks").  The Trademarks may be used
                  for advertising,  public relations,  or other similar purposes
                  consistent with this Agreement,  provided,  however,  that the
                  use of such  Trademarks  shall  conform  with SDT's  graphical
                  standards.  SDT shall  provide  to  Customer  the  appropriate
                  graphical  standards  for  use  of  the  Trademarks.  SDT  may
                  supervise Customer's use of the Trademarks to ensure that such
                  use is in conformance  with SDT's  registrations  and with the
                  purposes for which this license has been granted.

4        Implementation and Acceptance
         4.1      Time of Essence.  SDT and Customer shall provide the resources
                  necessary to complete all of their respective responsibilities
                  under this Agreement and shall use reasonable  efforts to meet
                  the SABRE Implementation Date.

         4.2      SABRE Implementation  Timeline.  SDT and Customer will prepare
                  an implementation  project plan, mutually agreeable to SDT and
                  Customer, for Customer's multihost implementation in SABRE.

         4.3      Designated  Responsible  Personnel.  SDT and  Customer  hereby
                  agree to designate project managers for the  implementation of
                  SABRE.  Each project  manager is authorized to establish  test
                  procedures  for SABRE,  to establish  training  schedules  and
                  training  outlines  for  Customer  personnel  training,  to be
                  responsible  for  database  construction,   and  otherwise  to
                  coordinate the  implementation  of SABRE.  Each party may rely
                  upon the representations and agreements of the project manager
                  designated  by the  other  party.  A  party  may  designate  a
                  successor  project manager at any time by providing  notice of
                  such successor to the other party.

         4.4      Equipment Type  Acceptance.  All Equipment used by Customer to
                  access Customer's  database in SABRE must be certified by SDT.
                  SDT shall  consult  with and  provide  assistance  to Customer
                  regarding  the  certification  requirements.   SDT  shall  use
                  reasonable efforts to complete  certification  within ten (10)
                  business  days after  Customer  notifies SDT that the hardware
                  and software are ready for  certification,  provided  that (i)
                  SDT receives  three (3) weeks prior written notice of the date
                  that  the   hardware   and   software   shall  be  ready   for
                  certification;  (ii)  SDT  receives  the  hardware  in  Tulsa,
                  Oklahoma,  at Customer's  expense, at least one (1) week prior
                  to testing; (iii) customer provides at least one (1) person to
                  assist with testing; and (iv) the software provided to SDT for
                  testing is free of all defects.

         4.5      Hardware/Software   Certification.   Provided   that  Customer
                  complies  with  Article  4.4,  SDT will  certify  (at the then
                  prevailing SDT Standard Rates) Customer's  in-house automation
                  hardware  and  software  as  acceptable  for use on the  SABRE
                  network  or,  for any  hardware  or  software  that  cannot be
                  certified  as  such,  identify  alternative  hardware/software
                  reasonably acceptable to Customer.

         4.6      SDT to Establish  Customer  Database.  SDT shall establish the
                  Customer  Database  using data  provided by Customer  from its
                  current  reservation  system.  SDT shall  establish a Customer
                  Database  for test and  training  purposes  prior to the SABRE
                  Implementation  Date,  and shall  thereafter  reestablish  the
                  Customer Database on the SABRE  Implementation  Date using the
                  most current data from Customer's current  reservation system.
                  The  databases to be created  include SABRE  reservations  and
                  airport  processing.  Other  databases  may also be created as
                  required by SDT for the full  functioning  of SABRE.  Customer
                  shall  cooperate with SDT in obtaining the requisite data from
                  Customer's current reservation system or from other sources as
                  SDT may require.

         4.7      Pre-Commencement  Testing.  Prior to the SABRE  Implementation
                  Date,   SDT  shall  conduct  such  tests  as  are   reasonably
                  practicable   to  ensure  that  SABRE  shall  meet  the  SABRE
                  Acceptance  Criteria  promptly after the SABRE  Implementation
                  Date and that the transfer from Customer's current reservation
                  system to SABRE shall take place with as little  disruption as
                  may be reasonably practicable under the circumstances.

         4.8      SABRE  Testing and  Acceptance.  Customer and SDT shall agree,
                  within thirty (30) days after the execution of this Agreement,
                  on testing  and  demonstration  procedures  to be carried  out
                  prior to the SABRE  Implementation  Date to determine  how the
                  SABRE  Acceptance  Criteria shall be met. The SABRE Acceptance
                  Criteria  shall have been met when  Customer  and SDT  jointly
                  agree that (i) SABRE is functional  on  Customer's  Equipment;
                  and (ii) all critical functions as identified in Exhibit A are
                  fully operational within Customer's Database.  The testing and
                  demonstration  procedures  shall be  carried  out by the SABRE
                  Implementation  Date on a random  sample of the Equipment at a
                  representative number of Customer locations. The date on which
                  Customer and SDT agree that the SABRE Acceptance Criteria have
                  been met shall be the SABRE Acceptance Date and such agreement
                  shall  constitute  acceptance  of  SABRE by  Customer.  If SDT
                  believes that the SABRE Acceptance  Criteria have been met and
                  Customer does not concur,  Customer  shall specify within five
                  (5) days, in reasonable  detail,  in what respect(s) SABRE has
                  failed  to meet  the  SABRE  Acceptance  Criteria.  SDT  shall
                  promptly  take all  reasonable  steps  necessary to remedy any
                  defects with which SDT agrees.

         4.9      Customer  Not  Ready.  If  Customer  fails  or  is  unable  to
                  implement  SABRE by the SABRE  Implementation  Date identified
                  under Article 1.15, unless such failure or inability is caused
                  in whole or in part by SDT or a vendor  working  on  behalf of
                  SDT,  Customer shall pay SDT the minimum  monthly fee referred
                  to in Article 13.6 until SABRE is implemented. After the SABRE
                  Implementation  Date,  Customer shall pay SDT a monthly fee as
                  calculated  in accordance  with Article 13.5.  Payment for all
                  fees,  due and owing to SDT under this Article  4.9,  shall be
                  collected   from  Customer  in  accordance   with   procedures
                  identified in Article 15. If Customer does not implement SABRE
                  within  twelve (12) months from the date of  execution of this
                  Agreement,  then SDT has the right to terminate  the Agreement
                  in accordance  with Article 20 and Customer  shall forfeit all
                  fees paid to SDT under Article 13.

         4.10     Customer   Equipment.   Customer  shall  be  responsible   for
                  obtaining,  installing,  and maintaining the Equipment, at its
                  own   expense,   including   any   modification   to  existing
                  communications protocol, as defined in Article 4.12. SDT shall
                  cooperate  with  Customer  to  facilitate  the  connection  of
                  Customer's Equipment to SDT's Central Site facilities.

         4.11     System Cutover Support. To facilitate Customer's access to the
                  SABRE System for  operational  use,  SDT will  provide  onsite
                  cutover coverage support,  including  technical support of SDT
                  if necessary, at no charge to Customer,  other than travel and
                  incidental  expenses,  for a period of no more than  seven (7)
                  days from the SABRE Implementation Date. If additional support
                  is required  beyond that period in connection  with Customer's
                  newly  installed  hardware  and  software  systems,  SDT shall
                  provide technical support as necessary (at the then prevailing
                  SDT standard rates) to Customer.

         4.12     Communication  with SABRE.  Unless SDT and Customer  otherwise
                  agree under a separate agreement, Customer will order, install
                  and  maintain  all  telecommunications  lines  and  peripheral
                  hardware to its reservations offices and airport stations,  at
                  its own  expense.  Such  hardware  must be  certified to SDT's
                  specifications prior to installation. To facilitate Customer's
                  multihost implementation in SABRE, SDT shall provide technical
                  support  (at  the  then  prevailing  SDT  Standard  Rates)  in
                  connection  with  Customer's  newly  installed   hardware  and
                  software system operational upon reservations system cut over.

         4.13     Communications  Protocol.  SDT shall  implement any new TCP/IP
                  for   communications   protocols   between  SDT  and  Customer
                  concurrently  with, or prior to, SDT implementing these TCP/IP
                  between SABRE and other multihost customers.

         4.14     Schedule Changes.  Customer shall provide schedule information
                  and changes to the Customer Database by inputting them through
                  Customer's  Equipment  in  accordance  with SDT's  established
                  procedures,  which may be modified  from time to time at SDT's
                  discretion  with at least  ten (10)  days  advance  notice  to
                  Customer.  Such  procedures  shall be  provided  to  Customer.
                  Customer shall be  responsible  for the accuracy of Customer's
                  schedule information and changes.

5        Training
         5.1      Initial Training.  SDT shall provide training in the operation
                  and  use  of  SABRE  to a  maximum  of ten  (10)  supervisory,
                  instructor and noninstructor personnel designated by Customer.
                  Such  personnel  shall be  divided  into no more  than two (2)
                  classes,  and each class shall not exceed twenty (20) business
                  days in  duration.  Training  shall  occur  prior to the SABRE
                  Implementation  Date on dates mutually  acceptable to Customer
                  and SDT. All  training  specified in this Article 5.1 shall be
                  conducted  at  Dallas/Fort  Worth,  Texas,  or at  some  other
                  location  acceptable  to  Customer  and  SDT.  Customer  shall
                  reimburse SDT for  applicable  costs and expenses  incurred in
                  connection with such training as identified in Article 13.12.

         5.2      Additional  Training.  SDT  shall  from  time to time  provide
                  additional training for Customer's  supervisory and instructor
                  personnel,  and, at  Customer's  request,  additional  special
                  training to non-instructor personnel. The exact timing of such
                  additional   training   shall   be   subject   to   instructor
                  availability, and charges for such training shall be no higher
                  than the then  current SDT  standard  rate for such  training.
                  Such  additional  training  shall be  conducted  at a location
                  acceptable to SDT and Customer.

         5.3      SABRE-Assisted  Instruction  ("SAI"). SAI courses within SABRE
                  shall be available  to Customer at no charge to  Customer.  If
                  Customer  wishes to modify such courses or develop  additional
                  courses,  SDT shall provide  assistance at the then prevailing
                  Standard Rate.

6        SABRE Documentation
         6.1      SABRE Training Manuals.  SDT shall provide training  materials
                  to all Customer personnel who are to become trainers of SABRE.
                  In  addition,  SDT  shall  provide  two (2)  sets of  training
                  materials  in  reproducible  form to  allow  Customer  to make
                  sufficient copies of such materials to train its personnel.

         6.2      SABRE  Operating  Manual.   SDT  shall  provide  one  (1)SABRE
                  Operating  Manual   containing   operating   instructions  for
                  Customer's use in developing internal operating procedures for
                  use of SABRE. After the SABRE  Implementation  Date,  Customer
                  shall have  access to the SABRE  operating  manual in softcopy
                  form for display on Customer's Equipment.

7        Customer's Use of SABRE
         7.1      SABRE for Internal Use Only.  Customer shall use SABRE for its
                  own  internal use and only for the  purposes  contemplated  by
                  this Agreement.  Customer's internal use shall include the use
                  of  SABRE  in  conjunction  with  other  Customer's  Codeshare
                  Partners,  if any, which Customer  Codeshare  Partner shall be
                  disclosed to SDT as and when they become Customer's  Codeshare
                  Partners. Customer shall use SABRE only in accordance with the
                  SDT operating rules and  procedures.  Customer shall not sell,
                  lease,  sublicense  or  otherwise  convey  SABRE or any  SABRE
                  services  to any third  party,  nor  shall it misuse  SABRE or
                  engage in unethical business practice in connection therewith.
                  Intentional  misuse shall be  considered a material  breach of
                  this Agreement.

         7.2      Customer  Employees  to Use  SABRE.  Customer  shall  restrict
                  access  to SABRE to  Customer's  employees,  to  employees  of
                  Customer's    Codeshare    Partners,    and   to   responsible
                  subcontractors  authorized  by Customer  to conduct  telephone
                  passenger reservations services,  reservations data management
                  services or airport passenger services, in each case on behalf
                  of Customer.  Customer  shall take  reasonable  precautions to
                  prevent  unauthorized  access to  SABRE,  and  Customer  shall
                  obtain from any Customer Codeshare  Partners,  who have access
                  to  use,  or  on  whose  behalf  SABRE  is  used,  under  this
                  Agreement, an acknowledgment,  in the form attached as Exhibit
                  C,  to be  bound  by all  the  terms  and  conditions  of this
                  Agreement and any Exhibits hereto. Customer shall provide such
                  agreements to SDT upon request.

         7.3      Restrictions on  Installation/Use  of Reservations  Terminals.
                  Customer may install SABRE  reservations  terminals for use by
                  specific   corporate   accounts,   tour   operators,    travel
                  wholesalers, third party reservations services, and others, as
                  identified  in  Exhibit  D.   Customer  is   prohibited   from
                  installing SABRE  reservations  terminals in any retail travel
                  agency that subscribes to SABRE.

         7.4      Customer  Locations  and  Equipment  Notice.  After  the SABRE
                  Implementation  Date, Customer shall notify SDT prior to using
                  SABRE at a new location or with additional Equipment. Customer
                  shall not connect to SABRE or use in connection with SABRE any
                  Equipment  unless  the  installation  or  connection  of  such
                  Equipment meets SDT's specifications and has been certified by
                  SDT.

8        Database Support
         8.1      The  Customer  Database.  SDT  acknowledges  that the Customer
                  Database  contains  information  proprietary to Customer.  The
                  Customer  Database  shall be and remain the sole  property  of
                  Customer and only Customer Equipment,  and those SDT terminals
                  mutually  agreed  upon by SDT and  Customer,  shall be able to
                  access the Customer Database,  provided,  however,  that SDT's
                  data  processing  personnel  shall have access to the Customer
                  Database to ensure the integrity and performance of SABRE. All
                  SDT data  processing  personnel  having access to the Customer
                  Database,  including  for this  purpose the  personnel  of any
                  company  controlled by,  controlling,  or under common control
                  with SDT,  shall be made aware of their duty to  maintain  the
                  confidentiality  of the Customer Database and of their duty to
                  use  such  access  only  for  purposes  contemplated  by  this
                  Agreement.  Customer  acknowledges  that the  location  of the
                  Customer   Database  may  be  physically   separate  from  the
                  databases of Other Customers of SDT.

         8.2      Passenger Name Record  Database. SDT shall provide to Customer
                  a passenger  name record  ("PNR")  database as set out in
                  Exhibit A.

         8.3      SDT to  Maintain  Customer  and  SABRE  Databases.  SDT  shall
                  maintain, or cause to be maintained,  the SABRE Database,  the
                  contents  of  which  shall  be  determined  by SDT and used by
                  Customer (if  dedicated to Customer's  use) or  alternatively,
                  used  jointly  by  Customer  and  other  Customers  (if not so
                  dedicated). SDT shall also maintain, or cause to be maintained
                  the Customer  Database,  and shall make backup archival copies
                  of the  Customer  Database  at least once in each  twenty-four
                  (24)  hours  (but  not  less  frequently  than  for any  Other
                  Customer) so that if the  Customer  Database is for any reason
                  erased or destroyed, SDT shall be able promptly to recover it.

         8.4      Flight Availability  Information.  Information with respect to
                  the  availability  of flights of airlines  other than Customer
                  shall be displayed  within the Customer  Database  pursuant to
                  agreements  between SDT and such other  airlines.  If Customer
                  requires  the display of  availability  for any  airline  with
                  which SDT does not have an  availability  agreement,  Customer
                  must comply with SDT's availability loading procedures.  These
                  procedures shall be provided to Customer upon request.

         8.5      Access to SABRE  Restricted.  Access to data contained  within
                  SABRE  is  restricted  by  functional   identification  ("Duty
                  Codes") to ensure data security. Customer agrees that the Duty
                  Codes  used by  Customer  unless  otherwise  agreed to by SDT,
                  shall be  identical  to those  used by SDT.  SDT shall use the
                  same security  procedures to protect Customer's  Database from
                  unauthorized  access as it uses for its own most  confidential
                  data. If SDT adheres to such security procedures,  there shall
                  be a  presumption  that SDT has  satisfied  its  obligation to
                  protect  the  confidentiality  of  Customer's  Database.   SDT
                  reserves the right to modify its  regulations  and  procedures
                  from  time  to  time  to  improve  such   protection.   Should
                  Customer's  Database be lost or destroyed,  SDT shall,  at its
                  own expense,  reconstruct  Customer's  Database  within *** of
                  such loss or destruction. To the extent that reconstruction of
                  the  Customer  Database  requires  data  solely in  Customer's
                  possession,   SDT  shall   reconstruct  such  Database  within
                  twenty-four (24) hours of receiving such data from Customer.

         8.6      SDT Database Suppliers. SDT'S use of the SABRE Database is, or
                  may be,  subject to certain  restrictions  and  covenants  set
                  forth in agreements with database  suppliers.  Customer agrees
                  to comply with such  restrictions and covenants  provided that
                  copies  of the  agreements  in which  they are  contained  are
                  provided  to  Customer   promptly   upon   execution  of  this
                  Agreement,  with respect to existing  agreements,  and fifteen
                  (15) days prior to the effective date of any such  restriction
                  or covenants that are imposed on SDT thereafter.  In providing
                  copies of such agreements to Customer,  SDT may delete pricing
                  or other  commercially  sensitive  information.  To the extent
                  that   information  from  such  database   suppliers   becomes
                  unavailable,  SDT is  relieved of its  obligations  to provide
                  such  data to  Customer;  however,  SDT  will  use  reasonable
                  efforts to supply economical replacement data.

9        SABRE System Performance
         9.1      Performance   Standards.   SDT's  Central  Site  hardware  and
                  software shall be maintained  ***per day,  ***per week, by SDT
                  and/or  by  other  parties  with  whom SDT has  agreements  to
                  maintain its hardware and software,  subject to SABRE downtime
                  referred to in Articles 9.2 and 9.3.

         9.2      Routine  SABRE  Downtime.  SDT may from time to time  schedule
                  SABRE   downtime   for   system   maintenance   and   software
                  modifications.  Except for  operational  necessity,  scheduled
                  downtime  shall  occur  between  1800 and 0700  United  States
                  Central  Time  ("CT").  SDT shall give  Customer not less than
                  twenty-four (24) hours  notification of scheduled downtime and
                  expected duration.

         9.3      Extended  Downtime.  SABRE may also be unavailable  for longer
                  periods  for  hardware  upgrades,  facility  modification  and
                  repair,  reorganization  of the SABRE  Database,  and  similar
                  reasons. Unless emergency conditions require otherwise,  there
                  shall  be no more  than one (1) such  downtime  every  six (6)
                  months.  SDT shall use its best  reasonable  efforts to ensure
                  that such downtime does not exceed eight (8) hours, and occurs
                  between the hours of 2100 and 0700 CT if on weekdays, and 1900
                  and 0700 CT if on  weekends  or on a U.S.  holiday.  SDT shall
                  consult with  Customer in  scheduling  such downtime and shall
                  use its best reasonable  efforts to accommodate  Customer with
                  respect  to  scheduling.  Although  SDT  shall  use  its  best
                  reasonable  efforts  to  avoid  unscheduled  downtime  and  to
                  maintain  uptime  at  an  industry   competitive  level,  such
                  downtime may occur despite such efforts.

         9.4      SABRE  Errors  and  Problems.   After  receiving  notice  from
                  Customer  of any  problems  with SABRE,  SDT shall  attempt to
                  correct the problem  within a reasonable  period of time.  SDT
                  shall accord to Customer the same priority, speed of response,
                  and degree of effort  that it  accords or would  accord to any
                  Other Customer or American for a similar problem.

         9.5      SABRE  Performance  Reports  and  Logs.   Operating  logs  and
                  performance reports maintained in connection with the services
                  herein performed shall be available for Customer's review upon
                  forty-eight  (48) hours notice  during  business  hours at the
                  Central Site. Absent a showing of good cause, the review shall
                  take  place no more  frequently  than once every  twelve  (12)
                  months.

10       Additional Services
         10.1     ***

         10.2     ***

         10.3     Enhancement  Program Hours.  SDT will provide  Customer,  ***,
                  with an  annual  allocation  of *** of  programming  time  for
                  system  enhancements  requested by Customer during the term of
                  this Agreement.  For the avoidance of doubt:  (i) no more than
                  ***of  programming  time may be  rolled  to the next  calendar
                  year; (ii) no more than ***of  programming time may be used in
                  any one calendar year; and (iii) Customer will not receive any
                  monetary or other credit for unused programming time.

         10.4     ***

         10.5     ***

         10.6     ***

11       Release and Indemnification
         11.1     Release.  SDT shall not be liable to Customer  (i) for delays,
                  errors,  malfunctions  or  breakdowns  of SABRE,  unless  such
                  delays, errors, malfunctions or breakdowns are attributable to
                  or the  result  of  SDT'S  willful  misconduct;  or (ii)  with
                  respect  to any  action  or  omission  taken  or not  taken in
                  accordance  with this  Agreement  or pursuant to  instructions
                  properly  received  from  Customer,   unless  such  action  or
                  omission, as the case may be, is attributable to or the result
                  of SDT's willful misconduct.

         11.2     Indemnification  of SDT. Customer shall indemnify,  defend and
                  hold  SDT,  TSG,   American  and  AMR  Corporation  and  their
                  respective   officers,   directors,   employees,   and  agents
                  (collectively,  the  "Indemnified  Party")  harmless  from and
                  against  any  and  all  losses,  claims,  damages,  judgments,
                  liabilities   or  expenses   (including   without   limitation
                  reasonable counsel fees and expenses)  (collectively "Claims")
                  arising under, out of, or in connection with this Agreement or
                  the  services   provided   hereunder   and  made  against  the
                  Indemnified  Party  by any  passenger  or other  person  doing
                  business  with  Customer,   specifically   including   without
                  limitation  those  Claims  which arise out of the  Indemnified
                  Party's   sole,   joint  or   contributory   negligence,   but
                  specifically  excluding  those  Claims  which arise out of the
                  gross  negligence  or willful  misconduct  of the  Indemnified
                  Party.

                  11.2.1   It is the  express  intent of  Customer  and SDT that
                           Customer  indemnify,  defend  and hold  harmless  the
                           Indemnified  Party against those Claims identified in
                           Article  11.2 above which  arise from the  negligence
                           (active or passive) of the Indemnified  Party.  SDT's
                           decision to enter into this  Agreement and to provide
                           the  services  identified  herein are in exchange for
                           SDT's limited  liability  referred to in Article 11.2
                           above. SDT would not have entered into this Agreement
                           for  the   consideration   provided  herein  but  for
                           Customer's  agreement to  indemnify,  defend and hold
                           harmless SDT as provided above.

         11.3     Indemnification of Customer.  SDT shall indemnify,  defend and
                  hold  Customer  and its  officers,  directors,  employees  and
                  agents  harmless  from and against any and all Claims  arising
                  under,  out of, or in  connection  with the  misappropriation,
                  violation or  infringement of any  proprietary  rights,  trade
                  secrets,  patent  rights,  copyrights,  trademarks  or service
                  marks with respect to the use of SABRE, except for intentional
                  misappropriation,  violation or  infringement of such items by
                  Customer or its affiliates.

         11.4     Notification of Claim. The Indemnified  Party or Customer,  as
                  the case may be, shall give prompt written notice to the other
                  party of the receipt of any claim or the  commencement  of any
                  action which is or may be covered by the applicable  indemnity
                  under this Article 11, but the failure to so notify such party
                  shall not relieve the indemnifying party of any liability that
                  it may have  under this  Article 11 except to the extent  that
                  the defense of such action is prejudiced thereby. Upon receipt
                  of such  notice,  the  indemnifying  party  shall  immediately
                  assume   the   defense   thereof   with   counsel   reasonably
                  satisfactory  to the other party.  No compromise or settlement
                  thereof may be effected by the indemnifying  party without the
                  other party's prior written consent (unless such compromise or
                  settlement  would not  prejudice  the  interests  of the other
                  party, in which case such consent shall not be required).

         11.5     No Implied  Warranties.  The  warranties  and  representations
                  contained in this Agreement are  exclusive,  and SDT DISCLAIMS
                  AND  CUSTOMER  HEREBY  WAIVES,  ANY AND ALL OTHER  WARRANTIES,
                  WHETHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY
                  WARRANTY OF  MERCHANTABILITY  OR FITNESS FOR INTENDED USE, OR,
                  EXCEPT AS OTHERWISE STATED HEREIN,  ANY LIABILITY IN CONTRACT,
                  NEGLIGENCE,  OR TORT WITH RESPECT TO THE DATA, PRODUCTS AND/OR
                  SERVICES  FURNISHED  HEREUNDER.  SDT warrants that SABRE shall
                  have the functionality set forth in this Agreement.

         11.6     Consequential  Damages.  SDT SHALL NOT BE LIABLE TO CUSTOMER
                  FOR CONSEQUENTIAL, INCIDENTAL, OR SPECIAL  DAMAGES UNDER ANY
                  CIRCUMSTANCES.

         11.7     Limitation  on Liability.  SDT shall not be liable,  under any
                  circumstances, for any claim which exceeds the total amount of
                  payments  which have been made by  Customer  to SDT under this
                  Agreement  during the six (6) month  period  prior to the date
                  such claim arose.

12       SABRE Enhancements, New Functions and Modifications
         12.1     SDT  Changes to SABRE.  From time to time,  SDT may modify the
                  functionalities  referred  to in Exhibit A by  creating  SABRE
                  Enhancements,  and may add New Functions.  If SDT offers these
                  SABRE   Enhancements  or  New  Functions   without  charge  to
                  Customer,  then  Customer  agrees to accept  them for use with
                  SABRE, ***.

         12.2     Customer  Changes to SABRE.  SDT may at its option approve and
                  develop  SABRE  Enhancements  and New  Functions  requested by
                  Customer,  provided  that the cost of  developing  such  SABRE
                  Enhancements  or New Functions  may, at SDT's  discretion,  be
                  charged  to  Customer.  If the  cost  of  developing  a  SABRE
                  Enhancement or New Function is to be paid for by Customer, SDT
                  shall provide  Customer,*** with (i) a gross estimate based on
                  SDT's  Standard  Rates;  and  (ii) a  tentative  schedule  for
                  developing  the  SABRE  Enhancement  or New  Function.  Within
                  ***  days  following  the  submission  of  the  gross
                  estimate and schedule to  Customer,  Customer  shall affirm or
                  cancel its request for the proposed  SABRE  Enhancement or New
                  Function,  and SDT shall  take no action  with  respect to the
                  proposed  SABRE  Enhancement or New Function until Customer so
                  affirms or cancels its request in writing. If SDT and Customer
                  agree on the price,  development schedule and other terms, SDT
                  shall process  Customer's  request for a SABRE  Enhancement or
                  New Function in accordance with SDT's internal  procedures for
                  developing  a SABRE  Enhancement  or New  Function for its own
                  use.  Notwithstanding  Customer's  agreement  to pay for SABRE
                  Enhancements and New Functions that it requests, SDT shall use
                  reasonable  efforts to secure the financial  participation  of
                  Other Customers.

         12.3     SABRE Enhancement and New Function  Implementation.  SDT shall
                  provide   Customer   with  prior   notice  of  the   scheduled
                  implementation of SABRE  Enhancements and New Functions.  Such
                  notice shall be provided to Customer in the same manner and at
                  the same time as such notice is provided to SDT personnel. SDT
                  shall provide  training  materials to Customer with respect to
                  such  SABRE  Enhancements  and  New  Functions.  The  training
                  materials  shall be  substantially  similar to those which SDT
                  provides to its own personnel or to any Other Customer.

         12.4     SDT  Test of  Enhancements  and  New  Functions.  Except  when
                  precluded by operational emergencies, SDT shall test all SABRE
                  system  capabilities,   including  without  limitation,  SABRE
                  Enhancements  and  New  Functions,   under  an  internal  test
                  environment.  Customer acknowledges that despite such internal
                  testing, conditions may develop that lead to error conditions,
                  malfunctions, or a breakdown in the operation of SABRE. Should
                  any of the foregoing  occur, SDT shall use its best reasonable
                  efforts to correct any such  condition with the same degree of
                  effort  afforded  a  similar   problem   affecting  any  Other
                  Customer.

13       Charges
         13.1     Database Initiation Fee. ***

         13.2     Implementation Fees. ***  Such fees relate to:

                  13.2.1   Assistance in  establishing  all necessary data feeds
                           to support the system and programs needed pursuant to
                           this Agreement; or

                  13.2.2   Implementing  feeds to Customer's  revenue accounting
                           system,  which  feeds  consist  of SABRE TCN data and
                           electronic ticketing flown file information.

         13.3     PNRs. ***

         13.4     Revenue Accounting System.  ***

         13.5     Pricing. All services referenced herein (with the exception of
                  the Revenue  Accounting System in Article 13.4 which is priced
                  separately as provided  therein) shall be provided to Customer
                  at the  following  charges  with  respect  to all  fare-paying
                  passengers handled on flights operated by Customer or operated
                  under Customer's flight designator code:

                  13.5.1   ***

                  13.5.2   ***

         13.6     Minimum  Monthly  Fee.  The  minimum  monthly  fee  payable by
                  Customer under this Agreement (and  irrespective of the actual
                  number of Passengers Boarded) is *** per month.

         13.7     Increase Provision. On ***, SDT may, at its option,  increase,
                  on a  going-forward  basis,  each  of the  rates  and  amounts
                  payable under Articles 13.5 and 13.6 by a percentage specified
                  by SDT,  not to exceed  the  applicable  percentage  set forth
                  below (the "Maximum R/A Percentage Increase"),  over the rates
                  and amounts which were previously in effect. ***

         13.8     PNR for Past Date  Investigation  on  CD-ROM.  SDT  shall 
                  send to  Customer,  on a weekly  basis,  one (1) set of
                  Customer PNRs on CD-ROM purged from the system during the
                  previous week, at no charge to Customer.

         13.9     Labor and Materials  Rate. For labor  (excluding  "Enhancement
                  Program Hours" as hereafter  defined),  materials,  and supply
                  costs,  for  Customer  requested  SABRE  system  enhancements,
                  Customer will receive a fifteen percent (15%) discount off the
                  then  prevailing  SDT  standard  rates.  SDT  labor  rates for
                  programing/system  development are currently *** per hour. SDT
                  Standard  Rates for all other  services as of October 1996 are
                  as listed in  Exhibit B of this  Agreement.  SDT shall  obtain
                  prior written approval from Customer for any charges that will
                  exceed the *** rates.

         13.10    Third Party Charge.  Customer shall also pay SDT an additional
                  charge for use of a SABRE  database in those  instances  where
                  SDT is required to pay a third party an incremental  charge as
                  a result of Customer's use of SABRE.  Any  incremental  charge
                  that SDT is required to pay as a result of  Customer's  use of
                  SABRE shall be repaid to SDT by Customer  in  accordance  with
                  Article 15,  provided that  Customer is given  advance  notice
                  that  Customer's  use of SABRE shall  require  that SDT impose
                  such additional charge on Customer.

         13.11    Out of  Cycle  Processing.  For any  request  for out of cycle
                  off-line  processing  or for any request for new  programs and
                  additional  data that require  off-line  processing,  Customer
                  shall pay SDT at SDT's then prevailing rates.

         13.12    Reimbursement  to SDT  for  Travel  Expenses.  Customer  shall
                  reimburse  SDT for all  food,  lodging  and  related  expenses
                  incurred  by SDT  in  connection  with  this  Agreement  ("Per
                  Diem"). Per Diem amounts will be reimbursed by Customer at the
                  rate  published  from time to time by the U.S.  government for
                  the  city  where  the  work  is  performed   ("CONUS/OCONUS").
                  Customer  shall   reimburse  SDT  for  actual  air  and  local
                  transportation  expenses.  SDT shall  utilize  Customer's  air
                  services for such air transportation  (via "positive must ride
                  passes") whenever reasonably possible.

         13.13    Deposit. Customer shall not be responsible to provide to SDT
                  with a deposit.

         13.14    Currency.  All charges  referred to in this Agreement shall be
                  in United States  dollars.  All payments shall be made in
                  United States dollars.

14       Taxes
         14.1     Taxes.  Customer  shall pay on behalf of SDT, or reimburse SDT
                  as an  additional  fee, for (i) all taxes,  including  but not
                  limited to, withholding  taxes,  value added taxes,  municipal
                  taxes,  personal  property taxes,  franchise  taxes, net worth
                  taxes,  sales and use taxes,  registration fees, excise taxes,
                  stamp   taxes  and   importation   and   custom   duty   taxes
                  (collectively,  the "Taxes")  imposed on SDT arising from this
                  Agreement,  excluding  Taxes  imposed by the United  States of
                  America,  based on SDT's net income;  and (ii) any  additional
                  Taxes,  including  United  States of America and State  income
                  taxes,  imposed on SDT as a result of any reimbursements under
                  clause (i) or (ii) of this Article 14. Customer shall hold SDT
                  harmless for any and all tax payments made.

         14.2     Documentation  of Taxes.  To the  extent any Taxes are paid by
                  Customer to the applicable  taxing authority on behalf of SDT,
                  Customer  shall  provide  SDT  with  documentation  of  Taxes,
                  evidencing  that  such  Taxes  were,  in  fact,  paid  to  the
                  applicable taxing authority. Documentation of Taxes shall mean
                  either the original,  a duplicate original or a duly certified
                  or authenticated  copy of the receipt or return required to be
                  included by the applicable  taxing  authority with the payment
                  of Taxes.

15       Payment
         15.1     Projected  Passengers  Boarded.  Within  two (2)  weeks of the
                  SABRE  Implementation  Date,  Customer  shall  provide SDT, by
                  facsimile transmission or via Administrative Message Switching
                  ("AMS") to HDQIHAA and HDQLFAA,  Attention: Senior Accountant,
                  the projected number of Passengers  Boarded for each remaining
                  month of the SABRE  Commencement Year. On December 1st of that
                  year and each year thereafter, Customer shall provide SDT with
                  the projected  number of Passengers  Boarded for each month of
                  the following  calendar year. Any time during the term of this
                  Agreement,   Customer  may  modify  the  projected  number  of
                  Passengers Boarded for the then current calendar year but such
                  modification  must be  submitted  to SDT  within  thirty  (30)
                  business  days  of  the  applicable  adjusted  month(s).   The
                  projected amounts of Passengers Boarded for each month and any
                  modifications  thereof,  shall  not be less  than  the  actual
                  monthly  average of  Passengers  Boarded  during the  previous
                  twelve (12) month period or during the SABRE Commencement Year
                  if applicable.

         15.2     Initial  Invoice.  SDT shall  submit  an  initial  invoice  to
                  Customer,   within  five  (5)  business   days  of  the  SABRE
                  Implementation  Date,  reflecting  fees based on the projected
                  number of Passengers  Boarded for the SABRE Commencement Month
                  and  the  succeeding   month  calculated  in  accordance  with
                  Articles  13.5 and  15.1,  as well as all  other  fees due and
                  payable on the SABRE Implementation Date.

         15.3     Monthly Invoices.  Five (5) business days following the end of
                  the month,  Customer shall provide SDT, via AMS to HDQIHAA and
                  HDQLPAA, Attention: Senior Accountant, with a statement of the
                  actual  number of  Passengers  Boarded  through the end of the
                  preceding  month.  Thereafter,  SDT shall submit an invoice to
                  Customer  reflecting  fees  based on the  projected  number of
                  Passengers  Boarded  for  the  succeeding  month  pursuant  to
                  Article  15.1,  as well as  adjusted  charges to the  previous
                  month's  invoice  based on the  actual  number  of  Passengers
                  Boarded,  fixed charges,  additional charges or taxes incurred
                  by Customer  during the previous month during the term of this
                  Agreement,  or any extension thereof, within ten (10) business
                  days following the end of each month.

         15.4     Monthly  Invoice  for  System  Changes.  Each  month SDT shall
                  submit to Customer an invoice  reflecting the charges incurred
                  through the end of the preceding  month for work  performed in
                  connection  with the change and  modifications  to SABRE which
                  Customer has requested and SDT has agreed to perform.

         15.5     Method of Payment.  All Customer invoices shall be settled via
                  wire transfer to First National Bank of Chicago,  Main Branch,
                  Chicago,   Illinois,   ABA  routing  number   071000013,   AMR
                  Information  Services account number 5811309,  within ten (10)
                  business days of receipt of invoice.

         15.6     Interest  Charges.  ***  Interest  shall  accrue  on  invoiced
                  amounts (other than those portions referenced in the preceding
                  sentence), from the date due, at a rate equal to the ***United
                  States  Treasury Bill rate as published on the first  business
                  day of each month (and regardless of when any auction for such
                  bills  occurred)  in the  "Money  Rates"  section  of The Wall
                  Street Journal.

16       Force Majeure
         SDT  shall  not be liable  to  Customer  for a failure  or delay in the
         performance  of  SABRE or any  limitation  placed  upon the  functional
         capabilities  and/or the data volumes of SABRE if such failure,  delay,
         or limitation  arises from any cause beyond SDT's  reasonable  control,
         including,  but not limited to, acts of God, acts of federal, state, or
         local governments or any agencies thereof,  fire, the elements,  flood,
         earthquakes,  explosions, accidents, mechanical or electrical failures,
         acts  of the  public  enemy,  war,  civil  disturbance,  rebellion  and
         insurrection.

17       Title
         Title and full and complete  ownership  rights to all software owned or
         developed by SDT and contained in SABRE and used in the  performance of
         this Agreement shall remain with SDT.  Customer  acknowledges that such
         software is a trade secret and SDT's proprietary  information,  whether
         or  not  any  portion  thereof  is or  may be  validly  copyrighted  or
         patented.

18       Nondisclosure
         18.1     Proprietary   Information.   The   documentation,    programs,
                  procedures, and services supplied to Customer hereunder by SDT
                  are SDT's proprietary  information,  and the Customer Database
                  and all related files, reports, input materials and other data
                  supplied by Customer or generated  pursuant to this  Agreement
                  are  Customer's  proprietary   information.   The  proprietary
                  information of SDT and Customer shall be collectively referred
                  to  as   the   "Proprietary   Information".   No   Proprietary
                  Information   of  either   party   shall  be  subject  to  the
                  obligations  imposed by this  Article  18 if such  Proprietary
                  Information is in the public domain,  is lawfully  obtained by
                  the  disclosing  party from  another  source,  or is disclosed
                  pursuant to subpoena or other legal process.

         18.2     Nondisclosure.   Neither  party  shall  disclose   Proprietary
                  Information  of the other party to any third person  except in
                  furtherance  of the  purposes  of this  Agreement.  Each party
                  shall  ensure that all of its  employees  and agents,  and any
                  third  person  employed by such party in  furtherance  of this
                  Agreement,  recognize that the proprietary  information of the
                  other party is subject to this nondisclosure obligation.  Each
                  party  shall  use the same  degree  of care to  safeguard  the
                  Proprietary  Information  of the  other  party  as it  uses to
                  safeguard  the   confidentiality   of  its  most  confidential
                  information.

         18.3     Return of Proprietary  Information.  Upon  termination of this
                  Agreement for any cause or reason, each party shall deliver to
                  the  other  party  all  of  such  other  party's   Proprietary
                  Information  then  in  its  possession  including  all  copies
                  thereof.  Customer shall, after a diligent search,  certify to
                  SDT that all copies of  information  that  pertain to software
                  contained in SABRE have been returned to SDT or destroyed.

         18.4     Disclosure  of  Agreement.  Neither  party shall  disclose the
                  terms of this Agreement to any third party, unless required to
                  do so by law or by a court of competent jurisdiction.

         18.5     Survival  of  Nondisclosure  Duty.  The  provisions  of this
                  Article 18 shall  survive  the  termination of this Agreement
                  and shall be continuing.

19       Injunctive Relief
         Each party  acknowledges  and agrees that the other party shall have no
         adequate  remedy  at law if there is a breach or  threatened  breach of
         Article 18 and, accordingly,  that the other party shall be entitled to
         an injunction against such breach. Nothing herein shall be construed as
         a  waiver  of any  other  legal  or  equitable  remedies  which  may be
         available to either party if the other party breaches Article 18.

20       Termination and Default
         20.1     Default.  The  occurrence  of  any  one  (1)  or  more  of the
                  following  events  shall  constitute  an event of default (the
                  "Event of Default") pursuant to the terms of this Agreement:

                  20.1.1   Customer  fails to pay or cause to be paid any amount
                           due  hereunder as it becomes due in  accordance  with
                           the  terms  of  this   Agreement   and  such  failure
                           continues  for a period of *** days after  receipt by
                           Customer of written notice thereof from SDT.

                  20.1.2   Either party  terminates or cancels this Agreement or
                           any portion  hereof,  except as  expressly  permitted
                           hereunder.

                  20.1.3   Either party fails to punctually and properly perform
                           any covenant, agreement, representation,  obligation,
                           term or condition  contained  herein and such failure
                           continues  for a period  of thirty  (30)  days  after
                           receipt by the  defaulting  party of  written  notice
                           thereof from the other party.

                  20.1.4   Either    party    materially    misrepresents    any
                           representation,  warranty, or covenant given by it in
                           this Agreement.

         20.2     Rights  Upon  Termination.  Upon  the  occurrence  of Event of
                  Default,  the non-defaulting party shall have the right to (i)
                  immediately terminate this Agreement,  and, if Customer is the
                  defaulting  party,  Customer's  access to SABRE; and (ii) seek
                  all  legal and  equitable  remedies  to which it is  entitled,
                  including without limitation, all actual and direct damages it
                  may have suffered by virtue of the defaulting  party's breach.
                  Customer's  obligation  to pay the minimum fee  referred to in
                  Article  13.6  shall  not be  construed  as a limit  of  SDT's
                  damages.

         20.3     Bankruptcy.   If  bankruptcy  or  insolvency  proceedings  are
                  commenced  with respect to either party and if this  Agreement
                  has not otherwise terminated,  then the non-bankrupt party may
                  suspend all further  performance of this  Agreement  until the
                  trustee in bankruptcy (or its  equivalent)  assumes or rejects
                  this Agreement pursuant to applicable bankruptcy or insolvency
                  laws.  Any  such  suspension  of  further  performance  by the
                  non-bankrupt party pending the trustee in bankruptcy's (or its
                  equivalent)  assumption or rejection  shall not be a breach of
                  this Agreement and shall not affect the  non-bankrupt  party's
                  right to  pursue  or  enforce  any of its  rights  under  this
                  Agreement or otherwise.

21       Duty to Cooperate
         After  notice of  termination  is given by either  party for any reason
         under Article 2 or Article 20 above,  SDT shall cooperate with Customer
         in creating  records of the  Customer  Database  in  magnetic  form and
         otherwise as reasonably  requested by Customer to insure the timely and
         orderly  installation  of  a  successor  computer  reservation  system.
         Customer shall pay for the creation of such records in accordance  with
         the provisions of Article 13.11.

22       Assignment
         Customer shall not sell, assign, license, franchise, sublicense (except
         as  provided  herein),  subcontract  under,  or  otherwise  convey this
         Agreement to any third person without SDT's prior consent.

23       Corporate Changes
         If, on or after the date of this Agreement: (i) Customer merges with or
         into any corporation or other entity;  (ii) Customer sells or otherwise
         transfers  all or  substantially  all of its assets to any  individual,
         corporation or other entity;  or (iii) any  individual,  corporation or
         other  entity  (or any  group  of  individuals,  corporations  or other
         entities  who have  agreed to act or are  acting in  concert)  acquires
         beneficial  ownership of fifty percent (50%) or more of the outstanding
         voting  securities of Customer (and, for purposes of this clause (iii),
         the terms  "group" and  "beneficial  ownership"  shall be determined in
         accordance  with Section 13(d) of the Securities  Exchange Act of 1934,
         as amended, and the rules and regulations promulgated thereunder), then
         in any  such  event,  SDT  shall  have the  option  to  terminate  this
         Agreement upon providing at least *** prior written notice to Customer.

24       Relationship of Parties
         Nothing in this  Agreement  is intended or shall be construed to create
         or establish the  relationship of partners  between SDT and Customer or
         to constitute  either party as the agent or representative of the other
         for any purpose.

25       Exclusivity
         ***

26       Notices
         All notices, requests, demands, or other communications hereunder shall
         be in  writing,  shall be sent by  overnight  courier  or by  facsimile
         transmission  followed by registered or certified mail,  return receipt
         requested, or by Telecopy/Telex/ARINC/SITA or SABRE and shall be deemed
         to have been given when received at the following addresses:

                  If to SDT:........     The SABRE Group Inc.
                                         SABRE Decision Technologies division
                                         P.0. Box 619295, MD 4340
                                         DFW Airport, Texas 75261-9295
                      or   .........     4255 Amon Carter Boulevard
                                         Fort Worth, Texas 76155
                                         Attn:  Vice President, Sales & Service
                                         Transportation Automation Services
                                         ARINC/SITA code: HDQLFAA
                                         Facsimile Number: (817) 963-3276


                  If to Customer:...     Reno Air, Inc.
                                         220 Edison Way
                                         Reno, Nevada  89502
                                         Attn: Vice President and
                                               Chief Financial Officer
                                         Facsimile Number:  (702) 686-3806

                  with copy to:.....     Reno Air, Inc.
                                         220 Edison Way
                                         Reno, Nevada  89502
                                         Attn:  General Counsel
                                         Facsimile Number:  (702) 686-3875

27       Governing Law
         This Agreement and any disputes arising hereunder shall be governed and
         interpreted by the laws of the State of Texas, without giving effect to
         its conflicts of laws rules.

28       Waiver
         No waiver  of a breach of any  provision  of this  Agreement  by either
         party shall constitute a waiver of any subsequent breach of the same or
         any other  provision  hereof,  and no waiver shall be effective  unless
         made in writing.

29       Captions
         The captions appearing in this Agreement have been inserted as a matter
         of  convenience  and in no way define,  limit,  or enlarge the scope of
         this Agreement or any of the provisions hereto.

30       Severability
         If one or more  provisions of this Agreement  shall be determined to be
         invalid,  unenforceable  or illegal,  such  invalidity,  illegality and
         unenforceability   shall  not  affect  any  other  provisions  of  this
         Agreement,  and the  Agreement  shall be construed as if such  invalid,
         illegal or unenforceable provision had never been contained herein.

31       Additional Covenants
         Customer covenants, represents and warrants as follows:(i) Customer has
         full authority to enter into this Agreement;  (ii) no representation or
         warranties of Customer,  nor any  statements,  written or oral, made or
         furnished to SDT either herein or with respect to the  organization  or
         business of Customer,  contains any untrue statement of a material fact
         or  omits  a  material  fact  necessary  to  make  the  representation,
         warranty, or statement not misleading; (iii) this Agreement constitutes
         a legal,  valid,  and binding  agreement  of Customer,  enforceable  in
         accordance with its respective  terms; (iv) Customer has the full right
         and authority to submit to the  jurisdiction of the courts of the State
         of Texas;  and (v) Customer's  execution and delivery of this Agreement
         does not violate the laws of Texas. If SDT so requests, Customer agrees
         to provide to SDT an opinion of counsel with respect to the matters set
         forth  herein.  Such  opinion  shall be  relied  upon by SDT  solely in
         connection with this Agreement.

32       No Third Party Beneficiaries
         All rights,  remedies and  obligations  of the parties shall accrue and
         apply solely to the parties and their successors and permitted  assigns
         and there is no intent to benefit any third parties.

33       Surviving Sections
         Unless specifically provided in this Agreement,  the obligations of SDT
         and Customer hereto shall survive any termination or expiration of this
         Agreement,  when necessary, to effect the intent of SDT and Customer as
         herein expressed.

34       Entire Agreement
         This  Agreement and all Exhibits  hereto  contain the entire  Agreement
         between SDT and  Customer  and shall  supersede  any  understanding  or
         previously  executed  agreements  between SDT and Customer with respect
         hereto.  Any  amendment  must be in writing and executed by each party.
         SDT and  Customer  acknowledge  and agree  that this  Agreement  is the
         Multihost  Agreement  entered into between SDT and Customer pursuant to
         Section 6 of the Master Agreement,  dated May 24, 1993, among Customer,
         American and TSG (then known as AMR Information Services, Inc.).

         The parties  have  executed  this  Agreement as of the date first above
written.

RENO AIR, INC.             .........           THE SABRE GROUP, INC.
                                               by and through its
                                               SABRE Decision Technologies
                                               division


By:    /s/  J. T. Fisher                       By: /s/  Thomas M. Cook
         Name:  J. T. Fisher........               Name:  Thomas M. Cook
         Title:  Vice President.....               Title:  President, SDT



<PAGE>




                                    EXHIBIT A

                              FUNCTIONAL DEFINITION


         DATA PROCESSING SERVICES:  The following data processing services are
to be provided under this Agreement:


RESERVATIONS / INVENTORY / TICKETING
        1.  Agent Sign-In and Security
        2.  Automated Reference System (FOCUS)
        3.  Automated Ticketing
        4.  Automated Prepaids
        5.  Automated Passenger Protection
        6.  AVS Tables
        7.  Blocked Space Group Bookings (BSG)
        8.  Commuters
        9.  Credit Authorization
       10.  Dynamic Schedule Change
       11.  Flight Information - FLIFO
       12.  Hotel and Car Availability System
       13.  Inventory Control and Displays
       14.  Inventory Authorization (FLP)
       15.  Market Tariff Table
       16.  Name List Displays
       17.  Overlap Flights
       18.  Passenger Name Record (PNR)
       19.  PNR Past Date Microfiche
       20.  Pre-Reserved Seat Selection
       21.  Queue Package (AAQUARIUS)
       22.  SABRE Assisted Instructions (SAI)
       23.  SABRE Sales Guide
       24.  Special Travelers Account Record System (STARS)
       25.  Teletype Reject Message Handling
       26.  Worldfare Package and Fare Quote
       27.  Waitlisting Process

AIRPORT PROCESSING

        1.  Advance Check-In (ACI)
        2.  Airport Check-In System (ACS)
        3.  Automated Boarding Passes
        4.  Baggage Security
        5.  Catering Messages and Displays
        6.  Passenger Name List (PNL/ADL)
        7.  Post Departure Control
        8.  Seats Available List (SAL)

MANAGEMENT REPORTS

        1.  Advanced Booking Report
        2.  Interline Booking Report
        3.  On-Line Dupe Check Facility
        4.  SABRE Performance Summary Report
        5.  Daily Bookings Report


OTHER FUNCTIONS

        1.  Administrative Message Switching (AMS)
        2.  Calculator Functions
        3.  Currency Conversion
        4.  Encode/Decode Functions
        5.  Direct Communications Link
        6.  Minimum Connect Times
        7.  SABRE Atlas
        8.  Sine In Message
        9.  OUS/OUB Messages
       10.  Weather System


ADDITIONAL FEATURES

        1.  Quest Direct
        2.  Ticketless Travel
        3.  Private Fares Inventory Database
        4.  PNR Database

                         MULTIHOST SABRE SYSTEM FEATURES


I.     RESERVATIONS / INVENTORY / TICKETING

        1.  AGENT SIGN-IN AND SECURITY
                  a. A stored  Employee  Profile  Record  which  contains
                     individual  employee  number,  unique  passcode and
                     authorizations
                  b. User controlled creation, modifications, activation and
                     transfer
                  c. Agent restricted by self-controlled passcode
                  d. Automatic sign-out interval signs agent out after 
                     specified period of inactivity
                  e. Display sign(s) currently in work area(s)
                  f. Display authorizations by employee ID
                  g. Display city sign table with qualifiers to delimit response
                  h. Decode agent sign to determine agent name
                  i. Display sign(s) being used at a specific CRT
                  j. Sign-in access to six work areas with capability to change
                     work area
                  k. Sign-in to alternate area with different duty code

        2.  AUTOMATED REFERENCE SYSTEM (FOCUS)

                  a. An Automated Reference System which contains over 100
                     topics ranging from SABRE entries to Help Desk phone
                     numbers
                  b. Frequent broadcast of changes and enhancements to the SABRE
                     system  via a revision table
                  c. Contains 3 levels of information; Main Function  List,
                     Specific Functions which contains detailed formats and
                     Detailed Information which contains more specific format
                     information
                  d. User friendly, easy and fast access
                  e. Blank FOCUS manual provided for carrier internal use
                  f. Access to a specific entry/format by use of qualifiers
                  g. Capability to send message to FOCUS updaters

        3.  AUTOMATED TICKETING

                  a. Automatic ticket issuance for priceable itineraries
                  b. Group ticketing, passenger type and name select options
                  c. Infant ticketing
                  d. Industry reduced rate ticketing
                  e. Edit credit card  form-of-payment for authorization  code
                     when entered as part of the  ticketing procedure
                  f. Optional override of credit card authorization check
                  h. Create retainable fill-in-the-blank ticketimagefor non-auto
                     priceable itineraries
                  i. Enter exchanged ticket data and other reissue transaction
                     requirements in automated ticketing transaction
                  j. Enter endorsements information in automated ticketing
                     transactions
                  k. Specify printing of "non-refundable" on ticket

              4.  AUTOMATED PREPAIDS

                  a. Prepaid data is entered into the PNR
                  b. 14 digit PTA number is required and will be edited when
                     entered in PNR
                  c. PTA data includes,  purchaser,  form of payment, fare
                     routing and  construction,  fare amount,  PTA number,
                     message routing, special remarks
                  d. Point of sale override, stop PTA action, partial/full
                     refund, PTA cancellation
                  e. Display of PTA data only in PNR

              5.  AUTOMATED PASSENGER PROTECTION

                  a. User  defined  passenger  protection  when  schedules  are
                     modified
                  b. Level of Service  Table used to set criteria for APP
                  c. A  pool  of  candidate  flights  are  chosen  for  the
                     reaccommodation   process
                  d. Notification table defines parameters for queue placement
                     after reaccommodation

             6.  AVS TABLES

                  a. User updated  AVS tables for First  Posting,  Segment  and
                     Mixed Posting type agreements
                  b. User defines by flight number or specify all  flights
                  c. Status  messages of AS, CL, CN, and CR are sent based on
                     type of  agreements  with each carrier
                  d. Full AVS recaps to be sent must be requested through SDT.

              7.  BLOCKED SPACE GROUP BOOKINGS (BSG)

                  a. Capability to block a specific number of seats in a BSG PNR
                     with no names
                  b. BSG PNR becomes the controlling PNR and seats are deducted
                     and placed in an Associate PNR
                  c. The  Associate PNR is referenced to the BSG PNR and seats
                     will be decremented from the BSG
                  d. Associated  reference  field identifies theoriginal number
                     of seats, current, available and sold seats

              8.  COMMUTERS
                  a. Commuter flights are assigned flight numbers from a
                     specific flight range
                  b. Accommodates up to 15 additional airlines in addition to
                     the host airline
                  c. Commuter flights are identified by an asterisk (*)
                  d. Decode/Encode commuter carrier name

              9.  CREDIT AUTHORIZATION

                  a. For major credit cards that host carrier accepts
                  b. Validates   card  numbers  for  accuracy, when  input  as
                     forms of  payment for ticketing and for guarantees/deposits
                     for hotel bookings
                  c. Computes and validates the check digit
                  d. Credit  authorization  includes a blacklist check for all
                     cards, either a credit limit check or creditavailable check
                  e. Floor limits or credit limits may vary with each carrier
                  f. Automatic approval code check may be overridden by agent
                  g. Accelerated Credit Card Billing ("ACCB") capability

             10.  DYNAMIC SCHEDULE CHANGE
                  a. Schedule  Change entries allow the user to dynamically  add
                     new flight schedules into the SABRE system
                  b. New host flights will be  automatically  displayed
                  c. Provides  capability  to modify,  cancel and reinstate
                     current host flight schedules
                  d. Features include: base nested table, seat authorization
                     table, automatic passenger protection, level of service
                     table, AVS posting tables and shared leg table
                  e. Automatic queue placement of modified schedules for host
                     booked PNRs
                  f. Message generation of schedule change notification to
                     other CRS systems,  when PNR contains  other  airline
                     space or booked by travel agency or OA

             11.  FLIGHT INFORMATION - FLIFO

                  a. Provides simple displays of departure and arrival time, In
                     and Out times, Out and Off time
                  b. Complete  scheduled routing with times are  appended to
                     each  display
                  c. System  defaults date to  current  date
                  d. Flifo  information  is  appended  to segment sell entries
                     and displayed PNRs
                  e. Flifo  cancellation due to weather or holiday schedules are
                     displayed in City Pair Availability

             12.  HOTEL AND CAR AVAILABILITY SYSTEM

                  a. SHAARP  Plus  (SABRE  Hotels  Availability  And  Rate
                     Program)  provides  property and rate  information to
                     more than 180 hotel  companies  with more than 27,000
                     hotel properties
                  b. 50 car rental companies represented in over 100 countries
                  c. Hotel rates are loaded directly into SABRE's Database
                  d. Features included confirmation numbers, property
                     description,  room rates and points of interest closest
                     to hotel
                  e. Hotels may be displayed  by point of  interest,  city
                     codes,  hotel name and/or code,  airport location and
                     many  more  features  that  limit  response  to  meet
                     customers criteria
                  f. Guarantee and deposit requirements listed in hotel
                     description
                  g. CARS Plus offers a dynamic car availability and rate system
                  h. Over 500 stored car types with accurate defined car types
                  i. Precise rates with comprehensive rules information which
                     can be displayed from any rate quote
                  j. International and non-airport locations included
                  k. Daily, weekly, weekend, standard and promotional rates
                  l. Encode/Decode hotel and car companies
                  m. Modification capabilities

             13.  INVENTORY CONTROL AND DISPLAYS

                  a. Inventory calculation is based on the concept of base and
                     nested classes
                  b. Classes of service are indicated by a single alpha
                     character
                  c. Display  detailed  sales  and waitlist counts for a leg of
                     a specific  flight or board  point  (total boardings out of
                     each station, regardless of destination)
                  d. Display detailed  inventory by class of service for a
                     given  flight  and  board  point,   with   unticketed
                     passenger  counts,   inbound   connecting   passenger
                     counts,  and large party counts, as well as counts of
                     those passengers who have been confirmed from waiting lists
                  e. Display all flight legs or flight  numbers with sales
                     above  or  below  a  specified   percentage   of  the
                     authorized compartment  authorization for one flight, all
                     flights,  or a range of flight  numbers  and onedate or a
                     range of dates
                  f. Display market activity and passenger loads for any one
                     date during the immediate period
                  g. Adjust inventory by compartment code for flight leg or
                     segment
                  h. Limit sales by leg or segment for one date or a range of
                     dates
                  i. Inhibit or reopen waitlist clearance by board point,
                     segment, or for all segments
                  j. Inhibit or reopen sales by board point, segment, or for all
                     segments
                  k. Inhibit overbooking on flight for date or date range for a
                     leg or all legs
                  l. Create extra section or "stub" flight operation
                  m. Adjust scheduled flight to add unscheduled intermediate
                     landing, overflight, or segment cancellation
                  n. On-line entry to reconcile all flight inventories for a
                     given date
                  o. Display flight inventory history, recapping all adjustments
                     and modifications
                  p. Spoilage alert messages and overbooking alerts generated to
                     a special revenue control queue
                  q. All inventory adjustment actions are recorded with agent
                     city/sign and time/date

             14.  INVENTORY AUTHORIZATION (FLP)

                  a. Flight Load  Prediction  (FLP) System loads  authorizations
                     for all  detailed  flights  in the  system
                  b. Loads either predetermined calculations or calculates new
                     authorizations
                  c. Manual   entries  exist  to  either  change or override the
                     authorizations
                  d. A feature of FLP is  automatic  large party scaling  within
                     ninety days of departure
                  e. Another  feature allows the ability to carry forward
                     authorizations or booking levels through a schedule change

             15.  MARKET TARIFF TABLE

               This table is used to control various functions associated with a
               class of service:

                  a. Primary  function is to inhibit the sale of a discount fare
                     during a specified  number of days or time of day
                  b. Market Tariff Table rules can apply to a specific market,
                     to all markets or to specified airports
                  c. User controllable  functions: time and day class is
                     inhibited,  inhibit class by flight number, specific
                     connect point, departure effective date, departure
                     discontinuation  date, non-stop flights,  multi-stop
                     flights or connections
                  d. User controlled tables

             16.  NAME LIST DISPLAYS

                  The following list displays are available and are  restricted
                  by duty code:

                  a. Passenger   Name   List,   Large   Party  Name  List,
                     Inbound/Outbound  Name  List,  Waitlisted  Name List,
                     Corporate   Name  List,   Special   Meal  Name  List,
                     Prereserved Seat Name List,  Cancellation  Name List,
                     Unticketed  Count  List,  Passengers  Affected by PDC
                     List, Waitlist Confirmation Name List

             17.  OVERLAP FLIGHT CREATION CAPABILITY

                  a. Limit  sales is used to suppress one flight, only one
                     flight (secondary)  will  appear in City Pair Availability
                     for the overlapped leg

             18.  PASSENGER NAME RECORD (PNR)

                  a. PNR will store reservations transactions and passenger data
                  b. Following PNR fields are  mandatory and reservation can not
                     be completed  without the following  items:
                     Passenger Name, Itinerary, Ticketing or Time Limit, Phone
                     Number and Received From
                  c. Non-mandatory  or optional items are:  Special Service
                     Request (SSR),  Other Service  Information  (OSI),
                     Pre-reserved seats, Remarks and Address field
                  d. Fare  Storage is an optional  item and can be required as a
                     mandatory    item
                  e. PNRs are tagged with creation time/date/year, agent sign
                     and location  where it was created
                  f. PNR  changes  are  stored in  History,  including  schedule
                     changes
                  g. PNR modifications include PNR field changes: name, phone,
                     ticketing, itinerary, pre-reserved seats, OSI/SSR, remarks
                  h. PNR can be  reduced in number of party and  divided  out by
                     passenger  name
                  i. Reorder  itinerary segments in a single command,  insert
                     additional  segments
                  j. Cancel and rebook itinerary segments in one entry
                  k. Display PNR by flight, date and name or by record locator

             19.  PNR PAST DATE INVESTIGATION ON CD-ROM

                  For information please refer to Article 13.8 of the Agreement

             20.  PRE-RESERVED SEAT SELECTION

                  a. User friendly formats for ease of request
                  b. Allows seats to be reserved for up to 331 days in advance
                  c. Allows seating by area preference or seat number preference
                  d. Allows seating by area of preference on all segments
                  e. Cancellation  by segment,  specific seat number and by all
                     segments without canceling itinerary
                  f. Tags segments with HRS (Holding  Reserve Seat) indicator
                  g. Maximum  number of seats per segment request is 60 so
                     groups can be accommodated
                  h. PNR pre-reserved  seat  history
                  i.  Pre-reserved  seats are name associated in the PNR

             21.  QUEUE PACKAGE (AAQUARIUS)

                  a. Automatic storing of PNRs requiring special handling
                  b. 227 user assigned  queues, 31 queues are defined and system
                     controlled
                  c. Place  manifest/name  list on queue
                  d. Close a queue,  automatically  rerouting all  placement
                     actions to an alternate  queue
                  e. Display  list  of  file  addresses (PNR numbers)for all
                     PNRs on queue
                  f. Queue  sorting  by use of qualifiers or specific PNR
                     functions
                  g. Prefatory Instructions which indicate reason for PNR to be
                     on queue
                  h. Queue move and queue transfer  capabilities allow complete
                     files to be moved or transferred from one queue to another
                     or different cities/locations
                  i. Create or modify user defined prefatory instruction code
                  j. Queue  count  includes  number of PNRs on  deferred  (left
                     message to call,  unable to reach)  queues
                  k. Queue  analysis displays  counts  of items  on  queue,
                     removed, transferred, removed by end transaction, and
                     ignored during processing, as well as those deferred by
                     "left message" and "unable to reach" action
                  l. Queue history

             22.  SABRE ASSISTED INSTRUCTIONS (SAI)

                  SABRE Assisted  Instructions is a series of lessons created to
                  train on SABRE functionality:

                  a. Lessons are itemized by course, with a maximum of 40
                     lessons per course
                  b. Each lesson page is numbered to permit  students to leave a
                     lesson  and  later  return  to the same  page
                  c. Each  lesson contains a HELP  system to assist the  student
                  d. Each lesson has a subject index to list topics contained in
                     the lesson

             23.  SABRE SALES GUIDE

                  a. SABRE Sales Guide Database contains over 986,000 worldwide
                     city pairs, with 651 airline schedules in the database
                  b. Over 350 participating carriers
                  c. Choice of hierarchy displays: direct flights,  connections,
                     through  flights
                  d. Host airline services are displayed prior to the
                     introduction of other airline services
                  e. Header line displays departure date and day of week,
                     board/off point time zones and difference betweenthem in
                     hours
                  f. Direct and connecting services integrated in single
                     displays
                  g. Flights which have already departed are excluded from
                     availability displays
                  h. Displays services both before and after time in request
                  i. Other airline schedules updated 5 times a week via OAG tape
                     load
                  j. Sequencing of CPA based on systemwide display parameters
                  k. Capability to override CPA system parameters for specific
                     markets
                  l. Date defaults to current day
                  m. User defined departure time default
                  n. Display elapsed time, enroute stops, time on ground from
                     availability display
                  o. Append fare quote display to CPA or schedules

             24.  SPECIAL TRAVELERS ACCOUNT RECORDS SYSTEM (STARS)

                  a. A source for storing frequently used information,
                     procedures, training data, station or city information
                  b. User defined STAR identification
                  c. Up to 200 lines of information are allowed per STAR
                  d. Retention of creation date
                  e. Retention of last update date/agent sign
                  f. Historical retention of most recent revisions
                  g. Allow automatic transfer of lines directly to a PNR
                  h. Comment  line may be added to STAR by  unauthorized/
                     untrained  agents  to  alert  controlling  office  of
                     required updates
                  i. STAR can be created from retrieved or newly created PNR
                  j. STAR Security Package provides the option and capability to
                     restrict the display  and/or  update of STARS
                  k. STAR Security is an  optional  feature
                  l. Restriction  of STARS  display or update parameters: duty
                     code, home station, password, employee number or a
                     combination of these

             25.  TELETYPE REJECT MESSAGE HANDLING

                  a. Rejected teletype messages are queue placed for manual
                     handling
                  b. Teletype  rejects are sorted by departure date and placed
                     on High  Priority, Medium Priority and Low Priority queues
                  c. Date range of each queue is determined by the user
                  d. Agents working  teletype  rejects are required to have a
                     special duty code, restricting  access to other agents
                  e. Reason or Rejection List for teletype rejects
                  f. Unmatchable inbound "confirmed" segment messages treated as
                     "if not holding, sell" action request
                  g. Large party bookings are sent to a specific queue for group
                     desk action

             26.  WORLDFARE PACKAGE AND FARE QUOTE

                  a. Worldfare database contains more than 45 million fares
                  b. Information is submitted by the Airline Tariff Publishing
                     Co., ABC International and Speedwing
                  c. Comprehensive rule data based on filed tariff rules
                  d. Worldwide currencies Bankers Buying Rates
                  e. Worldwide IATA sector mileages
                  f. Display fares for future or past purchase and/or travel
                     date or specific booking class
                  g. Display fares in specified currency
                  h. Display base fare/tax by fare quote display line number
                  i. Display comparison ("shopper") display of fares
                  j. Price PNR itinerary by alternate purchase currency
                     (U.S./Canadian dollars)
                  k. Price PNR itinerary by specific fare basis code,
                     combination of fare basis codes, or combination of ticket
                     designators
                  l. Price PNR itinerary by ticket designator (AD75, ID50, etc.)
                  m. Capability of calculating  least expensive fares (both
                     available and potentially  offerable) for a booked
                     itinerary
                  n. Optional automatic rebooking of booked itinerary to lower
                     fare booking  classes
                  o. Fare retention  allows fare quoted to be  stored  in PNR
                  p. A  count  is  maintained  of all  price retention entries
                  q. Same display as pricing is stored in the fare retention

             27.  WAITLISTING PROCESS

                  a.  Supports main waitlist and priority waitlist
                  b.  Waitlist clearance processed by times
                  c.  Waitlist clearance inhibit options, by class of service
                      and markets
                  d.  Waitlist clearance inhibited during schedule change

II.      AIRPORT PROCESSING

              1.  ADVANCE CHECK-IN (ACI)

                  a. Specific seat selection and assignmentis permitted up to
                     30 days into the future at any host location that issues
                     boarding passes

              2.  AIRPORT CHECK-IN SYSTEM (ACS)

                  a. Applicable  PNR  information is collected 3 days in advance
                     and a Passenger Name Manifest is created for ACS
                  b. Flights  are  initialized   automatically  by  the  system
                     allowing  flight  status and counts to be  displayed
                  c. ACS is duty   code   and   keyword restricted
                  d. Overlap and change-of-gauge flights are automatically
                     handled
                  e. Following functions are included: passenger check-in, seat
                     assignment, pre- and post-departure control processing,
                     automated flight reconciliation, stand-by processing,
                     equipment changes, seat blocks, no-record passengers, group
                     check-in
                 f.  Display current station activity (flight status)

              3.  AUTOMATED BOARDING PASSES

                  a. Boarding  passes  may be used  for up to 30 days  into the
                     future
                  b. Specific segments or all segments in itinerary may have
                     boarding passes issued
                  c. One entry is used to check-in a passenger and issue a
                     boarding  pass
                  d. Boarding  Pass Issue (BPI)  indicator is placed in PNR
                  e. Either  group  name or passenger name may be printed on
                     boarding passes

              4.  BAGGAGE SECURITY

                  a. Bag Tag Editfunctions allow the addition of bag tag numbers
                     to check-in  entries,  creates a manifest with number of
                     bags and passenger's name
                  b. Display outbound connections for baggage sort, upline
                     stations can pre-sort baggage
                  c. User controlled function (turn on/off) bag tag edits
                  d. Positive passenger baggage reconciliation
                  e. On-demand bag tag printing

              5.  CATERING MESSAGES AND DISPLAYS

                  a. Generate a Preliminary and Final catering message with meal
                     counts
                  b. All special meals SSR information is appended to the 
                     response and it is sorted by leg and segment
                  c. May use up to 20 destination addresses

              6.  PASSENGER NAME LIST

                  a. IATA PNL format is used to transmit a passenger  name
                     list to a teletype  address(es) to a carrier handling
                     a flight other than the host carrier
                  b. Name list will appear in alpha groups
                  c. Up to 6 teletype addresses may be included
                  d. IATA PNL includes outbound connection data
                  e. Add and Delete list of changes to original PNL

              7.  POST DEPARTURE CONTROL

                  a. PNRs are  automatically  adjusted by Post  Departure
                     processing to provide  accurate  passenger  boarded
                     statistics
                  b. Transfer of flights to downline stations and send passenger
                     load messages
                  c. Offload of all pre-reserved seat no-show passengers
                  d. Display of oversold and inconvenienced passengers
                  e. Post departure station report

              8.  SEATS AVAILABLE LIST (SAL)

                  a. IATA SAL message will transmit routing, seating
                     configuration and the space remaining for sale by class
                     and leg
                  b. Message will be generated after the final ADL message is
                     sent

III.     MANAGEMENT REPORTS

              1.  ADVANCED BOOKING REPORT

                  a. Provides total number of passengers booked by: board and
                     offpoints, specified date range and/or future dates.
                  b. Can also be used as a  summary  of  total  passengers
                     boarded by date, per station, and to assist airport manning
                     projections.

              2.  INTERLINE BOOKING REPORT

                  a. Provides daily booking activity for host and other airline
                     bookings.
                  b. Collect daily booking  counts made by other airlines on the
                     host, host airline on itself, and host airline on all other
                     airlines.

              3.  ON-LINE DUPE CHECK FACILITY

                  a. Provides names and PNR record locators as suspected
                     duplicate bookings.
                  b. May be requested for specific flight in a market, specific
                     date or date range.
                  c. Can be limited to search only corporate or BSG PNRs.

              4.  SABRE PERFORMANCE SUMMARY REPORT

                  Brings the SABRE performance data on-line.

              5.  DAILY BOOKINGS REPORT

                  a. Contains booking counts on host airline flights, classified
                     by date.
                  b. Report can be retrieved by requesting  one or more of the
                     following parameters: specific commuter, specific board
                     and/or off point or and/or  specific  month or month range
                     up to a 7 month maximum

IV.      OTHER FUNCTIONS

              1.  ADMINISTRATIVE MESSAGE SWITCHING (AMS)

                  a. Provides the capability to send teletype  messages to user
                     defined  locations  within the airline as well as other
                     airlines
                  b. Carrier may select from six transmission priority codes
                  c. Information  in message may be deleted,  changed and added
                     prior to sending  message
                  d. System  edit for invalid use of characters
                  e. "Ignore" capability allows complete cancellation of message
                     prior to  transmitting  or ending  the  message
                  f. Teletype  addresses are verified for valid cities
                  g. An EPR is required for AMS messages
                  h. Help Screen for quick  assistance to AMS formats

              2.  CALCULATOR FUNCTIONS

                  a. Multiple arithmetic calculations (addition, subtraction,
                     multiplication and division)
                  b. Calculation and displays of monthly calendars
                  c. Determine past and future dates (useful in calculation of
                     advance purchase fares)
                  d. Convert Celsius and Fahrenheit, metric and decimal
                  e. Calculate time difference

              3.  CURRENCY CONVERSION

                  a. Display of Bankers Buyer Rate for IATA documents
                  b. Alpha listing of all countries for BBR
                  c. Currency conversion for BBR
                  d. Display and conversion of currency at market rate (for
                     non-IATA usage)

              4.  ENCODE/DECODE FUNCTIONS

                  a. Encode/decode city and airport code, airline name,
                     equipment type, car and hotel vendor

              5.  DIRECT COMMUNICATIONS LINK CAPABILITIES

                  a. SABRE  system  messages  to  and  from  other  travel
                     industry  systems are routed  directly over dedicated
                     data  circuits  relieving  volume  to ARINC  and SITA
                     (additional fee may apply)
                  b. Current links to over 30 U.S. and International airlines,
                     hotel chains and car companies,  ARINC, ACARS, American
                     Express, ITT and SITA (additional fee may apply)

              6.  MINIMUM CONNECT TIMES

                  a. Display of minimum connecting times
                  b. Verification of minimum connect times in PNR
                  c. City Pair connect time override

              7.  SABRE ATLAS

                  a. Display of 10 closest airports to a city
                  b. Display of 10 closest airports to a military base
                  c. Display point to point miles between two places

              8.  SINE-IN MESSAGE

                  a. Sine-in messages display automatically after agent signs-in
                     to CRT
                  b. Create, delete and add sine-in messages
                  c. EPR keyword controlled
                  d. Messages may vary by location/city


              9.  OUS/OUB MESSAGES

                  a. Unsolicited message alerts generate messages to a specific
                     CRT address or all CRTs on a specific line
                  b. EPR keyword controlled

             10.  WEATHER SYSTEM

                  a. Provides access to the National Weather Service for current
                     conditions and three and five day forecast
                  b. Current city temperature as well as the forecast for
                     highs/lows temperature

V.       ADDITIONAL FEATURES

              1.  "QUEST DIRECT"

                  a. Website Creation
                  b. Consumer Shopping
                         -   Schedules
                         -   Fare Quotes

                  c. Consumer Booking
                         -   Availability
                         -   Pricing
                         -   Passenger data required in the PNR
                         -   Ticket by Mail
                         -   "EZ Trip" Ticketless Travel
                  d. Variable Booking Parameters
                         -   Percent of inventory designated for Internet
                             booking
                         -   Flexible ticketing time limits

                  e. Flight Information
                         -   Schedules
                         -   Flight Progress

                  f. Marketing Data
                         -   Number of visits to each web page
                         -   Number of queries per specific page
              2.  "TICKETLESS TRAVEL"

                  a. No Paper Tickets
                         -   travelers are enabled to book, purchase, and
                             check-in for travel without receiving any
                             paper tickets

                         -   system will normally  print  auditor's  passenger
                             receipt and passenger  itinerary  (in  accordance
                             with ATA and IATA requirements)

                  b. Virtual Coupon Record (VCR)
                         -   customer service agents have easy on-line, real
                             time access to VCR
                         -   used VCRs (i.e.,  all  segments are flown)  remain
                             on-line for seven (7) days after the last segment
                             is flown
                         -   partially used VCRs remain on-line for thirteen
                             (13) months from the date of the last flown segment
                         -   totally unused VCRs reside in real-time for
                             thirteen (13) months from the date of the first
                             segment
                         -   real-time tape of all VCRs, when a flight is closed

                  c. Issuance of Boarding Passes at ATOs
                         -   supports issuance of boarding passes at all ATOs
                             (if desired), provided an ATB printer is available

                  d. ATM-Style Passenger Check-In Kiosks
                         -   system  supports the IER  Electronic  Gate Reader
                             model 1801, which issues boarding passes with the
                             use of a credit card

                         -   system  supports  ATM-style  passenger  check-in
                             Kiosks,  that issue  boarding  cards to  ticketless
                             passengers

              3.  "PRIVATE FARES INVENTORY DATABASE"

                  a. Customer  may file a  private  fare  with  ATPCO  and
                     secure it to one or more AAA cities.  The fare may be
                     further  secured  to a specific  duty code.  However,
                     anyone in SABRE who has the  ability to AAA into that city
                     with that duty code has access to the privately filed fare.

                  b. When the private fare is filed,  there must be a fare type
                     code  associated with the fare. Then when a fare quote is
                     requested,  this  code is  appended  to the request.

                  c. A list of the fare type codes is presently programmed in
                     SABRE.  These fare type codes have passenger types 
                     associated  with the,  however,  they can be used for
                     other  purposes.  These are only the historical  uses for
                     them. In addition, a passenger type is associated with the
                     privately  filed fare for pricing  purposes. There is a
                     passenger type for every fare type code.

                  d. The ability of an agent to AAA into a particular city or
                     duty code is governed by the agent's EPR. Customer may
                     choose  to use an  existing  AAA city to secure private
                     fares or they may use a non-IATA assigned AAA city.


              4.  "PNR DATABASE"

                  a. SDT will provide Customer with access to a relational PNR
                     database.  The database  will be populated  with summary
                     information  from all PNRs in the  multihost partition.
                     Access to the  database is provided via a suite of
                     predefined management reports available on the Internet.

                  b. The process for capturing data and populating it is as
                     follows:

                         (1)  Every  time  a  PNR  is  created  or   modified,
                              selective PNR data fields will be captured.

                         (2)  The  data  will  then  be   transported  to  the
                              "open-system" platform.

                         (3)  Once on the open-system,  the data will be passed
                              through  a  filter   to   remove   SABRE-specific
                              information  (pointers,  etc.) and  mapped to the
                              relational database model.

                         (4)  Lastly,  the  data  will be  populated  into the
                              relational database.

                  c.  As new reports and features are  developed,  SDT will
                      make  them  available  to  Customer  at a cost  to be
                      determined by SDT.


<PAGE>




                                    EXHIBIT B
                                 STANDARD RATES

         "Standard  Rates" shall mean,  during 1997,  the  following  SDT hourly
billing rates:

                  ------------------------------------ -------------------------

                  Job Title                              Rates (USD)
                 ------------------------------------- -------------------------
                 ------------------------------------- -------------------------
                                                            ***
                  Technical Writer
                 ------------------------------------- -------------------------
                 ------------------------------------- -------------------------
                                                            ***
                   Consultant
                 ------------------------------------- -------------------------
                 ------------------------------------ -------------------------
                                                            ***
                   Senior Consultant
                 ------------------------------------ -------------------------
                 ------------------------------------- -------------------------
                                                            ***
                   Principal
                 ------------------------------------ -------------------------
                 ------------------------------------ -------------------------
                                                            ***
                   Senior Principal
                 ------------------------------------- -------------------------
                 ------------------------------------- -------------------------
                                                            ***
                   Vice President
                 ------------------------------------- -------------------------

SDT may modify the Standard  Rates,  but no more than once per calendar year, by
a percentage not to exceed twelve percent (12%) per annum.



<PAGE>





                                    EXHIBIT C
                                 ACKNOWLEDGMENT

         In  consideration  for The SABRE Group,  Inc., by and through its SABRE
Decision  Technologies  ("SDT")  division  permitting  the use of SABRE  for the
benefit  of [NAME OF  AIRLINE],  effective  upon the date of such use,  [NAME OF
AIRLINE]  hereby agrees,  for the benefit of SDT, to be bound by the obligations
of  Customer  contained  in  Article 7 and  Article  11 of the  SABRE  Multihost
Agreement  between The SABRE  Group,  Inc.  and Reno Air,  Inc. It is  expressly
acknowledged that SDT is an intended beneficiary of this Acknowledgment.


[NAME OF AIRLINE]

By: _____________________
Name: __________________
Title: ___________________


<PAGE>



                                    EXHIBIT D
                       APPROVED LOCATIONS FOR INSTALLATION
                         OF SABRE RESERVATIONS TERMINAL


         Customer  shall within  fifteen  (15) days from the date first  written
above provide SDT with a list of the locations at which Customer desires to have
SABRE reservations terminals installed pursuant to this Agreement.  Such list is
subject  to the  approval  of SDT,  with such  approval  not to be  unreasonably
withheld.



<PAGE>
                                                                   EXHIBIT 10.3

                                 RENO AIR, INC.
                          EMPLOYEE STOCK INCENTIVE PLAN

The Reno Air Employee Stock Incentive Plan is a restatement of the Reno Air 1992
Stock Option Plan. Options granted under the Reno Air Stock Option Plan prior to
its  restatement  are governed by the terms of the Plan as in existence prior to
its restatement. Shares previously subject to options granted under the Reno Air
Stock Option Plan,  which become  available for grant due to lapse or forfeiture
of such options, become available for grant under the plan as restated.


SECTION 1.            Purposes

                  The purposes of the Reno Air  Employee  Stock  Incentive  Plan
(the  "Plan")  are  to  enable  Reno  Air,  Inc.   (including  any  consolidated
subsidiaries,  the  "Company")  to  attract,  retain  and reward  employees  and
consultants  and  strengthen  the existing  mutuality of interests  between such
persons  and the  Company's  stockholders  by  offering  such  persons an equity
interest in the Company.

SECTION 2.            Types of Awards

                  2.1  Awards  under  the Plan  may be in the form of (i)  Stock
Options;  (ii) Stock  Appreciation  Rights;  and/or (iii)  Restricted  Stock. An
eligible employee may be granted one or more types of awards.

SECTION 3.            Administration

                  3.1 The Plan shall be  administered  by the Company's Board of
Directors  (the  "Board")  or such  committee  of  directors  as the Board shall
designate (the "Committee"),  which shall consist of not less than two directors
each of whom is (a) a  non-employee  director,  as such term is  defined in Rule
16b-3 under the Securities  Exchange Act of 1934 or any successor  rule, and (b)
an  outside  director  satisfying  the  requirements  of  Section  162(m) of the
Internal  Revenue  Code of 1986,  as  amended,  or any  successor  thereto  (the
"Code").  The members of the Committee shall serve at the pleasure of the Board.
In the event  and to the  extent  the Board  does  designate  such a  Committee,
references herein to the Board shall be references to the Committee.

                  3.2 The Board shall have the following  authority with respect
to awards under the Plan: to grant awards to eligible  employees under the Plan;
to adopt, alter and repeal such administrative  rules,  guidelines and practices
governing  the Plan as it shall  deem  advisable;  to  interpret  the  terms and
provisions of the Plan and any award  granted  under the Plan;  and to otherwise
supervise the  administration  of the Plan. In particular,  and without limiting
its authority and powers, the Board shall have the authority:

                           (a) to determine whether and to what extent any award
         or combination of awards will be granted  hereunder,  including whether
         any awards will be granted in tandem with each other;

                           (b) to select the employees to whom awards will be
         granted;

                           (c) to  determine  the number of shares of the common
         stock of the Company (the  "Stock") to be covered by each award granted
         hereunder subject to the limitations contained herein;

                           (d) to  determine  the  terms and  conditions  of any
         award granted hereunder,  including, but not limited to, any vesting or
         other   restrictions   based  on  such   performance   objectives  (the
         "Performance  Objectives")  and such  other  factors  as the  Board may
         establish,  and to determine  whether the  Performance  Objectives  and
         other terms and conditions of the award are satisfied;

                           (e) to  determine  the  treatment  of awards  upon an
         employee's  retirement,  disability,  death,  termination  for cause or
         other termination of employment,  to the extent not otherwise set forth
         herein;

                           (f) to  determine  pursuant to a formula or otherwise
         the fair market value of the Stock on a given date; provided,  however,
         that if the Board fails to make such a determination, fair market value
         of the Stock on a given date shall be the last reported  sales price of
         the Stock on the Nasdaq National Market (or the principal exchange upon
         which the Stock is  traded)  on the last  preceding  date on which such
         price was reported;

                           (g) to determine  that amounts equal to the amount of
         any dividends  declared with respect to the number of shares covered by
         an award  (i) will be paid to the  employee  currently  or (ii) will be
         deferred  and  deemed  to be  reinvested  or (iii)  will  otherwise  be
         credited  to the  employee,  or that the  employee  has no rights  with
         respect to such dividends;

                           (h) to determine  whether,  to what extent, and under
         what  circumstances  Stock and other amounts payable with respect to an
         award will be deferred  either  automatically  or at the election of an
         employee,  including  providing for and determining the amount (if any)
         of deemed earnings on any deferred amount during any deferral period;

                           (i) to provide that the shares of Stock received as a
         result  of an award  shall  be  subject  to a right  of first  refusal,
         pursuant  to  which  the  employee  shall be  required  to offer to the
         Company any shares that the  employee  wishes to sell,  subject to such
         terms and conditions as the Board may specify; and

                           (j) to amend the terms of any award, prospectively or
         retroactively;  provided,  however,  that no amendment shall impair the
         rights of the award  holder  without  his or her written  consent,  and
         further  provided that no such amendment shall alter the price at which
         an option is exercisable,  or shorten the vesting provisions,  or relax
         the  restrictions  applicable to a grant (other than as contemplated by
         the terms of the grant.)

                  3.3  If  the  Plan  is  administered  by  the  Committee,  the
Committee  shall have the right to  designate  awards as  "Performance  Awards."
Awards so designated  shall be granted and  administered in a manner designed to
preserve the  deductibility  of the  compensation  resulting from such awards in
accordance  with  Section  162(m)  of  the  Code.  The  grant  or  vesting  of a
Performance Award shall be subject to the achievement of Performance  Objectives
established by the Committee based on one or more of the following criteria,  in
each case  applied to the Company on a  consolidated  basis and/or to a business
unit and which the  Committee  may use as an absolute  measure,  as a measure of
improvement  relative  to  prior  performance,  or as a  measure  of  comparable
performance  relative  to a peer group of  companies:  sales,  costs,  operating
profits,  operating  profits before  interest  expense and taxes,  net earnings,
earnings per share,  return on equity, debt to equity ratio, market share, stock
price, economic value added, and market value added employee retention/turnover.

                  The Performance  Objectives for a particular Performance Award
relative to a particular  fiscal year shall be  established  by the Committee in
writing no later than 90 days after the beginning of such year. The  Committee's
determination  as to the  achievement  of Performance  Objectives  relating to a
Performance Award shall be made in writing.

                  3.4 All  determinations  made  by the  Board  pursuant  to the
provisions of the Plan shall be final and binding on all persons,  including the
Company and Plan participants.

SECTION 4.            Stock Subject to Plan

                  4.1 The total  number  of shares of Stock  which may be issued
under the Plan shall be  4,600,000  shares  (subject to  adjustment  as provided
below).  Such shares may consist of authorized  but unissued  shares or treasury
shares.  The exercise of a Stock  Appreciation  Right for cash or the payment of
any other award in cash shall not count against this share limit.

                  4.2 To the extent a Stock  Option  terminates  without  having
been  exercised,  or an award  terminates  without the employee  having received
payment of the award,  or shares  awarded are  forfeited,  the shares subject to
such option or award shall again be available  for  distribution  in  connection
with future awards under the Plan. Shares of Stock equal in number to the shares
surrendered  in  payment  of the option  price,  and  shares of Stock  which are
withheld in order to satisfy  federal,  state or local tax liability,  shall not
count against the above limit, and shall again be available for grants under the
Plan.

                  4.3  No  employee  shall  be  granted  Stock  Options,   Stock
Appreciation Rights, and/or Restricted Stock or any combination of the foregoing
with respect to more than 250,000 shares of Stock in any fiscal year (subject to
adjustment as provided in Section 4.4).

                  4.4 In the event of any merger, reorganization, consolidation,
sale of substantially all assets, recapitalization, Stock dividend, Stock split,
spin-off,  split-up,  split-off,  distribution  of  assets  or other  change  in
corporate structure affecting the Stock, a substitution or adjustment, as may be
determined to be appropriate by the Board in its sole discretion,  shall be made
in the  aggregate  number of shares  reserved for issuance  under the Plan,  the
number of shares as to which  awards  may be granted  to any  individual  in any
fiscal year, the number of shares subject to outstanding  awards and the amounts
to be paid by award holders or the Company,  as the case may be, with respect to
outstanding awards;  provided,  however,  that no such adjustment shall increase
the aggregate value of any outstanding award.

SECTION 5.            Eligibility

                  5.1 Employees of the Company, including officers, are eligible
to be  granted  awards  under the Plan.  Directors  of the  Company  who are not
employees are not eligible to be granted awards under the Plan. The participants
under the Plan shall be  selected  from time to time by the  Board,  in its sole
discretion,  from among those  eligible.  As used throughout this Plan, the term
employee includes paid consultants to the Company, except that consultants shall
not be eligible to receive Incentive Stock Options.

SECTION 6.            Stock Options

                  6.1 The Stock Options  awarded to employees under the Plan may
be of two types:  (i) Incentive  Stock Options within the meaning of Section 422
of the Code or any successor  provision thereto;  and (ii)  Non-Qualified  Stock
Options.  To the extent that any Stock  Option does not qualify as an  Incentive
Stock Option, it shall constitute a Non-Qualified Stock Option.

                  6.2 Subject to the following provisions, Stock Options awarded
to employees  under the Plan shall be in such form and shall have such terms and
conditions as the Board may determine:

                           (a) Option Price. The option price per share of Stock
         purchasable  under a Stock Option shall be determined by the Board, but
         shall not be less than the fair  market  value of the Stock on the date
         of the award of the Stock Option.

                           (b) Option Term. The term of each Stock  Option shall
         be fixed by the Board,  but shall not be more than ten (10) years from
         the date the option is granted.

                           (c)   Exercisability.    Stock   Options   shall   be
         exercisable  at such  time or  times  and  subject  to such  terms  and
         conditions  as shall be  determined  by the Board.  The Board may waive
         such exercise provisions at any time in whole or in part.

                           (d)  Method  of  Exercise.   Stock   Options  may  be
         exercised  in whole or in part at any time during the option  period by
         giving written notice of exercise to the Company  specifying the number
         of shares to be  purchased,  accompanied  by  payment  of the  purchase
         price.  Payment of the  purchase  price shall be made in such manner as
         the  Board  shall  permit,  which  may  include  cash  (including  cash
         equivalents), delivery of shares of Stock already owned by the optionee
         or subject to awards hereunder,  "cashless exercise",  any other manner
         permitted by law  determined by the Board,  or any  combination  of the
         foregoing. If the Board determines that a Stock Option may be exercised
         using  shares of  Restricted  Stock,  then  unless  the Board  provides
         otherwise,  the shares  received  upon the  exercise of a Stock  Option
         which  are paid for  using  Restricted  Stock  shall be  restricted  in
         accordance with the original terms of the Restricted Stock award.

                           (e) No  Stockholder  Rights.  An optionee  shall have
         neither  rights to  dividends  or other  rights of a  stockholder  with
         respect to shares  subject to a Stock  Option  until the  optionee  has
         given written notice of exercise and has paid for such shares.

                           (f)  Surrender  Rights.  The Board may  provide  that
         options may be  surrendered  for cash upon any terms and conditions set
         by the Board.

                           (g) Non-transferability. Unless otherwise provided by
         the Board,  (i) Stock Options shall not be transferable by the optionee
         other than by will or by the laws of descent and distribution, and (ii)
         during the optionee's lifetime,  all Stock Options shall be exercisable
         only by the optionee or by his or her guardian or legal representative.

                           (h)   Termination   of   Employment.   Following  the
         termination  of an optionee's  employment  with the Company,  the Stock
         Option shall be exercisable to the extent  determined by the Board. The
         Board may provide different  post-termination  exercise provisions with
         respect to termination of employment for different  reasons.  The Board
         may provide  that,  notwithstanding  the option term fixed  pursuant to
         Section  6.2(b),  a Stock Option which is outstanding on the date of an
         optionee's  death shall remain  outstanding  for an  additional  period
         after the date of such death.

                  6.3 No  Incentive  Stock Option shall be awarded more than ten
years after the effective date of the Plan specified in Section 13. No Incentive
Stock Option granted to an employee who owns more than 10% of the total combined
voting  power of all  classes  of stock of the  Company  or any of its parent or
subsidiary  corporations,  as defined in Section 424 of the Code, shall (A) have
an option price which is less than 110% of the fair market value of the Stock on
the date of award of the Incentive Stock Option or (B) be exercisable  more than
five years after the date such Incentive Stock Option is awarded.

SECTION 7.            Stock Appreciation Rights

                  A  Stock  Appreciation  Right  awarded  to an  employee  shall
entitle the holder thereof to receive payment of an amount,  in cash,  shares of
Stock or a combination  thereof,  as determined by the Board,  equal in value to
the excess of the fair market value of the number of shares of Stock as to which
the award is granted on the date of  exercise  over an amount  specified  by the
Board.  Any such  award  shall be in such  form and shall  have  such  terms and
conditions  as the Board may  determine.  The grant shall  specify the number of
shares of Stock as to which the Stock Appreciation Right is granted.

SECTION 8.            Restricted Stock

                  Subject to the following provisions,  all awards of Restricted
Stock to  employees  shall  be in such  form  and  shall  have  such  terms  and
conditions as the Board may determine:

                           (a) The  Restricted  Stock  award  shall  specify the
         number of shares of Restricted Stock to be awarded,  the price, if any,
         to be paid by the  recipient  of the  Restricted  Stock and the date or
         dates on which, or the conditions upon the  satisfaction of which,  the
         Restricted  Stock will vest. The grant and/or the vesting of Restricted
         Stock may be conditioned  upon the completion of a specified  period of
         service with the Company,  upon the attainment of specified Performance
         Objectives or upon such other criteria as the Board may determine.

                           (b) Stock  certificates  representing  the Restricted
         Stock  awarded to an employee  shall be  registered  in the  employee's
         name,  but the Board may direct that such  certificates  be held by the
         Company on behalf of the  employee.  Except as may be  permitted by the
         Board, no share of Restricted Stock may be sold, transferred, assigned,
         pledged or otherwise  encumbered  by the employee  until such share has
         vested in accordance  with the terms of the Restricted  Stock award. At
         the time  Restricted  Stock vests, a certificate for such vested shares
         shall  be  delivered  to  the  employee  (or  his  or  her   designated
         beneficiary in the event of death), free of all restrictions.

                           (c) The Board may  provide  that the  employee  shall
         have the right to vote or receive dividends on Restricted Stock. Unless
         the Board  provides  otherwise,  Stock received as a dividend on, or in
         connection with a stock split of,  Restricted Stock shall be subject to
         the same restrictions as the Restricted Stock.

                           (d) Except as may be  provided  by the Board,  in the
         event of an employee's  termination of employment  before all of his or
         her Restricted Stock has vested,  or in the event any conditions to the
         vesting  of  Restricted  Stock  have  not been  satisfied  prior to any
         deadline  for the  satisfaction  of such  conditions  set  forth in the
         award,  the shares of  Restricted  Stock which have not vested shall be
         forfeited,  and the Board may provide that (i) any purchase  price paid
         by the  employee  shall  be  returned  to the  employee  or (ii) a cash
         payment equal to the  Restricted  Stock's fair market value on the date
         of forfeiture, if lower, shall be paid to the employee.

SECTION 9.            Election to Defer Awards

                  The Board may permit an employee to elect to defer  receipt of
an award for a specified period or until a specified  event,  upon such terms as
are determined by the Board.

SECTION 10.           Tax Withholding

                  10.1 Each employee  shall,  no later than the date as of which
the value of an award first becomes includible in such person's gross income for
applicable tax purposes,  pay to the Company, or make arrangements  satisfactory
to the Board regarding payment of, any federal,  state,  local or other taxes of
any  kind  required  by law to be  withheld  with  respect  to  the  award.  The
obligations  of the Company under the Plan shall be  conditional on such payment
or arrangements, and the Company shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
employee.

                  10.2 To the extent permitted by the Board, and subject to such
terms and conditions as the Board may provide, an employee may elect to have the
withholding tax obligation, or any additional tax obligation with respect to any
awards  hereunder,  satisfied by (i) having the Company withhold shares of Stock
otherwise  deliverable  to  such  person  with  respect  to the  award  or  (ii)
delivering to the Company shares of unrestricted Stock. Alternatively, the Board
may  require  that a portion of the  shares of Stock  otherwise  deliverable  be
applied to satisfy the withholding tax obligations with respect to the award.

SECTION 11.           Amendments and Termination

                  The Board may  discontinue  the Plan at any time and may amend
it from time to time,  provided,  that any amendment to the Plan  increasing the
number of  authorized  shares or  providing a material  increase in the value of
awards  granted under the Plan or materially  increasing the cost of the Plan to
the Company shall require shareholder  approval. No amendment or discontinuation
of the Plan shall  adversely  affect any award  previously  granted  without the
award holder's written consent.

SECTION 12.           General Provisions

                  12.1  Each  award  under  the  Plan  shall be  subject  to the
requirement that, if at any time the Board shall determine that (i) the listing,
registration or  qualification  of the Stock subject or related thereto upon any
securities  exchange  or under any state or federal  law, or (ii) the consent or
approval  of any  government  regulatory  body  or  (iii)  an  agreement  by the
recipient of an award with respect to the  disposition  of Stock is necessary or
desirable (in connection with any requirement or  interpretation  of any federal
or state securities law, rule or regulation) as a condition of, or in connection
with, the granting of such award or the issuance,  purchase or delivery of Stock
thereunder,  such award shall not be granted or exercised,  in whole or in part,
unless such listing, registration, qualification, consent, approval or agreement
shall have been effected or obtained free of any  conditions  not  acceptable to
the Board.

                  12.2  Nothing  set forth in this Plan shall  prevent the Board
from  adopting  other  or  additional  compensation  arrangements.  Neither  the
adoption of the Plan nor any award  hereunder  shall confer upon any employee of
the Company any right to continued employment.

                  12.3  Determinations  by the Board under the Plan  relating to
the form,  amount,  and terms and conditions of awards need not be uniform,  and
may be made  selectively  among  persons who receive or are  eligible to receive
awards under the Plan, whether or not such persons are similarly situated.

                  12.4 No member of the Board or the Committee,  nor any officer
or employee of the Company acting on behalf of the Board or the Committee, shall
be personally liable for any action,  determination or  interpretation  taken or
made with respect to the Plan, and all members of the Board or the Committee and
all officers or employees of the Company  acting on their behalf  shall,  to the
extent  permitted by law, be fully  indemnified  and protected by the Company in
respect of any such action, determination or interpretation.

SECTION 13.           Effective Date of Plan

                  The Plan was  effective  on April 29, 1992.  This  restatement
shall be  effective  on May 22,  1997,  subject  to  approval  by the  Company's
stockholders at the 1997 Annual Meeting of Stockholders.





<PAGE>



                                                                   EXHIBIT 10.4

                                 RENO AIR, INC.
                           DIRECTORS STOCK OPTION PLAN



SECTION 1.        Purposes

         The purposes of the Reno Air  Directors  Stock Option Plan (the "Plan")
are to enable Reno Air,  Inc.  (including  any  consolidated  subsidiaries,  the
"Company")  to attract and retain  directors of the Company and  strengthen  the
existing  mutuality  of  interests  between  such  directors  and the  Company's
stockholders by offering such directors an equity interest in the Company.

SECTION 2.        Authorization

         2.1 The total  number of shares  of common  stock of the  Company  (the
"Stock") which may be issued under the Plan shall be 300,000 shares  (subject to
adjustment  as  provided  below).  Such  shares may  consist of  authorized  but
unissued shares or treasury shares.

         2.2 To the  extent  a  stock  option  terminates  without  having  been
exercised,  the shares  subject to such  option  shall  again be  available  for
distribution in connection with future awards under the Plan.

         2.3 In the event of any merger, reorganization,  consolidation, sale of
substantially  all  assets,  recapitalization,   Stock  dividend,  Stock  split,
spin-off,  split-up,  split-off,  distribution  of  assets  or other  change  in
corporate structure affecting the Stock, a substitution or adjustment, as may be
determined to be appropriate by the Board in its sole discretion,  shall be made
in the  aggregate  number of shares  reserved for issuance  under the Plan,  the
number of shares as to which  awards  may be granted  to any  individual  in any
fiscal year, the number of shares subject to outstanding  awards and the amounts
to be paid by  optionees  or the  Company,  as the case may be, with  respect to
outstanding awards;  provided,  however,  that no such adjustment shall increase
the aggregate value of any outstanding award.

SECTION 3.        Administration

         3.1 The Plan shall be administered by the Company's Board of Directors.

         3.2 Each  person who is not a member of the Board of  Directors  of the
Company and who first  becomes a director  of the Company  after May 22, 1997 (a
"Qualified  Director"),  shall be granted,  on the first trading day  coincident
with or immediately  following the date of his or her election as a director, an
option to purchase  30,000 shares of common  stock.  On the first trading day of
June of each year commencing in June 1998, each Qualified  Director then serving
on the Board who has  served for at least the  preceding  six  months,  and each
other  director of the Company who has served for at least the  preceding  three
years,  shall be granted an option to purchase an  additional  10,000  shares of
Stock.  For purposes of this  section,  the term trading day shall mean a day on
which the  Stock is traded on a  national  securities  exchange,  on the  Nasdaq
National  Market,  or  in  the  over-the-counter  market.   Notwithstanding  the
foregoing,  if on any  date  on  which  stock  options  are to be  granted,  the
remaining  shares  available  for issuance  under the Plan are  insufficient  to
satisfy the grants then due, each  director  entitled to an option shall receive
an option to purchase his or her pro rata portion of the remaining shares.

         3.3 Each option granted under the Plan shall have the following terms:

         (a)      General.  The option shall be a non-qualified option.

         (b) Option  Price.  The option  price shall be the fair market value of
the shares on the date of grant,  determined as the last reported sales price of
the Stock on the Nasdaq  National  Market (or the principal  exchange upon which
the  Stock is  listed)  on the last  preceding  date for  which  such  price was
reported.

         (c) Term of Option. The option term shall be ten years from the date of
grant (the "Option  Expiration  Date"),  unless earlier terminated under section
(e).

         (d)  Vesting.  The  option  shall  vest as to  one-third  of the shares
subject to the option on each anniversary of the grant date.

         (e)  Termination  of Option.  The option may be  exercised  at any time
after it vests and prior to the first of the following to occur:

         (i) Thirty (30) days after the termination of the optionee's membership
on the  Board  of  Directors  for any  reason  except  the  optionee's  death or
disability;  provided that the Board of Directors of the  Corporation may extend
such  thirty  (30) day period up to a period not to exceed two years,  but in no
event beyond the Option Expiration Date, and

         (ii) Six (6) months after the termination of the optionee's  membership
on the  Board of  Directors  by reason of the  optionee's  death of  disability,
provided that the Board of Directors of the  Corporation may extend such six (6)
month period up to a period not to exceed two years,  but in no event beyond the
Option Expiration Date.

         (f)  Payment of  Exercise  Price.  The  option  price may be payable by
cashier's or certified  check,  personal  check (if  acceptable to the Company),
shares of common stock owned by the  optionee,  surrender of vested  options (if
approved by the Board of Directors) or for such other types of  consideration as
may have been approved by the Board of Directors.

         (g) Method of Exercise. The option may be exercised in whole or in part
at any time during the option period by giving written notice of exercise to the
Company specifying the number of shares to be purchased,  accompanied by payment
of the purchase price.

         (h)  Non-transferability.  No  option  shall  be  transferable  by  the
optionee  other  than by the  laws  of  descent  and  distribution.  During  the
optionee's lifetime, all options shall be exercisable only by the optionee or by
his or her guardian or legal representative.

         (i) No  Stockholder  Rights.  An optionee  shall have neither rights to
dividends nor other rights of a stockholder with respect to shares subject to an
option until the optionee has given written  notice of exercise and has paid for
such shares.

SECTION 4.        Tax Withholding

         4.1 Each optionee  shall,  no later than the date as of which the value
of an  award  first  becomes  includible  in  such  person's  gross  income  for
applicable tax purposes,  pay to the Company, or make arrangements  satisfactory
to the Board regarding payment of, any federal,  state,  local or other taxes of
any  kind  required  by law to be  withheld  with  respect  to  the  award.  The
obligations  of the Company under the Plan shall be  conditional on such payment
or arrangements, and the Company shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
optionee.

         4.2 To the extent permitted by the Board, and subject to such terms and
conditions  as the  Board  may  provide,  an  optionee  may  elect  to have  the
withholding tax obligation, or any additional tax obligation with respect to any
awards  hereunder,  satisfied by (i) having the Company withhold shares of Stock
otherwise  deliverable  to  such  person  with  respect  to the  award  or  (ii)
delivering to the Company shares of unrestricted Stock. Alternatively, the Board
may  require  that a portion of the  shares of Stock  otherwise  deliverable  be
applied to satisfy the withholding tax obligations with respect to the award.

SECTION 5.        Amendments and Termination

         The  Board may  discontinue  the Plan at any time and may amend it from
time to time. No amendment or discontinuation of the Plan shall adversely affect
any award previously granted without the award holder's written consent.

SECTION 6.        General Provisions

         6.1 Each award under the Plan shall be subject to the requirement that,
if at any time the Board shall  determine that (i) the listing,  registration or
qualification  of the Stock  subject  or  related  thereto  upon any  securities
exchange  or under any state or federal  law, or (ii) the consent or approval of
any  government  regulatory  body or (iii) an agreement  by the  recipient of an
award with respect to the  disposition  of Stock is  necessary or desirable  (in
connection  with any  requirement  or  interpretation  of any  federal  or state
securities  law, rule or regulation)  as a condition of, or in connection  with,
the  granting  of such award or the  issuance,  purchase  or  delivery  of Stock
thereunder,  such award shall not be granted or exercised,  in whole or in part,
unless such listing, registration, qualification, consent, approval or agreement
shall have been effected or obtained free of any  conditions  not  acceptable to
the Board.

         6.2  Nothing  set  forth in this Plan  shall  prevent  the  Board  from
adopting other or additional compensation arrangements.  Neither the adoption of
the Plan nor any award  hereunder shall confer upon any optionee of the Company,
any right to a continued position with the Company or membership on the Board.

         6.3  Determinations by the Board under the Plan relating to awards need
not be uniform,  and may be made  selectively  among persons who receive  awards
under the Plan, whether or not such persons are similarly situated.

         6.4 No member of the Board or the Board, nor any officer or employee of
the  Company  acting on behalf of the Board or the  Board,  shall be  personally
liable  for any  action,  determination  or  interpretation  taken or made  with
respect to the Plan,  and all members of the Board or the Board and all officers
or  employees  of the  Company  acting  on their  behalf  shall,  to the  extent
permitted by law, be fully  indemnified  and protected by the Company in respect
of any such action, determination or interpretation.

SECTION 7.        Effective Date of Plan

         The Plan shall be effective on May 22, 1997, subject to approval by the
Company's  stockholders at the 1997 Annual Meeting of Stockholders.


<PAGE>




                                                                   EXHIBIT 10.5

July 3, 1997


                                                               Robert W. Reding
                                                                President & CEO
                                                           Direct  702/686-3837
                                                           simile  702/686-3875
Mr. B.J. Rone
3000 St. Germain Drive
McKinney, TX 75070

Dear B.J.:

Reno Air is pleased to offer you the position of Sr. Vice President, Finance and
Administration, and CFO reporting to me. I look forward to your participation in
Reno Air's future success.

The specifics of the offer are as follows:

Title:            Sr. Vice President, Finance and Administration & C.F.O.

Salary:           $180,000/annum,  paid $7,500 semi-monthly (24 pa6y periods per
                  annum).  Salary to Commence when you report to work on your
                  "Start Date."

Benefits:         Standard Reno Air Benefit Plan

Bonus:            You will be eligible to  participate in the Reno Air Executive
                  Incentive Bonus Plan, based upon the successful  attainment of
                  defined   individual   and  corporate   objectives.   At  100%
                  attainment  of Plan you will be eligible to receive a bonus of
                  30% of annual base salary earned during the calendar year.

Stock             Option: Should you report to work next week, you will have the
                  option to  purchase  180,000  Common  Shares from the Reno Air
                  Incentive Stock Option Plan, exercisable at $7 7/16, which was
                  the closing market value of the stock when your employment was
                  approved  at the  telephonic  Board  meeting  held on June 25,
                  1997. The options come with a 60-month vesting period, vesting
                  on a straight line basis annually.

                  Further,  you will be eligible to participate in a Performance
                  Accelerated  stock (PASOP) Plan for 50,000  shares.  A copy of
                  the Plan is included for your review. The option price for the
                  PASOP plan will be  determined  and approved at the next Board
                  meeting.

Relocation:       As your new position requires relocation to Reno, Nevada, we
                  will provide the following relocation assistance:

                  Up to 452,000 for documented and reasonable  relocation  costs
                  including the closing costs  associated  with the sale of your
                  home in McKinney, Texas. Additionally,  you will be reimbursed
                  $1,500 per month for temporary housing in Reno, Nevada, for up
                  to a  maximum  of six  (6)  months,  or  until  your  home  in
                  McKinney, Texas, is sold, whichever comes first.

                  If  your  employment  terminates  voluntarily,  or if you  are
                  terminated for "cause" prior to completing one year's service,
                  all reimbursed  moving  expenses must be repaid to the Company
                  on a pro-rated basis.

                  If you  are  terminated  "without  cause",  the  Company  will
                  provide the costs of your relocation back to McKinney,  Texas,
                  or equivalent location of your choice.

Change of
  Control:        The Board of Directors, will consider a management recommended
                  Change  of  Control  Agreement  for all  Executive  and  "Key"
                  Officers at Reno Air at its next  scheduled  board  meeting on
                  July 25, 1997.

Termination
"Without Cause":
                  If you are  terminated  without  cause,  you will be  provided
                  termination  benefits while you are unemployed including up to
                  twelve months of continuing  bi-monthly salary and health care
                  benefits for yourself and eligible dependents.

I am  delighted  to have you join  the  Reno  Air  team  and look  forward  to a
beneficial  and  positive  relationship.  If these terms are  agreeable  to you,
please  indicate  the date next week that you plan to report to work in Reno and
return a signed copy of this letter to me at fax 702/686-3875.

Sincerely,

/s/ Robert W. Reding
Robert W. Reding
President & CEO

Accepted by:
/s/  B. J. Rone   7-7-97                     7-8-97
     B. J. Rone   Date                       Start Date