Document:

Second Amendment to October 19, 2005 Credit Agreement

 Exhibit 10.2.2 
 FOIA CONFIDENTIAL 
 TREATMENT REQUESTED 
 AMENDMENT NO. 2 TO CREDIT AGREEMENT [HSH/AS B737-8001] 
 THIS AMENDMENT NO. 2
TO CREDIT AGREEMENT, dated as of November 26, 2007 (this “Amendment”), is to the Credit Agreement, dated as of October 19, 2005 (as amended and supplemented from time to time, the “Credit Agreement”),
among (i) ALASKA AIRLINES, INC., an Alaska corporation (the “Borrower”), (ii) EACH LOAN PARTICIPANT IDENTIFIED ON SCHEDULE I HERETO, and (iii) HSH NORDBANK AG NEW YORK BRANCH, as the Security
Agent acting on behalf of the Loan Participants (the “Security Agent”), as amended by Amendment No 1 to Credit Agreement dated as of March 27, 2007 among the Borrower, each Loan Participant and the Security Agent. 

W I T N E S S E T H: 
 WHEREAS, the parties hereto have previously entered into the Credit Agreement; and 
 WHEREAS, the parties hereto
desire to amend the Credit Agreement in certain respects as provided herein. 
 NOW THEREFORE, in consideration of the mutual
agreements contained herein, the parties hereto agree as follows: 
 Section 1 Defined Terms. Unless otherwise amended the terms of
this Amendment, terms used in this Amendment shall have the meanings assigned in the Credit Agreement. 
 Section 2 Amendments to Credit
Agreement. This Amendment shall be effective as of November 26, 2007 (the “Amendment Effective Date”), provided that all Loan Participants, the Borrower and the Security Agent have signed this Amendment and the conditions
precedent in Section 3 have been satisfied to the satisfaction of the Loan Participants and the Security Agent. From the Amendment Effective Date, the Credit Agreement (and to the extent of an amendment to the definitions in Annex A to the
Credit Agreement, Annex A to each other document between the parties) shall be amended as follows: 
 (a) Section 3.6 of
the Credit Agreement shall be amended and restated in its entirety as follows: 
 “3.6 Non Continuing Loan
Participant. (a) Provided that no Event of Default is continuing, on August 31, 2009, or if such day is not a Business Day, on the next preceding Business Day (the “Non Continuing Repayment Date”), all Drawings made by
the Non Continuing Loan Participant (together with accrued interest and any other amounts due and owing to the Non Continuing Loan Participant) shall be repaid by the Borrower to the Non Continuing Loan Participant Upon receipt of payment, the Non
Continuing Loan Participant’s Commitment shall be cancelled and, if requested by the Borrower, the Non Continuing Loan Participant shall return or cancel its Loan Certificate. 

 [Amendment No. 2 to Credit Agreement HSH/AS B737-800] 
  

 (b) On and from cancellation of the Non Continuing Loan Participant’s
Commitment, and repayment of the Non Continuing Loan Participant’s Drawings, the aggregate Maximum Commitment of the Loan Participants under the Operative Documents and the Facility Amount shall be reduced to US$152,000,000, as if the Borrower
had canceled such Facility Amount accordance with Section 3.5. The Maximum Commitment of each Continuing Loan Participant shall be unchanged. 
  

 2 

 [Amendment No. 2 to Credit Agreement HSH/AS B737-800] 
  

 (c) Unless the Borrower gives notice to the Continuing Loan Participants five
Business Days prior to the Non Continuing Repayment Date, on the Non Continuing Repayment Date, provided that no Event of Default is continuing, the Borrower shall make a Drawing from the Continuing Loan Participants in an amount equal to the
principal amount of the Drawing repaid by the Borrower to the Non Continuing Loan Participant pursuant to Section 3.6(a) on Non Continuing Repayment Date, or such lesser amount such that no more than the aggregate Maximum Commitment applying on
and from the Non Continuing Repayment Date is outstanding. Subject to satisfaction of the conditions precedent specified in Sections 4.2 of the Credit Agreement, such Drawing shall be made available by each Continuing Loan Participant in accordance
with their Participation Percentage. If the Borrower fails to repay the Non Continuing Loan Participant on the Non Continuing Repayment Date then no Drawing shall be made by a Continuing Loan Participant and the Borrower shall pay any Break Costs
associated with a Continuing Loan Participant’s failed Drawing in accordance herewith” 
 (b) In Schedule I to the
Credit Agreement, each occurrence of the following contact details: 
 [***]* 
 shall be replaced with the following: 
 [***]* 
  

	*	Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with
respect to the omitted portions. 

  

 3 

 [Amendment No. 2 to Credit Agreement HSH/AS B737-800] 
  

 (c) Schedule III to the Credit Agreement is hereby replaced with a new Schedule III
in the form specified in Annex A hereto. 
 (d) In Annex A, the definition of “Loan Participant” is hereby amended
and restated in its entirety to read as follows: 
 ““Loan Participant” means those parties identified
in Schedule I to the Credit Agreement, and their successors and assigns, provided that, subject to repayment by the Borrower of the Non Continuing Loan Participant on the Non Continuing Repayment Date in accordance with Section 3.6(a) of the
Credit Agreement, from the Non Continuing Repayment Date, the Non Continuing Loan Participant shall not be a Loan Participant.” 
 (d) In Annex A, add a new definition of “Continuing Loan Participant” in the appropriate alphabetical position as follows: 
 ““Continuing Loan Participant” means each Loan Participant other than the Non Continuing Loan Participant.” 
 (e) In Annex A, the definition of “Facility Amount” shall be amended and restated in its entirety as follows: 
 ““Facility Amount” means $172,000,000, or such lesser amount as is specified in Schedule III to the Credit
Agreement, as cancelled or reduced by the Borrower under Section 3.5 or Section 3.6(a) of the Credit Agreement “ 
 (f) In Annex A, the definition of “Final Repayment Date” shall be amended and restated in its entirety as follows: 
 ““Final Repayment Date” means, for the Non Continuing Loan Participant, the Non Continuing Repayment Date, and, for the Continuing Loan Participants, August 31, 2011.” 
 (g) In Annex A, add a new definition of “Non Continuing Loan Participant” in the appropriate alphabetical position as follows:

 ““Non Continuing Loan Participant” means Kaupthing Bank hf. and its assigns.” 
 (h) In Annex A, add a new definition of “Non Continuing Repayment Date” in the appropriate alphabetical position as follows:

 ““Non Continuing Repayment Date” has the meaning given in Section 36(a) of the Credit
Agreement.” 
 Section 3 Condition Precedent. The effectiveness of this Amendment is subject to the receipt by the Security Agent
of a certificate of the Secretary or an Assistant Secretary of the Borrower as to the incumbency and specimen signature of the officer of the Borrower who shall have executed this Amendment on behalf of the Borrower on or about the date hereof,
which shall be satisfactory to the Security Agent in form and substance. 
  

 4 

 [Amendment No. 2 to Credit Agreement HSH/AS B737-800] 
  

 Section 4 Scope and Effectiveness of Amendment. 
 (a) This Amendment and the agreements set forth herein shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns from and after the Amendment Effective Date. This Amendment shall not have retroactive effect and the original provisions contained in the Credit Agreement shall apply up to the Amendment Effective Date. 

(b) On and after the Amendment Effective Date (i) this Amendment shall become a part of the Credit Agreement (ii) each
reference in (x) the Credit Agreement to “this Agreement”, “hereof’ or “hereunder” or words of like import, and (y) any other Operative Document to the “Credit Agreement”, shall be a reference to the
Credit Agreement, as amended or modified hereby. 
 (c) Except as expressly amended or modified hereby, the Credit Agreement,
as amended prior to the date hereof, shall remain in full force aid effect and is hereby ratified and confirmed by the parties hereto. 
 (d) Each party hereto agrees and acknowledges that this Amendment constitutes an “Operative Document” under the Credit Agreement. 
 Section 5. Miscellaneous. 
 5.1
Notices. Section 10 of the Credit Agreement shall apply hereto as if set out in full in this Amendment. 
 5.2 Successors and
Assigns. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 
 5.3 Expenses. The Borrower agrees to pay the costs and expenses of the Security Agent and the Lenders, including reasonable fees and expenses of Vedder, Price, Kaufman & Kammholz, P.C. in connection
with the negotiation, preparation, execution and delivery of this Amendment. 
 5.4 Captions. Captions and section headings appearing
herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Amendment. 
 5.5 Counterparts. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Amendment by signing any such
counterpart. 
 5.6 Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. 
 (a) This Agreement shall in all respects be governed by, and construed in accordance with, the law of the State of New York. 

 

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 [Amendment No. 2 to Credit Agreement HSH/AS B737-800] 
  

 (b) Each party hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action
or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding
may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement against another party or
its properties in the courts of any jurisdiction. 
 (c) Each party hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in
Section 56(b). Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. 
 (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10 of the
Credit Agreement. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. 
 (e) EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL, WAIVERS
AND CERTIFICATIONS IN THIS SECTION. 
 Section 6. Direction. The Lenders direct the Security Agent to execute this Amendment.

 [Signatures Follow] 
  

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 [Amendment No. 2 to Credit Agreement HSH/AS B737-800] 
  

 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their
respective officers as of the day and year first above written. 
  

			
	ALASKA AIRLINES, INC., Borrower
		
	By:	 	[***]*
	Name:	 	[***]*
	Title:	 	[***]*
	
	HSH NORDBANK AG NEW YORK BRANCH
		
	By:	 	[***]*
	Name:	 	[***]*
	Title:	 	[***]*
		
	By:	 	[***]*
	Name:	 	[***]*
	Title:	 	[***]*
	
	 NORDDEUTSCHE LANDESBANK
 GIROZENTRALE

		
	By:	 	[***]*
	Name:	 	[***]*
	Title:	 	[***]*
		
	By:	 	[***]*
	Name:	 	[***]*
	Title:	 	[***]*

  

	*	Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with
respect to the omitted portions. 

  

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 [Amendment No. 2 to Credit Agreement HSH/AS B737-800] 
  

			
	DEKABANK DEUTSCHE GIROZENTRALE
		
	By:	 	[***]*
	Name:	 	[***]*
	Title:	 	[***]*
		
	By:	 	[***]*
	Name:	 	[***]*
	Title:	 	[***]*
	
	RZB FINANCE LLC
		
	By:	 	[***]*
	Name:	 	[***]*
	Title:	 	[***]*
		 	  
 [***]*
 [***]*
 [***]*

	
	HYPO PUBLIC FINANCE USA, INC.
		
	By:	 	[***]*
	Name:	 	[***]*
	Title:	 	[***]*
		
	By:	 	[***]*
	Name:	 	[***]*
	Title:	 	[***]*

  

	*	Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with
respect to the omitted portions. 

  

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 [Amendment No. 2 to Credit Agreement HSH/AS B737-800] 
  

			
	KAUPTHING BANK HF.
		
	By:	 	[***]*
	Name:	 	[***]*
	Title:	 	[***]*
		 	  
 [***]*
 [***]*
 [***]*

  

	*	Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with
respect to the omitted portions. 

  

 9 

 [Amendment No. 2 to Credit Agreement HSH/AS B737-800] 
  

 SCHEDULE I 
 LOAN PARTICIPANTS 
 HSH Nordbank AG New York Branch 
 Norddeutsche Landesbank Girozentrale 
 DekaBank Deutsche Girozentrale 
 RZB Finance LLC 
 Hypo Public Finance USA, Inc. 
 Kaupthing Bank hf. 
  

 [Amendment No. 2 to Credit Agreement HSH/AS B737-800] 
  

 ANNEX A 
 (to Amendment No. 2 to Credit Agreement) 
 SCHEDULE II TO CREDIT AGREEMENT 
 1) In regard to any amounts that exceed the aggregate Maximum Commitment of (a) US$172,000,000 until the Non Continuing Repayment Date, and (b) US$152,000,000
from the Non Continuing Repayment Date until the Final Repayment Date, at any time during the term of the Facility, the Lenders are not required to fund more than US$172,000,000 (prior to the Non Continuing Repayment Date) or US$152,000,000
(following the Non Continuing Repayment Date) in total. The Borrower will be required to advance any difference in cash until the Facility decreases below the aggregate Maximum Commitment. 
 [***]* 
  
  

	*	Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with
respect to the omitted portions.Alaska Air Group Performance Based Pay Plan

 Exhibit 10.7 
 ALASKA AIR GROUP PERFORMANCE BASED PAY PLAN 
 (formerly, the “Management Incentive Plan” or
“MIP”) 
 (Amended and Restated November 30, 2007) 
 The Board of Directors (the “Board”) of Alaska Air Group, Inc. (the “Company”) has adopted a plan to reward employees of Alaska Airlines, Inc. (“Alaska”) and Horizon Air Industries, Inc.
(“Horizon”). The plan, formerly known as the Management Incentive Plan, has been renamed as the Performance Based Pay Plan (“Plan”). This memorandum is provided to explain the key elements of how the Plan will operate. The
Performance Based Pay award (“Award”) of each eligible Participant will depend upon the degree to which the Company achieves the performance goals and award modifier set by the Compensation Committee of the Board for each calendar year (a
“Plan Year”) and the discretion of the Compensation Committee of the Board and Chief Executive Officer explained below. This Plan is effective beginning with the 2003 Plan Year and each year thereafter until amended, restated or
terminated, pursuant to paragraph 8. 
  

	1.	ELIGIBILITY 

 Eligibility to participate in the Plan
during a Plan Year is limited to officers and other employees of Alaska and Horizon who (a) are designated by the Compensation Committee, and (b) are full-time employees of Alaska or Horizon as of December 31 of the Plan Year, or
(c) were full-time employees during the Plan Year and do not meet the requirement of (b) because their employment ended due to retirement at age 52 or older, disability or death (each a “Participant,” or collectively
“Participants”). Individuals may become Participants during the Plan Year if they are newly hired or promoted during the year and meet the requirements of the preceding sentence. Participants who are on temporary medical leave, military
leave, or otherwise not working either full-time or part-time for Alaska or Horizon for reasons approved by the Board, but who remain employed, also retain eligibility as Participants. Participation in the Plan does not guarantee that any Award will
be paid if applicable performance goals specified for the Plan Year are not achieved for the year. Unless otherwise provided for in a separate Award agreement, an individual whose employment with Alaska or Horizon ends for any reason not described
in (c) above, such as resignation or termination, forfeits eligibility upon such end of employment. 
  

	2.	BASIS FOR PARTICIPATION 

 A Participant’s Basis
for a Plan Year is used to determine the dollar amount or initial target value of the Participant’s Award for that year. The “Basis” is the actual Basic Salary of the Participant earned during the Plan Year multiplied by the
percentage selected for that Participant by the Board. “Basic Salary” means the compensation earned by the Participant for services performed for Alaska or Horizon, including amounts that the Participant could have received
in cash had the Participant not elected to contribute the amount to an employee benefit plan maintained by Alaska, Horizon or the Company and any other voluntary payment the Participant makes which reduces his/her compensation (such as the
Participant’s voluntary contribution to an Internal Revenue Code (“Code”) Section 401(k) Plan, Code Section 125 medical account, dependent day care spending account, or charitable gift), but excluding
commissions, all awards (including any Award under this Plan), and all other forms of incentive or other supplemental pay, employee benefits paid by the employer (such as employer contributions to a Code Section 401(k) Plan), cash and non-cash
fringe benefits and perquisites (such as auto allowance and travel 

 
reimbursement). Awards may be paid in cash or by act of the Compensation Committee of the Board, the Company’s Common Stock. Alternatively, Awards may,
by act of the Compensation Committee of the Board, be denominated in shares of the Company’s Common Stock that are subject to conditions and restrictions established by the Compensation Committee and based on the achievement of performance
goals as provided for in a Performance Share Award Agreement (such shares of Common Stock are referred to as “Performance Shares”). 
  

	3.	CALCULATION OF THE AWARD 

 The size of the Award
earned for a Plan Year will depend upon the extent to which the performance goals and award modifier of the Company have been achieved during that Plan Year and the discretion of the Compensation Committee of the Board. Separate performance
weighting has been established for each performance goal. The Award will equal either (i) in the case of cash-based Awards, the dollar amount achieved by multiplying the Participant’s Basis by the sum of the weighted percentage achievement
factors, or (ii) in the case of Common Stock Based Awards, the number of shares which is equal to the cash award under the preceding clause (i) divided by the closing price of the Company’s Stock on the NYSE on the date of such Award,
or (iii) in the case of Awards denominated in Performance Shares, the actual number of shares of Common Stock earned by the Participant will be determined based on the achievement of performance goals as described in the applicable Performance
Share Award Agreement, in each case, as such amounts may be adjusted in the Compensation Committee’s discretion pursuant to paragraph 6 or pursuant to the terms of an applicable Performance Share Award Agreement. All calculations will be
performed by the Human Resources Department of Alaska and will be subject to approval solely by the Board. Once approved by the Compensation Committee of the Board, such calculations shall be conclusively presumed to be accurate. 
  

	4.	PERFORMANCE WEIGHTING 

 In order to achieve any
Award for a particular performance goal, a “Threshold” must be achieved. A full entitlement is achieved when the “Target” is reached, and a double entitlement is possible if the “Maximum” is achieved. This weighting
applies to each goal individually. Once the Threshold is achieved, the percentage of the difference between the Threshold and Target achieved is multiplied by the weighting factor as specified in the attachment for the applicable Plan Year. If the
Target is exceeded, the percentage of the difference between the Target and the Maximum achieved is multiplied by the weighting factor as specified in the attachment for the applicable Plan Year. Since the difference between the Threshold and Target
is, in most cases, arithmetically different from the difference between the Target and the Maximum, calculations will be performed utilizing either the Threshold-Target range, or Target-Maximum range, as applicable, to locate the percentage of the
Target, or the percentage of the Maximum, as applicable, that has been achieved. Additional performance weighting criteria and the methodology for determining the number of shares issued to a Participant pursuant to an Award of Performance Shares
may be set forth or described in an applicable Performance Share Award Agreement. 
  

	5.	PERFORMANCE GOALS AND APPLICABLE PERFORMANCE WEIGHTING FACTORS 

 The Compensation Committee of the Board will establish the performance goals and award modifier for each Plan Year during the life of this Plan, and will provide an annex to this Plan that outlines goals, award
modifiers and the weighting factors. 
  

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	6.	DISCRETIONARY FACTOR 

 In the case of a Participant
described in paragraph 1(c) who retired due to age, terminated employment due to disability, or died during the year, or a Participant who took a leave of absence or worked a reduced schedule during any portion of the year, the Compensation
Committee of the Board retains absolute discretionary authority to adjust the Award to such Participant based upon the Compensation Committee’s determination of such Participant’s contribution to the Company. 
  

	7.	TIMING OF AWARDS 

 After approval of the Audit
Committee of the Board, it is the intent of the Board to distribute the Award, or actual shares of the Company’s Common Stock for Awards denominated in Performance Shares, for a Plan Year no later than March 15 of the following year for
each Plan Year that Participants have become entitled to an Award. The terms and conditions of an Award denominated in Performance Shares will be set forth in a Performance Share Award Agreement with a Participant. A deceased Participant’s
Award will be paid, or shares of the Company’s Common Stock underlying an Award denominated in Performance Shares will be distributed, to the beneficiary designated by the Participant for purposes of the Company’s group term life insurance
plan covering the deceased Participant, and in the absence of any designation, will be paid or distributed to the Participant’s estate. 
  

	8.	AMENDMENT 

 The Board, acting through the
Compensation Committee, retains the right to modify the Plan at any time in any manner that it deems appropriate, provided that (a) no amendment that adversely affects the rights of Participants or their beneficiaries shall be effective for a
Plan Year that ended prior to the Plan Year in which the amendment was adopted, and (b) it will not terminate the Plan for any Plan Year during that Plan Year unless it is clear that Participants will not receive an Award for that Plan Year. It
is understood that the Compensation Committee of the Board will review the Plan yearly and may make changes to the Plan for the next Plan Year. 
  

	9.	MISCELLANEOUS 

  

	 	a.	This memorandum, including its attachments, constitutes the entire understanding relating to an Award to any employee of Alaska or Horizon, and supersedes all prior oral or written
agreements, representations or commitments relating to such Awards. 

  

	 	b.	This Plan is not a commitment of the Company, Alaska or Horizon, to any officer or employee of such company, to continue that individual in its employ in order to qualify for an
Award. Nothing contained in this Plan may be considered to be a promise of continued employment. Any employee who shall file suit against his or her employer for wrongful termination shall automatically cease to be a Participant.

  

	 	c.	In the event that a Participant has a written employment agreement with Alaska or Horizon which entitles such Participant to participate in the Management Incentive Plan, this Plan
is intended, for the purpose of such agreements, to be considered to be the same plan and may continue to be referred to as the MIP. 

  

	 	d.	This memorandum and the rights and obligations provided for herein shall be construed and interpreted in accordance with the law of the state of Washington, excluding its conflicts
of law rules. 

  

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	 	e.	No unpaid Award will be subject to the debts, liabilities, contracts or engagements of any Participant, and may not be alienated, pledged, garnished or sold, and any attempt to do
so shall be void. 

  

	 	f.	Awards of Common Stock, Performance Shares, and the issuance of shares of the Company’s Common Stock underlying Awards of Performance Shares, are deemed to be made pursuant to
the Company’s 2004 Long-Term Incentive Plan, or any such successor plan. 

  

									
	Dated November 30, 2007	 		 	Alaska Air Group, Inc.
			
		 		 	 /s/ Phyllis J. Campbell
  

		 		 		 	 Phyllis J. Campbell
 Chair, Compensation
Committee
 Alaska Air Group, Inc. Board of Directors

  

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 ANNEX 1 
 PERFORMANCE BASED PAY PLAN GOALS AND MEASURES FOR 2008 
 This Annex sets forth the goals for the Alaska Air Group
Performance Based Pay Plan for the 2008 Plan year. 
 The performance goals for 2008 are divided into two groups: Operational Performance and Financial
Performance. The Operational Performance goals, which are based on safety, employee engagement and cost per available seat mile (CASM) measures, represent 30% of the total weight. The Financial Performance goal is based on the Company’s
profitability and represents 70% of the total weight. 
  

	 	a.	Operational Performance. Operational Performance is equally divided into three categories: 

  

	 	1.	Safety (10%) 

 A Safety payout requires the attainment of
stated goals for lost time injury rates. No award for Safety will be earned if there is an employee on-the-job or operationally related passenger fatality. 
 The basis for achievement of this goal is improvement over the preceding year’s performance. The performance goals for 2008 for Alaska and Horizon are reflected below: 
 For Alaska: 
 Threshold
         _____ or fewer lost time injuries per _____ full time employees 
 Target                _____ or fewer lost time injuries per _____ full time employees 
 Maximum          _____ or fewer lost time injuries per _____ full time employees 
 For Horizon: 
 Threshold
         _____ or fewer lost time injuries per _____ full time employees 
 Target                _____ or fewer lost time injuries per _____ full time employees 
 Maximum          _____ or fewer lost time injuries per _____ full time employees 
  

	 	2.	Employee Engagement/Customer Satisfaction (10%) 

 Employee
Engagement/Customer Satisfaction will be measured by the number of times each airline meets or exceeds the monthly Operational Performance Rewards (OPR) Customer Satisfaction goal. The OPR goal is measured through online surveys of recent customers
and is based         % on employee attitude, courtesy & helpfulness,         % on satisfaction on the most recent flight, and
        % on satisfaction over the past              months. 
  

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 For Alaska: 
 Threshold        Total of          _____ months
with OPR score of __% or higher 
 Target              Total of
         _____ months with OPR score of __% or higher 
 Maximum        Total of          _____ months with OPR score of __% or higher 
 For Horizon: 
 Threshold        Total of          _____ months with OPR score of __% or higher 
 Target              Total of
         _____ months with OPR score of __% or higher 
 Maximum        Total of          _____ months with OPR score of __6% or higher 
  

	 	3.	CASM (cost per available seat mile) ex. fuel (10%). 

 CASM
calculations exclude fuel costs and may be adjusted for certain Excluded Items and Alternative Accounting Treatments (as defined below), as appropriate in the discretion of the Compensation Committee. 
 Alaska CASM ex. fuel: 
 Threshold            _____¢ 
 Target
                 _____¢ 
 Maximum            _____¢ 
 Horizon CASM ex. fuel: 
 Threshold            _____¢ 
 Target                  _____¢ 
 Maximum            _____¢ 
  

	 	b.	Financial Performance. (70% of the total). Financial Performance is measured by the Company’s Profitability. 

 Alaska Air Group Profitability (70% of the total). 
 The Profitability measure is the Adjusted Pre-Tax Profit of the Company, as defined below. 
 Threshold            $ _____ 
 Target
                 $ _____ 
 Maximum            $ _____ 
 “Adjusted Pretax Profit”
means the net income of Alaska Air Group, Inc. as computed under Generally Accepted Accounting Principles (GAAP), adjusted for Excluded Items and Alternative Accounting Treatments. “Excluded Items” means (a) income taxes,
(b) pretax expense under any Alaska Air Group (or subsidiary) profit sharing, performance-based pay, operational performance rewards, variable pay plan, or similar such programs as determined in the discretion of the Compensation Committee, and
(c) special income or expense 

  

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items that, in the discretion of the Compensation Committee, should be excluded because recognizing them would not appropriately serve the goals of the Plan.
These may include, without limitation, gain or loss on disposition of capital assets, impairments or other fleet exit costs, expenses from voluntary or involuntary severance programs, government refunds or assistance and cumulative effect of
accounting changes. “Alternative Accounting Treatments” means expense or income items that, for purposes of calculating Adjusted Pretax Profit, the Company (or any subsidiary) will account for based on non-GAAP methods because, in
the discretion of the Compensation Committee, using GAAP accounting methods would not appropriately serve the goals of the Plan. These may include, without limitation, fuel hedge accounting on an “as settled” basis. 
  

	 	c.	Modifier. The Performance-Based Pay modifier results in plus or minus              percentage points based
on the performance of the key metrics as detailed below. 

 For Alaska, 
 The application of the modifier is based on the number of the months that Alaska achieves its on-time performance goals under the OPR program. The
modifier will be applied as follows: 
  

			
	 Number of Months Alaska Hits On-Time Goal
	  	PBP
Modifier

 Performance-Based Pay shall be determined and then the modifier shall be applied. If, for
example, Alaska Airlines achieved              months of on-time performance at goal under the OPR program and Performance-Based Pay without the modifier resulted in a payout of
        %, then application of the modifier would result in a payout of         %. 
  

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 For Horizon: 
 The application of the modifier is based on the Horizon Air pre-tax profit margin. 
  

			
	 QX Profit Margin*
	  	PBP
Modifier

  

	*	If Horizon Air final pre-tax profit margin is between percentage points, modifier will be adjusted based on movement through the scale, for example: 

  

			
	 QX Profit Margin
	  	PBP
Modifier

  

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Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00136-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00136-of-00352.parquet"}]]