Document:

EXHIBIT 10.6.3

                                                                  EXECUTION COPY

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                              AMENDED AND RESTATED
                                 LEASE AGREEMENT

                                    (N505MC)

                            DATED AS OF JULY 27, 2004

                                     BETWEEN

                       ATLAS FREIGHTER LEASING III, INC.,
                                     Lessor

                                       and

                                ATLAS AIR, INC.,
                                     Lessee

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

                         One Boeing B747-2D3B Aircraft
                          U.S. Registration No. N505MC
                        Manufacturer's Serial No. 21251

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

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THE LESSOR HAS ASSIGNED TO THE AGENT CERTAIN OF ITS RIGHT, TITLE AND INTEREST IN
AND TO THIS LEASE. TO THE EXTENT,  IF ANY, THAT THIS LEASE  CONSTITUTES  CHATTEL
PAPER (AS SUCH TERM IS DEFINED IN THE  UNIFORM  COMMERCIAL  CODE AS IN EFFECT IN
ANY APPLICABLE JURISDICTION),  NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED
THROUGH THE TRANSFER OR  POSSESSION OF ANY  COUNTERPART  OTHER THAN THE ORIGINAL
EXECUTED  COUNTERPART  CONTAINING THE RECEIPT THEREFOR  EXECUTED BY THE AGENT ON
THE SIGNATURE PAGE HEREOF.

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                      PAGE
<S>                                                                                                     <C>
SECTION 1. Definitions ..................................................................................2

SECTION 2. Acceptance and Lease ........................................................................23

SECTION 3. Term and Rent ...............................................................................23

   (a)  Term and Basic Rent ............................................................................23
   (b)  Adjustments to Basic Rent ......................................................................23
   (c)  Supplemental Rent ..............................................................................24
   (d)  Payments in General ............................................................................24
   (e)  Minimum Rent ...................................................................................25
   (f) Prepayment of Rent Payments: ....................................................................25

SECTION 4. Certain Representations and Warranties ......................................................26

SECTION 5. Representations and Warranties ..............................................................26

SECTION 6. Affirmative Covenants .......................................................................32

SECTION 7. Negative Covenants ..........................................................................40

SECTION 8. Return of the Aircraft ......................................................................51

   (a)  Condition Upon Return ..........................................................................51
   (b)  Overhaul and Repair ............................................................................51
   (c)  Repairs ........................................................................................51
   (d)  Modifications ..................................................................................51
   (e)  Airworthiness Directives .......................................................................51
   (f) Return of the Engines ...........................................................................51
   (g)  Deferred Maintenance ...........................................................................52
   (h)  Corrosion Treatment ............................................................................52
   (i) Manuals .........................................................................................52
   (j) Storage Upon Return .............................................................................52
   (k)  Severable Parts ................................................................................52
   (l) Survival ........................................................................................53
   (m) Deregistration and Export .......................................................................53

SECTION 9. Liens .......................................................................................53

SECTION 10. Registration, Maintenance and Operation; Possession and Subleases;
              Insignia .................................................................................53

   (a)  Maintenance and Operation ......................................................................53
   (b)  Possession .....................................................................................55
   (c)  Insignia .......................................................................................58
</TABLE>

                                      -i-
<PAGE>

<TABLE>
<CAPTION>
                                                                                                      PAGE
<S>                                                                                                     <C>
   (d) Holding Out .....................................................................................58
   (e) No Pledging of Credit ...........................................................................58
   (f) Title ...........................................................................................58
   (g) Information and Records .........................................................................59

SECTION   11.  Replacement and Pooling of Parts; Alterations, Modifications and
                 Additions .............................................................................62

SECTION   12.  Indemnities .............................................................................63

SECTION   13.  Event of Loss ...........................................................................65

SECTION   14.  Insurance ...............................................................................66

SECTION   15.  Assignment ..............................................................................69

SECTION   16.  Events of Default .......................................................................69

SECTION   17.  Remedies ................................................................................73

SECTION   18.  Lessee's Cooperation Concerning Certain Matters .........................................75

SECTION   19.  Notices .................................................................................75

SECTION   20.  Net Lease, True Lease, etc ..............................................................76

SECTION   21.  Purchase Option .........................................................................77

   (a) Purchase Option .................................................................................77
   (b) Notice of Purchase ..............................................................................77

SECTION   22.  Lessor's Right to Perform for Lessee ....................................................77

SECTION   23.  Miscellaneous ...........................................................................78

SECTION   24.  Security for Lessor's Obligations .......................................................79
</TABLE>

                                      -ii-
<PAGE>

                      AMENDED AND RESTATED LEASE AGREEMENT

                  AMENDED AND RESTATED LEASE AGREEMENT dated as of July 27 2004,
between  ATLAS  FREIGHTER  LEASING  III,  INC.,  a  Delaware   corporation  (the
"LESSOR"), and ATLAS AIR, INC., a Delaware corporation (the "LESSEE").

                              W I T N E S S E T H :
                              - - - - - - - - - -

                  WHEREAS,  pursuant to the Existing Lease Agreement, the Lessor
leased the Aircraft to the Lessee;

                  WHEREAS,  the Lessor incurred certain Loans under the Existing
Credit Agreement in connection with the Aircraft leased pursuant to the terms of
the Existing Lease Agreement and leased other similar aircraft and spare engines
pursuant to the other Leases

                  WHEREAS, the Lessor,  Holdings,  the Lessee, the Agent and the
Lenders  under  the  Existing  Credit  Agreement  entered  into the  Forbearance
Agreement  pursuant to which  certain of the lenders  agreed to (i) forbear from
exercising  their rights and remedies under the Existing Credit  Agreement while
Holdings implemented a comprehensive debt restructuring  program with respect to
Holdings and certain of its  affiliates  in  accordance  with the  Restructuring
Proposal  Summary  distributed  to the Lenders on March 27, 2003 (as amended and
restated on November 24, 2003 with the consent of the Agent,  but without giving
effect to any further  modifications  without the consent of the Agent) and (ii)
waive the  application  of the default  interest  provision  under the  Existing
Credit Agreement;

                  WHEREAS, on January 30, 2004, Holdings, the Lessee and certain
Affiliates  thereof filed  voluntary  petitions for relief under the  Bankruptcy
Code;

                  WHEREAS, prior to filing for relief under the Bankruptcy Code,
the Lessor, Holdings, the Lessee and certain of the Lenders renegotiated certain
of the  terms of the  Existing  Credit  Agreement  and the other  Existing  Loan
Documents in accordance with the Forbearance  Agreement and the Letter Agreement
and Term Sheet annexed  thereto,  dated  February 2, 2004 among the Lessor,  the
Lessee,  Holdings,  and the lenders  party  thereto  (collectively,  as amended,
modified  or  supplemented   from  time  to  time,  the  "TERM  SHEET"),   which
contemplated,  among other things,  an amendment and restatement of the Existing
Lease Agreement on terms satisfactory to the Lenders;

                  WHEREAS,  the parties  hereto  desire to amend and restate the
Existing  Lease  Agreement in order to implement the agreements set forth in the
Plan of Reorganization, the Forbearance Agreement and the Term Sheet and to make
certain other amendments contained herein;

                  WHEREAS, it is the intention of the Lessor, the Agent and each
of the Lenders  that such  amendment  and  restatement  of the  Existing  Credit
Agreement and Existing Lease Agreement shall not constitute a refinancing of the
Loans  outstanding on the  Restatement  Effective Date and that, with respect to
the Loans  outstanding  prior to the  Restatement  Effective

<PAGE>

Date, the Aircraft Chattel Mortgages shall continue to constitute purchase-money
security interests subject to Section 1110 of the Bankruptcy Code;

                  WHEREAS, the Lessor and the Lessee desire this be a net lease;

                  WHEREAS,  the Lessor and the Lessee desire that this Lease be,
and be treated as, a lease for federal income tax purposes; and

                  NOW   THEREFORE,   in   consideration   of  the  premises  and
agreements,  provisions and covenants herein contained,  the Lessor, the Lessee,
Holdings,  the  Lenders  and the Agent  hereby  agree  that the  Existing  Lease
Agreement shall be amended and restated in its entirety as follows:

                  SECTION 1.  DEFINITIONS.  All  capitalized  terms used  herein
shall have the respective meanings set forth in this section.

         "ACCEPTABLE  ALTERNATE  AIRFRAME"  means a Boeing  747-200 that is in a
cargo configuration capable of immediate operation in the business of the Lessee
and has a maximum gross takeoff  weight of at least 800,000 pounds and is of the
equivalent or greater residual value,  condition,  utility,  airworthiness,  and
remaining  useful life and that shall have been maintained,  serviced,  repaired
and  overhauled in  substantially  the same manner as required  under this Lease
without in any way discriminating against such airframe.

         "ACCEPTABLE  ALTERNATE ENGINE" means a General Electric CF6-50E2 engine
or an  engine of the same or  another  manufacturer  of  equivalent  or  greater
residual value, condition, utility, airworthiness, and remaining useful life and
suitable for  installation and use on the Airframe;  provided,  that such engine
shall be of the same make, model and manufacturer as the other engines installed
on the Airframe,  shall be an engine of a type then being utilized by the Lessee
on other Boeing  747-200  aircraft  operated by the Lessee,  and shall have been
maintained,  serviced,  repaired and overhauled in substantially the same manner
as required  under this Lease  without in any way  discriminating  against  such
engine.

         "ACMI  CONTRACT"  means (i) any  contract  entered  into by the  Lessee
pursuant to which the Lessee  furnishes  the  aircraft,  crew,  maintenance  and
insurance and customers bear all other  operating  expenses and (ii) any similar
contract in which the customer  provides the flight crew, all  substantially  in
accordance with the Lessee's historical practices.

         "ACMI CONTRACTED  AIRCRAFT" means an aircraft acquired by the Lessee or
its  Subsidiaries  and intended to be used in  connection  with an ACMI Contract
entered  into  at the  time of the  acquisition  of such  aircraft  (which  ACMI
Contract  shall not represent a renewal or  replacement of a prior ACMI Contract
unless the aircraft used pursuant to such prior ACMI Contract was operated under
an operating lease and returned to the lessor) which is in effect on the date of
calculation  and has a  remaining  term of one  year  or more on the  date  such
aircraft was intended to be used in connection with such ACMI Contract  (subject
to  cancellation  terms,  which may  include  the right to cancel on six  months
notice). When making any calculation on a Pro Forma Basis, effect shall be given
to the acquisition of an ACMI  Contracted  Aircraft by

                                      -2-
<PAGE>

adding to the appropriate components of Consolidated Adjusted EBITDA (i) the net
projected annualized revenues from the operation of the ACMI Contracted Aircraft
under such ACMI  Contract for that portion of the period for which  Consolidated
Adjusted EBITDA is being  calculated  prior to the acquisition of such aircraft,
assuming  operation for the minimum  guaranteed  number of block hours (less any
block hours subject to cancellation)  at the minimum  guaranteed rate under such
ACMI Contract less (ii) the projected  annualized  cash operating  expenses from
such operation for the same period for which the related projected  revenues are
determined in clause (i) above;  provided,  that such  projected  cash operating
expenses shall not be less on a per block hour basis than the average historical
per block  hour  operating  expenses  of the  Lessee  for the four  full  fiscal
quarters  immediately  preceding the date of calculation;  and provided further,
that if such  aircraft  is of a model  other than a Boeing 747  freighter,  such
projected cash operating  expenses shall include  maintenance  costs which shall
not be less  than the  average  for such  aircraft  type  disclosed  on the most
recently  available  DOT  Forms 41 with  respect  to such  aircraft  type or any
summary  of  such  data  as  reported  in  a  nationally   recognized   industry
publication.  For purposes of this  definition,  "ACMI  CONTRACT"  shall include
contracts  pursuant to which the Lessee  does not pay any crew  costs,  in which
event pro forma effect shall be given as described  above but excluding from the
projected  annualized  cash  operating  expenses all crew costs.  Cash operating
expenses means for purposes of this definition  consolidated operating expenses,
less  consolidated   depreciation  and  amortization  and  Consolidated   Rental
Payments, to the extent included in computing consolidated operating expenses.

         "ACT" means part A of subtitle VII of title 49, United State Code

         "AFFILIATE"  means, as applied to any Person, any other Person directly
or indirectly  controlling,  controlled by, or under common  control with,  that
Person.  For  the  purposes  of  this  definition,  "control"  (including,  with
correlative meanings, the terms "controlling", "controlled by" and "under common
control  with"),  as applied to any Person,  means the  possession,  directly or
indirectly,  of the power to direct or cause the direction of the management and
policies of that Person,  whether through the ownership of voting  securities or
by contract or otherwise.

         "AFL III  AIRCRAFT"  means all "AFL III  Aircraft"  as  defined  in the
Credit Agreement.

         "AGENT" shall mean the Administrative Agent under the Credit Agreement.

         "AIRCRAFT" means the Airframe  together with the four Engines,  whether
or not such Engines are installed on the Airframe or any other airframe.

         "AIRCRAFT  CHATTEL  MORTGAGES"  means, in the aggregate,  each security
agreement and aircraft  chattel  mortgage  entered into in  connection  with the
Credit Agreement.

         "AIRFRAME"  means (i) the  Boeing  aircraft  Model  747-200  (excluding
Engines or engines from time to time installed  thereon) specified by the United
States  Registration  Number  and  manufacturer's  serial  number  in the  Lease
Supplement and (ii) any and all Parts that are from time to time incorporated or
installed in or attached thereto or that have been removed therefrom,  but where
title to which remains vested in the Lessor in accordance with this Lease.

                                      -3-
<PAGE>

         "AMENDED AIRCRAFT CREDIT FACILITY" means the Fifth Amended and Restated
Credit Agreement dated as of July 27, 2004, among the Lessee,  as borrower,  the
lenders  listed  therein,   and  Deutsche  Bank  Trust  Company   Americas,   as
administrative agent, as such agreement may be amended, modified,  supplemented,
refinanced  and/or  replaced  from  time to time in  accordance  with the  terms
thereof.

         "APPROVED APPRAISER" means any of the following:  AvSolutions, Inc., BK
Associates,  Jack B. Feir  Associates,  Morton Beyer & Agnew,  Inc.,  Airclaims,
Ltd., Aircraft Information  Services,  Inc., Simat,  Helleisen & Eichner,  Inc.,
AVITAS, Inc. or any other independent  appraiser reasonably  satisfactory to the
Agent.

         "APPROVED LEASE" means with respect to any AFL III Aircraft,  any lease
designated as an Approved Lease by the Agent; provided that the term of any such
lease shall not exceed 36 months.

         "ASSET SALE" means the sale (including any  sale-leaseback  transaction
other than sale-leaseback transactions permitted by subsections 7(i) and 7(j) by
Holdings or any of its  Subsidiaries to any other Person of (i) any of the stock
of any of Holdings'  Subsidiaries,  (ii)  substantially all of the assets of any
division or line of business  of Holdings or any of its  Subsidiaries,  or (iii)
any other  assets  (whether  tangible or  intangible)  of Holdings or any of its
Subsidiaries outside of the ordinary course of business excluding:

                  (A)      any  such  other   assets  to  the  extent  that  the
         aggregate  value  of such  assets  sold in any  single  transaction  or
         related series of transactions is equal to $2,500,000 or less;

                  (B)      transactions related to aircraft engines, components,
         parts or spare parts pursuant to customary pooling, exchange or similar
         arrangements;

                  (C)      asset swaps involving  aircraft engines,  components,
         parts or spare parts (other than any engines encumbered  pursuant to an
         Aircraft  Chattel  Mortgage);  provided  that the  assets  received  by
         Holdings or any  Subsidiary  have a fair market value at least equal to
         the assets transferred (provided that with respect to any asset swap or
         series of related  asset  swaps  involving  assets of  Holdings  or any
         Subsidiary  with  a  fair  market  value  exceeding  $10,000,000,  such
         determination shall be made by the Board of Directors of the Lessee));

                  (D)      asset sales involving obsolete,  worn-out,  excess or
         redundant  equipment  as long as the  proceeds  therefrom  are  used to
         replace or to upgrade the aircraft or the equipment  installed thereon;
         and

                  (E)      transactions  permitted  by  subsection  9.21  of the
         Credit Agreement.

         "AVAILABILITY"  means  at  any  time,  the  maximum  additional  amount
available to be borrowed by Holdings  and its  Subsidiaries  as direct  advances
under the any  Indebtedness  at such time  taking into  account  any  applicable
borrowing base or similar  requirements  and limitations at such time,  provided
that all of the conditions to borrowing  (other than the delivery of a notice of
borrowing) required pursuant to such Indebtedness are satisfied at such time.

                                      -4-
<PAGE>

         "BACK-TO-BIRTH  TRACEABILITY  ISSUE" has the meaning assigned that term
in subsection 10(h)(ii).

         "BANKRUPTCY  CODE" means Title 11 of the United  States Code,  entitled
"Bankruptcy," as now and hereafter in effect, or any successor statute.

         "BANKRUPTCY  COURT" means the United  States  Bankruptcy  Court for the
Southern District of Florida.

         "BASIC  RENT"  means,  for the Term,  the rent payable for the Aircraft
pursuant to  subsection  3(a) of this Lease  adjusted as provided in  subsection
3(b) of this Lease.

         "BASIC RENT PAYMENT DATE" means each date set forth on Exhibit B.

         "BOEING" means The Boeing Company or any of its affiliates.

         "BUSINESS  DAY" means any day  excluding  Saturday,  Sunday and any day
that is a legal  holiday  under the laws of the State of New York or is a day on
which  banking  institutions  located  in either  such state are  authorized  or
required by law or other governmental action to close.

         "CAPITAL  LEASE,"  as  applied  to any  Person,  means any lease of any
property  (whether  real,  personal or mixed) by that Person as lessee that,  in
conformity  with GAAP,  is accounted for as a capital lease on the balance sheet
of that Person.

         "CASH" means money, currency or a credit balance in a Deposit Account.

         "CASH  EQUIVALENTS"  means,  as  at  any  date  of  determination,  (i)
marketable  securities (a) issued or directly and unconditionally  guaranteed as
to interest and principal by the United  States  Government or (b) issued by any
agency of the  United  States  the  obligations  of which are backed by the full
faith and credit of the United  States,  in each case maturing  within two years
after the date of purchase;  (ii) marketable  direct  obligations  (fixed and/or
floating  rate)  issued by any state of the  United  States  of  America  or any
political subdivision of any such state or any public  instrumentality  thereof,
in each case maturing within two years after the date of purchase and having, at
the time of the  acquisition  thereof and at all times  thereafter,  the highest
rating  obtainable  from  at  least  two  of  S&P,  Moody's,  and  Fitch;  (iii)
Dollar-denominated  marketable direct  obligations  (fixed and/or floating rate)
issued by any corporation or commercial  bank,  including  medium term notes and
bonds,  deposit  notes  and  eurodollar/yankee  notes  and  bonds,  in each case
maturing  within  two  years  after  the date of  purchase  and,  at the time of
acquisition  thereof and at all times thereafter,  both (A) having a rating from
at least two of S&P, Moody's, and Fitch and (B) not having a rating of less than
A from S&P, A2 from Moody's, or A from Fitch; (iv) Dollar-denominated commercial
paper  maturing no more than two years from the date of purchase and issued by a
corporation  or  commercial  bank that,  at the time of the  acquisition  of the
commercial paper and at all times  thereafter,  both (A) has a short-term credit
rating  from at least  two of S&P,  Moody's,  and  Fitch and (B) does not have a
short-term credit rating of less than A-1 (or the equivalent  thereof) from S&P,
P-1 (or the equivalent  thereof) from Moody's, or F1 (or the equivalent thereof)
from Fitch; (v) Dollar-denominated certificates of deposit, bankers' acceptances
and/or time deposits maturing within two years after the date of purchase

                                      -5-
<PAGE>

and issued or accepted by (a) any Lender or (b) any commercial bank that, at the
time of acquisition of such security and at all times thereafter, both (A) has a
short-term  credit rating from at least two of S&P,  Moody's,  and Fitch and (B)
does not have a  short-term  credit  rating of less than A-1 (or the  equivalent
thereof) from S&P, P-1 (or the equivalent  thereof) from Moody's,  or F1 (or the
equivalent thereof) from Fitch; (vi) shares of any money market mutual fund that
(a) has at  least  95% of its  assets  invested  continuously  in the  types  of
investments referred to in clauses (i) and (ii) above, (b) has net assets of not
less than $500,000,000, and (c) has the highest rating obtainable from either of
S&P,  Moody's,  or  Fitch;  (vii)  Dollar-denominated   asset-backed  securities
(excluding any mortgage  products) with a stated bullet maturity of no more than
two years from the date of purchase and, at the time of acquisition  thereof and
at all  times  thereafter,  both (A)  having a rating  from at least two of S&P,
Moody's,  and Fitch and (B) not having a rating of less than A from S&P, A2 from
Moody's,  or A from  Fitch;  (viii)  repurchase  agreements  entered  into  with
financial  institutions  satisfying  the  criteria set forth in clause (v) above
with terms of not more than thirty days for securities  described in clauses (i)
and (ii) above and having a fair market  value of at least 102% of the amount of
the repurchase obligations;  and (ix) auction rate securities (auction rate debt
and money market preferreds) with terms of not more than ninety days and, at the
time of  acquisition  thereof  and at all times  thereafter,  both (A)  having a
rating from at least two of S&P, Moody's,  and Fitch and (B) not having a rating
of less than A from S&P, A2 from Moody's, or A from Fitch.

         "C-CHECK"  has the meaning  assigned to that term in the  Lessee's  FAA
approved maintenance program.

         "CERTIFICATED  AIR CARRIER" means a United States "air carrier"  within
the meaning of the Federal  Aviation  Act,  operating  pursuant to a certificate
issued under  Section 401 of such Act, or a carrier of  comparable  status under
any successor law or provision.

         "COLLATERAL"  means all of the properties and assets in which Liens are
purported to be granted by the Aircraft Chattel Mortgage.

         "COMPLIANCE CERTIFICATE" means a certificate, substantially in the form
of Exhibit D annexed hereto,  delivered to the Lessor, the Agent and the Lenders
by the Lessee pursuant to subsection 6(a)(4) hereunder.

         "CONSOLIDATED  ADJUSTED EBITDA" means,  for any period,  the sum of the
amounts  for such  period of (i)  Consolidated  Net  Income,  (ii)  Consolidated
Interest  Expense,  (iii)  provisions  for taxes  based on  income,  (iv)  total
depreciation  expense, (v) total amortization expense, (vi) other non-cash items
reducing   Consolidated   Net  Income  less  other  non-cash  items   increasing
Consolidated  Net Income,  all of the foregoing as determined on a  consolidated
basis for Holdings and its  Subsidiaries  in conformity  with GAAP and (vii) for
all periods  through the first  anniversary of the  Restatement  Effective Date,
expenses  incurred  in  connection  with the Plan of  Reorganization,  including
professional  fees  and  expenses,  severance,  key  employee  retention  plans,
executory  contract and lease rejection claims,  asset write downs and any other
such costs  determined by Holdings'  independent  accountants  to be reported as
"Reorganization Costs".

         "CONSOLIDATED  CAPITAL  EXPENDITURES" means, for any period, the sum of
(i)  the  aggregate  of  all  expenditures   (whether  paid  in  cash  or  other
consideration  or accrued as a liability and  including  that portion of Capital
Leases which is capitalized on the consolidated balance sheet of

                                      -6-
<PAGE>

Holdings  and its  Subsidiaries)  by Holdings and its  Subsidiaries  during that
period that,  in conformity  with GAAP,  are included in "additions to property,
plant or equipment" or comparable items reflected in the consolidated  statement
of cash  flows of  Holdings  and its  Subsidiaries  plus (ii) to the  extent not
covered by clause (i) of this  definition,  the aggregate of all expenditures by
Holdings  and its  Subsidiaries  during that  period to acquire (by  purchase or
otherwise) the business, property or fixed assets of any Person, or the stock or
other  evidence of beneficial  ownership of any Person that, as a result of such
acquisition, becomes a Subsidiary of Holdings.

         "CONSOLIDATED  FIXED  CHARGES"  means,  for any period,  the sum of the
amounts for such  period  (without  duplication)  of (i)  Consolidated  Interest
Expense for such period paid in cash, (ii) Consolidated Rental Payments for such
period paid in cash, (iii)  Consolidated  Capital  Expenditures paid in cash for
such  period  (other  than  Consolidated  Capital  Expenditures  funded with the
proceeds of Asset Sales pursuant to subsection 6(vii)(z) of the Amended Aircraft
Credit Facility,  (iv) any Restricted  Junior Payments actually made during such
period and (v) the scheduled principal amount of all amortization  payments with
respect  to any  Indebtedness  that  Holdings  or any  of its  Subsidiaries  are
required  to make during such period  under the Amended  Aircraft  Facility  (as
determined on the first day of such period)  (assuming for this purpose that the
maximum amount of principal deferral  permitted pursuant to subsection  2.4A(ii)
of the Credit  Agreement  shall have  occurred  (whether  or not the  conditions
thereto shall have been satisfied)).

         "CONSOLIDATED  INTEREST  EXPENSE"  means,  for any  period,  total  net
interest  expense (to be computed by reducing  interest expense by the amount of
interest  income)  (including  that portion  attributable  to Capital  Leases in
accordance with GAAP and capitalized  interest) of Holdings and its Subsidiaries
on a consolidated basis with respect to all outstanding Indebtedness of Holdings
and its Subsidiaries,  including, without limitation, all commissions, discounts
and other fees and charges  owed with  respect to letters of credit and bankers'
acceptance  financing and net costs under Interest Rate  Agreements and Currency
Agreements.

         "CONSOLIDATED  NET INCOME"  means,  for any period,  the net income (or
loss) of Holdings and its  Subsidiaries on a consolidated  basis for such period
taken  as a  single  accounting  period  determined  in  conformity  with  GAAP;
provided,  that there shall be  excluded  (i) the income (or loss) of any Person
(other than a Subsidiary  of  Holdings)  in which any other  Person  (other than
Holdings or any of its Subsidiaries) has a joint interest,  except to the extent
of the amount of dividends or other  distributions  actually paid to Holdings or
any of its  Subsidiaries by such Person during such period,  (ii) the income (or
loss) of any  Person  accrued  prior  to the date it  becomes  a  Subsidiary  of
Holdings  or is  merged  into  or  consolidated  with  Holdings  or  any  of its
Subsidiaries  or that  Person's  assets are  acquired  by Holdings or any of its
Subsidiaries,  (iii) the income of any Subsidiary of Holdings to the extent that
the  declaration  or  payment of  dividends  or  similar  distributions  by that
Subsidiary of that income is not at the time permitted by operation of the terms
of its charter or any agreement,  instrument,  judgment, decree, order, statute,
rule  or  governmental  regulation  applicable  to  that  Subsidiary,  (iv)  any
after-tax gains or losses attributable to Asset Sales or returned surplus assets
of any pension plan,  and (v) (to the extent not included in clauses (i) through
(iv) above) any net extraordinary gains or net non-cash extraordinary losses.

         "CONSOLIDATED  RENTAL PAYMENTS"  means,  for any period,  the aggregate
amount of all rents with  respect to  aircraft  and  engines  paid or payable by
Holdings and its Subsidiaries on a

                                      -7-
<PAGE>

consolidated  basis  during  that  period  under all  Operating  Leases to which
Holdings or any of its Subsidiaries is a party as lessee (net of sublease income
other than income from ACMI  Contracts).  For the  avoidance  of doubt,  (x) all
rental  payments  to the Lessor  shall not be included  in  Consolidated  Rental
Payments and (y) payments in respect of Capital  Leases shall not be included in
Consolidated Rental Payments.

         "CONTINGENT  OBLIGATION" means, as applied to any Person, any direct or
indirect liability,  contingent or otherwise, of that Person (i) with respect to
any Indebtedness,  lease, dividend or other obligation of another if the primary
purpose or intent thereof by the Person  incurring the Contingent  Obligation is
to provide  assurance  to the obligee of such  obligation  of another  that such
obligation  of  another  will be  paid or  discharged,  or that  any  agreements
relating  thereto will be complied with, or that the holders of such  obligation
will be protected  (in whole or in part) against loss in respect  thereof,  (ii)
with respect to any letter of credit issued for the account of that Person or as
to which that Person is otherwise liable for reimbursement of drawings, or (iii)
under Interest Rate Agreements and Currency Agreements.  Contingent  Obligations
shall  include,  without  limitation,  (a)  the  direct  or  indirect  guaranty,
endorsement  (otherwise than for collection or deposit in the ordinary course of
business),  co-making,  discounting  with recourse or sale with recourse by such
Person of the obligation of another,  (b) the obligation to make  take-or-pay or
similar payments if required regardless of non-performance by any other party or
parties to an agreement, and (c) any liability of such Person for the obligation
of another  through any agreement  (contingent  or  otherwise)  (X) to purchase,
repurchase or otherwise acquire such obligation or any security therefor,  or to
provide  funds for the payment or discharge of such  obligation  (whether in the
form of loans, advances, stock purchases, capital contributions or otherwise) or
(Y) to  maintain  the  solvency or any  balance  sheet item,  level of income or
financial  condition of another if, in the case of any agreement described under
subclauses (X) or (Y) of this sentence, the primary purpose or intent thereof is
as described in the preceding sentence.  The amount of any Contingent Obligation
shall be equal to the  amount  of the  obligation  so  guaranteed  or  otherwise
supported  or,  if less,  the  amount to which  such  Contingent  Obligation  is
specifically limited.

         "CONTINUING  DIRECTORS"  shall  mean the  directors  of a Person on the
Restatement  Effective Date and each other  director,  if such other  director's
nomination  for election to the Board of Directors of such Person is recommended
by a majority of the then Continuing Directors.

         "CONTRACTUAL OBLIGATION," as applied to any Person, means any provision
of any Security  issued by that Person or of any material  indenture,  mortgage,
deed of trust, deed to secure debt,  contract,  undertaking,  agreement or other
instrument  to  which  that  Person  is a  party  or by  which  it or any of its
properties is bound or to which it or any of its properties is subject.

         "CREDIT   AGREEMENT"   shall  mean  the  Amended  and  Restated  Credit
Agreement,  dated as of July 27, 2004, by and among the Lessor, as borrower, the
Lenders  listed  therein  from  time to time and  Deutsche  Bank  Trust  Company
Americas,  as Administrative  Agent, as amended,  modified,  and/or supplemented
from time to time.

         "CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement,  futures  contract,  option contract,  synthetic cap or other similar
agreement or

                                      -8-
<PAGE>

arrangement  designed  to protect  Holdings or any of its  Subsidiaries  against
fluctuations in currency values.

         "D-CHECK"  has the meaning  assigned to that term in the  Lessee's  FAA
approved maintenance program.

         "DEFAULT"  means any event that, with the giving of notice or the lapse
of time or both, would become a Lease Event of Default.

         "DESIGNATED  INDEBTEDNESS" means Indebtedness  incurred pursuant to the
Pass Through Trust Documents,  the Amended  Aircraft Credit Facility,  any Other
Permitted  Indebtedness and any Permitted  Extension  Indebtedness in respect of
the foregoing.

         "DISCLOSURE  STATEMENT" means the Second Amended  Disclosure  Statement
under 11 U.S.C. ss. 1125 In Support of the Debtors' Second Amended Joint Chapter
11 Plan,  dated June 8, 2004  pursuant to Section  1125 of the  Bankruptcy  Code
relating to the Plan of Reorganization, as approved by the Bankruptcy Court, and
as the same may be amended,  modified or  supplemented  from accordance with the
terms hereof and thereof.

         "DOMESTIC AIR CARRIER" means any United States  "domestic air carrier",
as defined in Part 121 of the Federal Aviation Regulations, that is operating in
accordance   with  the  operating   certificate   and   appropriate   operations
specifications issued under Part 121 or any successor regulation.

         "DRY  LEASE"  has  the  meaning  assigned  to that  term in  subsection
7(g)(9).

         "EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as defined in
Section 3(3) of ERISA that is, or was at any time,  maintained or contributed to
by the Lessee or any of its ERISA Affiliates.

         "ENGINE" means: (i) each of the four General Electric CF6-50E2 aircraft
engines listed in the initial Lease Supplement, whether or not from time to time
installed on the Airframe or any other airframe;  (ii) any Acceptable  Alternate
Engine that may from time to time be  substituted  for any of such four  engines
pursuant  to the terms of the  Lease;  and (iii) in any case,  any and all Parts
that are from time to time  incorporated or installed in or attached to any such
engine and any and all parts removed  therefrom so long as title thereto remains
vested in the Lessor in accordance herewith. The term "Engines" means, as of any
date of determination, all Engines then leased under this Lease.

         "ENVIRONMENTAL  CLAIM" means any investigation,  notice, claim, suit or
order, by any governmental  authority or any Person,  arising in connection with
any alleged or actual  violation  of  Environmental  Laws or with any  Hazardous
Material,  or any  actual or  alleged  damage or harm to  health,  safety or the
environment.

         "ENVIRONMENTAL  LAWS"  means any and all  current  or future  statutes,
ordinances,   orders,  rules,   regulations,   guidance  documents,   judgments,
governmental   authorizations,   or  any  other   requirement  of   governmental
authorities relating to environmental  matters,  including,  without limitation,
those relating to any Hazardous Materials Activity.

                                      -9-
<PAGE>

         "EQUIPMENT"  means (i) thirteen Boeing 747-200 aircraft  (including the
engines attached  thereto) with  registration  numbers N505MC,  N509MC,  N512MC,
N517MC,  N522MC,  N523MC,  N524MC,  N526MC,  N527MC,  N528MC, N534MC, N808MC and
N809MC,  (ii) nine General  Electric  CF6-50E2  engines and (iii) three  General
Electric CF6-80C2 engines.

         "EQUITY   PROCEEDS"  means  the  cash  proceeds  (net  of  underwriting
discounts and commissions and other reasonable costs associated  therewith) from
the issuance of any equity Securities of Holdings including, without limitation,
additional issuances of Holdings Common Stock.

         "ERISA" means the Employee  Retirement  Income Security Act of 1974, as
amended from time to time, and any successor statute.

         "ERISA AFFILIATE" means, as applied to any Person,  (i) any corporation
that is, or was at any  time,  a member of a  controlled  group of  corporations
within the meaning of Section 414(b) of the Internal  Revenue Code of which that
Person is, or was at any time, a member;  (ii) any trade or business (whether or
not incorporated)  that is, or was at any time, a member of a group of trades or
businesses  under  common  control  within the meaning of Section  414(c) of the
Internal Revenue Code of which that Person is, or was at any time, a member; and
(iii) any member of an  affiliated  service  group within the meaning of Section
414(m) or (o) of the Internal Revenue Code of which that Person, any corporation
described in clause (i) above or any trade or business  described in clause (ii)
above is, or was at any time, a member.

         "EVENT OF  DEFAULT"  means an Event of Default  under and as defined in
the Credit Agreement.

         "EVENT OF LOSS" shall mean any of the following  events with respect to
any AFL III Aircraft (whether the Airframe or an Engine of such AFL III Aircraft
or Spare Engine or both):

                  (A)      loss of such AFL III  Aircraft or Spare Engine or the
         use thereof due to theft or  disappearance  of such AFL III Aircraft or
         Spare Engine which shall result in the loss of possession thereof for a
         period of 120 days (or for a shorter period ending on the date on which
         there is an insurance  settlement  for a total loss on the basis of the
         theft or disappearance of such AFL III Aircraft or Spare Engine);

                  (B)      the destruction, damage beyond repair or rendition of
         such AFL III Aircraft or Spare Engine  permanently unfit for normal use
         for any reason whatsoever;

                  (C)      the  condemnation,  confiscation  or  seizure  of, or
         requisition  of title to, or use or  possession  (other than use by the
         United States  Government if the Lessee obtains  adequate  compensation
         from the United  States  Government)  of such AFL III Aircraft or Spare
         Engine;

                  (D)      as a result of any rule,  regulation,  order or other
         action by the FAA or other governmental body having  jurisdiction,  the
         use of such AFL III  Aircraft or Spare  Engine in the normal  course of
         interstate  air  transportation  of  persons  or cargo  shall have been
         prohibited for a period of more than nine consecutive months unless the
         Lessee,  prior to the expiration of such nine month period,  shall have
         undertaken and shall be

                                      -10-
<PAGE>

         diligently  carrying forward all steps which are necessary or desirable
         to permit  the  normal  use of such  property  by the Lessee or, in any
         event,  if such use shall have been  prohibited  for a period of twelve
         (12) consecutive months;

                  (E)      the operation or location of such AFL III Aircraft or
         Spare Engine,  while under  requisition for use by the United States or
         any  instrumentality  or  agency  thereof,  in any area  excluded  from
         coverage by any insurance policy in effect with respect to such AFL III
         Aircraft  or Spare  Engine,  if the  Lessee  shall be  unable to obtain
         indemnity in lieu thereof from the United States;

                  (F)      any damage which  results in an insurance  settlement
         with  respect to such AFL III  Aircraft or Spare Engine on the basis of
         an actual or constructive total loss; or

                  (G)      a  divestiture  of such  Airframe or Spare  Engine as
         described in  subsection  4(d)(iii),  subsection  4(d)(vi),  subsection
         4(d)(vii) or subsection 4(d)(viii)(B) of any Aircraft Chattel Mortgage.
         An Event of Loss with respect to any AFL III  Aircraft  shall be deemed
         to have  occurred  if an  Event  of Loss  occurs  with  respect  to the
         Airframe of such AFL III Aircraft.

         "EXCHANGE  ACT" means the  Securities  Exchange Act of 1934, as amended
from time to time, and any successor statute.

         "EXISTING CREDIT AGREEMENT" shall mean the Credit Agreement dated as of
April 25, 2000, by and among the Lessor,  as borrower,  the Lenders from time to
time party thereto and Deutsche Bank Trust Company  Americas,  as Administrative
Agent, as the same has been amended,  modified and/or  supplemented  to, but not
including, the Restatement Effective Date.

         "EXISTING  INDEBTEDNESS"  has the  meaning  assigned  to  that  term in
subsection 7(a)(3).

         "EXISTING  LEASE  AGREEMENT"  that certain Lease  Agreement dated as of
April 25,  2000,  between  the  Lessor  and the  Lessee,  supplemented  by Lease
Supplement  No. 1 dated as of April 25, 2000,  recorded by the Federal  Aviation
Administration (the "FAA") on May 24, 2000, as Conveyance No. DD018944,  further
supplemented by Lease  Supplement No. 2 dated as of November 13, 2000,  recorded
on December 20, 2000, as Conveyance No. SS016139,  amended by Amendment No. 1 to
Lease  Agreement  dated as of October 15, 2001,  recorded  January 11, 2002,  as
Conveyance No. SS018007,  amended by Amendment No. 2 to Lease Agreement dated as
of October 30, 2001,  recorded  January 9, 2002,  as  Conveyance  No.  SS018001,
amended by  Amendment  No. 3 to Lease  Agreement  dated as of December 14, 2001,
recorded March 20, 2002, as Conveyance No. TT016420,  amended by Amendment No. 4
to Lease  Agreement  dated as of June 14, 2002,  recorded  August 21,  2002,  as
Conveyance No. YY034495,  amended by Amendment No. 5 to Lease Agreement dated as
of August 14, 2002,  recorded  March 4, 2003, as Conveyance  No.  GG029430,  and
amended by  Amendment  No. 6 to Lease  Agreement  dated as of December 31, 2002,
recorded March 4, 2003, as Conveyance No. GG029431.

         "EXISTING LOAN  DOCUMENTS"  has the meaning  assigned to the term "Loan
Documents" in the Existing Credit Agreement.

                                      -11-
<PAGE>

         "EXIT  FACILITY"  means the credit  agreement  to be entered into among
Holdings and the lenders party thereto  providing  financing for working capital
and  other  general  corporate  purposes,  as  same  may be  amended,  modified,
supplemented, refinanced or replaced from time to time.

         "FACILITIES"  means  any  and  all  real  property  now,  hereafter  or
heretofore  owned,  leased,  operated  or  used  by  the  Lessee  or  any of its
predecessors.

         "FAIR MARKET SALES VALUE" of the Airframe or any Engine or Spare Engine
shall mean the value  that  would be  obtained  in an  arm's-length  transaction
between an informed and willing  lessee-user or buyer-user  (other than a lessee
currently in possession or a used equipment dealer) under no compulsion to lease
or buy, as the case may be, and an informed and willing lessor or seller, as the
case  may be,  under no  compulsion  to  lease  or  sell,  as the same  shall be
specified by agreement between the Lessor and the Lessee or, if not agreed to by
the Lessor and the Lessee within a period of 15 days after either party requests
a determination, then as specified in an appraisal prepared and delivered in New
York City by a recognized independent aircraft appraiser,  mutually agreed to by
the Agent and the Lessee,  or, if such  appraiser  cannot be agreed to within 20
days,  then either party may apply to the American  Arbitration  Association (or
any successor  organization  thereto) in New York City for the appointment of an
appraiser,  whose  determinations  shall be final and  binding  upon the parties
hereto.  In  determining  Fair Market Sales Value by appraisal or otherwise,  it
will be  assumed  that the  Aircraft,  Airframe  or Engine is in the  condition,
location  and  overhaul  status in which it is  required  to be  returned to the
Lessor  pursuant  to  Section  8 of  this  Lease,  that  all  modifications  and
improvements shall be taken into account,  that the Lessee has removed all Parts
that it is entitled to remove  pursuant to Section 11 of this Lease and that the
Aircraft is not encumbered by this Lease. Except as otherwise expressly provided
in the Lease,  all appraisal  costs will be shared equally by the Lessor and the
Lessee.

         "FEDERAL  AVIATION  ACT" means the  Federal  Aviation  Act of 1958,  as
amended  and as  recodified  in Title 49,  United  States  Code,  or any similar
legislation of the United States enacted to supersede,  amend or supplement such
Act and the rules and regulations promulgated thereunder.

         "FEDERAL  AVIATION  ADMINISTRATION"  or "FAA"  means the United  States
Federal  Aviation  Administration  or any successor  thereto  administering  the
functions of the Federal Aviation Administration under the Federal Aviation Act.

         "FINAL MATURITY DATE" means December 31, 2009.

         "FINANCED  AIRCRAFT"  means all  "Financed  Aircraft" as defined in the
Amended Aircraft Credit Facility.

         "FINANCING   STATEMENTS"   means,   collectively,   UCC-1  (and,  where
appropriate,  UCC-3)  financing  statements (a) covering the Collateral,  by AFL
III, as debtor,  showing the Agent as secured party,  for filing in Delaware and
each other  jurisdiction  that,  in the opinion of the Agent,  is  necessary  to
perfect its Lien on the  Collateral  and (b)  covering the Lease and the AFL III
Aircraft,  as precautionary  matter,  by Lessee,  as lessee,  showing AFL III as
lessor and the Agent

                                      -12-
<PAGE>

as assignee of AFL III, for filing in Delaware and each other jurisdiction that,
in the opinion of AFL III and the Agent, is reasonably desirable to do so.

         "FISCAL YEAR" means the fiscal year of the Lessee.

         "FITCH" means Fitch, Inc.

         "FIXED CHARGE  COVERAGE  RATIO" means as of any date,  the ratio of (i)
the sum of (x) Consolidated Adjusted EBITDA for the period of twelve consecutive
months  ending  on such  date (a  "TEST  PERIOD")  and (y)  Consolidated  Rental
Payments for such Test Period to (ii)  Consolidated  Fixed Charges for such Test
Period.

         "FORBEARANCE  AGREEMENT"  means  that  certain  Forbearance  Agreement,
Limited Waiver and Conditional Agreement to Amend the Loan Documents dated as of
July 3, 2003 among the Lessor, the Lessee,  Holdings,  the lenders party thereto
and the Agent (as amended, modified and/or supplemented prior to the Restatement
Effective Date).

         "FOREIGN LEASED AIRCRAFT" means a leased Aircraft that is registered in
a  country  other  than the  United  States  during  the term of the  applicable
Approved Lease.

         "FUNDING AND PAYMENT  OFFICE"  means the office of the Agent located at
60 Wall Street, New York, New York 10005, Attention: David Bell.

         "GAAP" means, subject to the limitations on the application thereof set
forth in Section 1 hereunder, generally accepted accounting principles set forth
in  opinions  and  pronouncements  of the  Accounting  Principles  Board  of the
American   Institute  of  Certified   Public   Accountants  and  statements  and
pronouncements  of the  Financial  Accounting  Standards  Board or in such other
statements by such other entity as may be approved by a  significant  segment of
the accounting  profession.  Financial statements and other information required
to be  delivered  by  Holdings  or the Lessee to the  Lessor,  the Agent and the
Lenders pursuant to clauses (1), (2), and (3) of subsection 6(a) hereunder shall
be  prepared  in  accordance  with  GAAP  as in  effect  as of the  date of such
preparation.  Calculations  in connection  with the  definitions,  covenants and
other provisions of this Lease shall utilize accounting  principles and policies
in effect for the  preparation  of  financial  statements  of  Holdings  and its
subsidiaries as of December 31, 2002.

         "GEAE" has the meaning assigned that term in section 10(h)(i).

         "GOVERNMENTAL AUTHORIZATION" means any permit, license,  authorization,
plan, directive,  consent order or consent decree of or from any federal,  state
or local governmental authority, agency or court.

         "GSS" means Global Supply Systems, Limited, an English company.

         "HAZARDOUS   MATERIALS"   means  any  chemical  or  other  material  or
substance,  exposure  to  which  is  now or  hereafter  prohibited,  limited  or
regulated under any law.

         "HAZARDOUS  MATERIALS ACTIVITY" means any past, current,  proposed,  or
threatened  use,  storage,  release,  generation,   treatment,   remediation  or
transportation of any Hazardous Material

                                      -13-
<PAGE>

(i) from, under, in, into or on the Facilities or surrounding property; and (ii)
caused by, or undertaken by or on behalf of, the Lessee.

         "HOLDINGS"  means  Atlas  Air  Worldwide  Holdings,  Inc.,  a  Delaware
corporation.

         "HOLDINGS COMMON STOCK" means the common stock of Holdings.

         "HOLDINGS  GUARANTY" means "Holdings Guaranty" as defined in the Credit
Agreement.

         "INDEBTEDNESS"  means, as applied to any Person,  (i) all  indebtedness
for borrowed  money,  (ii) that portion of  obligations  with respect to Capital
Leases  that is  properly  classified  as a  liability  on a  balance  sheet  in
conformity  with GAAP,  (iii)  notes  payable and drafts  accepted  representing
extensions of credit whether or not representing obligations for borrowed money,
(iv) any obligation  owed for all or any part of the deferred  purchase price of
property or services  (excluding  any such  obligations  incurred  under ERISA),
which purchase price is (a) due more than six months from the date of incurrence
of the  obligation  in  respect  thereof or (b)  evidenced  by a note or similar
written instrument, and (v) all indebtedness secured by any Lien on any property
or asset owned or held by that  Person  regardless  of whether the  indebtedness
secured  thereby shall have been assumed by that Person or is nonrecourse to the
credit  of that  Person.  For the  purposes  of this  Lease,  Obligations  under
Interest  Rate  Agreements  and  Currency   Agreements   constitute   Contingent
Obligations and not Indebtedness.

         "INDEMNIFIED  LIABILITIES"  has the  meaning  assigned  to that term in
subsection 12(b) hereunder.

         "INDEMNITEE"  has the meaning assigned to that term in subsection 12(b)
hereunder.

         "INITIAL  BORROWING  DATE" means the date on which the Lessor  effected
its borrowing of Loans pursuant to the Credit Agreement.

         "INTERCOMPANY   LOANS"  has  the  meaning  assigned  to  that  term  in
subsection 7(c)(5).

         "INTEREST  RATE  AGREEMENT"  means any  interest  rate swap  agreement,
interest rate cap  agreement,  interest  rate collar  agreement or other similar
agreement or arrangement designed to protect Holdings or any of its Subsidiaries
against fluctuations in interest rates.

         "INTERNAL  REVENUE  CODE" means the Internal  Revenue Code of 1986,  as
amended to the date hereof and from time to time hereafter.

         "INVESTMENT"  means  (i) any  direct  or  indirect  purchase  or  other
acquisition  by  Holdings  or any of its  Subsidiaries  of,  or of a  beneficial
interest in, any  Securities  of any other  Person,  (ii) any direct or indirect
redemption,  retirement,  purchase  or  other  acquisition  for  value,  by  any
Subsidiary  of  Holdings  from any  Person  other  than  Holdings  or any of its
Subsidiaries,  of any equity Securities of such Subsidiary,  or (iii) any direct
or  indirect  loan,  advance  (other  than  advances  to  employees  for moving,
entertainment and travel expenses,  drawing accounts and similar expenditures in
the ordinary  course of business) or capital  contribution by Holdings or any of
its  Subsidiaries  to any other Person (other than a wholly-owned  Subsidiary of
Holdings),  including all indebtedness  and accounts  receivable from that other
Person that are not current

                                      -14-
<PAGE>

assets or did not arise from sales to that other Person in the  ordinary  course
of business.  The amount of any  Investment  shall be the original  cost of such
Investment plus the cost of all additions  thereto,  without any adjustments for
increases or decreases in value,  or write-ups,  writedowns  or write-offs  with
respect to such Investment.

         "JOINT  VENTURE"  means a joint  venture,  partnership or other similar
arrangement,  whether in corporate,  partnership or other legal form;  provided,
that in no event shall any  corporate  Subsidiary of any Person be considered to
be a Joint Venture to which such Person is a party.

         "LEASE  EVENT OF DEFAULT"  has the meaning  specified  in Section 16 of
this Lease.

         "LEASE SUPPLEMENT" means a Lease Supplement,  substantially in the form
of Exhibit A to this Lease, to be entered into between the Lessor and the Lessee
for the purpose of leasing the  Aircraft  under and pursuant to the terms of the
Lease, and any subsequent  Lease Supplement  entered into in accordance with the
terms of the Lease.

         "LEASED  AIRCRAFT"  means an AFL III  Aircraft  subject to an  Approved
Lease.

         "LEASES" means the Amended and Restated Lease  Agreements,  dated as of
April 25,  2000,  between the Lessor and the Lessee,  in each case as so amended
and restated,  and as the same may be further amended,  modified or supplemented
from time to time  (including  this Lease).  The term "Lease"  shall include any
Lease Supplement entered into pursuant to the respective Lease.

         "LENDER" or "LENDERS"  means the persons  identified  as "Lenders"  and
listed on the  signature  pages of the  Credit  Agreement,  together  with their
successors and permitted assigns.

         "LESSEE"  means Atlas Air,  Inc.,  as lessee  under the Lease,  and its
permitted successors and assigns.

         "LESSEE 401K PLAN" has the meaning provided in subsection 5(k).

         "LESSOR" means Atlas  Freighter  Leasing III, Inc., as Lessor under the
Lease, and its permitted successors and assigns.

         "LESSOR'S  LIEN"  means any Lien over the  Aircraft  (i)  arising  as a
result of any act or omission of the Lessor that  constitutes a breach of any of
the terms of this Lease, (ii) arising as a result of any indebtedness, liability
or other obligation arising by through or under the Lessor,  including,  without
limitation,  any Tax,  that is not  indemnified  against  by the Lessee or (iii)
resulting from the Credit  Agreement or any other Lien from time to time created
by or through the Lessor in connection with the financing of the Aircraft.

         "LESSOR  TAX" means (where the Lessor is the  indemnitee)  any Tax that
is:

         (a)      imposed  solely as the result of  activities  of the Lessor in
                  the  jurisdiction  imposing  the Tax that is  unrelated to the
                  Lessor's   dealings  with  the  Lessee  or  the   transactions
                  contemplated by this Lease or the operation of the Aircraft by
                  the Lessee; or

                                      -15-
<PAGE>

         (b)      imposed on the net  income,  profits or gains of the Lessor by
                  the  United  States  of  America  or the  state  or  political
                  subdivision thereof, but excluding any Tax imposed by any such
                  government or taxing  authority of any  jurisdiction if and to
                  the extent that such Tax results from (i) the use,  operation,
                  presence or  registration of the Aircraft,  the Airframe,  any
                  Engine or any Part in the  jurisdiction  imposing  the Tax, or
                  (ii) the situs of  organization,  any place of business or any
                  activity  of  the  Lessee  or any  other  Person  having  use,
                  possession  or  custody of the  Aircraft,  the  Airframe,  any
                  Engine or any Part in the jurisdiction imposing the Tax; or

         (c)      imposed solely as the result of an event that occurs after the
                  expiration  or other  termination  of this  Lease  and that is
                  unrelated to the Lessor's  dealings  with the Lessee or to the
                  transactions contemplated by this Lease.

         "LIEN" means any lien, mortgage, pledge, assignment, security interest,
charge, hypothecation,  preference, priority, privilege, lease or encumbrance of
any kind (including any conditional sale or other title retention agreement, any
lease in the nature  thereof,  and any agreement to give any security  interest)
and any option,  trust or other  preferential  arrangement  having the practical
effect of any of the foregoing.

         "LOAN" or "LOANS" means the term loans made under the Credit Agreement.

         "LOAN  DOCUMENTS"  means the Credit  Agreement,  the  promissory  notes
thereunder,  the Leases, the Holdings Guaranty,  the Subsidiaries  Guaranty, the
Aircraft  Chattel  Mortgages and any other  security  agreement  entered into in
connection with the Credit Agreement.

         "LOAN  PARTIES"  means the  Lessee,  Holdings  and each  subsidiary  of
Holdings which becomes party to a Subsidiaries Guaranty.

         "MARGIN STOCK" has the meaning assigned to that term in Regulation U of
the Board of Governors of the Federal  Reserve  System as in effect from time to
time.

         "MATERIAL  ADVERSE EFFECT" means (i) a material adverse effect upon the
business, operations,  properties, assets, condition (financial or otherwise) or
prospects  of  Holdings  and  its  Subsidiaries  taken  as a whole  or (ii)  the
impairment of the ability of any Loan Party to perform the  Obligations,  or the
impairment, as a result of actions or inaction by Holdings or the Lessee, of the
ability of Agent or Lenders to enforce the Obligations.

         "MATERIAL  AGREEMENT"  means  any  or all of  the  Pass  Through  Trust
Documents, the Amended Aircraft Credit Facility, each Lease relating to 747-200s
in effect on the  Restatement  Effective  Date,  and  agreements  in  respect of
Permitted Extension Indebtedness in respect of any of the foregoing.

         "MATERIAL SUBSIDIARY" means any domestic Subsidiary of Holdings that at
any time has a  consolidated  net worth as of the end of its most recent  fiscal
year for which financial statements are available or consolidated gross revenues
for its most recent  fiscal year for which  financial  statements  are available
which are greater than $250,000,  in each case as determined in accordance  with
GAAP.

                                      -16-
<PAGE>

         "MAXIMUM CAPITAL  EXPENDITURE  AMOUNT" means for any period, the amount
set fourth opposite such period below:

                        Fiscal Year          Amount
                        -----------          ------

                           2004            $20,000,000
                           2005            $20,000,000
                           2006            $21,300,000
                           2007            $21,500,000
                      Each Fiscal Year     $22,000,000
                        thereafter

         "MOODY'S" means Moody's Investors Service, Inc.

         "MTU" means MTU Maintenance Hanover GmbH.

         "1998 PASS  THROUGH  TRUST  DOCUMENTS"  means that certain Pass Through
Trust  Agreement  dated as of  February  9, 1998  between  Atlas Air,  Inc.  and
Wilmington Trust Company,  as Trustee (the "1998 PASS THROUGH TRUST  Agreement")
and any trust  indenture  and security  agreements  including  any related trust
indenture  and security  agreement  supplements  which  related to the equipment
notes to be held in trust pursuant to the 1998 Pass Through Trust  Agreement and
all related agreements,  as the same may be amended,  restated,  supplemented or
otherwise  modified from time to time in  accordance  with the terms thereof and
hereof.

         "1999 PASS  THROUGH  TRUST  DOCUMENTS"  means that certain Pass Through
Trust  Agreement  dated as of  April  13,  1999  between  Atlas  Air,  Inc.  and
Wilmington Trust Company,  as Trustee (the "1999 PASS THROUGH TRUST  Agreement")
and any trust  indenture  and security  agreements  including  any related trust
indenture  and security  agreement  supplements  which  related to the equipment
notes to be held in trust pursuant to the 1999 Pass Through Trust  Agreement and
all related agreements,  as the same may be amended,  restated,  supplemented or
otherwise  modified from time to time in  accordance  with the terms thereof and
hereof.

         "OBLIGATIONS"  means all  obligations  of the Lessor to pay all amounts
due from time to time under the Credit Agreement and the other Loan Documents to
the Agent, the Lenders or any of them,  whether for principal,  interest,  fees,
expenses, indemnification or otherwise.

         "OFFICERS'  CERTIFICATE"  means,  as  applied  to  any  corporation,  a
certificate  executed on behalf of such corporation by its chairman of the board
(if an officer) or its president or one of its vice  presidents and by its chief
financial officer or its treasurer.

         "OPERATING   LEASE"  means,  as  applied  to  any  Person,   any  lease
(including,  without limitation,  leases that may be terminated by the lessee at
any time) of any  property  (whether  real,  personal  or  mixed)  that is not a
Capital Lease other than any such lease under which that Person is the lessor.

         "OTHER  PERMITTED  INDEBTEDNESS"  means  Indebtedness  incurred for the
purpose of financing the acquisition of aircraft or aircraft  engines so long as
(i) any such Indebtedness bears interest at a rate which does not exceed 15% per
annum, (ii) such Indebtedness has a final stated

                                      -17-
<PAGE>

maturity later than the Final Maturity Date and (iii) the  amortization  and the
other terms,  provisions,  conditions,  covenants and events of default  thereof
taken as a whole shall be no more onerous or restrictive from the perspective of
Holdings and its  Subsidiaries  or any less  favorable,  from the perspective of
Lenders, than any other Designated Indebtedness.

         "PART"  means  all  appliances,   parts,  instruments,   appurtenances,
accessories,  furnishings  and other  equipment  of whatever  nature  other than
complete  Engines,  Spare  Engines  or  engines,  that  are  from  time  to time
incorporated or installed in or attached to the Airframe or any Engine,  and all
such items that are  subsequently  removed  therefrom  so long as title  thereto
shall vest in the Lessor in accordance with this Lease.

         "PASS  THROUGH  TRUST  DOCUMENTS"  means  the 1998 Pass  Through  Trust
Agreement, the 1999 Pass Through Trust Agreement and the 2000 Pass Through Trust
Agreement  (the "PASS THROUGH  TRUST  AGREEMENTS")  and any trust  indenture and
security agreements including any related trust indenture and security agreement
supplements which related to the equipment notes to be held in trust pursuant to
the Pass Through Trust Agreements and all related agreements, as the same may be
amended,  restated,  supplemented  or  otherwise  modified  from time to time in
accordance with the terms thereof and hereof.

         "PAST DUE RATE" shall mean the default  rate of interest as  determined
from time to time in accordance with subsection 2.2E of the Credit Agreement.

         "PBGC" shall mean the Pension Benefit Guaranty Corporation  established
pursuant to Section 4002 of ERISA, in any successor thereto.

         "PERMITTED ENCUMBRANCES" means the following types of Liens (other than
any such Lien imposed  pursuant to Section  401(a)(29) or 412(n) of the Internal
Revenue Code or by ERISA):

                  (i)      Liens for taxes,  assessments or governmental charges
         or  claims  the  payment  of which is not,  at the  time,  required  by
         subsection 6(c) hereunder;

                  (ii)     statutory Liens of mechanics and materialmen  imposed
         by law  incurred in the  ordinary  course of business  for sums not yet
         delinquent or being contested in good faith by appropriate  proceedings
         that do not involve any danger of the sale,  forfeiture  or loss of any
         Collateral,  if such reserve or other appropriate provision, if any, as
         shall be required by GAAP shall have been made therefor;

                  (iii)    Liens  incurred  or  deposits  made  in the  ordinary
         course  of  business  in   connection   with   workers'   compensation,
         unemployment insurance and other types of social security, or to secure
         the performance of tenders,  statutory  obligations,  surety and appeal
         bonds, bids, leases, government contracts, trade contracts, performance
         and return-of-money  bonds and other similar obligations  (exclusive of
         obligations for the payment of borrowed money);

                  (iv)     easements,    rights-of-way,    restrictions,   minor
         defects,  encroachments  or  irregularities  in title and other similar
         charges or encumbrances not interfering in any

                                      -18-
<PAGE>

         material  respect  with the  ordinary  conduct of the  business  of the
         Lessee or any of its  Subsidiaries;

                  (v)      any (a)  interest  or title of a lessor or  sublessor
         under any lease  permitted  by  subsection  7(i),  (b)  restriction  or
         encumbrances that the interest or title of such lessor or sublessor may
         be subject to, or (c)  subordination  of the  interest of the lessee or
         sublessee under such lease to any  restriction or encumbrance  referred
         to in the preceding clause (b);

                  (vi)     Liens  arising from filing UCC  financing  statements
         relating solely to leases permitted by this Lease;

                  (vii)    Liens in favor of  customs  and  revenue  authorities
         arising  as a matter  of law to secure  payment  of  customs  duties in
         connection with the importation of goods;

                  (viii)   the rights of others under agreements or arrangements
         to the extent expressly permitted by the terms of: (I) subsections 4(d)
         and 4(e) of the Aircraft  Chattel  Mortgages and (II)  subsections 4(d)
         and 4(e) of the aircraft chattel  mortgages  entered into in connection
         with the Amended Aircraft Credit Facility;

                  (ix)     Liens described in SCHEDULE 7(b) annexed hereto;

                  (x)      Liens granted pursuant to the Loan Documents;

                  (xi)     Liens arising pursuant to the Amended Aircraft Credit
         Facility;

                  (xii)    any  attachment or judgment Lien not  constituting  a
         Lease Event of Default under  subsection 16(l) hereof or Section 7.8 of
         the Credit Agreement;

                  (xiii)   extensions,    modifications,     replacements    and
         refinancings  of any of  the  foregoing,  except  in  the  case  of the
         foregoing  clause (ix) as may be limited as set forth in Schedule 7(b);
         and

                  (xiv)    Liens (other than Liens on the  Collateral)  securing
         the Exit Facility to the extent that the aggregate  principal amount of
         the  Indebtedness and Contingent  Obligations  secured thereby does not
         exceed the amount permitted under subsection 7(a)(8).

         "PERMITTED   EXTENSION   INDEBTEDNESS"   means  renewals,   extensions,
substitutions, refinancings or replacements (each an "EXTENSION") by Holdings or
any of its  Subsidiaries of any  Indebtedness  (other than the Exit Facility) of
Holdings or such Subsidiary, including any such successive transactions thereby,
so long as (i) any such  Indebtedness  bears  interest  at a rate which does not
exceed 15% per annum, (ii) any such Permitted Extension Indebtedness shall be in
a principal amount that does not exceed the principal amount  immediately  prior
to such  extension,  PLUS  the  amount  of any  premium  required  to be paid in
connection with such extension pursuant to the terms of such Indebtedness,  PLUS
the amount of expenses of Holdings  or such  Subsidiary  reasonably  incurred in
connection  with  such  extension,  (iii)  in  the  case  of  any  extension  of
subordinated  Indebtedness,   such  Permitted  Extension  Indebtedness  is  made

                                      -19-
<PAGE>

subordinate to the  Obligations at least to the same extent as the  Indebtedness
immediately prior to such extension,  (iv) such Permitted Extension Indebtedness
has a final  stated  maturity  later  than the Final  Maturity  Date and (v) the
amortization and the other terms, provisions,  conditions,  covenants and events
of default thereof taken as a whole shall be no more onerous or restrictive from
the perspective of Holdings and its Subsidiaries or any less favorable, from the
perspective  of Lenders  than those  contained in the  Indebtedness  immediately
prior to such extension.

         "PERSON"  means and includes  natural  persons,  corporations,  limited
partnerships,  general  partnerships,  limited liability  partnerships,  limited
liability  companies,  joint  stock  companies,  Joint  Ventures,  associations,
companies, trusts, banks, trust companies, land trusts, business trusts or other
organizations,  whether or not legal entities,  and governments and agencies and
political subdivisions thereof.

         "PLAN  OF  REORGANIZATION"  means  the  Joint  Second  Amended  Plan of
Reorganization of the Debtors'  relating to the Lessee,  Holdings and certain of
its  Subsidiaries,  dated June 8, 2004,  including  the exhibits  and  schedules
thereto, as the same may be amended,  modified or supplemented from time to time
in accordance  with the provisions of the Bankruptcy  Code and the terms thereof
and hereof.

         "POLAR AIR" means Polar Air Cargo, Inc., a California corporation.

         "POST  EFFECTIVE  DATE LEASE" has the meaning  assigned to that term in
subsection 7(i).

         "PROCEEDINGS"  has the  meaning  assigned  to that  term in  subsection
6(a)(9).

         "PRO FORMA BASIS" means,  with respect to compliance  with any covenant
hereunder,  compliance  with such  covenant  after giving effect to any proposed
incurrence of  Indebtedness  (including  Capital Leases) or the entering into an
Operating  Lease by Holdings or any of its  Subsidiaries  and the application of
the proceeds thereof, the acquisition (whether by purchase, merger or otherwise)
or disposition (whether by sale, merger or otherwise) of any company,  entity or
business or any asset  (including any ACMI  Contracted  Aircraft) by Holdings or
any of its Subsidiaries or any other related action which requires compliance on
a Pro Forma Basis.  In making any  determination  of  compliance  on a Pro Forma
Basis, such determination  shall be performed after good faith consultation with
the Agent  using the  consolidated  financial  statements  of  Holdings  and its
Subsidiaries   which  shall  be  reformulated  as  if  any  such  incurrence  of
Indebtedness  or entry into such  Operating  Lease,  as the case may be, and the
application  of proceeds,  acquisition,  disposition or other related action had
been  consummated at the beginning of the period  specified in the covenant with
respect to which Pro Forma Basis compliance is required.

         "RELEASE"  means  any  release,  spill,  emission,   leaking,  pumping,
pouring, injection, escaping, deposit, disposal, discharge,  dispersal, dumping,
leaching  or  migration  of  Hazardous  Materials  into the  indoor  or  outdoor
environment (including,  without limitation,  the abandonment or disposal of any
barrels,  containers  or  other  closed  receptacles  containing  any  Hazardous
Materials),  or into  or out of any  facility,  including  the  movement  of any
Hazardous  Material  through  the  air,  soil,  surface  water,  groundwater  or
property.

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

                                      -20-
<PAGE>

         "REQUISITE  LENDERS"  means each  "Requisite  Lender" as defined in the
Credit Agreement.

         "RESTATEMENT  EFFECTIVE DATE" means the date on which the conditions to
effectiveness set forth in subsection 3.1 of the Credit Agreement are satisfied.

         "RESTRICTED   JUNIOR   PAYMENT"   means  (i)  any   dividend  or  other
distribution, direct or indirect, on account of any shares of any class of stock
of Holdings now or hereafter  outstanding,  except a dividend  payable solely in
shares of that class of stock to the holders of that class, (ii) any redemption,
retirement,  sinking fund or similar payment,  purchase or other acquisition for
value,  direct or indirect,  of any shares of any class of stock of Holdings now
or hereafter  outstanding,  (iii) any payment  made to retire,  or to obtain the
surrender  of, any  outstanding  warrants,  options  or other  rights to acquire
shares of any class of stock of Holdings now or hereafter outstanding,  and (iv)
any payment or prepayment of principal of,  premium,  if any, or interest on, or
redemption,  purchase,  retirement,  defeasance (including in-substance or legal
defeasance),  sinking fund or similar  payment  with respect to, any  Designated
Indebtedness.

         "RESTRUCTURING  DOCUMENTS" means the  Restructuring  Agreements,  dated
July 27,  2004,  among  Lessee,  Wilmington  Trust  Company,  in its capacity as
Trustee to each of the Pass Through Trust  Documents and the other parties party
thereto and any other documents incorporated therein or in connection therewith.

          "RETURNS" has the meaning assigned to that term in subsection 5(g).

         "SEC" means the Securities and Exchange Commission.

         "S-P" has the meaning assigned to that term in subsection 10(h)(ii).

         "S&P" means Standard & Poor's, a division of the McGraw-Hill Companies,
Inc.

         "SECURITIES" means any stock,  shares,  partnership  interests,  voting
trust   certificates,   certificates  of  interest  or   participation   in  any
profit-sharing agreement or arrangement,  options,  warrants, bonds, debentures,
notes, or other evidences of  indebtedness,  secured or unsecured,  convertible,
subordinated  or  otherwise,  or in general any  instruments  commonly  known as
"securities"  or any  certificates  of  interest,  shares or  participations  in
temporary or interim  certificates  for the purchase or  acquisition  of, or any
right to subscribe to, purchase or acquire, any of the foregoing.

         "SOLVENT"  means,  with respect to any Person,  that, as of the date of
determination, both (A) (i) the then fair saleable value of the property of such
Person is (y) greater than the total amount of liabilities (including contingent
liabilities)  of such  Person  and (z) not less  than the  amount  that  will be
required to pay the probable liabilities on such Person's then existing debts as
they become  absolute and matured  considering  all financing  alternatives  and
potential asset sales  reasonably  available to such Person,  (ii) such Person's
capital  is  not  unreasonably   small  in  relation  to  its  business  or  any
contemplated or undertaken transaction, and (iii) such Person does not intend to
incur, or believe (nor should it reasonably  believe) that it will incur,  debts
beyond its ability to pay such debts as they become due,  and (B) such Person is
"solvent"  within the meaning given that term and similar terms under applicable
laws relating to fraudulent transfers

                                      -21-
<PAGE>

and conveyances.  For purposes of this definition,  the amount of any contingent
liability at any time shall be computed as the amount  that,  in light of all of
the facts and  circumstances  existing at such time,  represents the amount that
can reasonably be expected to become an actual or matured liability.

         "SPARE  ENGINES"  means  each  "Spare  Engine" as defined in the Credit
Agreement.

         "SPECIFIED  LEASE" has the meaning  assigned to that term in subsection
7(l) hereunder.

         "STIPULATED LOSS DETERMINATION  DATE" means each date referenced on the
schedule of Stipulated Loss Values set forth in EXHIBIT C to this Lease.

         "STIPULATED  LOSS VALUE" with respect to the Aircraft shall mean, as of
any date,  the  amount  set forth on  Exhibit C  opposite  the  Stipulated  Loss
Determination Date immediately prior to such date, as such amount may be reduced
in accordance with subsection  3(f), plus all accrued and unpaid interest on the
Loans relating to the Aircraft on the date of determination.

         "SUBSIDIARIES  GUARANTY"  has the meaning  assigned to that term in the
Credit Agreement.

         "SUBSIDIARY"  means,  with  respect  to any  Person,  any  corporation,
partnership,  association,  joint venture or other business entity of which more
than 50% of the  total  voting  power  of  shares  of  stock or other  ownership
interests entitled (without regard to the occurrence of any contingency) to vote
in the election of the Person or Persons (whether directors,  managers, trustees
or other Persons  performing  similar  functions)  having the power to direct or
cause the direction of the management and policies  thereof is at the time owned
or  controlled,  directly  or  indirectly,  by that Person or one or more of the
other Subsidiaries of that Person or a combination  thereof. For all purposes of
this Lease other than the financial  covenants set forth in subsection  7(f) and
the definitions related thereto, the Lessor shall not be considered a Subsidiary
of Holdings.

         "SUBSIDIARY  GUARANTOR"  has the  meaning  assigned to that term in the
Credit Agreement.

         "SUPPLEMENTAL  RENT" means all  amounts,  liabilities  and  obligations
(other than Basic  Rent) that the Lessee  assumes or agrees to pay to the Lessor
or  others  under  any of  the  Transaction  Documents,  including  payments  of
Stipulated  Loss Value and other amounts  referred to in subsection 3(c) of this
Lease.

         "TAX" or  "TAXES"  shall  have the  meaning  assigned  to that  term in
subsection 12(a) hereunder.

         "TECHNICAL  RECORDS"  shall have the  meaning  assigned to that term in
subsection 8(i).

         "TERM"  means  the term for  which the  Aircraft  is  leased  hereunder
pursuant to subsection  3(a) of this Lease,  beginning on the Initial  Borrowing
Date and ending on the Final  Maturity  Date, or such earlier date as this Lease
may be terminated in accordance with the terms hereof.

         "TERM  SHEET"  shall have the  meaning as  assigned to that term in the
Recitals hereto.

                                      -22-
<PAGE>

         "TRANSACTION" means, collectively,  (i) the consummation of the Plan of
Reorganization,  (ii) the occurrence of the Restatement Effective Date and (iii)
the payment of fees and expenses in connection with the forgoing.

         "TRANSACTION DOCUMENTS" means the Amended Aircraft Credit Facility, and
bills of sale or  certificates  of  transfer  for each  Aircraft  and each Spare
Engine  leased  pursuant  to the  Leases  (including  bills  of  sale on AC Form
8050-2), the Leases and other Loan Documents.

         "2000 PASS  THROUGH  TRUST  DOCUMENTS"  means that certain Pass Through
Trust  Agreement  dated as of January  28,  2000  between  Atlas Air,  Inc.  and
Wilmington Trust Company,  as Trustee (the "2000 PASS THROUGH TRUST  Agreement")
and any trust  indenture  and security  agreements  including  any related trust
indenture  and security  agreement  supplements  which  related to the equipment
notes to be held in trust pursuant to the 2000 Pass Through Trust  Agreement and
all related agreements,  as the same may be amended,  restated,  supplemented or
otherwise  modified from time to time in  accordance  with the terms thereof and
hereof.

         "UCC" means the Uniform  Commercial Code as in effect from time to time
in the relevant jurisdiction.

         "UNITED  STATES  CITIZEN" means a "citizen of the United States" within
the meaning of the Federal Aviation Act.

         "UNRESTRICTED   CASH  AND  CASH   EQUIVALENTS"   means  Cash  and  Cash
Equivalents  that are not subject to any  restriction or limitation on Holding's
or any of its  Subsidiaries'  ability to withdraw  (in the case of Cash) or sell
(in the case of Cash Equivalents).

                  SECTION 2. ACCEPTANCE AND LEASE.  Subject to the  satisfaction
or waiver of the conditions  precedent contained in the Credit Agreement and the
occurrence  of the  Restatement  Effective  Date,  the Lessor  hereby  agrees to
continue  to lease to the  Lessee  hereunder,  and the Lessee  hereby  agrees to
continue to accept from and after the Restatement Effective Date from the Lessor
hereunder,  the  Aircraft as  evidenced  by the  execution by the Lessor and the
Lessee of a Lease Supplement leasing the Aircraft hereunder.

                  SECTION 3. TERM AND RENT.

                  (a)      TERM AND BASIC RENT. The Term, which commenced on the
Initial  Borrowing  Date,  shall end on the Final  Maturity Date or such earlier
date as this Lease may be terminated in accordance  with the provisions  hereof.
Basic Rent shall accrue during the Term in accordance with Exhibit B hereto. The
Lessee  shall pay to the  Lessor on each Basic  Rent  Payment  Date an amount of
Basic Rent  specified  opposite each Basic Rent Payment Date on Exhibit B hereto
as such amounts may be adjusted  pursuant to Section 3 plus accrued  interest on
Basic Rent previously accrued but unpaid as specified on EXHIBIT B.

                  (b)      ADJUSTMENTS  TO  BASIC  RENT.  Basic  Rent  shall  be
adjusted (i) upwards on each Basic Rent Payment Date by an amount, determined by
the Agent and  notified  to the Lessor  and the  Lessee  prior to the Basic Rent
Payment  Date,  that  represents  the amount of interest  due and payable on the
Loans relating to the Aircraft on such Basic Rent Payment Date and determined in
accordance with the Credit Agreement, and (ii) downwards on each Basic Rent

                                      -23-
<PAGE>

Payment  Date by an amount equal to the amount of  principal  payments  deferred
pursuant to Section 2.4(A)(ii) of the Credit Agreement (such downward adjustment
to be applied pro rata among the Leases).

                  (c)      SUPPLEMENTAL  RENT. The Lessee shall pay (or cause to
be paid) to the Lessor, or to whomsoever shall be entitled thereto,  any and all
Supplemental  Rent  constituting  Stipulated Loss Value as the same shall become
due and owing and all other  amounts of  Supplemental  Rent within 10 days after
demand,  and in the event of any  failure  on the part of the  Lessee to pay any
Supplemental  Rent when due,  the  Lessor  shall  have all  rights,  powers  and
remedies  provided  for herein or by law or equity or  otherwise  in the case of
nonpayment  of  Basic  Rent.  The  Lessee  also  will pay to the  Lessor,  or to
whomsoever shall be entitled  thereto,  as assignee of the Lessor, on demand, as
Supplemental Rent, (i) all amounts of interest payable by the Lessor pursuant to
subsection  2.2(C) of the  Credit  Agreement  that (I) are  payable on the Loans
relating to the  Aircraft and (II) fall due on any day which is not a Basic Rent
Payment Date, (ii) interest at the Past Due Rate with respect to any part of any
installment  of Basic  Rent not paid when due for any  period for which the same
shall be overdue and on any payment of  Supplemental  Rent not paid when due for
the period and,  to the extent  permitted  by law, on interest  accrued on Basic
Rent which  itself was  accrued  and not paid to the  extent  that such  accrued
interest  was not paid when due  until  the same  shall be paid and on any other
amounts  payable  hereunder  that are not paid when due and  (iii)  all  amounts
payable by the Lessor  pursuant to  subsections  2.6D,  2.7,  9.2 and 9.3 of the
Credit Agreement;  PROVIDED,  HOWEVER, that, to the extent that any Supplemental
Rent  required to be paid pursuant to clause (iii) of this  subsection  2(c) has
been  paid by the  Lessee  pursuant  to the  terms of  another  Lease,  then the
Lessee's  obligations  hereunder shall be deemed to be satisfied by the payments
made pursuant to such other Lease.

                  (d)      PAYMENTS  IN GENERAL.  All  payments of Rent shall be
made directly by the Lessee prior to 12:00 p.m.  (New York time),  to the Lessor
at its office at 2000 Westchester Avenue,  Purchase, New York 10577,  Attention:
Treasurer (or such other office of the Lessor in the  continental  United States
or such other  account as the Lessor  shall  direct in a notice to the Lessee at
least 10  Business  Days  prior to the date when such  payment  of Rent is due);
PROVIDED, that so long as any Obligations remain outstanding (x) all Rent in the
amount  of  principal  and  interest  then  owing on the Loans  relating  to the
Aircraft and other unpaid Obligations shall be paid directly to the Agent at the
Funding and Payment  Office and (y) upon  reasonable  notice by the Agent to the
Lessee,  all Rent shall be paid directly to the Agent at the Funding and Payment
Office and to the extent  the  amount of Rent paid  directly  to the Agent is in
excess of the amount of  principal  and  interest  on the Loans  relating to the
Aircraft  and other unpaid  Obligations  (other than  principal  and interest on
other Loans relating to other  aircraft or other engines leased  pursuant to the
other Leases and after taking into account all other  payments of rent  pursuant
to the other Leases on such date), then such excess amounts shall be paid by the
Agent to the Lessor at its above-referenced office within 5 Business Days.

                  Notwithstanding  anything to the contrary contained herein, if
any date on which a payment of Rent  becomes  due and  payable is not a Business
Day,  then  such  payment  shall be made on the next  succeeding  Business  Day;
PROVIDED,  HOWEVER,  that if any date on which a payment of Rent  becomes due is
not a Business Day and is a day of the month after which no further Business Day
occurs  in such  month,  then  the  payment  of Rent  shall  be made on the next
preced-

                                      -24-
<PAGE>

ing Business Day. No interest  shall accrue on the amount of any payment made on
the Business Day next  succeeding  the  regularly  scheduled  Basic Rent Payment
Date, if such payment is made on such next  succeeding  Business Day because the
original  date of payment was not a Business Day (it being  understood  that the
amount of Basic Rent includes Rent for such day).

                  (e)      MINIMUM  RENT.   Anything   herein  to  the  contrary
notwithstanding,

                  (i)      each  installment of Basic Rent,  whether or not such
         installment  has been adjusted  pursuant to subsection  3(b),  together
         with all prior  Basic Rent due and payable on such date and all accrued
         interest  thereon  shall be,  when  added to the  amount of basic  rent
         required to be paid under the other Leases, under all circumstances and
         in any event, in an amount at least sufficient for the Lessor to pay in
         full  principal  and  interest on the Loans  relating  to the  Aircraft
         required  to be paid by the Lessor on or within five  Business  Days of
         the due date of such installment of Basic Rent; and

                  (ii)     payments of Stipulated Loss Value shall be, under any
         circumstances  and in any event, in an amount that (when taken together
         with any other Basic Rent due and payable in  connection  therewith) is
         at least equal to, as of the date of payment,  the sum of the aggregate
         unpaid  principal of and accrued  interest on the Loans relating to the
         Aircraft and all other  unpaid  Obligations  of the Lessor  (other than
         principal  and  interest on Loans  relating to other  aircraft or spare
         engines and after taking into account all other  payments of Stipulated
         Loss Value pursuant to the other Leases on such date).

                  (f)      PREPAYMENT OF RENT PAYMENTS:

                  (i)      In the event that the Lessor is at any time  required
         to repay Loans relating to the Aircraft pursuant to subsection 2.4B(ii)
         of the Credit  Agreement,  the Lessor  shall  notify the Lessee of such
         required  prepayment and the Lessee shall immediately  prepay an amount
         of Basic Rent equal to the amount of such required  prepayment less any
         required  payments of the Loans relating to the Aircraft  actually made
         by the Lessor from Insurance Proceeds or Condemnation Proceeds (as each
         such term is defined in the Credit Agreement)  received directly by the
         Lessor.

                  (ii)     The Lessee  shall also be  permitted  to prepay Basic
         Rent voluntarily at any time and from time to time,  without premium or
         penalty,  upon not less than  three  Business  Days'  prior  written or
         telephonic notice to the Lessor and the Agent.

                  (iii)    In the  event  of any  prepayment  pursuant  to  this
         subsection  3(f), the schedules of Basic Rent and Stipulated Loss Value
         shall be adjusted  so as to preserve  the after tax yield and after tax
         cash flows of the Lessor and, to the extent  consistent  therewith,  to
         minimize  the net  present  value  of  Basic  Rent  payments.  All such
         computations shall be made on the basis of the same assumptions and the
         method of computations  employed in the original  calculations of Basic
         Rent and  Stipulated  Loss  Values  (except  to the  extent  that  such
         assumptions  have been  changed as a result of such  prepayment  or any
         prior such  adjustment).  At the Lessee's written request,  independent
         public accountants mutually selected by the Lessor and the Lessee shall
         confirm  the  required  adjustments.  The  final  determination  of any
         adjustment  hereunder  shall be set forth in  amendments to this Lease,
         executed and  delivered by the Lessor,  the Lessee and

                                      -25-
<PAGE>

         consented to by the Agent.  The reasonable  fees, costs and expenses of
         the verifying accounting firm shall be paid by the Lessee.

                  Anything   contained   in  the   foregoing   to  the  contrary
         notwithstanding,  after giving effect to the foregoing adjustments, the
         revised Basic Rent and  Stipulated  Loss Values shall permit the Lessee
         to comply with subsection 3(e) hereof.

                  SECTION 4. CERTAIN REPRESENTATIONS AND WARRANTIES.  THE LESSEE
ACKNOWLEDGES  AND  AGREES  THAT,  AS  BETWEEN  THE LESSOR AND THE LESSEE (A) THE
AIRFRAME  AND  EACH  ENGINE  ARE OF A SIZE,  DESIGN,  CAPACITY  AND  MANUFACTURE
SELECTED BY AND  ACCEPTABLE TO THE LESSEE AND THE LESSEE TAKES THE SAME "AS IS,"
(B) THE LESSEE IS  SATISFIED  THAT THE AIRFRAME AND EACH ENGINE ARE SUITABLE FOR
ITS PURPOSES,  (C) THE LESSOR IS NOT A  MANUFACTURER  OR A DEALER IN PROPERTY OF
SUCH KIND,  AND (D) NEITHER THE LESSOR NOR THE AGENT NOR ANY LENDER  MAKES,  HAS
MADE OR SHALL BE DEEMED TO HAVE MADE,  AND EACH WILL BE DEEMED TO HAVE EXPRESSLY
DISCLAIMED, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE,
AIRWORTHINESS,  VALUE, CONDITION, DESIGN, OPERATION,  MERCHANTABILITY OR FITNESS
FOR USE FOR A PARTICULAR PURPOSE OF THE AIRCRAFT OR ANY PART THEREOF,  AS TO THE
ABSENCE  OF LATENT OR OTHER  DEFECTS,  WHETHER  OR NOT  DISCOVERABLE,  AS TO THE
ABSENCE  OF ANY  INFRINGEMENT  OF ANY  PATENT,  TRADEMARK,  COPYRIGHT  OR  OTHER
PROPRIETARY RIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN
TORT, OR ANY OTHER  REPRESENTATION OR WARRANTY  WHATSOEVER,  EXPRESS OR IMPLIED,
WITH  RESPECT  TO THE  AIRCRAFT  OR ANY PART  THEREOF,  except  that the  Lessor
covenants  that it will not,  through  its own  actions  or  inactions,  in such
capacity,  interfere in the Lessee's quiet enjoyment of the Aircraft unless this
Lease  shall  have been  declared  or deemed to have been  declared  in  default
pursuant to Section 17 hereof.  None of the  provisions of this Section 4 or any
other  provision  of this Lease  shall be deemed to amend,  modify or  otherwise
affect the representations, warranties or other obligations (express or implied)
of any manufacturer, any affiliate thereof, any subcontractor or supplier of any
manufacturer or any affiliate thereof, with respect to the Airframe,  Engines or
any Parts, or to release the manufacturer,  any affiliate  thereof,  or any such
subcontractor or supplier from any such representation,  warranty or obligation.
Unless  a  Default  or  Lease  Event  of  Default  shall  have  occurred  and be
continuing, the Lessor agrees to make available to the Lessee such rights as the
Lessor may have under any  warranty  with  respect to the  Aircraft  made by the
manufacturer or any affiliate thereof or any of its  subcontractors or suppliers
and any other claims against the manufacturer or any affiliate  thereof,  or any
such subcontractor or supplier with respect to the Aircraft, all pursuant to and
in accordance with the terms of any applicable  purchase  agreements or warranty
agreements.

                  SECTION 5. REPRESENTATIONS AND WARRANTIES.  In order to induce
the Lessor to enter into this  Lease,  and the Agent and the Lenders to continue
Loans under the Credit  Agreement,  Holdings and the Lessee each  represent  and
warrant as to itself and to its  Subsidiaries to the Lessor,  the Agent and each
Lender,  on the Restatement  Effective  Date, that the following  statements are
true, correct and complete:

                                      -26-
<PAGE>

(a)      ORGANIZATION,   POWERS,  QUALIFICATION,  GOOD  STANDING,  BUSINESS  AND
         SUBSIDIARIES.

         (i)      ORGANIZATION AND POWERS. Each Loan Party is a corporation duly
organized,  validly existing and in good standing under the laws of the State of
Delaware and each Loan Party has all requisite  corporate power and authority to
own and  operate  its  respective  properties,  to carry on its  business as now
conducted and as proposed to be conducted, to enter into this Lease and the Loan
Documents, and to carry out the transactions contemplated hereby and thereby.

         (ii)     QUALIFICATION AND GOOD STANDING.  Each Loan Party is qualified
to do business and in good standing in every  jurisdiction  where its assets are
located and wherever necessary to carry out its business and operations,  except
in  jurisdictions  where the failure to be so qualified or in good  standing has
not had and will not have a Material Adverse Effect. The Lessee is a "citizen of
the United  States"  within the meaning of the Federal  Aviation  Act (a "UNITED
STATES  CITIZEN")  and  holds an air  carrier  operating  certificate  under the
Federal  Aviation Act for aircraft capable of carrying 10 or more individuals or
6,000 pounds or more of cargo.

         (iii)    SUBSIDIARIES.  All of the  Subsidiaries  of Holdings as of the
Restatement  Effective Date are identified in Schedule 5(a)(iii) annexed hereto.
The capital stock of each of the Subsidiaries of Holdings identified in Schedule
5(a)(iii)  annexed  hereto  (as so  supplemented)  is duly  authorized,  validly
issued, fully paid and non-assessable and none of such capital stock constitutes
Margin  Stock.  Each of the  Subsidiaries  of  Holdings  identified  in Schedule
5(a)(iii)  annexed hereto (as so  supplemented) is a corporation duly organized,
validly  existing  and in  good  standing  under  the  laws  of  its  respective
jurisdiction of  incorporation  set forth therein,  has all requisite  corporate
power  and  authority  to own and  operate  its  properties  and to carry on its
business as now conducted  and as proposed to be conducted,  and is qualified to
do  business  and in good  standing in every  jurisdiction  where its assets are
located and wherever necessary to carry out its business and operations, in each
case except where  failure to be so  qualified or in good  standing or a lack of
such  corporate  power and  authority  has not had and will not have a  Material
Adverse Effect. SCHEDULE 5(a)(iii) annexed hereto (as so supplemented) correctly
sets forth the ownership  interest of Holdings and each of its  Subsidiaries  in
each of the Subsidiaries of Holdings identified therein.

         (iv)     COLLATERAL DOCUMENTS.  The security interests created in favor
of Agent under the Aircraft  Chattel  Mortgage  have at all times from and after
the Initial  Borrowing  Date  constituted  and will continue to  constitute,  as
security for the obligations purported to be secured thereby, a legal, valid and
enforceable  security interest in and Lien on all of the Collateral  referred to
therein in favor of Agent for the benefit of the Lenders, perfected and prior to
the  rights of all third  persons in  accordance  with the  requirements  of the
applicable  Aircraft Chattel Mortgage including,  without limitation,  all Liens
and security  interests in the Cash proceeds (or in the  indubitable  equivalent
thereof) of the administrative priority claim in the amount, if any, required to
cure a monetary default (as described in Bankruptcy Code Section 1110(a)(2)(B)),
provided under the Stipulation Providing for Section 1110(b) Extension Regarding
Intercompany  Sublease  N505MC  approved by order of the Bankruptcy  Court dated
April 22, 2004. Each Loan Party has good and marketable  title to its respective
Collateral,  and all such  Collateral  is free and clear of all Liens except for
Liens  permitted by  subsection  7(b). No consents,  filings or  recordings  are
required in order to perfect (or  maintain  the  perfection  or priority of) the
security interests  purported to be created by any of the Collateral  Documents,
other than such as have been

                                      -27-
<PAGE>

obtained and which remain in full force and effect and UCC financing  statements
to be filed, or delivered to Agent for filing, on the Restatement Effective Date
and periodic UCC continuation filings or as is specifically  otherwise permitted
by the terms of any applicable Collateral Document.

(b)      AUTHORIZATION, ETC.

         (i)      AUTHORIZATION. The execution, delivery and performance of this
Lease  and the  Loan  Documents  have  been  duly  authorized  by all  necessary
corporate action on the part of each Loan Party.

         (ii)     NO CONFLICT.  The execution,  delivery and  performance by the
Loan  Parties  that are  party to this  Lease  and the  Loan  Documents  and the
consummation of the  transactions  contemplated by the Loan Documents do not and
will  not (i)  violate  any  provision  of any law or any  governmental  rule or
regulation applicable to Holdings or any of its Subsidiaries, the Certificate or
Articles of  Incorporation  or Bylaws of Holdings or any of its  Subsidiaries or
any order, judgment or decree of any court or other agency of government binding
on Holdings  or any of its  Subsidiaries,  (ii)  conflict  with in any  material
respect,  result in a material breach of or constitute (with due notice or lapse
of time or both) a material default under any Contractual Obligation of Holdings
or  any of  its  Subsidiaries,  (iii)  result  in or  require  the  creation  or
imposition  of any Lien upon any of the  properties or assets of Holdings or any
of its Subsidiaries (other than any Liens created under this Lease or any of the
Loan  Documents  in favor of Agent on behalf of  Lenders),  or (iv)  require any
approval of  stockholders  or any  approval  or consent of any Person  under any
Contractual  Obligation of Holdings or any of its Subsidiaries,  except for such
approvals  or  consents  which will be  obtained  on or before  the  Restatement
Effective Date and disclosed in writing to Lenders.

         (iii)    GOVERNMENTAL CONSENTS. The execution, delivery and performance
by the  Loan  Parties  of  this  Lease  and the  other  Loan  Documents  and the
consummation of the  transactions  contemplated by this Lease and the other Loan
Documents do not and will not require any registration with, consent or approval
of, or notice to, or other  action to, with or by, any  federal,  state or other
governmental authority or regulatory body which has not been obtained or made on
or prior to the date required to be obtained or made.

         (iv)     BINDING  OBLIGATION.  Each of this  Lease and the  other  Loan
Documents has been duly executed and delivered by each of the Loan Parties party
thereto and is the legally valid and binding obligation of each such Loan Party,
enforceable  against such Loan Party in accordance  with its  respective  terms,
except as may be limited by bankruptcy, insolvency,  reorganization,  moratorium
or similar  laws  relating  to or limiting  creditors'  rights  generally  or by
equitable principles relating to enforceability.

(c)      FINANCIAL CONDITION.

         Holdings  has  heretofore  delivered  to the  Lenders,  at the Lenders'
request,  the following  financial  statements and information:  (i) the audited
consolidated  balance sheet of Holdings and its  Subsidiaries as at December 31,
2002, and the related  consolidated  statements of income,  stockholders' equity
and cash flows of Holdings and its  Subsidiaries  for the Fiscal Year then ended
and  (ii)  the  unaudited  consolidated  balance  sheets  of  Holdings  and  its
Subsidiaries as at

                                      -28-
<PAGE>

March 31, 2004, and the related consolidated statements of income, stockholders'
equity and cash flows of Holdings and its  Subsidiaries  for the fiscal  quarter
then ended. All such statements were prepared in conformity with GAAP and fairly
present  the  financial  position  (on a  consolidated  basis)  of the  entities
described in such financial  statements as at the  respective  dates thereof and
the  results  of  operations  and cash  flows (on a  consolidated  basis) of the
entities described therein for each of the periods then ended,  subject,  in the
case of any such unaudited financial statements, to changes resulting from audit
year-end  adjustments.  Neither  Holdings nor any of its  Subsidiaries has (and,
will  not  following  the  Restatement  Effective  Date,  have)  any  Contingent
Obligation,  contingent  liability or liability  for taxes,  long-term  lease or
unusual  forward or long-term  commitment that is not reflected in the foregoing
financial statements or the notes thereto and which in any such case is material
in  relation  to  the  business,   operations,   properties,  assets,  condition
(financial or otherwise) or prospects of Holdings, the Lessee or of Holdings and
its Subsidiaries taken as a whole.

(d)      NO MATERIAL ADVERSE CHANGE; NO RESTRICTED JUNIOR PAYMENTS.

         Except as otherwise disclosed in the Disclosure  Statement or Holdings'
filings with the SEC delivered prior to the execution and delivery of the Credit
Agreement, since December 31, 2003, (i) no event or change has occurred that has
caused or evidences,  either in any case or in the aggregate, a Material Adverse
Effect and (ii)  neither  Holdings nor any of its  Subsidiaries  has directly or
indirectly  declared,  ordered,  paid or made,  or set apart any sum or property
for,  any  Restricted  Junior  Payment or agreed to do so except as permitted by
subsection 7(e).

(e)      TITLE TO PROPERTIES, LIENS.

         (i)      Holdings and its  Subsidiaries  have (i) good,  sufficient and
legal  title to (in the case of fee  interests  in real  property),  (ii)  valid
leasehold  interests in (in the case of leasehold  interests in real or personal
property),  or (iii) good title to (in the case of all other personal property),
all of the properties and assets reflected in the financial  statements referred
to in subsection 5(c), in each case except for assets disposed of since the date
of such financial  statements in the ordinary course of business or as otherwise
permitted under  subsection  7(g).  Except as permitted by this Lease,  all such
properties and assets are free and clear of Liens.

         (ii)     Each AFL III  Aircraft  operated  in the  United  States has a
current and valid  airworthiness  certificate  issued by the FAA pursuant to the
Federal  Aviation Act in effect and is in such  condition as may be necessary to
enable the  airworthiness  certificate to be maintained in good  standing.  Each
Engine  has a rated  takeoff  horsepower  greater  than 750  horsepower,  or the
equivalent  of such  horsepower.  Each AFL III  Aircraft  operated in the United
States is registered with the FAA in the name of the Lessee,  and the Lessee has
authority  to operate such AFL III  Aircraft.  The Lessee has good title to such
AFL III  Aircraft,  free and clear of all Liens  other than Liens  permitted  by
subsection 7(b) hereunder.

(f)      LITIGATION, ADVERSE FACTS.

         Except as otherwise disclosed in the Disclosure  Statement or Holdings'
filings with the SEC delivered prior to the execution and delivery of the Credit
Agreement by the Lenders, there are no actions, suits, proceedings, arbitrations
or governmental investigations (whether or not purportedly on behalf of Holdings
or any of its Subsidiaries) at law or in equity or before or by

                                      -29-
<PAGE>

any federal,  state,  municipal or other  governmental  department,  commission,
board, bureau,  agency or instrumentality,  domestic or foreign,  pending or, to
the knowledge of Holdings,  threatened  against or affecting  Holdings or any of
its  Subsidiaries or any property of Holdings or any of its  Subsidiaries  that,
individually  or in the aggregate,  could  reasonably be expected to result in a
Material Adverse Effect.  Neither Holdings nor any of its Subsidiaries is (i) in
violation of any applicable laws that,  individually or in the aggregate,  could
reasonably be expected to result in a Material Adverse Effect or (ii) subject to
or in default with respect to any final judgments, writs, injunctions,  decrees,
rules or  regulations  of any court or any  federal,  state,  municipal or other
governmental department,  commission,  board, bureau, agency or instrumentality,
domestic or foreign, that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect.

(g)      PAYMENT OF TAXES.

         Except  to the  extent  permitted  by  subsection  6(c),  all  returns,
statements,  forms and reports  for taxes (the  "RETURNS")  of Holdings  and its
Subsidiaries required to be filed by any of them have been timely filed with the
appropriate  taxing  authority,  and all  taxes,  assessments,  fees  and  other
governmental   charges  upon  Holdings  and  its  Subsidiaries  and  upon  their
respective properties,  assets, income,  businesses and franchises which are due
and payable have been paid when due and payable.  Holdings  does not know of any
proposed tax assessment against Holdings or any of its Subsidiaries which is not
being  actively  contested by Holdings or such  Subsidiary  in good faith and by
appropriate  proceedings;  provided  that  such  reserves  or other  appropriate
provisions, if any, for liabilities for taxes as shall be required in conformity
with GAAP  shall  have been made or  provided  in the  financial  statements  of
Holdings.  Except to extend statute of limitations in various  jurisdictions for
audit purposes,  there are no agreements with respect to taxes between  Holdings
and any tax agency or authority.  Except as set forth in Schedule 5(g), there is
no action, suit, proceeding,  investigation,  audit, or claim now pending or, to
the best  knowledge of Holdings or any of its  Subsidiaries,  threatened  by any
authority regarding any Taxes relating to Holdings or any of its Subsidiaries.

(h)      PERFORMANCE OF AGREEMENTS; MATERIALLY ADVERSE AGREEMENTS.

         (i)      Neither  Holdings nor any of its Subsidiaries is in default in
the performance,  observance or fulfillment of any of the obligations, covenants
or conditions contained in any of its Contractual Obligations,  and no condition
exists  that,  with the  giving of  notice  or the lapse of time or both,  would
constitute such a default, except where the consequences, direct or indirect, of
such default or defaults, if any, would not have a Material Adverse Effect.

         (ii)     Neither  Holdings nor any of its Subsidiaries is a party to or
is otherwise  subject to any  agreements or  instruments or any charter or other
internal restrictions which, individually or in the aggregate,  could reasonably
be expected to result in a Material Adverse Effect.

(i)      GOVERNMENTAL REGULATION.

         Neither  Holdings nor any of its  Subsidiaries is subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act or the Investment Company Act of 1940 or under any other
federal or state statute or regulation

                                      -30-
<PAGE>

which may limit its ability to incur  Indebtedness or which may otherwise render
all or any portion of the Obligations unenforceable.

(j)      SECURITIES ACTIVITIES.

         Neither Holdings nor any of its Subsidiaries is engaged principally, or
as one of its important activities,  in the business of extending credit for the
purpose of purchasing or carrying any Margin Stock.

(k)      EMPLOYEE BENEFIT PLANS.

         The Lessee  maintains a qualified  retirement plan under Section 401(k)
of the Internal  Revenue Code (the "LESSEE  401(K) PLAN").  The Lessee's  401(k)
Plan has no unfunded liabilities in excess of $10,000,000,  and the Lessee is in
compliance  in  all  material  respects  with  all  applicable   provisions  and
requirements  of  ERISA  and  the  regulations  and  published   interpretations
thereunder with respect to each Employee  Benefit Plan and has performed all its
obligations  under such  Employee  Benefit  Plan in all material  respects.  The
Lessee has no Employee  Benefit Plans,  other than Lessee's  401(k) Plan and the
plan described in subsection  7(b)(iv).  The Lessee has no ERISA Affiliates that
sponsor,  maintain,  contribute  to or are liable with  respect to any  Employee
Benefit Plans.

(l)      CERTAIN FEES.

         No broker's or finder's fee or commission  will be payable with respect
to this Lease or any of the transactions  contemplated  hereby, and Holdings and
the Lessee hereby  indemnify the Lenders  against,  and agrees that it will hold
the Lenders harmless from, any claim,  demand or liability for any such broker's
or  finder's  fees  alleged to have been  incurred  in  connection  herewith  or
therewith   and  any  expenses   (including   reasonable   fees,   expenses  and
disbursements of counsel)  arising in connection with any such claim,  demand or
liability.

(m)      ENVIRONMENTAL PROTECTION.

         (i) All Facilities and operations of Holdings and its Subsidiaries are,
and have been to the best of Holdings' and Lessee's knowledge,  in compliance in
all material respects with all Environmental Laws.

         (ii) Except as  otherwise  disclosed  in the  Disclosure  Statement  or
Holdings'  filings with the SEC made prior to the  execution and delivery of the
Credit  Agreement  by the Lenders,  there are no, and have been no,  conditions,
occurrences, or Hazardous Materials Activity (a) arising at any Facilities or at
any other location or (b) arising in connection  with the operations of Holdings
and its Subsidiaries  (including the  transportation  of Hazardous  Materials in
accordance  with  applicable  regulations),  which  conditions,  occurrences  or
Hazardous  Materials  Activity could reasonably be expected to form the basis of
an  Environmental  Claim against  Holdings or any of its Subsidiaries and which,
individually  or in the  aggregate,  could  reasonably  be  expected  to  have a
Material Adverse Effect.

         (iii) To the best of  Holdings'  knowledge,  there  are no  pending  or
threatened Environmental Claims against Holdings or any of its Subsidiaries, and
neither Holdings or any of

                                      -31-

<PAGE>

its  Subsidiaries  has  received  any  notices,   inquiries,   or  requests  for
information with respect to any Environmental  Claims which,  individually or in
the aggregate, could reasonably be expected to have a Material Adverse Effect.

(n)      EMPLOYEE MATTERS.

         There  is no  strike  or  work  stoppage  in  existence  or  threatened
involving  Holdings or any of its Subsidiaries that could reasonably be expected
to have a Material Adverse Effect.

(o)      SOLVENCY.

         Holdings and each Loan Party is Solvent.

(p)      DISCLOSURE.

         No  representation  or warranty of Holdings or any of its  Subsidiaries
contained  in  this  Lease  or  any  Loan  Document  or in any  other  document,
certificate  or  written  statement  furnished  to  Lenders  by or on  behalf of
Holdings or any of its  Subsidiaries for use in connection with the transactions
contemplated  by this Lease contains any untrue  statement of a material fact or
omits to state a material  fact (known to Holdings  or such  Subsidiary,  in the
case of any document not furnished by Holdings or such Subsidiary)  necessary in
order to make the statements contained herein or therein not misleading in light
of the  circumstances in which the same were made. Any projections and pro forma
financial  information  contained  in such  materials  are based upon good faith
estimates  and  assumptions  believed by Holdings to be  reasonable  at the time
made, it being  recognized by Lenders that such  projections as to future events
are not to be viewed as facts  and that  actual  results  during  the  period or
periods covered by any such  projections may differ from the projected  results.
There are no facts  known (or  which  should  upon the  reasonable  exercise  of
diligence  be known) to  Holdings  (other  than  matters  of a general  economic
nature) that, individually or in the aggregate,  could reasonably be expected to
result in a Material  Adverse Effect and that have not been disclosed  herein or
in such other documents,  certificates  and statements  furnished to Lenders for
use in connection with the transactions contemplated hereby.

(q)      REGISTRATION AND FILING; CHIEF EXECUTIVE OFFICE.

         Except for (a) the  registration  of the AFL III Aircraft  with the FAA
pursuant to the Act in the name of AFL III, (b) the filing for recordation  (and
recordation) of the Lease, Lease Supplements and the Aircraft Chattel Mortgages,
(c) the filing of the Financing Statements (and continuation statements relating
thereto at periodic  intervals),  (d) the taking of possession  and retention by
Agent of the original counterparts of the Leases, Lease Supplements and Aircraft
Chattel Mortgages and (e) the affixation of the plates,  disks or other markings
referred to in Section 10(c) hereof, no further action,  including any filing or
recording of any document  (including any financing statement in respect thereof
under  Article 9 of the UCC) is necessary in order to establish  and perfect the
right, title or interest of AFL III, and the Agent's security  interest,  in the
AFL III Aircraft and the Lease, as against Lessee and any other Person,  in each
case, in any applicable jurisdictions.

         SECTION 6. AFFIRMATIVE COVENANTS. Holdings and Lessee each covenant and
agree that, so long as any amounts under this Lease remain unpaid,  Holdings and
Lessee shall

                                      -32-

<PAGE>

perform,  and shall cause each of their respective  Subsidiaries to perform, all
covenants in this Section 6.

(a)      FINANCIAL STATEMENTS AND OTHER REPORTS.

         Holdings will maintain, and cause each of its Subsidiaries to maintain,
a system of accounting  established  and  administered  in accordance with sound
business practices to permit  preparation of financial  statements in conformity
with GAAP. Holdings will deliver to Agent:

                  (1) MONTHLY FINANCIAL REPORTS: as soon as available and in any
         event  within 30 days  after the end of each  calendar  month,  monthly
         financial  reports  that  contain  revenue,  block  hours,  debt,  cash
         (including a thirteen week rolling cash flow report) and investments as
         at the end of such  calendar  month,  and  setting  forth in each  case
         (except  with  respect to the rolling  cash flow report and for monthly
         reports delivered prior to the delivery of audited financial statements
         for the Fiscal Year ending  December 31, 2003) in comparative  form the
         corresponding  figures for the  corresponding  periods of the  previous
         Fiscal Year,  if  applicable,  in  reasonable  detail,  together with a
         certificate  signed by the chief  financial  officer  or  treasurer  of
         Holdings that, to the best of such  officer's  knowledge as of the date
         of delivery of such  certificate,  the reports contain true and correct
         information for the period indicated;

                  (2)  QUARTERLY  FINANCIALS:  as soon as  available  and in any
         event  within 45 days after the end of each of the first  three  fiscal
         quarters of each Fiscal Year,  (a) the  consolidated  balance  sheet of
         Holdings and its  Subsidiaries as at the end of such fiscal quarter and
         the related consolidated statement of income,  stockholders' equity and
         cash flows of Holdings and its Subsidiaries for such fiscal quarter and
         for the period from the  beginning of the then  current  Fiscal Year to
         the end of such  fiscal  quarter,  setting  forth in each  case for the
         fiscal quarters  subsequent to the completion of the audited  financial
         statements for the Fiscal Year ending  December 31, 2003 in comparative
         form the  corresponding  figures for the  corresponding  periods of the
         previous  Fiscal Year,  all in  reasonable  detail and certified by the
         chief  financial  officer of  Holdings  that they  fairly  present  the
         financial  condition of Holdings and its  Subsidiaries  as at the dates
         indicated and the results of their  operations and their cash flows for
         the  periods  indicated,  subject to changes  resulting  from audit and
         year-end adjustments,  and (b) after the filing of Holdings' first 10-Q
         following the Restatement Effective Date, a narrative report describing
         the  operations of Holdings and its  Subsidiaries  in the form prepared
         for  presentation to senior  management for such fiscal quarter and for
         the period from the  beginning of the then  current  Fiscal Year to the
         end of such fiscal  quarter,  provided that delivery of Holdings'  10-Q
         for such fiscal quarter shall be deemed to satisfy the  requirements of
         this subsection 6(a)(2);

                  (3) YEAR-END FINANCIALS: as soon as available and in any event
         within 90 days (or in the case of Fiscal Year ending December 31, 2004,
         120  days)  after the end of each  Fiscal  Year,  (a) the  consolidated
         balance  sheet of Holdings and its  Subsidiaries  as at the end of such
         Fiscal  Year  and  the  related   consolidated   statement  of  income,
         stockholders'  equity and cash flows of Holdings  and its  Subsidiaries
         for such Fiscal Year,  setting forth in each case in  comparative  form
         the  corresponding  figures  for  the  previous  Fiscal  Year,  all  in
         reasonable  detail  and  certified  by the chief  financial  officer of

                                      -33-
<PAGE>

         Holdings that they fairly  present the financial  condition of Holdings
         and its Subsidiaries as at the dates indicated and the results of their
         operations  and their  cash  flows  for the  periods  indicated,  (b) a
         narrative  report   describing  the  operations  of  Holdings  and  its
         Subsidiaries in the form prepared for presentation to senior management
         for  such  Fiscal  Year,  and  (c) in the  case  of  such  consolidated
         financial  statements,  a report  thereon of Ernst & Young LLP or other
         independent   certified  public  accountants  of  recognized   national
         standing  selected by Holdings and satisfactory to Agent,  which report
         (x) for Fiscal Year 2005 and each  subsequent  Fiscal  Year  thereafter
         shall  express  no  doubts  about  the  ability  of  Holdings  and  its
         Subsidiaries to continue as a going concern,  (y) in all cases shall be
         unqualified  as to  scope of  audit,  and (z)  shall  state  that  such
         consolidated  financial  statements  fairly  present  the  consolidated
         financial  position of Holdings  and its  Subsidiaries  as at the dates
         indicated and the results of their  operations and their cash flows for
         the  periods  indicated  in  conformity  with GAAP  applied  on a basis
         consistent  with prior years  (except as  otherwise  disclosed  in such
         financial  statements) and that the examination by such  accountants in
         connection with such consolidated financial statements has been made in
         accordance with generally  accepted auditing  standards,  provided that
         delivery  of  Holdings'  Form 8-K or 10-K for such Fiscal Year shall be
         deemed to satisfy the  requirements  of this  subsection  6(a)(3);

                  (4) OFFICERS' AND COMPLIANCE CERTIFICATES:  together with each
         delivery  of  financial  statements  of Holdings  and its  Subsidiaries
         pursuant  to  subdivisions  (2) and (3)  above  after  the  Restatement
         Effective Date, (a) an Officers'  Certificate of Holdings  stating that
         the signers  have  reviewed  the terms of this Lease and have made,  or
         caused to be made  under  their  supervision,  a review  in  reasonable
         detail  of  the   transactions   and  condition  of  Holdings  and  its
         Subsidiaries  during the  accounting  period  covered by such financial
         statements and that such review has not disclosed the existence  during
         or at the end of such  accounting  period,  and that the signers do not
         have  knowledge  of the  existence  as at the  date of  such  Officers'
         Certificate,  of any  condition or event that  constitutes a Default or
         Lease Event of Default,  or, if any such  condition or event existed or
         exists,  specifying the nature and period of existence thereof and what
         action  Holdings has taken, is taking and proposes to take with respect
         thereto; and (b) a Compliance  Certificate  demonstrating in reasonable
         detail compliance during and at the end of the applicable quarterly and
         annual accounting periods with the restrictions contained in Section 7;

                  (5) RECONCILIATION  STATEMENTS:  if, as a result of any change
         in  accounting   principles   and  policies  from  those  used  in  the
         preparation  of  the  audited  financial   statements  referred  to  in
         subsection 5(c), the consolidated  financial statements of Holdings and
         its Subsidiaries  delivered pursuant to subdivisions (2) or (3) of this
         subsection   6(a)  will  differ  in  any  material   respect  from  the
         consolidated  financial  statements  that  would  have  been  delivered
         pursuant  to  such  subdivisions  had  no  such  change  in  accounting
         principles  and policies  been made,  then (a) together  with the first
         delivery of financial  statements pursuant to subdivision (2) or (3) of
         this  subsection  6(a)  following such change,  consolidated  financial
         statements of Holdings and its  Subsidiaries for (y) the current Fiscal
         Year to the  effective  date of such change and (z) the two full Fiscal
         Years  immediately  preceding  the Fiscal  Year in which such change is
         made,  in each case prepared on a pro forma basis as if such change had
         been in effect during such

                                      -34-
<PAGE>

         periods,  and (b) together with each  delivery of financial  statements
         pursuant to subdivision  (2) or (3) of this  subsection  6(a) following
         such change,  a written  statement of the chief  accounting  officer or
         chief financial officer of Holdings setting forth the differences which
         would have  resulted if such  financial  statements  had been  prepared
         without  giving  effect  to  such  change;

                  (6) ACCOUNTANTS' REPORTS: promptly upon receipt thereof copies
         of any comment  letter  submitted by such  accountants to management in
         connection with their annual audit or a special audit;

                  (7) SEC  FILINGS  AND  PRESS  RELEASES:  promptly  upon  their
         becoming available,  copies of (a) all financial  statements,  reports,
         notices  and  proxy  statements  sent or made  available  generally  by
         Holdings to its security holders,  (b) all regular and periodic reports
         and all  registration  statements  (other than on Form S-8 or a similar
         form)  and  prospectuses,  if  any,  filed  by  Holdings  or any of its
         Subsidiaries  with  any  securities  exchange  or  with  the SEC or any
         governmental  or  private  regulatory  authority,  and  (c)  all  press
         releases   made   available   generally  by  Holdings  or  any  of  its
         Subsidiaries  to the public  concerning  material  developments  in the
         business of Holdings or any of its  Subsidiaries,  it being  understood
         and agreed  that the Lessee  shall be deemed to have  delivered  to the
         Agent the documents required by this subsection 6(a)(9) by posting such
         documents on the Lessee's website;

                  (8) LEASE EVENTS OF DEFAULT,  ETC.:  promptly upon any officer
         of Holdings or the Lessee  obtaining  knowledge (a) of any condition or
         event that constitutes a Default or Lease Event of Default, or becoming
         aware  that any Lender has given  notice  (other  than to the Agent) or
         taken  affirmative  action with respect to a claimed  Event of Default,
         (b) that any  Person  has given any  notice to  Holdings  or any of its
         Subsidiaries  or taken  any  other  action  with  respect  to a claimed
         default or event or  condition  of the type  referred to in  subsection
         16(1),  (c) of any  condition  or event  that would be  required  to be
         disclosed in a current  report  filed by Holdings  with the SEC on Form
         8-K  (Items  2.01,  and  5.01 of such  Form as in  effect  on the  date
         hereof),  or (d) of the  occurrence  of any  event or  change  that has
         caused or evidences, either in any case or in the aggregate, a Material
         Adverse  Effect,  an Officers'  Certificate  specifying  the nature and
         period of existence of such condition,  event or change,  or specifying
         the notice  given or action  taken by any such Person and the nature of
         such  claimed  Lease  Event  of  Default,  Default,  default,  event or
         condition,  and what action  Holdings has taken, is taking and proposes
         to take with respect  thereto;

                  (9) LITIGATION OR OTHER PROCEEDINGS: promptly upon any officer
         of  Holdings  obtaining   knowledge  of  (X)  the  institution  of,  or
         non-frivolous  threat  of,  any  action,   suit,   proceeding  (whether
         administrative,  judicial or otherwise),  governmental investigation or
         arbitration against or affecting Holdings or any of its Subsidiaries or
         any  property  of Holdings  or any of its  Subsidiaries  (collectively,
         "PROCEEDINGS")  not previously  disclosed in writing by Holdings to the
         Lenders or (Y) any material  development in any Proceeding that, in any
         case:

                           (x)  if  adversely   determined,   has  a  reasonable
                  possibility of giving rise to a Material  Adverse  Effect;  or

                                      -35-
<PAGE>

                           (y)  seeks  to  enjoin  or   otherwise   prevent  the
                  consummation of, or to recover any damages or obtain relief as
                  a result of, the transactions contemplated hereby;

         written notice thereof  together with such other  information as may be
         reasonably available to Holdings to enable Lenders and their counsel to
         evaluate such matters;

                  (10) 401K PLAN NOTICES:  promptly  upon becoming  aware of the
         occurrence  of or  forthcoming  occurrence  of any material and adverse
         event  with  respect  to  the  Lessee's  401(k)  Plan  (as  defined  in
         subsection 5(k)), a written notice specifying the nature thereof,  what
         action  Holdings has taken,  is taking or proposes to take with respect
         thereto,  and,  when  known,  any  action  taken or  threatened  by the
         Internal  Revenue  Service,  the  Department  of Labor or the PBGC with
         respect thereto;

                  (11) INSURANCE: as soon as practicable and in any event within
         30 days  following  the first day of each Fiscal Year, a report in form
         and substance  satisfactory to Agent  outlining all material  insurance
         coverage  maintained  as of the date of such report by Holdings and its
         Subsidiaries  and  all  material   insurance  coverage  planned  to  be
         maintained by Holdings and its Subsidiaries in such Fiscal Year;

                  (12) ENVIRONMENTAL  AUDITS AND REPORTS: as soon as practicable
         following  receipt  thereof,  copies of all  environmental  audits  and
         reports,  whether  prepared  by  personnel  of  Holdings  or any of its
         Subsidiaries or by independent consultants, with respect to significant
         environmental   matters  at  any   Facility  or  which   relate  to  an
         Environmental  Claim which could result in a Material  Adverse  Effect;
         and

                  (13) OTHER INFORMATION: with reasonable promptness, such other
         information   and  data  with   respect  to  Holdings  or  any  of  its
         Subsidiaries  as from time to time may be  reasonably  requested by the
         Lessor or the Agent or any Lender.

(b)      CORPORATE EXISTENCE.

         Except as permitted under subsection 7(g) hereunder, Holdings will, and
will cause each of its  Subsidiaries  to, at all times preserve and keep in full
force and effect its corporate  existence and all rights and franchises material
to its business;  provided,  however,  that the corporate  existence of any such
Subsidiary  may be terminated if such  termination  is in the best  interests of
Holdings  and its  Subsidiaries  and is not  materially  disadvantageous  to any
Lender.  Holdings  will,  and will cause each of the  Lessee,  Polar Air and the
Lessor to, at all times  maintain its  corporate  existence  as a United  States
Citizen.

(c)      PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION.

         (i) Holdings will, and will cause its  Subsidiaries  to, pay all taxes,
assessments  and  other  governmental  charges  imposed  upon  it or  any of its
properties  or  assets  or in  respect  of  any  of its  income,  businesses  or
franchises before any penalty,  fine or interest accrues thereon, and all claims
(including,  without  limitation,  claims for  labor,  services,  materials  and
supplies)  for sums that have become due and payable and that by law have or may
become a Lien upon any of its  properties or assets,  prior to the time when any
penalty fine or interest shall be incurred with

                                      -36-
<PAGE>

respect  thereto;  provided  that no such  charge or claim need be paid if being
contested  in good faith by  appropriate  proceedings  promptly  instituted  and
diligently conducted and if such reserve or other appropriate provision, if any,
with respect to any liability for taxes, as shall be required in conformity with
GAAP shall have been made  therefore in the  financial  statements  of Holdings.

         (ii) Holdings will not, and will not permit any of its Subsidiaries to,
file or  consent to the filing of any  consolidated  income tax return  with any
Person (other than any Subsidiary of Holdings).

(d)      MAINTENANCE OF PROPERTIES; INSURANCE.

         Holdings will, and will cause its Subsidiaries to, maintain or cause to
be maintained in good repair,  working  order and  condition,  ordinary wear and
tear  excepted,  all  material  properties  used or  useful in the  business  of
Holdings  and its  Subsidiaries  and from  time to time will make or cause to be
made all appropriate repairs,  renewals and replacements thereof.  Holdings will
maintain or cause to be maintained,  with insurers of recognized  responsibility
and  reputation,  insurance  with respect to its properties and business and the
properties and businesses of its Subsidiaries against loss or damage (including,
without  limitation,  flood  insurance,  if necessary or advisable) of the kinds
customarily  carried or maintained  under similar  circumstances by corporations
engaged in similar  businesses and the Lessee will, with respect to each AFL III
Aircraft or Spare  Engine,  maintain  the  insurance  specified  in the Aircraft
Chattel  Mortgage with respect to such AFL III Aircraft or Spare Engine,  as the
case may be.

         Holdings and its Subsidiaries may self-insure,  by way of deductible or
equivalent structures or provisions in insurance policies, the risks required to
be insured against  pursuant to this subsection 6(d) in such reasonable  amounts
as are then  applicable to other similar  aircraft or spare engines in Holdings'
fleet,  and as are  not  substantially  greater  than  amounts  self-insured  by
corporations engaged in the same or similar business and similarly situated with
Holdings; provided, however, that the Lessee may not self-insure in an amount in
excess of $1,000,000 per AFL III Aircraft  without the prior written  consent of
the Agent.

(e)      INSPECTION; LENDER MEETING.

         Holdings  will,  and  will  cause  its   Subsidiaries  to,  permit  any
authorized  representatives designated by any Lender to visit and inspect any of
the properties of Holdings or any of its  Subsidiaries,  including its and their
financial and accounting records,  and, with the permission of the Lessee, which
shall not be unreasonably  withheld, to make copies and take extracts therefrom,
and to discuss its and their  affairs,  finances and accounts with its and their
officers and independent public accountants  (provided,  that the Lessee may, if
it so chooses,  be present at or participate in any such  discussion),  all upon
reasonable  notice and at such reasonable times during normal business hours and
as often as may be reasonably requested,  provided, so long as no Lease Event of
Default  shall have occurred and be  continuing,  such  inspection  shall not be
disruptive to Holdings' business, as reasonably  determined by Holdings.  Within
150 days after the end of the 2004 Fiscal Year and within 120 days after the end
of each Fiscal Year thereafter,  senior management of Holdings shall participate
in a meeting of Lenders during which senior management will review,  among other
matters,  the financial results of Holdings and its Subsidiaries for such Fiscal
Year and outline the prospects for Holdings for the current Fiscal

                                      -37-
<PAGE>

Year and  report on any major  changes  in the  business  strategy  of  Holdings
anticipated to occur during the term of this Agreement.

(f)      COMPLIANCE WITH LAWS, ETC.

         Holdings  will,  and will cause its  Subsidiaries  to,  comply with the
requirements  of all  applicable  laws,  rules,  regulations  and  orders of any
governmental  authority  (including,  without limitation,  Environmental  Laws),
noncompliance  with  which  could  reasonably  be  expected  to cause a Material
Adverse Effect or prevent the Lessee from performing its obligations hereunder.

(g)      ENVIRONMENTAL INDEMNITY.

         Holdings agrees to indemnify,  defend,  and hold harmless the Agent and
Lenders, and the officers,  directors,  employees,  agents and affiliates of the
Agent and Lenders  from and against any and all  losses,  claims,  liability  or
expenses arising in connection with Environmental Claims against such Loan Party
or with any Hazardous Materials Activity.

(h)      HOLDINGS' REMEDIAL ACTION REGARDING HAZARDOUS MATERIALS.

         Holdings  and the Lessee  will  promptly  take,  and will cause each of
their  Subsidiaries  promptly to take, any and all necessary  remedial action in
connection with the presence, storage, use, disposal,  transportation or Release
of any  Hazardous  Materials  on, under or about any Facility in order to comply
with all applicable  Environmental  Laws and Governmental  Authorizations to the
extent that any failure take such action could  reasonably be expected to have a
Material  Adverse  Effect.  In the event Holdings or any of its  Subsidiaries is
required  to  undertake  any  remedial  action  with  respect  to any  Hazardous
Materials  on, under or about any  Facility,  Holdings or such  Subsidiary  will
conduct and complete such  remedial  action in  compliance  with all  applicable
Environmental  Laws, and in accordance with the policies,  orders and directives
of all federal,  state and local governmental  authorities except when, and only
to the extent that, Holdings' or such Subsidiary's  liability for such presence,
storage,  use, disposal,  transportation or discharge of any Hazardous Materials
is being contested in good faith by Holdings or such Subsidiary.

(i)      FURTHER ASSURANCES; NEW SUBSIDIARIES.

         (i) At any time or from time to time  upon the  request  of the  Agent,
Holdings, the Lessee or any Subsidiary Guarantor will, at its expense,  promptly
execute,  acknowledge and deliver such further  documents and do such other acts
and things as Agent may reasonably request in order to effect fully the purposes
of the  Loan  Documents  and to  provide  for  payment  of  the  Obligations  in
accordance with the terms of this Lease and the other Loan Documents.

         (ii) In furtherance  and not in limitation of the  foregoing,  Holdings
will cause each Material Subsidiary of Holdings (other than the Lessor), to take
such  actions as Agent may  reasonably  request from time to time to ensure that
the  Obligations  of the  Lessee  under  this  Lease  and the other  Leases  are
guarantied by any such Subsidiary. Notwithstanding the foregoing, so long as the
Amended Aircraft Credit Facility remains  outstanding nothing herein shall cause
or give rise to an obligation on the part of the Lessee or the Lessor to require
a  guaranty  or grant of  security  interest  in the assets of the  Lessee.  The
Lenders acknowledge that

                                      -38-
<PAGE>

the security interests and Liens created by the Aircraft Chattel Mortgage do not
extend to the assets of the Lessee now existing or hereafter acquired.

(j)      APPRAISALS.

         At the request of the Agent or Requisite Lenders (but no more than once
each calendar  year),  the Lessee will obtain desktop  appraisals of each of the
AFL III  Aircraft  and the Spare  Engines  from an Approved  Appraiser,  in form
satisfactory  to  Agent;  provided  that  upon the  occurrence  and  during  the
continuance  of an Event of Default,  the Lessee  will  obtain  such  additional
appraisals  with  respect to the AFL III Aircraft  and/or  Spare  Engines as the
Agent or Requisite Lenders may request.

(k)      MAINTENANCE CONTRACTS.

         Subject to subsection  10(h), the Lessee shall maintain  contracts with
respect  to the  maintenance  of each  AFL III  Aircraft  sufficient  to  insure
compliance with the Federal Aviation Act.

(l)      EMPLOYEE BENEFIT PLANS.

         Holdings  and its  Subsidiaries  will not  establish  or  permit  to be
established any Employee Benefit Plans for Holdings,  any of its Subsidiaries or
any of their  employees and will not permit any ERISA Affiliate to establish any
Employee  Benefit Plan which,  in either case,  could result in a liability  for
Holdings  or any  Subsidiary,  under  ERISA,  in  excess of  $10,000,000  in the
aggregate.

(m)      REGISTRATION OF FOREIGN LEASED AIRCRAFT WITH FAA.

         Upon  termination  of an  Approved  Lease  to  which a  Foreign  Leased
Aircraft is subject,  the Lessee shall cause such Foreign Leased  Aircraft to be
deregistered in such country and registered  under the Federal  Aviation Act and
file for  recordation  with the FAA following  such  deregistration  an Aircraft
Chattel  Mortgage with respect to such Foreign  Leased  Aircraft and shall cause
FAA  counsel to  deliver  an  opinion  to the Agent and the  Lenders in form and
substance satisfactory to Agent.

(n)      CIVIL RESERVE AIR FLEET PROGRAM.

         To the extent any of the AFL III Aircraft or any component  thereof are
leased or under  contract to the United States or any agency or  instrumentality
thereof pursuant to the Civil Reserve Air Fleet Program established  pursuant to
10 U.S.C.  9511-13 (as  administered  pursuant to Executive  Order 1268,  or any
substitute  regulation or order), or a similar program, the Lessee shall use its
reasonable best efforts to take such actions as the Agent may reasonably request
to ensure that the Agent,  for the benefit of the  Lenders,  (i) is a loss payee
under any  insurance  policy or  indemnity  granted  to the Lessee or any of its
affiliates by the United States or any agency or instrumentality  thereof and/or
(ii) has a perfected  security  interest in the proceeds of any payments made by
the United States or any agency or instrumentality  thereof pursuant to any such
insurance policy or indemnity.

                                      -39-
<PAGE>

(o)      MAINTAIN AIRCRAFT AIRWORTHINESS.

         Without limiting the provisions of Section 10, the Lessee will keep all
AFL III  Aircraft  airworthy  and  perform,  C-Checks,  D-Checks  and any  other
required maintenance on the AFL III Aircraft including,  without limitation, (i)
having  initiated a D-Check for six (6) AFL III Aircraft listed on Schedule 6(o)
attached hereto by no later than January 31, 2005 with such D-Checks having been
completed and such AFL III Aircraft  airworthy by no later than May 31, 2005 and
(ii) and having  initiated a D-Check for the seventh AFL III Aircraft  listed on
Schedule 6(o) by no later than April 1, 2005 with such D-Check  fully  completed
and such AFL III Aircraft airworthy by no later than May 31, 2005.

                  SECTION 7.  NEGATIVE COVENANTS.  Holdings covenants and agrees
that,  so long as any amounts  remain  owing under this  Lease,  Holdings  shall
perform,  and shall cause each of its Subsidiaries to perform,  all covenants in
this Section 7.

(a)      INDEBTEDNESS.

         Holdings  shall not, and shall not permit any of its  Subsidiaries  to,
directly or indirectly,  create,  incur, assume or guaranty, or otherwise become
or remain  directly  or  indirectly  liable with  respect to, any  Indebtedness,
except:

                  (1) the Lessee may become and remain  liable  with  respect to
         the Leases;

                  (2) Holdings and its Subsidiaries may become and remain liable
         with respect to Contingent  Obligations  permitted by  subsection  7(d)
         and, upon any matured  obligations  actually arising pursuant  thereto,
         the  Indebtedness   corresponding  to  the  Contingent  Obligations  so
         extinguished;

                  (3) Holdings and its Subsidiaries,  as applicable,  may remain
         liable with  respect to  Indebtedness  described  in  Schedule  7(a)(3)
         annexed hereto (the "EXISTING INDEBTEDNESS");

                  (4) Holdings and its Subsidiaries may become and remain liable
         with respect to Permitted Extension Indebtedness;

                  (5) so long as no Event of Default  or Lease  Event of Default
         shall have occurred and be continuing or would result therefrom and the
         Lessee delivers an Officers'  Certificate to the Agent and the Lenders,
         in form and substance reasonably  satisfactory to the Agent, confirming
         that,  on a Pro Forma Basis after giving  effect to such  incurrence of
         Indebtedness, the Fixed Charge Coverage Ratio determined as of the last
         day of the last fiscal quarter for which financial  statements are then
         available  is greater than 1.25 to 1.00  Holdings and its  Subsidiaries
         may incur Indebtedness (including pursuant to Capital Leases), provided
         that  (x) the  aggregate  principal  amount  of  Indebtedness  incurred
         pursuant to this clause (5) does not exceed $50,000,000 at any one time
         outstanding;

                                      -40-
<PAGE>

                  (6) the Lessor may become and remain  liable  with  respect to
         all of the Obligations and the Lessee may become and remain liable with
         respect to the obligations under the Amended Aircraft Credit Facility;

                  (7) the Lessee may become and remain  liable  with  respect to
         the Pass Through Trust Agreements and with the leases related thereto;

                  (8) the Lessee may become and remain  liable  with  respect to
         the Exit Facility, provided that the aggregate principal amount thereof
         (including  any letters of credit issued  thereunder)  shall not exceed
         $60,000,000 at any one time outstanding;

                  (9) Holdings and its Subsidiaries may become and remain liable
         in respect of Indebtedness constituting Intercompany Loans; and

                  (10)  Holdings  and its  Subsidiaries  may  become  and remain
         liable with respect to other  Indebtedness  in an  aggregate  principal
         amount not to exceed $10,000,000 at any one time outstanding;

provided that,  notwithstanding  the foregoing,  neither Holdings nor any of its
Subsidiaries  may  become or remain  liable,  directly  or  indirectly,  for any
Indebtedness of any Subsidiary of Holdings, which is not a Subsidiary Guarantor.

(b)      LIENS AND RELATED MATTERS.

         A.  PROHIBITION ON LIENS.  Holdings shall not, and shall not permit any
of its Subsidiaries to, directly or indirectly,  create, incur, assume or permit
to  exist  any  Lien on or with  respect  to any  property  or asset of any kind
(including   any  document  or  instrument  in  respect  of  goods  or  accounts
receivable)  of  Holdings  or any of its  Subsidiaries,  whether  now  owned  or
hereafter  acquired,  or any income or profits therefrom,  or file or permit the
filing  of, or permit to remain in  effect,  any  financing  statement  or other
similar notice of any Lien with respect to any such property,  asset,  income or
profits  under the  Uniform  Commercial  Code of any state or under any  similar
recording or notice statute, except:

                  (i) Permitted Encumbrances;

                  (ii) Liens in respect of (x) Permitted Extension  Indebtedness
         (but only to the extent  permitted by the  definition  thereof) and (y)
         Other  Permitted  Indebtedness;  provided that such Liens encumber only
         assets subject to purchase money Liens securing such Indebtedness;

                  (iii) other  Liens on assets  other than  Collateral  securing
         Indebtedness  and Contingent  Obligations in an aggregate amount not to
         exceed $5,000,000 at any time outstanding;

                  (iv)  Liens to secure  obligations  in  respect  of letters of
         credit  incurred in the  ordinary  course of  business in an  aggregate
         amount not to exceed $5,000,000 at any time outstanding; and

                                      -41-
<PAGE>

                  (v) as part of an Employee  Benefit  Plan  providing  deferred
         compensation  to the  Lessee's  employees  and approved by its board of
         directors,  the Lessee may create a trust, pursuant to documentation in
         form  and  substance  reasonably  satisfactory  to the  Agent,  for the
         benefit  of its  employees  and make  payments  thereto  not to  exceed
         $10,000,000 in the aggregate.

         B.  EQUITABLE  LIEN IN  FAVOR OF  LENDERS.  If  Holdings  or any of its
Subsidiaries  shall  create or assume  any Lien  upon any of its  properties  or
assets,  whether now owned or hereafter  acquired,  other than Liens excepted by
the  provisions  of  subsection  7(b)(A),  it  shall  make or  cause  to be made
effective provision whereby the Obligations will be secured by such Lien equally
and ratably with any and all other  Indebtedness  secured thereby as long as any
such  Indebtedness  shall be so  secured;  provided  that,  notwithstanding  the
foregoing,  this  covenant  shall not be  construed  as a consent  by  Requisite
Lenders to the  creation or  assumption  of any such Lien not  permitted  by the
provisions of subsection 7(b)(A).

         C. NO  RESTRICTIONS  ON SUBSIDIARY  DISTRIBUTIONS  TO HOLDINGS OR OTHER
SUBSIDIARIES.  Except (i) as provided herein, as (ii) described on Schedule 7(b)
annexed hereto,  and (iii) pursuant to the Credit Agreement,  Holdings will not,
and will not permit any of its  Subsidiaries  to,  create or otherwise  cause or
suffer to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of any such  Subsidiary to (i) pay dividends or make any
other distributions on any of such Subsidiary's  capital stock owned by Holdings
or any other Subsidiary of Holdings,  (ii) repay or prepay any Indebtedness owed
by such Subsidiary to Holdings or any other  Subsidiary of Holdings,  (iii) make
loans or  advances  to Holdings or any other  Subsidiary  of  Holdings,  or (iv)
transfer  any of its property or assets to Holdings or any other  Subsidiary  of
Holdings.

(c)      INVESTMENTS; JOINT VENTURES.

         Holdings  shall not, and shall not permit any of its  Subsidiaries  to,
directly or indirectly,  make or own any Investment in any Person, including any
Joint Venture, except:

                  (1) Holdings and its Subsidiaries may make and own Investments
         in Cash  Equivalents;  provided that, (x) the weighted average maturity
         of all Investments in Cash Equivalents  shall not exceed twelve months,
         (y) no more than 10% of Holdings' and its Subsidiaries'  Investments in
         Cash  Equivalents  shall be in a single  security or issuer (other than
         U.S.  treasuries,  U.S.  government agency obligations and money market
         funds),  and (z) no more than 50% of  Holdings'  and its  Subsidiaries'
         Investments in Cash Equivalents  shall be in a single U.S.  treasury or
         U.S. government agency security;

                  (2)  Holdings  and its  Subsidiaries  may  continue to own the
         Investments  owned by them as of the Restatement  Effective Date in any
         Subsidiaries of Holdings;

                  (3)  Holdings  and its  Subsidiaries  may  continue to own the
         Investments  owned  by  them  on the  Restatement  Effective  Date  and
         described in Schedule 7(c)(3) annexed hereto,  without giving effect to
         any additions thereto or replacements thereof, it being understood that
         any  additional   Investments   made  with  respect  to  such  existing
         Investments  shall be permitted only if  independently  justified under
         the other provisions of this subsection 7(c);

                                      -42-
<PAGE>

                  (4) so long as Default or Lease Event of Default has  occurred
         and is continuing or would result  therefrom,  and so long as, on a Pro
         Forma Basis,  Holdings and its Subsidiaries  will be in compliance with
         the  covenant  set forth in  subsection  7(f)(ii),  the Lessee may make
         Investments in an aggregate amount not to exceed $10,000,000; and

                  (5) any Loan Party may make intercompany loans and advances to
         any other Loan Party (collectively, the "INTERCOMPANY LOANS").

(d)      CONTINGENT OBLIGATIONS.

         Holdings  shall not, and shall not permit any of its  Subsidiaries  to,
directly or  indirectly,  create or become or remain  liable with respect to any
Contingent Obligation, except:

                  (1) Holdings and any  Subsidiary  may become and remain liable
         with respect to Contingent  Obligations  arising under their guaranties
         of the Obligations;

                  (2) the Lessee may become and remain  liable  with  respect to
         Contingent  Obligations  under  Interest Rate  Agreements  and Currency
         Agreements with a Lender;

                  (3) Holdings and its Subsidiaries may become and remain liable
         with  respect  to  Contingent   Obligations  in  respect  of  customary
         indemnification and purchase price adjustment  obligations  incurred in
         connection with Asset Sales or other sales of assets or securities;

                  (4) Holdings and its Subsidiaries may become and remain liable
         with respect to letters of credit issued under the Exit Facility;

                  (5) Holdings and its Subsidiaries may become and remain liable
         with  respect  to letters of credit  issued in the  ordinary  course of
         business of Holdings  and its  Subsidiaries  in an amount not to exceed
         $5,000,000 in the aggregate at any time;

                  (6) Holdings and its Subsidiaries,  as applicable,  may remain
         liable with  respect to  Contingent  Obligations  described in Schedule
         7(d)(6) annexed hereto (other than in respect of letters of credit);

                  (7) Holdings and its Subsidiaries may become and remain liable
         with respect to Contingent  Obligations  to the extent such  Contingent
         Obligations are permitted pursuant to subsections 7(i) and 7(k); and

                  (8) Holdings and its Subsidiaries may become and remain liable
         with respect to other Contingent Obligations; provided that the maximum
         aggregate  liability,  contingent or  otherwise,  of the Lessee and its
         Subsidiaries in respect of all such Contingent  Obligations shall at no
         time exceed $10,000,000.

(e)      RESTRICTED JUNIOR PAYMENTS.

         Holdings  shall not, and shall not permit any of its  Subsidiaries  to,
directly or indirectly,  declare,  order, pay, make or set apart any sum for any
Restricted Junior Payment;  provided that

                                      -43-
<PAGE>

Holdings and its  Subsidiaries  may make  scheduled  payments of  principal  and
interest or mandatory  prepayments of principal  (including through the exercise
of remedies) from time to time on Designated Indebtedness;  and provided further
that,  so long as no  Default  or Lease  Event of Default  has  occurred  and is
continuing,  or would  result  therefrom,  and so long as on a Pro Forma  Basis,
Holdings  will be in  compliance  with the  covenant  set  forth  in  subsection
7(f)(2):

                  (1)  Holdings  and  its  Subsidiaries  may  prepay  Designated
         Indebtedness from the proceeds of Permitted  Extension  Indebtedness or
         cash Equity Proceeds received after the Restatement Effective Date; and

                  (2) Holdings may repurchase Holdings Common Stock in an amount
         not  to  exceed  in  any  Fiscal  Year   $1,000,000   for  purposes  of
         establishing or contributing to an employee compensation plan; provided
         that any such repurchased  Holdings Common Stock resold to employees of
         Holdings  shall,  to the  extent  of the price  paid for such  Holdings
         Common Stock by such employee,  be excluded from the calculation of the
         $1,000,000 limit set forth above.

(f)      FINANCIAL COVENANTS.

                  (1) MINIMUM FIXED CHARGE  COVERAGE  RATIO.  Holdings shall not
         permit the Fixed Charge Coverage Ratio as of the last day of any fiscal
         quarter of  Holdings  set forth  below to be less than the  correlative
         ratio indicated:

                  (2) MINIMUM  LIQUIDITY.  Holdings shall not permit its reserve
         of Unrestricted  Cash and Cash Equivalents and Availability at any time
         during any period set forth  below to be less than the amount set forth
         opposite such period below: (G) RESTRICTION ON FUNDAMENTAL  CHANGES AND
         ASSET SALES.

--------------------------------------------------------------------------
                                                           MINIMUM
FISCAL QUARTER ENDING                                    FIXED CHARGE
                                                        COVERAGE RATIO
--------------------------------------------------------------------------
September 30, 2004                                  No Test
--------------------------------------------------------------------------
December 31, 2004                                   0.75:1.00
--------------------------------------------------------------------------
March 31, 2005                                      0.85:1.00
--------------------------------------------------------------------------
June 30, 2005                                       0.95:1:00
--------------------------------------------------------------------------
September 30, 2005                                  1.00:1.00
--------------------------------------------------------------------------
December 31, 2005                                   0.95:1.00
--------------------------------------------------------------------------
March 31, 2006                                      1.00:1.00
--------------------------------------------------------------------------
June 30, 2006                                       1.075:1.00
--------------------------------------------------------------------------
Thereafter                                          1.10:1.00
--------------------------------------------------- ----------------------

                  (2) MINIMUM  LIQUIDITY.  Holdings shall not permit its reserve
         of Unrestricted  Cash and Cash Equivalents and Availability at any time
         during any period set forth  below to be less than the amount set forth
         opposite such period below:

                                      -44-
<PAGE>

--------------------------------------------------------------------------
FOR THE PERIOD                                      MINIMUM LIQUIDITY
--------------------------------------------------------------------------
September 1, 2004 to October 7, 2004                $55,000,000
--------------------------------------------------------------------------
October 8, 2004 to November 7, 2004                 $60,000,000
--------------------------------------------------------------------------
November 8, 2004 to December 7, 2004                $65,000,000
--------------------------------------------------------------------------
December 8, 2004 to January 7, 2005                 $70,000,000
--------------------------------------------------------------------------
January 8, 2005 to April 7, 2005                    $75,000,000
--------------------------------------------------------------------------
April 8, 2005 to September 30, 2005                 $85,000,000
--------------------------------------------------------------------------
October 1, 2005 to December 31, 2005                $95,000,000
--------------------------------------------------------------------------
January 1, 2006 to December 31, 2006                $110,000,000
--------------------------------------------------------------------------
January 1, 2007 and Thereafter                      $125,000,000
--------------------------------------------------- ----------------------

(g)      Restriction on Fundamental Changes and Asset Sales.

         Holdings  shall not, and shall not permit any of its  Subsidiaries  to,
enter into any transaction of merger or consolidation,  or liquidate, wind-up or
dissolve itself (or suffer any  liquidation or  dissolution),  or convey,  sell,
lease,  sub-lease,  transfer or otherwise  dispose of, in one  transaction  or a
series  of  transactions,  all or any part of its  business,  property  or fixed
assets,  whether  now owned or  hereafter  acquired,  or acquire by  purchase or
otherwise  all or any portion of the  business,  property or fixed assets of, or
stock or other  evidence of beneficial  ownership of, any Person or any division
or line of business of any Person, except:

                  (1) any  Subsidiary of Holdings may be merged with or into the
         Lessee  or any  Subsidiary  Guarantor,  or be  liquidated,  wound up or
         dissolved,  or all or any part of its business,  property or assets may
         be conveyed, sold, leased, transferred or otherwise disposed of, in one
         transaction  or  a  series  of  transactions,  to  the  Lessee  or  any
         Subsidiary Guarantor;  provided that, in the case of such a merger, the
         Lessee  or  such  Subsidiary  Guarantor  shall  be  the  continuing  or
         surviving corporation;

                  (2)  Holdings  and its  Subsidiaries  may  sell  or  otherwise
         dispose of assets in transactions  that do not constitute  Asset Sales;
         provided that the consideration received for such assets shall be in an
         amount at least equal to the fair market value thereof;

                  (3) subject to subsection 7(m),  Holdings and its Subsidiaries
         may make Asset  Sales of assets  other than AFL III  Aircraft  having a
         fair  market  value  not in  excess of  $70,000,000  in the  aggregate;
         provided that (x) the  consideration  received for such assets shall be
         in an amount at least equal to the fair market value  thereof;  (y) the
         consideration received shall be at least 75% cash; and (z) the proceeds
         of such  Asset  Sales  shall  be  applied  as  required  by  subsection
         2.4B(ii)(a) of the Amended Aircraft Credit Facility;

                  (4) Holdings and its  Subsidiaries  may make Asset Sales of up
         to (1) one  Financed  Aircraft;  provided  that (t) no  Lease  Event of
         Default exists at the time of such

                                      -45-
<PAGE>

         Asset  Sale or  results  therefrom;  (u) such Asset Sale is to a Person
         that is not an Affiliate of either Holdings or any of its Subsidiaries;
         (v) at the time of such Asset Sale  there is no  agreement  of any kind
         between or among the Persons party to such Asset Sale that the Financed
         Aircraft  subject to such Asset Sale is part of any sale  leaseback  or
         similar  transaction  to which  Holdings or any of its  Affiliates  are
         party to; (w) the  Financed  Aircraft  subject to such Asset Sale shall
         not be part of any sale leaseback  transaction to which Holdings or any
         of its  Affiliates  are  party to for at least  six  months  after  the
         consummation  of such Asset Sale;  (x) the  consideration  received for
         such Financed Aircraft shall be in an amount at least equal to the fair
         market value thereof; (y) the consideration received from such Financed
         Aircraft  shall be at least 75% Cash with the  remaining  consideration
         other  than  Cash  to be  evidenced  by a  note  or  similar  financial
         instrument;  and (z) on or prior to the consummation of such Asset Sale
         the Loans shall be repaid by at least the amount required by subsection
         2.4B of the Credit Agreement;

                  (5)  Holdings  and its  Subsidiaries  may  sell  or  otherwise
         dispose of up to (3) three  aircraft  subject to the Pass Through Trust
         Documents; provided that (x) the consideration received for such assets
         shall be in an amount at least equal to the fair market value  thereof;
         (y) the consideration  received shall be at least 75% cash; and (z) the
         Net Cash  Proceeds  of such Asset Sales shall be applied as required by
         subsection  2.4B(ii)(a)  of the  Amended  Aircraft  Credit  Facility in
         accordance with the terms hereof;

                  (6) the Lessee may lease or transfer  any AFL III  Aircraft to
         the extent  expressly  permitted  by  subsection  4(d) of the  Aircraft
         Chattel Mortgage with respect to such AFL III Aircraft;

                  (7) Holdings and its  Subsidiaries  may make (x)  Consolidated
         Capital  Expenditures not in excess of the Maximum Capital  Expenditure
         Amount during any Fiscal Year, (y)  Consolidated  Capital  Expenditures
         required to retrofit  airplanes in order to conform to FAA  regulations
         in an  amount  not to  exceed  $7,000,000  in  the  aggregate  and  (z)
         Consolidated  Capital  Expenditures  constituting  the  reinvestment of
         proceeds  of Asset Sales not  required  to repay the Loans  pursuant to
         subsection   2.4B(ii)(a)  of  the  Amended  Aircraft  Credit  Facility;
         provided  that up to 50% of any  amount  of such  Consolidated  Capital
         Expenditures permitted pursuant to clause (x) of this subsection (vii),
         but not made,  in any Fiscal  Year may be  carried  forward to and made
         during  the  immediately  succeeding  Fiscal  Year (but no amount  once
         carried  forward to the next Fiscal Year may be carried  forward to any
         Fiscal Year thereafter);

                  (8) the Lessee and Polar Air may lease  aircraft  pursuant  to
         ACMI Contracts;

                  (9) the  Lessee  and Polar Air may lease  aircraft  other than
         pursuant to ACMI Contracts  (each such lease, a "DRY LEASE");  provided
         that in the case of a AFL III  Aircraft (a) such Dry Lease (i) shall be
         expressly  subject and subordinate to the lien and security interest of
         the Lenders  under the Aircraft  Chattel  Mortgage,  (ii) except in the
         case of a Dry Lease between the Lessee and Polar Air,  shall not have a
         term (including,  without limitation, any option to renew or extend) in
         excess of sixty (60)  months,  (iii)  except in the case of a Dry Lease
         between the Lessee and Polar Air, shall require  rental  payments to be
         made at least monthly and (iv) except in the case of a Dry Lease

                                      -46-
<PAGE>

         between  the  Lessee  and Polar  Air,  shall  otherwise  be in form and
         substance  reasonably  satisfactory  to the Agent  (including,  without
         limitation,  with regard to the identity of the lessee), (b) the Lessee
         shall grant a first priority security interest in such Dry Lease to the
         Agent, for the benefit of the Lenders, and their respective  successors
         and  assigns,  shall  take all  necessary  action to  ensure  that such
         security  interest  is fully  perfected,  and shall  deliver an opinion
         addressed to the Agent to the effect that Agent holds a fully perfected
         first priority security interest in such Dry Lease, which opinion shall
         be in form and substance  reasonably  satisfactory  to the Agent,  from
         counsel  reasonably  satisfactory  to the Agent,  (c) either (1)(x) the
         lessee  under  such Dry  Lease,  at the time such Dry Lease in  entered
         into, shall hold an air carrier operating  certificate  issued pursuant
         to  Chapter  447 of Title 49 of the  United  States  Code for  aircraft
         capable of carrying ten or more  individuals or 6,000 pounds or more of
         cargo,  (y) the  Lessee  and the  lessee  under  such  Dry  Lease  have
         expressed  in writing  (either in such Dry Lease or in a  substantially
         contemporaneous  writing) that such Dry Lease is intended to be treated
         as a lease  for U.S.  federal  tax  purposes,  and (z) the  Lessee  has
         obtained  an  opinion,  addressed  to the  Lessee,  the Agent,  and the
         Lenders,  in form and substance  reasonably  satisfactory to the Agent,
         stating  that the Lessee is entitled to the benefits of Section 1110 of
         the  Bankruptcy  Code with  respect to the  relevant  Airframe  and the
         relevant Engines or engines  installed  thereon or (2) the Lessee shall
         obtain the prior  written  consent of the Agent,  which  consent may be
         withheld by the Agent in its sole discretion, and which consent (x) may
         be   conditioned   on  receipt  of  opinions  in  form  and   substance
         satisfactory  to the Agent in its sole  discretion  from counsel of the
         same domicile as the lessee under such Dry Lease, which counsel must be
         satisfactory to Agent in its sole discretion and (y) may be conditioned
         on such  other  conditions  as the Agent may,  in its sole  discretion,
         determine,  (d) except in the case of Dry Leases between the Lessee and
         Polar Air,  the Lessee  shall not enter into any waiver,  amendment  or
         other  modification  with  respect to the  related Dry Lease that could
         reasonably be expected to be  materially  adverse in any respect to the
         Lessee or Polar Air,  as the case may be, or Lenders  without the prior
         written consent of the Agent,  which consent shall be granted or denied
         by Agent in its  sole  discretion  within  ten  (10)  Business  Days of
         receipt by Agent of the proposed  amendment  and any related  documents
         reasonably  requested by Agent and (e) the Lessee shall  provide  Agent
         with a copy of any amendment,  consent,  waiver,  supplement,  or other
         modification with respect to any such Dry Lease within fifteen Business
         Days after the execution thereof; and

                  (10) any  Subsidiary of Holdings may convey,  lease,  license,
         sell or otherwise  transfer all or part of its business,  properties or
         assets  (other than any AFL III  Aircraft  or any Part  thereof) to the
         Lessee  or to  any  Subsidiary  Guarantor,  so  long  as  any  security
         interests  granted  to  the  Agent  pursuant  to the  Aircraft  Chattel
         Mortgage in the assets so  transferred  shall  remain in full force and
         effect  and  perfected  (to at  least  the  same  extent  as in  effect
         immediately  prior  to such  transfer)  and  all  actions  required  to
         maintain said perfected status have been taken.

(h)      AMENDMENTS OF MATERIAL AGREEMENTS.

         Holdings   shall  not  permit  (i)  the   certificate  or  articles  of
incorporation or bylaws of any Loan Party to be amended or otherwise modified in
any manner which could  reasonably be

                                      -47-
<PAGE>

expected to have a Material Adverse Effect or (ii) any Material  Agreement to be
amended or otherwise  modified  (including  by way of a waiver of any  provision
thereof) (x) at any time in any manner with respect to any  provision  providing
material  representations and warranties to Holdings or any of its Subsidiaries,
indemnification  rights to  Holdings  or any of its  Subsidiaries,  or  limiting
Holdings' or any of its Subsidiaries, remedies or rights upon the other party to
such  agreements  failure to  perform or which  could  otherwise  reasonably  be
expected to have Material  Adverse Effect on the value of any AFL III Aircraft ,
(y) in the case of any Material  Agreement at any time during the period  ending
on the first  anniversary  of the  Restatement  Effective  Date,  to provide (I)
additional or increased rent, debt payments,  maintenance  reserves or any other
form of  additional  compensation  (including  any  amendment,  modification  or
waiver,  requiring  any  mandatory  repayment  of the  principal  amount  of any
Indebtedness or the prepayment of any rent with respect to any lease),  (II) new
fees or other compensation,  (III) an increase in interest rate, (IV) additional
collateral  or credit  support,  (V) improved  maintenance  provisions or return
condition  provisions,  (VI)  additional  financial,   affirmative  or  negative
covenants or (VII) any other form of material enhancements or (z) in the case of
any Material Agreement at any time unless the Board of Directors of Holdings has
determined that an amendment or modification of the type described in clause (I)
through  (VII) of clause (y) above is in the best  interests of Holdings and its
Subsidiaries and that Holdings and its Subsidiaries  have received fair value in
return for such amendment or modification.

         In addition,  Holdings and its  Subsidiaries  shall not amend or modify
any Permitted  Extension  Indebtedness or Other  Permitted  Indebtedness if such
amendment  or  modification   would  have  resulted  in  such  Indebtedness  not
constituting  Permitted Extension  Indebtedness or Other Permitted  Indebtedness
when incurred had such amendment or modification been effective at such time.

(i)      RESTRICTION ON LEASES.

                  Other than such  Operating  Leases or Capital Leases as are in
         effect on the Restatement Effective Date, Holdings shall not, and shall
         not  permit  any of its  Subsidiaries  to,  become  liable  in any way,
         whether  directly or by  assignment  or as a guarantor or other surety,
         for the obligations of the lessee under any lease, whether an Operating
         Lease or a  Capital  Lease  (other  than  intercompany  leases  between
         Holdings and any Subsidiary  Guarantor)  except that, other than as set
         forth in clause (B) of this  subsection  7(i), so long as no Default or
         Lease Event of Default  shall have  occurred and be continuing or would
         result  therefrom and the Lessee  delivers an Officers'  Certificate to
         Agent and Lenders,  in form and substance  reasonably  satisfactory  to
         Agent,  certifying (i) the cash schedule rental payments required to be
         made during each Fiscal Year of the Lessee under all  Operating  Leases
         and Capital Leases (including,  without limitation,  the lease proposed
         to be entered into) entered into after the  Restatement  Effective Date
         (each a "POST  EFFECTIVE  DATE  LEASE")  and (ii) in the event that the
         cash  scheduled  rental  payments  required  to be made  under all Post
         Effective  Date  Leases  (including,  without  limitation,  the  leases
         proposed to be entered into) exceed  $15,000,000 during any Fiscal Year
         of  Holdings  that on a Pro Forma  Basis  after  giving  effect to such
         Operating  Lease or Capital  Lease,  the Fixed  Charge  Coverage  Ratio
         determined  as of the last day of the last  fiscal  quarter  for  which
         financial  statement  are then  available is greater than 1.25 to 1.00,
         Holdings  and its  Subsidiaries  may enter  into  Operating  leases and
         Capital Leases;

                                      -48-
<PAGE>

         provided that the aggregate  principal amount of Capital Leases entered
         into  pursuant  to this  subsection  7(i) does not  exceed  the  amount
         permitted by subsection 7(a)(5).  For purposes of this subsection 7(i),
         Operating  Leases and Capital Leases entered into after the Restatement
         Effective Date which are  replacements  of Operating  Leases or Capital
         Leases in effect on the Restatement  Effective Date (and related to the
         same  property),  shall be deemed to be Post Effective Date Leases only
         to the extent that the scheduled  cash rental  payments  required to be
         made  thereunder  during  any  Fiscal  Year of the  Lessee  exceed  the
         scheduled  cash rental  payments  required to be made during any Fiscal
         Year of the  Lessee  under  the  replaced  leases  as in  effect on the
         Restatement Effective Date.

(j)      SALE OR DISCOUNT OF RECEIVABLES.

         Holdings  shall not, and shall not permit any of its  Subsidiaries  to,
directly or indirectly,  sell with  recourse,  or discount or otherwise sell for
less than the face value thereof, any of its notes or accounts receivable.

(k)      SALES AND LEASE-BACKS.

         Holdings  shall not, and shall not permit any of its  Subsidiaries  to,
directly or  indirectly,  become or remain liable as lessee or as a guarantor or
other surety with respect to any lease,  whether an Operating Lease or a Capital
Lease, of any property (whether real,  personal or mixed),  whether now owned or
hereafter  acquired,  (i) which Holdings or any of its  Subsidiaries has sold or
transferred  or is to sell or transfer to any other Person  (other than Holdings
or any of its  Subsidiaries)  or (ii) which Holdings or any of its  Subsidiaries
intends to use for  substantially  the same purpose as any other  property which
has been or is to be sold or transferred by Holdings or any of its  Subsidiaries
to any Person  (other than  Holdings or any of its  Subsidiaries)  in connection
with such lease;  provided  that  Holdings and its  Subsidiaries  may become and
remain  liable as lessee,  guarantor  or other  surety with  respect to any such
lease if and to the extent  that  Holdings or any of its  Subsidiaries  would be
permitted to enter into,  and remain liable under,  such lease under  subsection
7(i).  Notwithstanding  the foregoing  provisions of this subsection  7(j), this
subsection 7(j) shall not restrict or prohibit in any manner the Leases.

(l)      TRANSACTIONS WITH SHAREHOLDERS, AFFILIATES AND GSS.

         In the event that Holdings or any of its  Subsidiaries  enters into, or
agrees to amend or modify, any lease of aircraft to or from GSS or any holder of
10% or more of any class of equity Securities of Holdings or its Subsidiaries or
with any  Affiliate of Holdings  (other than a Loan Party) or of any such holder
or of GSS (any such lease,  a "SPECIFIED  LEASE"),  Holdings or such  Subsidiary
shall  deliver  an  originally  executed  officer's  certificate,  in  form  and
substance  satisfactory  to the Agent,  stating that such Specified  Lease is on
terms no less  favorable  to Holdings or such  Subsidiary  than those that could
have been obtained in an arm's-length  transaction with unrelated third parties.

                                      -49-
<PAGE>

(m)      DISPOSAL OF SUBSIDIARY STOCK.

         Holdings shall not:

                  (1) directly or indirectly sell,  assign,  pledge or otherwise
         encumber  or dispose of any  shares of  capital  stock or other  equity
         Securities of any of its  Subsidiaries,  except to qualify directors if
         required by applicable law or to a Subsidiary Guarantor; or

                  (2) permit any of its  Subsidiaries  directly or indirectly to
         sell, assign,  pledge or otherwise encumber or dispose of any shares of
         capital  stock or other equity  Securities  of any of its  Subsidiaries
         (including such  Subsidiary),  except to Holdings,  another  Subsidiary
         Guarantor, or to qualify directors if required by applicable law.

(n)      CONDUCT OF BUSINESS.

         From and after the Restatement  Effective Date, Holdings shall not, and
shall not permit any of its  Subsidiaries  to, engage in any business other than
(i)  the  businesses  engaged  in  by  Holdings  and  its  Subsidiaries  on  the
Restatement Effective Date and similar or related businesses and (ii) such other
lines of business as may be  consented to by  Requisite  Lenders.

(o)      CHANGE  TO  LEGAL   NAMES;   ORGANIZATIONAL   IDENTIFICATION   NUMBERS,
         JURISDICTION OR TYPE OF ORGANIZATION.

         No Loan Party  shall  change,  or permit any change to, its legal name,
jurisdiction of organization and/or type of organization until (i) it shall have
given to the Agent not less than 30 days prior  written  notice of its intention
so to do, clearly  describing such new name and providing  other  information in
connection  therewith as the Agent may reasonably request and (ii) it shall have
taken all action  reasonably  requested  by the Agent to maintain  the  security
interests of the Agent in the  Collateral  at all times fully  perfected  and in
full force and effect.  In addition,  to the extent that any Loan Party does not
have an  organizational  identification  number  on the date  hereof  and  later
obtains  one,  or if there is any  change in the  organizational  identification
number of any Loan Party,  Holdings shall promptly  notify the Agent of such new
or changed  organizational  identification  number  and shall  take all  actions
reasonably  satisfactory  to the Agent to the extent  necessary  to maintain the
security  interests of the Agent in the Collateral  fully  perfected and in full
force and effect.

(p)      SUBORDINATED INDEBTEDNESS.

         In addition to and not in  limitation  of, any other term,  covenant or
condition  set forth in this  Lease (x) any  Indebtedness  of  Holdings  and its
Subsidiaries  which  shall be  subordinated  in right of  payment  to any  other
Indebtedness  of  Holdings  and  its   Subsidiaries   shall  also  be  expressly
subordinated in right of payment on the same basis to the Obligations,  the Pass
Through Trust  Documents  and related  leases  thereto and the Amended  Aircraft
Credit  Facility and (y) no  repayments  of any such  subordinated  Indebtedness
(except scheduled payments of principal and interest or mandatory prepayments of
principal)  shall be made unless,  on a Pro Forma Basis after  giving  effect to
such  repayment,  Holdings  and its  Subsidiaries  shall  be able  to  incur  an
additional $1.00 of Indebtedness under subsection 7(a)(5).

                                      -50-
<PAGE>

         SECTION 8. Return of the Aircraft.

         (a) CONDITION  UPON RETURN.  Unless the Aircraft has been sold pursuant
to Section 21, if at any time the Lessee shall return the Aircraft to the Lessor
hereunder,  the Lessee,  at its own  expense,  will  return the  Aircraft to the
Lessor at a location  specified  by the Lessor to the Lessee in writing.  At the
time of such return,  (i) the Lessee will cause the Aircraft to be in compliance
with the  maintenance  covenants  contained  in this Lease and (ii) the Airframe
will be fully equipped with the Engines installed thereon.

         At the time of such return, such Airframe and Engines (A) shall have an
airworthiness  certificate from the Federal Aviation Administration and shall be
in full compliance with the provisions of Federal Aviation Regulations, Part 121
(or  successor  regulation),  and  shall  be in  material  compliance  with  all
applicable FAA noise, corrosion,  environmental and aging aircraft requirements,
(B) shall be free and  clear of all  Liens and (C) in the case of the  Aircraft,
shall be in a full  freighter  configuration  and in as good  condition  as when
originally  delivered  to the  Lessee,  ordinary  wear  and tear  excepted,  and
otherwise  in  the  condition  required  to be  maintained  under  the  Lessee's
FAA-approved maintenance plan; and in all such cases the Aircraft shall not have
been discriminated  against as compared to other aircraft owned or leased by the
Lessee whether by reason of its leased status or otherwise in maintenance,  use,
operation or in any other manner whatsoever.

         (b) OVERHAUL AND REPAIR. The Airframe, Engines and all Parts shall have
been, and shall be properly  documented to have been,  repaired or overhauled by
certified repair stations acceptable to the FAA.

         (c) REPAIRS.  The Lessee shall ensure that all repairs  performed since
the Initial  Borrowing Date on the Aircraft are eligible to receive  approval by
the FAA (or its designee), if so required. All such repairs shall be accompanied
by all data and  documentation  necessary to substantiate  their  certification,
approval and methods of compliance, as required.

         (d)  MODIFICATIONS.  All  modifications  performed  since  the  Initial
Borrowing Date that deviate from the certified  configuration and that are still
in existence on the Aircraft shall have approval or certification by the FAA (or
its designee) or  certification  if required.  All such  modifications  shall be
accompanied by complete data and documentation  necessary to substantiate  their
certification and approval and methods of compliance.

         (e)  AIRWORTHINESS  DIRECTIVES.  All FAA  Airworthiness  Directives and
amendments  or changes to the Federal  Aviation  Regulations  applicable  to the
Airframe,  Engines (or Acceptable  Alternate  Engines) or Parts,  as well as all
mandatory service bulletins applicable to any of the foregoing,  shall have been
accomplished by terminating  action in compliance  with the issuing  agency's or
the  manufacturer's  specific  instructions,  as the  case may be,  taking  into
account, any waiver, deferral or deviation from such directives,  regulations or
bulletins.

         (f) RETURN OF THE ENGINES.  In the event that an  Acceptable  Alternate
Engine shall be delivered with the returned Airframe,  the Lessee,  concurrently
with such  delivery,  will,  at no cost to the Lessor,  furnish,  or cause to be
furnished, to the Lessor a full warranty (as to title) bill of sale with respect
to each such  Acceptable  Alternate  Engine,  in form and  substance  reasonably
satisfactory  to the Lessor  (together  with an opinion of counsel to the effect
that such

                                      -51-
<PAGE>

full  warranty  bill of sale has  been  duly  authorized  and  delivered  and is
enforceable  in  accordance  with its terms and that such  Acceptable  Alternate
Engines are free and clear of all Liens)  against  receipt  from the Lessor of a
bill of sale evidencing the transfer, without recourse or warranty by the Lessor
to the Lessee or its designee of all of the Lessor's  right,  title and interest
in and to any Engine not  installed on the Airframe at the time of the return of
the Airframe.

         (g)  DEFERRED  MAINTENANCE.  There  shall  be no open,  outstanding  or
deferred  maintenance  items,  scheduled  or  unscheduled,  against the Aircraft
including those identified in pre-delivery inspections or test flights.

         (h) CORROSION TREATMENT. At the time of return, the Aircraft shall have
been  maintained  by cleaning and treating all mild and moderate  corrosion  and
correcting of all severe or exfoliate  corrosion in accordance with the Lessee's
approved maintenance program or manu-facturer's structural repair manual.

         (i) MANUALS.  Upon the return of the Aircraft upon any  termination  of
this Lease,  the Lessee shall deliver or cause to be delivered to the Lessor all
logs,  manuals and data and maintenance,  inspection,  modification and overhaul
records  and  similar  records  required to be  maintained  with  respect to the
Aircraft  and Parts under FAA rules and the  Aircraft  maintenance  program (the
"Technical  Records").  If any such  logs,  manuals,  records  or other data are
missing, incomplete or otherwise not in accordance with FAA standards applicable
to the Lessee, the Lessee shall re-accomplish the maintenance tasks necessary to
produce such records in accordance with its approved  maintenance  program prior
to delivery of the Aircraft or otherwise  perform all  necessary  acts  (without
regard to any  applicable  waivers or  deferrals)  to obtain  such  records in a
manner satisfactory to the FAA and the Lessor.

         (j) STORAGE UPON RETURN.  If, at least 15 days prior to  termination of
this Lease at the end of the Term or pursuant to Section 17, the Lessee receives
from the Lessor a written  request for storage of the  Aircraft  upon its return
hereunder,  the  Lessee  will  provide  the  Lessor,  or cause the  Lessor to be
provided,  with storage  facilities for the Aircraft at the Lessee's risk and at
the Lessee's  expense for a period not exceeding 30 days,  and thereafter at the
Lessor's  risk and at the  Lessor's  cost  for  insurance,  maintenance  and the
Lessee's  out-of-pocket  expenses for such storage for a period not exceeding 90
days (provided,  that if such termination occurs as a result of a Lease Event of
Default hereunder, such storage shall be at the cost of the Lessee),  commencing
on the  date  when the  Aircraft  is  returned  substantially  in the  condition
required  under this Section 8, at a location in the  continental  United States
selected  by the Lessee and used by the Lessee as a location  for the  long-term
parking or storage of aircraft.

         (k) SEVERABLE PARTS. At any time that the Aircraft is to be returned to
the Lessor, the Lessee shall, at the Lessor's request,  advise the Lessor of the
nature and  condition of all  severable  nonproprietary  Parts (other than Parts
otherwise  required by Sections 10 or 11 to be maintained on the Aircraft) owned
by the Lessee have been used by the Lessee  during the prior six months and that
the Lessee has or intends to remove from the Aircraft in accordance with Section
11 hereof.  The Lessor may,  at its  option,  upon 30 days notice to the Lessee,
purchase  any or all of such  nonproprietary  Parts  from  the  Lessee  upon the
expiration of the Term at their fair market value.

                                      -52-
<PAGE>

         (l) SURVIVAL. The obligations of the Lessee to comply with the terms of
this Section 8 shall survive the expiration or other termination of this Lease.

         (m)  DEREGISTRATION AND EXPORT. At such time as the Lessee is obligated
to redeliver the Aircraft to the Lessor pursuant to this Lease, the Lessee shall
at its expense upon the request of the Lessor:

                  (i) promptly take all such steps (not including  procuring the
         discharge  of any  Lessor's  Liens) as may be  necessary  to cancel the
         existing registration of the Aircraft (subject to the Lessor giving, or
         procuring that any mortgagee of the Aircraft gives, such notices and/or
         required consents to the cancellation of such  registration) and obtain
         and deliver to the Lessor all  certificates  relating  to the  Aircraft
         required by  applicable  law on any  transfer of or  alteration  to the
         registration thereof;

                  (ii)  provide to the Lessor all  assistance  as the Lessor may
         reasonably  request so as to enable the Lessor to obtain any  documents
         (including,    without   limitation,    any   export   certificate   of
         airworthiness)  required by applicable law in relation to the export of
         the Aircraft  from the state of  registration  or such other country in
         which the Aircraft is for the time being located and shall re-assign or
         otherwise  confirm  to the Lessor the  benefit  of any  indemnities  or
         warranties  available to the Lessee from the  manufacturer or any other
         supplier or manufacturer of the Airframe, Engines or any Part; and

                  (iii)  provide to the Lessor such  assistance  with respect to
         information and  documentation as the Lessor may reasonably  require so
         as  to  enable  the  Aircraft  to be  registered  and  certified  as to
         airworthiness  under any  applicable  laws  and/or  regulations  of any
         country other than the state of registration; provided, that the Lessor
         shall reimburse,  the Lessee for its reasonable  out-of-pocket expenses
         incurred in providing such assistance.

                  SECTION 9. Liens.  The Lessee will not directly or  indirectly
create,  incur,  assume or suffer to exist any Lien,  on or with  respect to the
Aircraft, title thereto or any interest therein, except the lien of the Aircraft
Chattel Mortgage and Permitted  Encumbrances.  The Lessee will promptly,  at its
own expense,  take such action as may be necessary  to duly  discharge  any such
Lien not excepted above if the same shall arise at any time.

                  SECTION   10.   Registration,   Maintenance   and   Operation;
Possession and SubLEASES; INSIGNIA.

                  (a) MAINTENANCE AND OPERATION. The Lessee, at its own cost and
expense,  until the expiration or earlier termination of this Lease, (i) will be
a "citizen of the United States" as defined in Section  40102(15) of Title 49 of
the United States Code and will be an air carrier  certificated  under  Sections
401 and 609 of the  Federal  Aviation  Act and hold all  necessary  air  carrier
operating  certificates;  (ii) will cause  ownership  of the Aircraft to be duly
registered and remain duly  registered with the FAA in the name of the Lessor in
accordance  with the Federal  Aviation Act and  otherwise  registered  under all
applicable  laws  of the  United  States  so as to be  eligible  to  operate  in
commercial  air service under the Federal  Aviation Act; and (iii) will service,
repair,  inspect,  test,  maintain  and  overhaul  the Airframe and each Engine,
install  replacement  equipment  and parts on the  Airframe  and each Engine and
maintain the Technical

                                      -53-
<PAGE>

Records  (A) so as to keep  the  Airframe  and  each  Engine  in such  operating
condition  as may be  required  to permit  the  Airframe  and each  Engine to be
utilized in commercial  operations in the United States, (B) so as to enable the
airworthiness certification of the Airframe to be maintained in good standing at
all times under the Federal Aviation Act, except when aircraft of the same type,
model or series as the  Airframe  (powered  by engines of the same type as those
with which the Airframe  shall be equipped at the time of grounding)  registered
in the United States have been grounded by the FAA; provided,  however, that if,
following its issuance,  the United States FAA airworthiness  certificate of the
Aircraft  shall be  withdrawn,  then,  subject to the  provisions  of Section 13
hereof,  so long as the Lessee is  diligently  taking or causing to be taken all
necessary  action promptly to correct the condition that caused such withdrawal,
no Lease Event of Default  shall arise from such  withdrawal,  (C) in accordance
with the Lessee's FAA-approved  maintenance,  inspection and maintenance control
programs,  and in the same manner and with the same care used by the Lessee with
respect to the same or similar  aircraft  and  engines  owned or operated by the
Lessee so as to keep the same in as good operating  condition as when originally
leased hereunder,  ordinary wear and tear excepted, which practices shall at all
times be at or above the  standard  of the  industry  in the  United  States for
prudent maintenance of similar equipment, (D) in such manner as may be necessary
to maintain in full force all warranties of the manufacturers  thereof,  and (E)
to enable the Lessee to deliver the  Aircraft to the Lessor in  accordance  with
Section 8. The Lessee shall maintain all records,  logs and other materials that
may be required to permit the Airframe and each Engine to be so utilized.

                  The  Lessee  will  comply in all  material  respects  with all
airworthiness   directives,   mandatory  notes  or   modifications   or  similar
requirements  affecting the same (including  those issued by the manufacturer or
supplier)  in such  condition  so as to comply with this Lease and the rules and
regulations of the FAA from time to time in force and applicable to the Aircraft
and Engines.  Neither the Airframe  nor any Engine will be  maintained,  used or
operated  in  violation  of any law or any  rule,  regulation  or  order  of any
government or governmental  authority having jurisdiction (domestic or foreign),
or in  violation  of any  airworthiness  certificate,  license  or  registration
relating to the Airframe or such Engine issued by any such authority, and in the
event that such laws,  rules,  regulations or orders  require  alteration of the
Airframe or any Engine,  the Lessee,  at its own cost and expense,  will conform
thereto or obtain  conformance  therewith  and will  maintain the same in proper
operating  condition under such laws, rules,  regulations and orders,  provided,
however,  that the Lessee  may, in good faith  (after  having  delivered  to the
Lessor and the Agent an  Officers'  Certificate  stating the facts with  respect
thereto),  contest the validity or application of any such law, rule, regulation
or order in any reasonable manner that does not, in the Lessor's and the Agent's
opinion  (in their  sole  discretion),  adversely  affect the  interests  of the
Lessor, the Agent or any Lender.

                  The Lessee  covenants  and agrees  with the Lessor  that,  the
better to  ensure  the  availability  of the  benefits  of  Section  1110 of the
Bankruptcy  Code,  the  Lessee  shall not  object  to any  motion,  petition  or
application  filed by the Lessor with any bankruptcy  court having  jurisdiction
over the Lessee,  solely as to the portion thereof that seeks, and to the extent
that such motion,  petition or  application  seeks,  a  determination  that such
Section  1110 of the  Bankruptcy  Code  applies  to the  lease  of the  Aircraft
hereunder.  In the event that Section 1110 is amended,  or if it is repealed and
another  statute is enacted in lieu  thereof,  the Lessor and the Lessee (at the
Lessee's  expense)  agree to amend  this  Lease and take such  other  action not
inconsistent  with this Lease as the Lessor  reasonably deems necessary so as to
afford to the  Lessor the rights and

                                      -54-
<PAGE>

benefits as such amended or substituted statute confers upon owners, lessors and
conditional vendors of aircraft similarly situated to the Lessor.

                  The Lessee will not operate, use or locate the Airframe or any
Engine,  (I) in any  area in  which  any  insurance  required  to be  maintained
pursuant to Section 14 shall not be at the time in full force and effect,  or in
any area excluded from coverage by an insurance policy in effect with respect to
the Airframe or such Engine,  except in the case of a requisition for use by the
United States of America,  and then only if the Lessee obtains indemnity in lieu
of such insurance from the United States of America against the risks and in the
amounts  required by said Section  covering such area, or (II) in any recognized
or threatened area of hostilities unless the Airframe or such Engine is operated
or used under contract with the Government of the United States of America under
which  contract  that  Government  assumes  liabilities  for any damages,  loss,
destruction  or failure to return  possession  of the Airframe or such Engine at
the end of the term of such  contract  and for  injury to  persons  or damage to
property of others.

                  The Lessee shall not use the Aircraft nor suffer it to be used
in any manner or for any purpose  excepted  from any of the  insurance  on or in
respect  of the  Aircraft  or for  the  purpose  of  carriage  of  goods  of any
description  excepted from such insurance nor do, or permit to be done, anything
which, or omit to do anything the omission of which,  may invalidate any of such
insurance.

                  (b) POSSESSION. The Lessee will not, without the prior written
consent of the Agent and the Lessor,  sell,  assign,  lease or  otherwise in any
manner deliver, transfer or relinquish possession or control of, or transfer the
right,  title or  interest of the Lessee in, the  Airframe or any Engine  except
that,  unless a Default or Lease  Event of Default  shall have  occurred  and be
continuing,  the Lessee may,  without the prior written consent of the Agent and
the Lessor,  take the following actions so long as the actions to be taken shall
not  deprive the Agent of the first  priority  Lien under the  Aircraft  Chattel
Mortgage  in the assets  subject  thereto and so long as the actions to be taken
shall  not  deprive  the  Lessor  of the  protections  of  Section  1110  of the
Bankruptcy  Code with respect to the Aircraft and shall not deprive the Agent of
the  protections  of Section  1110 of the  Bankruptcy  Code with  respect to the
Aircraft as assignee of the  Lessee's  rights  under this Lease  pursuant to the
Aircraft Chattel Mortgage:

                  (i)  transfer  possession  of the Airframe or any Engine other
         than by lease to the United  States of  America or any  instrumentality
         thereof   pursuant  to  the  Civil   Reserve  Air  Fleet   Program  (as
         administered  pursuant to  Executive  Order  12656,  or any  substitute
         order) or any similar or substitute programs;

                  (ii) transfer  possession of the Airframe or any Engine to the
         manufacturer thereof for testing or other similar purposes or any other
         organization for service,  repairs,  maintenance or overhaul or, to the
         extent   permitted   by   Section  11  hereof,   for   alterations   or
         modifications;

                  (iii)  subject  any  Engine to normal  interchange  or pooling
         agreements or  arrangements  of the type customary in the United States
         airline  industry and entered into by the Lessee in the ordinary course
         of business  that do not  contemplate  or require the transfer of title
         to, use for the  remainder of its useful life, or  registration  of the
         Airframe  or title to or use for the  remainder  of its useful  life of
         such Engine;

                                      -55-
<PAGE>

         provided,  however,  that  if the  Lessee's  title  to or use  for  the
         remainder  of its useful life of the  Airframe  or any Engine  shall be
         divested under any such agreement or arrangement,  such divesture shall
         be deemed to be an Event of Loss with  respect to the  Airframe or such
         Engine and the Lessee shall comply with Section 13 in respect thereof;

                  (iv)  install  an Engine on an  airframe  that is owned by the
         Lessee  free and clear of all Liens  except (A) those  permitted  under
         clauses (i) or (ii) of the  definition of Permitted  Encumbrances,  (B)
         those  that  apply  only  to the  engines  (other  than  the  Engines),
         appliances, parts, instruments, appurtenances, accessories, furnishings
         and other equipment  (other than Parts) installed on such airframe (but
         not to the airframe as an entirety), and (C) the rights of any Domestic
         Air Carrier,  under normal interchange agreements that are customary in
         the airline  industry and do not contemplate or require the transfer of
         title to such airframe or the engines installed thereon;

                  (v) install an Engine on an  airframe  leased to the Lessee or
         owned by the Lessee  subject to a  conditional  sale or other  security
         agreement,  provided  that:  (A) such airframe is free and clear of all
         Liens, except for the rights of the parties to the lease or conditional
         sale or other security  agreement covering such airframe and except for
         Liens of the type permitted by clause (iv) above; and (B) the Agent and
         the Lessor shall have received from the lessor,  conditional  vendor or
         secured party and each of the purchasers,  mortgagees and encumbrancers
         of such lessor,  conditional vendor or secured party of such airframe a
         written  agreement (which may be the lease,  conditional sale agreement
         or mortgage covering such airframe),  whereby such lessor,  conditional
         vendor or  secured  party and each of the  purchasers,  mortgagees  and
         encumbrancers  of such  lessor,  conditional  vendor or  secured  party
         expressly and effectively agrees that neither it nor its successors and
         assigns  will  acquire or claim any  right,  title or  interest  in any
         Engine by reason of such Engine being installed on such airframe at any
         time when such Engine is subject to the Aircraft Chattel Mortgage;

                  (vi)  install an Engine on an  airframe  owned by the  Lessee,
         leased by the  Lessee or owned by the Lessee  subject to a  conditional
         sale or other  security  agreement  under  circumstances  where neither
         clause  (iv) nor clause  (v) above is  applicable;  provided,  that any
         divesture  of title to such  Engine  resulting  from such  installation
         shall be deemed to be an Event of Loss with  respect to such Engine and
         the Lessee shall comply with Section 13 in respect thereof;

                  (vii)  enter  into  an  ACMI  Contract  or wet  lease  for the
         Airframe  and the Engines or engines  installed  thereon with any third
         party  pursuant  to which the  Lessee  has  operational  control of the
         Airframe  and any  Engines  installed  thereon,  such  operation  to be
         performed  solely by individuals  under the operational  control of the
         Lessee  possessing all current  certificates and licenses that would be
         required  under  the  applicable  laws  of the  United  States  for the
         performance  by such employees of similar  functions  within the United
         States;   provided,  that  the  Lessee's  obligations  hereunder  shall
         continue  in full  force  and  effect  notwithstanding  any  such  ACMI
         Contract or wet lease;

                  (viii)  in  addition  to  the  transactions   permitted  under
         subsection  7(g)(9),  enter  into  a  lease  (other  than  pursuant  to
         paragraph  (vii)  above) of the  Airframe  and the  Engines  or engines
         installed thereon,  so long as (A) either (i) (x) the lessee under such

                                      -56-
<PAGE>

         lease,  at the time such lease is entered  into,  holds an air  carrier
         operating certificate issued pursuant to Chapter 447 of Title 49 of the
         United  States  Code  for  aircraft  capable  of  carrying  ten or more
         individuals  or 6,000  pounds or more of cargo,  (y) the Lessee and the
         lessee under such lease have expressed in writing (either in such lease
         or in a  substantially  contemporaneous  writing)  that  such  lease is
         intended to be treated as a lease for U.S. federal income tax purposes,
         and (z) the Lessee has  obtained an opinion,  addressed  to the Lessee,
         the  Lessor,  the  Agent,  and  the  Lenders,  in  form  and  substance
         reasonably  satisfactory  to each of the Lessor and the Agent,  stating
         that the Lessee is  entitled  to the  benefits  of Section  1110 of the
         Bankruptcy Code with respect to the Airframe and the Engines or engines
         installed thereon, or (ii) the Lessee obtains the prior written consent
         of both the Lessor and the Agent,  which  consent  may be  withheld  by
         either of the  Lessor or the  Agent in its sole  discretion,  and which
         consent  (x) may be  conditioned  on  receipt of  opinions  in form and
         substance  satisfactory to each of the Lessor and the Agent in its sole
         discretion  from  counsel  of the same  domicile  as the lessee of such
         lease, which counsel must be satisfactory to each of the Lessor and the
         Agent in its sole  discretion  and (y) may be conditioned on such other
         conditions  as  either  the  Lessor  or the  Agent  may,  in  its  sole
         discretion,  determine,  (B)  such  lease  (i)  shall  not  have a term
         (including,  without  limitation,  any  option to renew or  extend)  in
         excess of sixty months,  (ii) shall require rental  payments to be made
         at least quarterly,  and (iii) shall otherwise be in form and substance
         reasonably  satisfactory to the Agent (including,  without  limitation,
         with regard to the identity of the lessee),  (C) the Lessee shall grant
         a first  priority  security  interest  in such  lease to the  Lessor to
         secure its obligations  hereunder,  shall take all necessary  action to
         ensure  that such  security  interest  is fully  perfected  pursuant to
         documentation  reasonably  satisfactory  to each of the  Lessor and the
         Agent,  and shall  deliver an opinion  addressed  to the Lessor and the
         Agent to the  effect  that the  Lessor  holds a fully  perfected  first
         priority  security interest in such lease, and as to such other matters
         as the Lessor or the Agent may reasonably request,  which opinion shall
         be in form and substance reasonably  satisfactory to each of the Lessor
         and the Agent,  from  counsel  reasonably  satisfactory  to each of the
         Lessor  and the  Agent,  (D) the Lessor  shall  grant a first  priority
         security  interest in its interest in such lease to the Agent,  for the
         benefit of the Lenders, and their respective successors and assigns, to
         secure the  Secured  Obligations  (as defined in the  Aircraft  Chattel
         Mortgage), shall take all necessary action to ensure that such security
         interest  is  fully  perfected  pursuant  to  documentation  reasonably
         satisfactory  to the Agent,  and shall deliver an opinion  addressed to
         the Agent to the effect  that the Agent holds a fully  perfected  first
         priority  security interest in the Lessor's interest in such lease, and
         as to such other  matters as the Agent may  reasonably  request,  which
         opinion shall be in form and substance  reasonably  satisfactory to the
         Agent, from counsel  reasonably  satisfactory to the Agent, and (E) the
         Lessee shall not enter into any amendment, consent, waiver, supplement,
         or other  modification with respect to such lease that could reasonably
         be expected to be materially  adverse in any respect to the Lessee, the
         Lessor,  or the Lenders without the prior written consent of the Agent,
         which  consent  shall  be given or  withheld  by the  Agent in its sole
         discretion  within  ten  Business  Days of  receipt by the Agent of the
         proposed amendment,  consent, waiver, supplement, or other modification
         and any related documents reasonably requested by the Agent;  provided,
         that the Lessee's  obligations  hereunder  shall continue in full force
         and effect notwithstanding any such lease; and

                                      -57-
<PAGE>

                  (ix) sell the Aircraft in accordance with subsection 6.6(i) of
         the  Credit  Agreement  or  replace  the  Airframe  or  any  Engine  in
         accordance with subsection 9.21 of the Credit Agreement;

provided, however, that the rights of any transferee (other than with respect to
any transactions referred to in paragraph (ix) above) who receives possession of
the  Airframe or any Engine  permitted by the terms hereof shall be made subject
and subordinate  to, and any lease  permitted by this subsection  10(b) shall be
made expressly  subject and  subordinate to, the Lease and the lien and security
interest  of the  Aircraft  Chattel  Mortgage  and  all of  the  Agent's  rights
thereunder  and the Lessee  shall  remain  primarily  liable  hereunder  for the
performance of all the terms of the Lease to the same extent as if such transfer
had not occurred,  and any such instrument of transfer shall include appropriate
provisions for the maintenance and insurance of the Airframe or such Engine, and
any such instrument of transfer shall expressly prohibit any further transfer of
the  Airframe or such Engine or any  assignment  of the rights  thereunder;  and
provided further,  that no such lease,  pooling arrangement or other transfer or
relinquishment  of the possession of the Airframe or any Engine shall in any way
discharge or diminish any of the Lessee's obligations to the Lessor hereunder.

         (c) INSIGNIA.  The Lessee shall, at its own cost and expense, cause the
Airframe  and each  Engine  to be  legibly  marked  (in a  reasonably  prominent
location,  which  in  the  case  of  the  Airframe  shall  be  adjacent  to  the
airworthiness  certificate)  with  such a  plate,  disk,  or  other  marking  of
customary  size, and bearing the legend "Owned by Atlas  Freighter  Leasing III,
Inc.,  and Mortgaged to Deutsche Bank Trust Company  Americas,  as the Agent" or
such  other  legend,  as shall in the  opinion  of the  Lessor  and the Agent be
appropriate  or  desirable  to  evidence  the  fact  that it is  subject  to the
ownership  of the  Lessor  and the lien and  security  interest  created  by the
Aircraft Chattel  Mortgage.  The Lessee shall not remove or deface, or permit to
be removed or defaced, any such plate, disk, or other marking or the identifying
manufacturer's  serial number,  and, in the event of such removal or defacement,
shall promptly  cause such plate,  disk, or other marking or serial number to be
promptly replaced. Except as provided above, the Lessee shall not allow the name
of any person,  association  or  corporation to be placed on the Airframe or any
Engine as a designation  that might be interpreted as a claim of ownership or of
any security  interest  therein,  except that the Lessee or any permitted lessee
may place its customary  colors and insignia or the insignia of the manufacturer
on the Airframe or any Engine.

         (d)  HOLDING  OUT.  The  Lessee  agrees  that it will  not at any  time
represent or hold out the Lessor,  the Agent, any Lender or any Affiliate of any
of them (and will use its best  efforts to ensure that none of the  Lessor,  the
Agent, any Lender or any Affiliate of any of them is not at any time represented
or held out) as being in any way connected or  associated  with any operation of
the  Airframe,  any  Engine  or any Part or any  other  operations  or  carriage
undertaken by the Lessee.

         (e) NO PLEDGING OF CREDIT.  The Lessee is not authorized to, and agrees
that it will not purport to, pledge the credit of the Lessor,  any Lender or the
Agent for any maintenance,  service, repairs, or overhauls of, modifications to,
or changes or alterations  in, the Airframe,  any Engine or any Part, or for any
other purpose whatsoever.

         (f) TITLE.  Title to the  Aircraft  shall  remain  vested in the Lessor
subject to the Aircraft Chattel  Mortgage and any assignments,  charges or other
disposals that the Lessor may

                                      -58-
<PAGE>

make in accordance with this Lease.  The Lessee shall not do or knowingly permit
to be done anything that would  jeopardize the rights of the Lessor as owner of,
or the rights of any Lender in,  the  Aircraft  and shall  cause to be taken all
actions necessary or reasonably requested by the Lessor to prevent the rights of
the Lessor and the Lenders in the Aircraft  from being  jeopardized.  The Lessee
shall not hold itself out to any third party as the owner of the Aircraft or any
part of it, and when any third party inquires as to ownership of the Aircraft or
any Engine or any part  thereof,  it will make  clear to such  third  party that
title to the same is held by the Lessor and that the  Aircraft is  mortgaged  to
the Lenders.  Without  limiting the foregoing,  if at any time subsequent to the
initial registration of the Aircraft, any filing,  recording or act is necessary
or  reasonably  requested  by the Lessor to perfect,  protect and  preserve  the
rights and  interests of the Lessor in the Aircraft and the rights and interests
of any Lender under the Aircraft Chattel  Mortgage,  the Lessee, at its own cost
and  expense,  will  procure  that such  filings,  recordings  and acts are done
pursuant to applicable laws. At the reasonable request of the Lessor, the Lessee
shall furnish to the Lessor an opinion of counsel or other evidence satisfactory
to the  Lessor  of each  such  filing,  recordation  and act.  The  Lessor  will
reimburse  the Lessee for its  reasonable  out-of-pocket  expenses  incurred  in
complying  with its  obligations  under this  subsection  10(f)  insofar as they
relate to any Lender; provided, that, to the extent that such expenses relate to
(i) any  reregistration  of the Aircraft  under Section 8 or any sublease of the
Aircraft,  (ii) any Default or Lease Event of Default or (iii) any  substitution
of Parts or  Engines  pursuant  to the terms  hereof,  the  Lessor  shall not be
obligated to reimburse the Lessee for such increase in expense.

         (g)      INFORMATION AND RECORDS. The Lessee shall:

                  (i) promptly furnish to the Lessor all such information as the
         Lessor may from time to time reasonably request regarding the Aircraft,
         any Engine or any part thereof,  its use, location and condition;  (ii)
         keep, or procure that there are kept,  the Technical  Records and shall
         keep as part  thereof  accurate,  complete  and current  records of all
         flights  made by the  Aircraft,  of all flight  hours and cycles of the
         Airframe,  each Engine, the APU, the landing gear and the Parts, and of
         all maintenance and repairs carried out on the Aircraft and each Engine
         and every Part;

                  (iii)  procure that the  Technical  Records  shall be kept and
         maintained in English and in such manner,  form and location as the FAA
         and any applicable law may from time to time require and shall disclose
         the location of all Engines and Parts not  installed  on the  Aircraft,
         which Technical  Records,  unless otherwise required by applicable law,
         shall be the property of the Lessor;

                  (iv) make the  Technical  Records  available to the Lessor (or
         any authorized  representative  of the Lessor) for  examination  during
         normal  business  hours (or at such  other  time as the  Lessee and the
         Lessor shall mutually  agree) upon giving  reasonable  written  notice,
         provided  that,  so long as no Default or Lease Event of Default  shall
         have occurred and be continuing,  such  examination does not impede the
         normal commercial operation of the Aircraft,  and provided further that
         the cost of any such  inspection  shall be borne by the  Lessee  if the
         Lessee is  thereby  shown to be in breach of its  material  obligations
         hereunder, and otherwise by the party making the inspection; and

                                      -59-
<PAGE>

                  (v)  promptly  on, but in no event  later than three  Business
         Days after,  becoming aware of the same,  notify the Lessor of: (I) any
         total loss with respect to the  Aircraft or any Engine,  (II) any loss,
         theft,  damage or destruction to the Aircraft or any Engine or any part
         thereof if the  potential  cost of repairs  or  replacement  may exceed
         $5,000,000, (III) any loss, arrest, hijacking,  confiscation,  seizure,
         requisitioning,   impounding,   taking  in   execution,   detention  or
         forfeiture  of the  Aircraft or any part  thereof and (IV) any event in
         respect of the Aircraft  that might  reasonably  be expected to involve
         the  Lessor,  the  Lessee,  the  Agent  or any  Lender  in any  loss or
         liability.

         (h)      ENGINE MAINTENANCE.

                  (i) In  furtherance  of,  and not in  limitation  of  anything
         contained in this Lease or any other Loan  Document,  at all times each
         of the Engines will be subject to an engine maintenance  agreement with
         General Electric Aircraft Engines ("GEAE"),  MTU or such other provider
         of engine  maintenance  services as may be  acceptable to the Agent and
         the  Requisite  Lenders,  in each  case in  accordance  with an  engine
         maintenance agreement that is in form and substance satisfactory to the
         Agent and the Requisite  Lenders (it being  understood  and agreed that
         (x) any engine maintenance agreement with respect to any Engine that is
         not a "power by the  hour"  engine  maintenance  agreement  or  similar
         agreement that provides for the prepayment of maintenance expense shall
         not be satisfactory to the Agent and the Requisite  Lenders and (y) the
         GEAE  and  MTU  engine  maintenance  agreements  as in  effect  on  the
         Restatement  Effective  Date  are  satisfactory  to the  Agent  and the
         Requisite  Lenders).  The Lessee will use its  commercially  reasonable
         best efforts to enter into new or amended engine maintenance agreements
         covering the AFL III Aircraft and the Engines comprising the Collateral
         on a power-by-the-hour  basis and on terms requiring the Lessee to make
         monthly  payments to the engine  maintenance  contractor  in respect of
         each  engine  at the rate of at least  $150 per  flight  hour that such
         engine was operated  during the prior  month.  The Lessee shall use its
         commercially reasonable best efforts to have the new engine maintenance
         agreements  provide  that (i) the Agent is a third  party  beneficiary,
         (ii) the Agent has a security  interest in the agreements and (iii) the
         Agent has the right to step into the Lessee's  place should any Engines
         be returned to the Lenders.  Notwithstanding the foregoing,  the Lessee
         may amend the existing  GEAE and MTU engine  maintenance  agreements to
         reduce the hourly rate payable thereunder to the extent attributable to
         demonstrable  hourly rate and materials  cost savings with the relevant
         engine  maintenance  provider (as  determined  by the Agent) and to the
         extent that such reductions  could not reasonably be expected to result
         in an  increase  in any  "top-up" or  "make-whole"  or similar  payment
         thereunder, provided that (x) each Engine shall at all times be subject
         to a minimum build standard in respect of each Part thereof of at least
         2,000 cycles and (y) the Lessee will not remove any Part from an Engine
         if such Part has at least 2,000 cycles  remaining  (except as permitted
         by subsection 7(i) hereof).  In addition,  the Lessee shall continue to
         comply  with  the  terms  of each  such  engine  maintenance  agreement
         (including  making all payments when due  thereunder)  and not take any
         action with respect to any credits or  equivalents  thereof  related to
         any Engine (or  permit any action to be taken),  if, in the  opinion of
         the Agent,  such action  could cause the loss of any  economic  benefit
         available  under any engine  maintenance  agreement  applicable to such
         Engine  (other  than  any  loss  resulting  from  the   performance  of
         maintenance on such engine in accordance with the

                                      -60-
<PAGE>

         applicable engine maintenance  agreement or as specifically provided in
         the following sentence). To the extent under the GEAE, MTU or any other
         engine  maintenance  agreement  in effect  with  respect to any Engine,
         there is any surplus  cash or credit with  respect to any Engine  after
         such  Engine  completes  a shop  visit  and  the  terms  of the  engine
         maintenance  agreement  applicable  to such Engine  permit such surplus
         cash or  credit  to be  allocated  to  other  engines  currently  being
         overhauled  by  such  engine  maintenance  provider  pursuant  to  such
         agreement,  such surplus will first be applied to or for the benefit of
         any other Engines and, second to the extent any such surplus can not be
         applied  to or for  the  benefit  of any  other  Engine,  to or for the
         benefit of any other  engine.  In  addition,  the Lessee  shall,  at no
         material cost to the Lessee,  assist the Agent,  for the benefit of the
         Lenders, in obtaining the benefit of the credits or equivalents thereof
         relating  to  such  Engines  in  the  event  that  the  Agent  acquires
         possession of the Engines under each such engine maintenance  agreement
         through direct contractual agreements between the Agent and such engine
         maintenance provider.

                  (ii)  Sage-Popovich  Inc. ("S-P") or such other company as may
         be appointed by the Requisite Lenders will be retained by the Lessee as
         a third party  provider to perform the services  identified in Schedule
         10(h)(ii)  attached  hereto,  S-P  will  have  limited  access  to  the
         maintenance  module of SAP or an equivalent program (with no ability to
         enter  or  change  data)  and  the  Lessee  will  provide  to S-P  such
         additional  documents as S-P reasonably requests from time to time (and
         not  available  to S-P as a  third-party  provider).  the  Lessee  will
         promptly take such actions as the Agent deems  reasonably  necessary to
         resolve each of the outstanding  issues raised by S-P's ongoing reviews
         of the Lessee's maintenance records and procedures (including,  without
         limitation, the resolution of all issues regarding the Lessee's failure
         to maintain records for each Part  constituting  Collateral dating back
         to  the  date  of   manufacture  of  such  Part  (each  such  issue,  a
         "BACK-TO-BIRTH  TRACEABILITY  ISSUE") as  provided  in the  immediately
         succeeding  subclause (iii)).  Any dispute concerning any issues raised
         by S-P shall be resolved by an arbitrator  reasonably  satisfactory  to
         the Lessee and the Requisite  Lenders (it being  understood  and agreed
         that a request to resolve any  back-to-birth  traceability  issues with
         respect to the  Collateral  in the manner set forth in the  immediately
         succeeding  subclause  (iii) shall be complied with in accordance  with
         such  subclause  (iii)  and  shall  not  be  subject  to  such  dispute
         resolution  provision).  the Lessee  will pay the  reasonable  fees and
         expenses of S-P in connection with such review.

                  (iii) The Lessee will resolve any  Back-To-Birth  Traceability
         Issues by the replacement of any Part with an unresolved  back-to-birth
         traceability  issue at the next shop  visit for such  Engine;  provided
         that (i) the Lessee shall not be required to spend more than $3,000,000
         during the twelve month period  commencing upon November 3, 2003 or any
         twelve month period  thereafter  or  $8,000,000  in the aggregate on or
         after  July 3, 2003 to  replace  (x) any Parts and (y) any parts of the
         engines  securing  the  Credit  Agreement,  in  each  case  because  of
         back-to-birth  traceability  issues,  (ii) the amounts in the preceding
         clause  (i)  shall  be net of any  salvage  value  attributable  to the
         removed  Parts or  parts,  as the case may be,  and  (iii)  the cost to
         replace any Part or part,  as the case may be, that is  scheduled to be
         (or otherwise  would have been) removed at such shop visit shall not be
         included in the calculation in clause (i) of this proviso.

                                      -61-
<PAGE>

         SECTION   11.   Replacement   and   Pooling   of  Parts;   Alterations,
Modifications and ADDITIONS.

         (a) Except as otherwise  provided in subsection  11(d), the Lessee,  at
its own cost and expense,  will promptly replace all Parts,  which may from time
to time be  incorporated  or  installed  in or attached  to the  Airframe or any
Engine and which may from time to time become worn out, lost, stolen, destroyed,
seized, confiscated, damaged beyond repair or permanently rendered unfit for use
for any reason whatsoever.  In addition,  in the ordinary course of maintenance,
service,  repair or  testing,  the Lessee at its own cost and expense may remove
any  Parts,  whether  or  not  worn  out,  lost,  stolen,   destroyed,   seized,
confiscated,  damaged  beyond  repair  or  permanently  rendered  unfit for use;
provided,  that, except as otherwise provided in subsection 11(d), the Lessee at
its own cost and expense  shall  replace such Parts as promptly as  practicable.
All  replacement  Parts shall be owned by the Lessor free and clear of all Liens
(except  Permitted  Encumbrances  and for  pooling  arrangements  to the  extent
permitted by subsection 11(b)), and shall be in as good operating  condition as,
and shall  have a value and  utility  at least  equal  to,  the Parts  replaced,
assuming  that such  parts  were in the  condition  and  repair  required  to be
maintained by the terms hereof.

         All Parts at any time  removed  from the  Airframe or any Engine  shall
remain  the  property  of the Lessor  and shall  remain  subject to the lien and
security  interest of the Aircraft  Chattel  Mortgage,  no matter where located,
until  such  time as such  Parts  shall be  replaced  by parts  that  have  been
incorporated  or installed in or attached to the Airframe or any Engine and that
meet the  requirements for replacement  parts specified above.  Immediately upon
any  replacement  Part becoming  incorporated or installed in or attached to the
Airframe or any Engine as above provided, without further act, (A) title to such
replacement  Part  shall  vest in and such  replacement  part  shall  become the
property of the Lessor and shall  become  subject to this Lease and the lien and
security  interest of the Aircraft  Chattel Mortgage and shall be deemed part of
the  Airframe or such Engine for all  purposes  hereof to the same extent as the
property originally  comprising,  or installed on, such Airframe or such Engine,
and (B) title to the replaced part shall no longer be the property of the Lessor
and shall thereupon  become free and clear of all rights of the Lessor hereunder
and all rights  derivative  of the Lessor's and shall no longer be deemed a Part
hereunder.

         (b) Any Part  removed  from the  Airframe  or any Engine as provided in
subsection 11(a) may be subjected by the Lessee to a normal pooling  arrangement
of the type customary in the airline  industry entered into by the Lessee in the
ordinary course of its business and entered into with Domestic Air Carriers that
are not the  subject  of any  bankruptcy,  insolvency,  or  similar  proceeding,
voluntary or  involuntary;  provided,  that the Part replacing such removed Part
shall be incorporated or installed in or attached to the Airframe or such Engine
in accordance with subsection 11(a) as promptly as possible after the removal of
such removed  part.  In addition,  any  replacement  Part when  incorporated  or
installed  in or  attached  to the  Airframe  or any Engine in  accordance  with
subsection  11(a)  may be owned by any  third  party  subject  to such a pooling
arrangement, provided that the Lessee, at its expense, as promptly thereafter as
possible,  either (A) causes  such  replacement  Part to become  property of the
Lessor and subject to the lien and  security  interest of the  Aircraft  Chattel
Mortgage in accordance with subsection 11(a) free and clear of all Liens (except
Permitted  Encumbrances  and  the  Aircraft  Chattel  Mortgage  relating  to the
Aircraft) or (B) replaces such  replacement  Part by incorporating or installing
in or attaching

                                      -62-
<PAGE>

to the  Airframe or such Engine a further  replacement  Part owned by the Lessee
which shall become the  property of the Lessor  subject to the lien and security
interest  of the  mortgage  free  and  clear  of  all  Liens  (except  Permitted
Encumbrances and the Aircraft Chattel Mortgage relating to the Aircraft).

         (c) The Lessee, at its own cost and expense,  shall make or cause to be
made such alterations and modifications in and additions to the Airframe and the
Engines as may be required from time to time to meet the standards of the FAA or
other governmental authority having jurisdiction; PROVIDED, that the Lessee may,
in good faith,  contest the validity or  application of any such standard in any
reasonable  manner that shall not  adversely  affect the Lessor's or the Agent's
respective  interests.  The Lessee also agrees, at its own cost and expense,  to
make or cause to be made such alterations and  modifications in and additions to
the  Airframe  and the Engines as may be required  from time to time to meet the
standards or requirements of any directive issued by a manufacturer  relating to
the Airframe or any Engine. In addition, so long as no Default or Lease Event of
Default shall have occurred and be continuing,  the Lessee,  at its own cost and
expense,  may from time to time make such  alterations and  modifications in and
additions to the Airframe and any Engine as the Lessee may deem desirable in the
proper conduct of its business,  provided that no such alteration,  modification
or  addition  diminishes  the value or  utility  or  impairs  the  condition  or
airworthiness of the Airframe or such Engine below the value, utility, condition
or airworthiness  thereof immediately prior to such alteration,  modification or
addition,  assuming  that the Airframe or such Engine were then in the condition
and airworthiness required to be maintained by the terms of this Lease.

         (d) All Parts  incorporated  or installed in or attached to or added to
the  Airframe or any Engine as the result of such  alteration,  modification  or
addition  shall,  without further act, become the property of, and title to such
parts  shall vest in the  Lessor  and shall be subject to the lien and  security
interest of the Aircraft Chattel Mortgage; PROVIDED, that, so long as no Default
or Lease Event of Default shall have occurred and be continuing,  the Lessee may
remove and not  replace  any such Part if it (A) is in  addition  to, and not in
replacement of or in substitution  for, any Part incorporated or installed in or
attached  to the  Airframe  or such  Engine on the date  hereof,  or any Part in
replacement  of or  substitution  for any such Part,  (B) is not  required to be
incorporated or installed in or attached or added to the Airframe or such Engine
pursuant to the terms of subsection  10(a) hereof or any other provision of this
Lease or the Aircraft  Chattel Mortgage and (C) can be removed from the Airframe
or  such  Engine  without  diminishing  or  impairing  the  value,   utility  or
airworthiness  that the  Airframe or such Engine would have had at such time had
such  alteration,  modification  or addition  not  occurred,  assuming  that the
Airframe or such Engine was  otherwise in the  condition  required by this Lease
and the Aircraft  Chattel  Mortgage.  Upon the removal by the Lessee of any such
Part, as above provided,  title thereto shall,  without further act, be free and
clear of the  interests of the Lessor and all rights  derivative of the Lessor's
and such Part shall no longer be deemed a Part hereunder.

         (e) In no event shall the Lessor bear any liability or cost  whatsoever
for (i) any alteration or  modification  of, or addition to, the Airframe or any
Engine, (ii) any grounding of the Aircraft, (iii) suspension of certification of
the  Aircraft,  or (iv) loss of  revenue  suffered  by the Lessee for any reason
whatsoever.

                  SECTION 12. INDEMNITIES.  (a) Holdings and the Lessee agree to
pay, and hereby indemnify,  on an after-tax basis, the Lessor and its assignees,
if any, from and against,

                                      -63-
<PAGE>

any and all fees and taxes, levies,  imposts,  duties,  charges or withholdings,
together with any penalties, fines or interest thereon (any of the foregoing for
the  purposes of this  Section 12 being  called a "TAX"),  that may from time to
time be imposed on or asserted against the Lessor and its assignees,  if any, or
the  Airframe  or any  Engine or any part  thereof  or  interest  therein by any
federal,  state or local  government  or other  taxing  authority  in the United
States or by any foreign  government  or  subdivision  thereof or by any foreign
taxing  authority in connection  with,  relating to or resulting  from:  (i) the
Airframe  or any  Engine  or any part  thereof  or  interest  therein,  (ii) the
manufacture,  purchase,  ownership,  mortgaging,  lease, sublease, use, storage,
maintenance,  sale or other disposition of the Airframe or any Engine, (iii) any
rentals or other earnings  therefor or arising  therefrom or the income or other
proceeds  received  with  respect  thereto,  or (iv) this Lease or the  Aircraft
Chattel  Mortgage;  provided,  however,  that there shall be  excluded  from any
indemnification under this subsection 12(a) any Lessor Tax unless the payment of
any such Tax shall be a condition to the  enforceability of the Aircraft Chattel
Mortgage or the perfection of the lien thereof or unless  proceedings shall have
been commenced to foreclose any lien that may have attached as security for such
Tax, nothing in this Section shall require the payment of any Tax so long as and
to the extent that the  validity  thereof  shall be  contested  in good faith by
appropriate legal proceedings  promptly instituted and diligently  conducted and
the Lessee  shall have set aside on its books  adequate  reserves  with  respect
thereto in accordance with generally accepted accounting principles.

         (b)  Holdings  and the Lessee  jointly and  severally  agree to defend,
indemnify,  pay and hold harmless the Lessor, the Agent and each Lender, and the
officers,  directors,  partners, employees, agents and affiliates of the Lessor,
the Agent and each  Lender,  (collectively  called the  "INDEMNITEES")  from and
against  any and  all  liabilities,  obligations,  losses,  damages,  penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any kind
or nature whatsoever  (including,  without  limitation,  the reasonable fees and
disbursements   of  counsel  for  such   Indemnitees  in  connection   with  any
investigative, administrative or judicial proceeding, commenced or threatened by
any Person, whether or not any such Indemnitee shall be designated as a party or
a potential  party  thereto),  whether  direct,  indirect or  consequential  and
whether  based  on any  federal,  state  or  foreign  laws,  statutes,  rules or
regulations  (including,  without  limitation,  securities and commercial  laws,
statutes,  rules or  regulations  and  Environmental  Laws),  on  common  law or
equitable  or other cause or on contract or  otherwise,  that may be imposed on,
incurred by, or asserted against any such Indemnitee,  in any manner relating to
or  arising  out  of  this  Lease  or the  other  Transaction  Documents  or the
transactions contemplated hereby or thereby (including,  without limitation, the
Lenders' agreement to make the Loans to the Lessor or the use or intended use of
the  proceeds  of  any of  the  Loans)  (collectively  called  the  "INDEMNIFIED
LIABILITIES");  provided,  that the Lessee shall not have any  obligation to any
Indemnitee  hereunder with respect to any Indemnified  Liabilities to the extent
that such  Indemnified  Liabilities  arise solely from the gross  negligence  or
willful  misconduct of that  Indemnitee  as determined by a final  judgment of a
court of competent  jurisdiction.  To the extent that the undertaking to defend,
indemnify,  pay and hold  harmless  set forth in the  preceding  sentence may be
unenforceable  because it is violative of any law or public  policy,  the Lessee
shall  contribute  the maximum  portion  that it is permitted to pay and satisfy
under  applicable  law to  the  payment  and  satisfaction  of  all  Indemnified
Liabilities incurred by the Indemnitees or any of them.

                                      -64-
<PAGE>

         SECTION  13.  EVENT OF LOSS.  (a) If an Event of Loss shall  occur with
respect to an Airframe or an Engine,  the Lessee will promptly notify the Lessor
and the Agent  thereof in  writing  (in any event  within  five (5) days of such
occurrence) and will, not later than 180 days after the occurrence of such Event
of Loss, convey or cause to be conveyed to the Lessor,  free of all Liens (other
than  Permitted  Encumbrances)  title to an  Acceptable  Alternate  Airframe  or
Acceptable  Alternate Engine, as the case may be. Prior to or at the time of any
such  conveyance,  the Lessee,  at its own expense,  will, as conditions to such
transfer,  (i) furnish  the Lessor  with a warranty  (as to title) bill of sale,
from a person and in form and substance  reasonably  satisfactory to the Lessor,
with  respect to such  Acceptable  Alternate  Airframe or  Acceptable  Alternate
Engine,  (ii) cause a Lease  Supplement  to be filed for  recording  pursuant to
Title 49 of the United  States Code,  as amended,  (iii) furnish the Lessor with
such evidence of the Lessee's  title to such  Acceptable  Alternate  Airframe or
Acceptable  Alternate Engine and of compliance with the insurance  provisions of
Section  14  hereof  with  respect  to such  Acceptable  Alternate  Airframe  or
Acceptable  Alternate Engine as the Lessor may reasonably request,  (iv) furnish
the Lessor with an opinion of the  Lessee's  counsel to the effect that title to
such Acceptable  Alternate Airframe or Acceptable Alternate Engine has been duly
conveyed to the Lessor free and clear of all Liens except Permitted Encumbrances
and the Lessor and the Agent  continue to have 1110  protection  with respect to
such Aircraft.  Upon satisfaction of the foregoing conditions,  the Lessor shall
transfer to or at the direction of the Lessee  without  recourse or warranty all
of the Lessor's right, title and interest, if any, in and to (A) the Airframe or
Engine with  respect to which such Event of Loss  occurred  and furnish to or at
the  direction of the Lessee,  at the Lessee's  expense,  a bill of sale without
warranty  other  than to the  absence  of a Lessor  Lien in form  and  substance
reasonably  satisfactory  to the Lessee,  evidencing  such  transfer and (B) all
claims, if any, against third parties,  for damage to or loss of the Airframe or
Engine  subject  to such  Event  of Loss,  and such  Airframe  or  Engine  shall
thereupon cease to be an Airframe or Engine leased  hereunder.  The Lessee shall
cooperate with the Lessor and take all such actions as shall be requested by the
Lessor so that the Lessor complies with subsection 4(f) of the Aircraft  Chattel
Mortgage.  For all purposes hereof,  each such Acceptable  Alternate Airframe or
Acceptable Alternate Engine shall, after such conveyance,  be deemed part of the
property leased hereunder, and shall be deemed an "Airframe" or "Engine," as the
case may be. No Event of Loss under the  circumstance  contemplated by the terms
of this  paragraph  (a) shall result in any reduction in Basic Rent or any other
obligation of the Lessee hereunder.

         (b) With respect to the  Airframe or any Engine,  as between the Lessor
and the  Lessee,  any  payments  on  account  of an  Event of Loss  (other  than
insurance proceeds or other payments the application of which is provided for in
Section 14 below) received from any governmental authority or other person shall
be applied as follows:

                  (A) if such  payments are received with respect to an Event of
         Loss to an Airframe or Engine that has been or is being replaced by the
         Lessee  pursuant to the terms  hereof,  so long as there shall exist no
         Default or Lease Event of Default,  such payment  shall be paid over to
         or retained  by the Lessee  upon  satisfaction  of the  conditions  for
         replacement  contained in paragraph (a) above and until such time shall
         be held by the Lessor as  security  for the  obligations  of the Lessee
         under the Lease; and

                  (B) if such  payments are received with respect to an Event of
         Loss with respect to which no replacement is being effected, so much of
         such payments as shall not exceed

                                      -65-
<PAGE>

         (A) the  Stipulated  Loss Value as of the date of payment  plus (B) all
         unpaid Supplemental Rent due through the date of payment,  plus (C) all
         unpaid Basic Rent for the period ending on the date of payment shall be
         paid  by  the  Lessee  to  the  Lessor  and   following  the  foregoing
         application, the balance, if any, of such payments shall be distributed
         between  the Lessee and the Lessor as their  respective  interests  may
         appear;

         (c) In the  event  of a  requisition  for  use  by  the  United  States
Government of the Airframe or any Engine,  the Lessee shall promptly  notify the
Lessor and the Agent of such  requisition  and all of the  Lessee's  obligations
under the Lease shall continue to the same extent as if such requisition had not
occurred.  Any  payments  received  by the Lessor or the Lessee  from the United
States  Government  for the use of the  Airframe or such  Engine,  to the extent
allocable to the Term, shall be paid over to, or retained by, the Lessee.

         (d) Any  amount  referred  to in this  Section 13 that is payable to or
retained  by the  Lessee  shall  not be paid to the  Lessee or  retained  by the
Lessee,  if at the time of such payment or retention  any Default or Lease Event
of Default shall have occurred and be  continuing,  but shall be held by or paid
over to the Lessor as security for the obligations of the Lessee under the Lease
and shall be applied against the Lessee's obligations hereunder as and when due.
At such time as there shall not be continuing any such Default or Lease Event of
Default,  such amount  shall be paid to the Lessee to the extent not  previously
applied in accordance with the preceding sentence.

         SECTION  14.  INSURANCE.  (a) The  Lessee  will at all times  carry and
maintain on or with respect to the Aircraft, at its own cost and expense, public
liability  (including,   without  limitation,   contractual   liability,   cargo
liability,  passenger legal liability,  bodily injury and product liability, but
excluding  manufacturer's  product liability) and property damage insurance with
insurers of recognized responsibility and reputation in amounts, of the type and
covering  the risks  customarily  carried  with  respect to similar  aircraft by
corporations engaged in the same or similar business and similarly situated with
the Lessee but in no event in an amount less than  $500,000,000  per  occurrence
(which shall include war risk,  governmental  confiscation and expropriation and
allied  perils  coverage).  During any period when the Aircraft is on the ground
and not in  operation,  the Lessee may carry or cause to be carried,  in lieu of
insurance  required by this Section,  insurance  otherwise  conforming  with the
provisions  of this  Section  except that the  amounts of coverage  shall not be
required to exceed the amounts of comprehensive airline liability insurance, and
the  scope of risk  covered  and type of  insurance  shall be the  same,  as are
customarily   carried  with  respect  to  similar  aircraft  on  the  ground  by
corporations engaged in the same or similar business and similarly situated with
the Lessee. Any policies of insurance carried in accordance with this Section 14
and any policies taken out in  substitution  or replacement of any such policies
(A) shall be  amended to name the Agent,  the  Lenders  and the Lessor and their
respective  shareholders,  directors,  officers,  members,  partners,  servants,
employees and agents as additional named insureds,  (B) shall be primary without
right of  contribution  from any other  insurance that is carried by the Lessee,
(C) shall expressly  provide that all provisions  thereof,  except the limits of
the  liability,  shall  operate  in the same  manner as if there were a separate
policy covering each insured, and (D) shall provide that the insurer shall waive
any right of subrogation against the Agent, the Lenders and the Lessor.

         (b) The Lessee will at all times carry and  maintain  with  insurers of
recognized  responsibility and reputation on or with respect to the Aircraft, at
its own cost and expense,  aircraft ground and flight all-risk hull insurance as
well as fire and extended coverage insurance

                                      -66-
<PAGE>

on the Engines and other equipment while removed from the Airframe,  which shall
include war risk, governmental confiscation and expropriation (other than by the
United States  Government) and allied perils (if and to the extent that the same
shall be  maintained  by the Lessee with  respect to similar  aircraft  owned or
operated by the Lessee on the same routes or if the Aircraft or another aircraft
is operated on routes where the custom is for  Domestic  Air Carriers  similarly
situated with the Lessee flying comparable routes with similar aircraft to carry
such insurance,  of the type usually carried by corporations engaged in the same
or similar  business  and  similarly  situated  with the Lessee)  including  (A)
strikes, riots, civil commotions or labor disturbances, (B) any malicious act or
act of  sabotage  and (C)  hijacking  (air  piracy) or any  unlawful  seizure or
wrongful  exercise of control of the Aircraft or crew in flight  (including  any
attempt at such  seizure or  control)  made by any person or persons  aboard the
Aircraft  or  another  aircraft  acting  without  the  consent  of the  insured;
provided,  that such  insurance  (including  any  self-insurance  to the  extent
permitted  below)  shall at all times be for an  agreed  value not less than the
greater  of  the  Stipulated  Loss  Value  as of  the  closest  Stipulated  Loss
Determinate Date and $50,000,000.  During any period when the Aircraft is on the
ground and not in  operation,  the Lessee may carry or cause to be  carried,  in
lieu of the insurance required by this Section,  insurance otherwise  conforming
hereto except that the scope of risk covered and type of insurance  shall be the
same as are from  time to time  customarily  carried  with  respect  to  similar
aircraft by corporations  engaged in the same or similar  business and similarly
situated  with the Lessee for aircraft on the ground in an amount at least equal
to the applicable  amount  provided  above.  All such  insurance  shall name the
Agent, the Lenders and the Lessor as additional  insureds and loss payees to the
extent that their  interest  may appear and shall  provide  that any loss to the
Airframe or an Engine in excess of $2,000,000  (and, if a Default or Lease Event
of Default has  occurred and is  continuing,  any such loss) shall be payable to
the Lessor and to the Agent for the benefit of the Lenders; and shall be primary
without right of  contribution  from any other  insurance that is carried by the
Lessor or the Agent with respect to its interest therein.  In the event that the
Lessee arranges separate insurances to cover the all-risk hull insurance and the
war and  perils  hull  insurance,  the Lessee  shall  ensure  that the  insurers
subscribing to such insurances shall agree to a 50/50 claims funding arrangement
in the event of any dispute as to which insurance is applicable.

         The  Lessee  may  self-insure,  by  way  of  deductible  or  equivalent
provisions  in  insurance  policies,  the risks  required to be insured  against
pursuant  to this  subsection  14(b)  in such  reasonable  amounts  as are  then
applicable to other similar aircraft or spare engines in the Lessee's fleet that
are of a value comparable to the Aircraft,  and as are not substantially greater
than  amounts  self-insured  by  corporations  engaged  in the  same or  similar
business and similarly  situated with the Lessee;  provided,  however,  that the
Lessee may not  self-insure  in an amount in excess of  $1,000,000  without  the
prior written consent of the Lessor and the Agent.

         (c) Any policies of insurance required pursuant to either paragraph (a)
or paragraph (b) above shall:  (A) be amended to name the Lessor,  the Agent and
the Lenders as additional named insureds,  but without the Lessor,  the Agent or
the Lenders  being  thereby  liable for premiums  (and the  insurance  companies
waiving  their right with respect  thereto),  (B) provide that in respect of the
interest of (x) the Lessor or (y) the Agent or the Lenders in such  policies the
insurance  shall not be  invalidated by any action or inaction of (x) the Lessee
or (y) the Lessee or the Lessor, respectively, and shall insure the interests of
the Agent and the Lenders  regardless  of any breach or violation by the Lessee,
the Lessor or any Person  (other than the Agent) of any  warranty,  declaration,
condition or exclusion from coverage contained in such policies, (C)

                                      -67-
<PAGE>

provide that if such insurance is cancelled,  or if any material  change is made
in the  coverage  that  affects the  interest  of the  Lessor,  the Agent or any
Lender, or if such insurance is allowed to lapse for nonpayment of premium, such
cancellation, change or lapse shall not be effective as to the Lessor, the Agent
or any Lender for thirty  (30) days (seven (7) days,  or such  shorter or longer
period as may from time to time be customarily available in the industry, in the
case of any war risk and allied perils  coverage) after receipt by the Agent and
the Lessor of written notice from such insurers of such cancellation,  change or
lapse, (D) be in full force and effect throughout any geographical  areas at any
time traversed by the Aircraft and shall be payable in U.S.  dollars,  (E) waive
any right of the insurers to any setoff or counterclaim or any other  deduction,
whether by  attachment  or otherwise in respect of any  liability of the Lessee,
the Lessor or the Agent  except in respect of  outstanding  premium  due for the
Aircraft,  (F) waive all rights of subrogation  against the Lessor and the Agent
and (G) include a year 2000 date recognition writeback.

         (d) In the case of a lease or  contract  with the United  States or any
agency or  instrumentality  thereof in respect of the Airframe or any Engine,  a
valid  agreement  by the  United  States or such  agency or  instrumentality  to
indemnify the Lessee against the same risks against which the Lessee is required
hereunder to insure shall be considered  adequate  insurance with respect to the
Airframe or such  Engine to the extent of the risks and in the amounts  that are
the subject of any such agreement to indemnify.

         (e) On or prior to the date hereof, and annually thereafter on or prior
to January 31, the Lessee will  furnish to the Lessor and the Agent (A) a report
signed by a firm of independent  aircraft  insurance  brokers,  appointed by the
Lessee and not objected to by the Lessor or the Agent,  describing in reasonable
detail  acceptable  to the Lessor and the Agent the  insurance  then carried and
maintained  on or with  respect to the Aircraft and the Engines and stating that
in the  opinion  of such firm  such  insurance  complies  with the terms of this
Section 14 and is adequate to protect the  interests  of the Lessee,  the Lessor
and the Agent,  and (B)  certificates of the insurer or insurers  evidencing the
insurance  covered by the report.  The Lessee will cause such  brokers to advise
the Agent in writing  (x)  promptly of any default in the payment of any premium
and of any other act or  omission  on the part of the  Lessee of which such firm
has knowledge and that might invalidate or render unenforceable,  in whole or in
part,  any  insurance on the Aircraft or any Engine and (y) at least thirty (30)
days prior to the expiration or termination  date, or date of  effectiveness  of
any material  change,  of any insurance  carried and  maintained on the Aircraft
hereunder.

         (f) All insurance  payments and other  payments  received by the Agent,
the Lessor or the Lessee from insurance referred to in paragraph (b) above shall
be, if received by the Lessor or the Lessee,  immediately  paid to the Agent, as
agent for itself and the Lessor and shall be paid to the Lessee upon  compliance
by the Lessee  with the terms of Section 13,  provided  that no Default or Lease
Event of Default shall have occurred and be continuing.

         (g) The  Lessee  shall not  create or permit to exist any Lien over the
insurances required by this Lease, or its interest therein,  save as constituted
by this Lease and the Credit Agreement.

         (h) If at any time the  Lessee  fails to  maintain  in full  force  and
effect  insurances  in  compliance  with any  provision  of this Section 14, the
Lessor  shall be entitled but not bound  (without  prejudice to any other rights
that it may have or acquire under this Lease by reason of

                                      -68-
<PAGE>

such  failure) (i) to pay any  premiums due or to effect or maintain  insurances
satisfactory  to the Lessor or  otherwise  remedy such failure in such manner as
the Lessor considers appropriate, and the Lessee shall immediately reimburse the
Lessor in full for any amount so expended by the Lessor  and/or (ii) at any time
while such  failure is  continuing,  to require  the  Aircraft  to remain at any
airport,  or to proceed to and remain at any airport  designated  by the Lessor,
the Agent or the Lenders, until such failure is remedied.

         (i) Nothing in this Section 14 shall prohibit the Agent,  or any Lender
or the Lessor from obtaining  insurance with respect to the Aircraft for its own
account. The Lessee may, at its own expense, carry insurance with respect to its
interest in the Aircraft in amounts in excess of that  required to be maintained
by this  Section 14. No  insurance  maintained  by the Agent,  the Lessor or any
Lender  shall  prevent  the Lessee  from  carrying  the  insurance  required  or
permitted by this Section. Proceeds of any such insurance carried by the Lessee,
the  Agent or any  Lender  shall be paid as  provided  in the  insurance  policy
relating  thereto  and no such  Person  shall  have any duty to obtain  any such
insurance.

         (j) To the extent  any of the  Aircraft  or  Engines  or any  component
thereof  are  leased or under  contract  to the  United  States or any agency or
instrumentality  thereof  pursuant to the Civil  Reserve Air Fleet  Program or a
similar program,  the Lessee shall take such actions as the Agent may reasonably
request to ensure that the Agent, for the benefit of the Lenders,  (i) is a loss
payee under any  insurance  policy or indemnity  granted to the Lessee or any of
its  affiliates  by the United States or any agency or  instrumentality  thereof
and/or (ii) has a perfected  security  interest in the  proceeds of any payments
made by the United States or any agency or  instrumentality  thereof pursuant to
any such insurance policy or indemnity.

         SECTION 15. ASSIGNMENT.  Except as permitted in accordance with Section
10, the Lessee will not, without the prior written consent of the Lessor, assign
any of its rights  hereunder or in the Aircraft.  The Lessor agrees that it will
not  assign or convey its right,  title or  interest  in or to this Lease or the
Aircraft  except  in  accordance  with  the  Credit  Agreement.  Subject  to the
foregoing,  the terms and  provisions  of this Lease  shall be binding  upon and
inure  to the  benefit  of the  Lessor  and  the  Lessee  and  their  respective
successors  and permitted  assigns and shall inure to the direct benefit of, and
shall also be enforceable  by, the Agent and the Lenders,  and their  respective
successors, as assignees of the Lessor.

         SECTION  16.  EVENTS OF DEFAULT.  Each of the  following  events  shall
constitute a lease event of default ("Lease Event of Default") (whether any such
event  shall  be  voluntary  or  involuntary  or come  about or be  effected  by
operation of law or pursuant to or in compliance  with any  judgment,  decree or
order of any court or any order,  rule or  regulation of any  administrative  or
governmental  body) and each such Lease Event of Default shall  continue so long
as, but only as long as, it shall not have been remedied:

                  (a) the  Lessee  shall  fail to pay any  installment  of Rent,
         Stipulated Loss Value or any other amounts owing pursuant to this Lease
         within 5 days after the due date thereof;

                  (b) the  Lessee  shall  fail  (i) to  comply  in any  material
         respect with the  maintenance  standards  or (ii) to procure  insurance
         coverage as  prescribed  herein or (iii) to operate the Aircraft or any
         Engine at a time or in a place where insurance  described in Section 14
         shall not be in effect;

                                      -69-
<PAGE>

                  (c) there shall exist a Lease Event of Default  under,  and as
         defined  in, any other  Lease or the Lessee or  Holdings  shall fail to
         perform or observe any other  covenant or  condition  set forth in this
         Lease or any other  Transaction  Document,  which  failure shall remain
         unremedied  for a period of 10 Business Days after written  notice from
         the  Lessor  or the  Agent,  unless  action  has been  taken  within 15
         Business Days to remedy such breach and such action is being diligently
         pursued, provided such breach is capable of being remedied;

                  (d) any  representation  or warranty of the Lessee or Holdings
         in any Transaction Document or in any certificate furnished pursuant to
         any  Transaction  Document  is found to be  incorrect  in any  material
         respect at the time it was made and such breach shall remain unremedied
         for a period of 15 Business Days after written notice thereof;

                  (e) (i) a court  having  jurisdiction  in the  premises  shall
         enter a decree or order for relief in respect of Holdings or any of its
         Subsidiaries in an involuntary  case under the Bankruptcy Code or under
         any other  applicable  bankruptcy,  insolvency  or  similar  law now or
         hereafter in effect,  which decree or order is not stayed; or any other
         similar relief shall be granted under any  applicable  federal or state
         law, or (ii) an involuntary case shall be commenced against Holdings or
         any of its  Subsidiaries  under the Bankruptcy  Code or under any other
         applicable  bankruptcy,  insolvency  or similar law now or hereafter in
         effect;  or a decree  or order of a court  having  jurisdiction  in the
         premises for the appointment of a receiver,  liquidator,  sequestrator,
         trustee, custodian or other officer having similar powers over Holdings
         or any of its  Subsidiaries,  or over all or a substantial  part of its
         property,  shall have been  entered;  or there shall have  occurred the
         appointment  of an  interim  receiver,  trustee or other  custodian  of
         Holdings  or any of  its  Subsidiaries;  or a  warrant  of  attachment,
         execution  or  similar  process  shall  have been  issued  against  any
         substantial   part  of  the   property   of  Holdings  or  any  of  its
         subsidiaries,  and any such event  described  in this clause (ii) shall
         continue for 60 days unless dismissed, bonded or discharged;

                  (f) (i)  Holdings  or any of its  Subsidiaries  shall  have an
         order for relief  entered  with  respect to it or  commence a voluntary
         case  under  the  Bankruptcy   Code  or  under  any  other   applicable
         bankruptcy,  insolvency  or similar law now or hereafter in effect,  or
         shall  consent  to the entry of an order for  relief in an  involuntary
         case, or to the conversion of an involuntary  case to a voluntary case,
         under any such law, or shall  consent to the  appointment  of or taking
         possession  by a  receiver,  trustee  or other  custodian  for all or a
         substantial   part  of  its  property;   or  Holdings  or  any  of  its
         Subsidiaries shall make any assignment for the benefit of creditors; or
         (ii) Holdings or any of its Subsidiaries shall be unable, or shall fail
         generally, or shall admit in writing its inability, to pay its debts as
         such debts  become due; or the Board of Directors of Holdings or any of
         its Subsidiaries (or any committee  thereof) shall adopt any resolution
         or  otherwise  authorize  any  action  to  approve  any of the  actions
         referred to in clause (i) above or this clause (ii);

                  (g) any order,  judgment  or decree  shall be entered  against
         Holdings or any of its Subsidiaries  decreeing the dissolution or split
         up of Holdings or any of its  Subsidiaries  and such order shall remain
         undischarged  or  unstayed  for a period  in  excess  of 30  days;

                                      -70-
<PAGE>

                  (h)  registration of the Aircraft is canceled and is not cured
         within 15 Business Days;

                  (i) the  Aircraft  is  arrested or detained in exercise of any
         lien and the Lessee does not procure the release of the Aircraft within
         15 business days;

                  (j) there shall have  occurred  an Event of Default  under the
         Amended Aircraft Credit Facility  (whether or not such Event of Default
         is thereafter waived by the requisite lenders);

                  (k) the Lessee shall not be a Certificated  Air Carrier within
         the meaning of Title 49 of the United States Code, as amended;

                  (l) Holdings or any of its Subsidiaries shall fail to pay when
         due following applicable grace periods (a) any principal of or interest
         on any Indebtedness in an individual  principal amount of $5,000,000 or
         more or any items of Indebtedness with an aggregate principal amount of
         $10,000,000 or more or (b) any  Contingent  Obligation in an individual
         principal  amount of $5,000,000 or more or any  Contingent  Obligations
         with an aggregate principal amount of $10,000,000 or more, in each case
         beyond the end of any grace  period  provided  therefor;  or (ii) there
         shall  exist a  breach  by  Holdings  or any of its  Subsidiaries  with
         respect  to  any  other  material  term  of  (a)  any  evidence  of any
         Indebtedness in an individual principal amount of $5,000,000 or more or
         any  items  of  Indebtedness  with an  aggregate  principal  amount  of
         $10,000,000  or  more or any  Contingent  Obligation  in an  individual
         principal  amount of $5,000,000 or more or any  Contingent  Obligations
         with an aggregate  principal  amount of  $10,000,000 or more or (b) any
         loan agreement, mortgage, indenture or other agreement relating to such
         Indebtedness or Contingent Obligation(s),  if the effect of such breach
         or  default  is to cause,  or to permit  the  holder or holders of that
         Indebtedness  or  Contingent  Obligation(s)  (or a trustee on behalf of
         such holder or  holders)  to cause,  that  Indebtedness  or  Contingent
         Obligation(s)  to become or be declared  due and  payable  prior to its
         stated maturity or the stated  maturity of any underlying  obligations,
         as the case may be (upon the giving or  receiving  of notice,  lapse of
         time, both, or otherwise);

                  (m) any money  judgment,  writ or  warrant  of  attachment  or
         similar  process  involving  (i) in any  individual  case an  amount in
         excess of  $5,000,000 or (ii) in the aggregate at any time an amount in
         excess  of  $10,000,000  (in  either  case not  adequately  covered  by
         insurance as to which a solvent and unaffiliated  insurance company has
         acknowledged  coverage) shall be entered or filed against the Lessee or
         any of its  Subsidiaries  or any of their  respective  assets and shall
         remain undischarged, unvacated, unbonded or unstayed for a period of 60
         days (or in any event  later  than  five days  prior to the date of any
         proposed sale thereunder);

                  (n) (i) (a) any  Person or any two or more  Persons  acting in
         concert shall have acquired beneficial ownership (within the meaning of
         Rule 13d-3 of the Securities and Exchange Commission under the Exchange
         Act),  directly or  indirectly,  of  Securities  of Holdings  (or other
         Securities  convertible into such Securities)  representing 40% or more
         of the combined  voting power of all Securities of the Lessee  entitled
         to vote in the election of directors, other than Securities having such
         power only by reason of the

                                      -71-
<PAGE>

         happening of a contingency; or (b) the Board of Directors of the Lessee
         shall not  consist  of a majority  of  Continuing  Directors;  or (c) a
         "Change of Control"  shall occur  under any of the Pass  Through  Trust
         Documents,  or any of the Material Agreements (as in effect on the date
         of such  occurrence);  or (d) if at any  time  Holdings  ceases  to own
         directly 100% (excluding  director's  qualifying shares, if any) of (i)
         the  outstanding  capital stock of the Lessee and Polar Air or (ii) any
         outstanding  Securities  (other  than  capital  stock  of  the  Lessee)
         entitled to vote in the election of the directors of the Lessee; or (e)
         if at any time Holdings  grants a Lien with respect to the stock of the
         Lessee or any Subsidiary Guarantor;

                  (o) if any consent, authorization,  license or approval of, or
         registration with or declaration to any governmental entity required by
         the Lessee to authorize,  or required by the Lessee in connection with,
         the execution,  delivery, validity,  enforceability or admissibility in
         evidence  of  this  Lease  or any  other  Transaction  Document  or the
         performance by the Lessee of its obligations hereunder or thereunder is
         modified in a manner  unacceptable to the Lessor or is withheld,  or is
         revoked, suspended, canceled, withdrawn or terminated or expires and is
         not renewed, or otherwise ceases to be in full force and effect and the
         Lessor  reasonably  determines  that  such  modification,   withholding
         revocation,  suspension,   cancellation,   withdrawal,  termination  or
         non-renewal or cessation may  significantly  prejudice its rights under
         or in connection with this Lease, may have a material adverse effect on
         the Lessee's ability to perform its obligations hereunder or jeopardize
         the respective interests of the Lessor or any Lender in the Aircraft or
         may give rise to criminal  liability of or the Lessor;

                  (p) if any event occurs,  circumstance arises or proceeding is
         taken  with  respect  to the  Lessee in any  jurisdiction  to which the
         Lessee is subject  that has an effect  equivalent  or similar to any of
         the events mentioned in subsections 16(e) or (f);

                  (q) if the Lessee  suspends or ceases or  threatens to suspend
         or cease to carry on its business;

                  (r) if the Lessee disposes,  threatens to dispose or takes any
         action to dispose of all or a material  part of its assets,  whether by
         one or a series of  transactions,  related or not, and such disposal or
         action  will have a material  adverse  effect on its ability to perform
         its obligations under this Lease or any other Transaction Document;

                  (s) if the existence, validity,  enforceability or priority of
         the rights of the Lessor in respect of the Aircraft  hereunder,  or the
         rights of any Lender,  as  mortgagee,  of the Aircraft or the Lender as
         assignee of the  insurances  are  challenged by the Lessee or any other
         person claiming through the Lessee;

                  (t) if the Lessee sells or executes any bill of sale affecting
         the Aircraft or any interest therein or agrees or purposes to do any of
         the same, or contests in any legal  proceedings the Lessor's  ownership
         of the Aircraft;

                  (u) if any governmental authority shall have condemned, seized
         or appropriated all or substantially all of the property of the Lessee;
         or

                                      -72-
<PAGE>

                  (v) failure of Holdings and/or its  Subsidiaries to deliver to
         the  Administrative  Agent by no later  than  December  1,  2004  fully
         executed amendments and any other documents in connection  therewith to
         the Pass Through  Trust  Documents  and the leases  related  thereto on
         substantially  the same terms as the  Restructuring  Documents and such
         documents shall be in full force and effect.

                  SECTION 17.  REMEDIES.  Upon the occurrence of any Lease Event
of Default and at any time  thereafter so long as the same shall be  continuing,
the Lessor may, at its option,  declare,  by written notice to the Lessee,  this
Lease to be in  default,  except  that upon the  occurrence  of a Lease Event of
Default  referred to in clauses  (e), (f) or (g) of Section 16, this Lease shall
be deemed declared in default without any further act or notice, and at any time
thereafter,  the Lessor may do one or more of the following  with respect to all
or any  part of the  Aircraft,  Airframe  and any or all of the  Engines  as the
Lessor in its sole discretion shall elect:

                  (a) upon the written  demand of the Lessor and at the Lessee's
         expense,  promptly  return the Aircraft,  Airframe or any Engine as the
         Lessor  may so demand to the  Lessor  or its  order in the  manner  and
         condition  required  by,  and  otherwise  in  accordance  with  all the
         provisions  of,  Section 8 hereof as if such  Airframe  or Engine  were
         being  returned at the end of the Term,  or the Lessor,  at its option,
         may enter  upon the  premises  where  all or any part of the  Aircraft,
         Airframe or any Engine is located and take immediate  possession of and
         remove  the same by  summary  proceedings  or  otherwise,  all  without
         liability  accruing  to the  Lessor  for or by reason of such  entry or
         taking of possession or removal,  whether for the restoration of damage
         to property caused by such action or otherwise;  provided,  that if the
         Lessee  shall for any reason fail to execute  and  deliver  instruments
         deemed necessary or advisable by the Lessor to obtain possession of the
         Aircraft,  Airframe  and Engines,  the Lessor  shall be entitled,  in a
         proceeding  (which  proceeding may be done on an ex parte basis without
         notice to the Lessee), to a preliminary  injunction granting the Lessor
         the right to  possess  the  Aircraft  without  having to post a bond or
         provide any other type of security and to a final judgment for specific
         performance,  conferring  the right to  immediate  possession  upon the
         Lessor and requiring the Lessee to execute and deliver such instruments
         to the Lessor;

                  (b) sell the  Aircraft,  Airframe  or any  Engine at public or
         private sale,  as the Lessor may  determine,  or otherwise  dispose of,
         hold, use, operate, lease to others or keep idle the Aircraft, Airframe
         or any Engine as the Lessor, in its sole discretion, may determine, all
         free and clear of any rights of the Lessee,  except as hereinafter  set
         forth in this Section 17, and without any duty to account to the Lessee
         with respect to such action or inaction;

                  (c) whether or not the Lessor shall have  exercised,  or shall
         thereafter at any time exercise,  any of its rights under paragraph (a)
         or (b) above  with  respect to the  Aircraft,  the  Lessor,  by written
         notice to the Lessee  specifying  a payment  date,  may demand that the
         Lessee pay to the Lessor,  and the Lessee shall pay the Lessor,  on the
         payment date so specified,  any Basic Rent due on or before the payment
         date so specified plus, as liquidated damages for loss of a bargain and
         not as a penalty  (in lieu of the  installments  of Basic  Rent for the
         Aircraft due after the date specified in such notice if any), an amount
         equal to the Stipulated Loss Value for the Aircraft  computed as of the
         immediately preceding Stipulated Loss Determination Date, together with
         interest, if any,

                                      -73-
<PAGE>

         at the Past Due Rate on the amount of such  Basic  Rent and  Stipulated
         Loss  Value from the  Stipulated  Loss  Determination  Date as of which
         Stipulated Loss Value is computed until the date of actual payment; and
         upon such payment of liquidated  damages and all Supplemental Rent then
         due and  payable by the Lessee  hereunder,  the Lessor  shall  transfer
         (without  any  representation,  recourse  or warranty  whatsoever)  the
         Aircraft to the Lessee and the Lessor  shall  execute and deliver  such
         documents  evidencing such transfer and take such further action as the
         Lessee shall reasonably request to effect such transfer;

                  (d) in the event that the Lessor,  pursuant to  paragraph  (b)
         above, shall have sold the Aircraft,  the Lessor, in lieu of exercising
         its rights under  paragraph  (c) above with  respect to such  Aircraft,
         may, if it shall so elect,  demand that the Lessee pay the Lessor,  and
         the  Lessee  shall pay to the  Lessor,  on the date of such  sale,  any
         accrued  rent with respect to the Aircraft due on or prior to such date
         plus, as liquidated damages for loss of a bargain and not as a penalty,
         the amount of any  deficiency  between  the net  proceeds  of such sale
         (after  deduction of all  reasonable  costs of sale) and the Stipulated
         Loss  Value of such  Aircraft,  computed  as of the  date of such  sale
         together with interest,  if any, on the amount of such  deficiency,  at
         the Past Due  Rate,  from the date of such  sale to the date of  actual
         payment of such amount;

                  (e) the Lessor may  terminate  or cancel this Lease or proceed
         by  appropriate  court action to enforce the terms hereof or to recover
         damages for breach hereof; and

                  (f) the Lessor may  exercise  any other right or remedy  which
         may be available to it under applicable law.

                  In addition,  the Lessee shall be liable,  except as otherwise
provided above,  without  duplication of amounts payable hereunder,  for any and
all unpaid Rent due hereunder before, after or during the exercise of any of the
foregoing  remedies  and for all  reasonable  legal  fees and  other  costs  and
expenses  incurred  by the  Lessor  and  the  Agent  and any  Lender  (including
reasonable  allocated  time  charges  of  internal  counsel  for the  Lender) in
connection  with the Lease Event of Default,  the  exercise of remedies  and the
return of the Airframe or any Engine in  accordance  with the terms of Section 8
hereof or in placing such Airframe or Engine (which for purposes  hereof,  shall
include,  without  limitation,  all  logs,  manuals  and  data  and  inspection,
maintenance, modification and overhaul and similar records with respect thereto)
in the condition and airworthiness  required by such Section.  The Lessee hereby
acknowledges that it shall be directly liable for such costs and expenses to any
Person designated by the Lessor, the Agent or any Lender (as the case may be) to
provide  services in connection  with or to effect the return of the Airframe or
any Engine in  accordance  with the terms of Section 8 hereof or in placing such
Airframe or Engine (which for purposes hereof shall include, without limitation,
such logs,  manuals and records) in the condition and airworthiness  required by
such Section.

                  At any sale of the  Aircraft or any part  thereof  pursuant to
this  Section 17, the Lessor or the Agent or any Lender may bid for and purchase
such  property.  The Lessor  agrees to give the Lessee at least 10 days' written
notice of the date fixed for any public sale of any Airframe or Engine or of the
date on or after which will occur the  execution of any contract  providing  for
any private  sale.  Except as  otherwise  expressly  provided  above,  no remedy
referred to in this  Section 17 is intended to be  exclusive,  but each shall be
cumulative  and in addition to any other  remedy  referred to above or otherwise
available to the Lessor at law or in

                                      -74-
<PAGE>

equity or otherwise;  and the exercise or beginning of exercise by the Lessor of
any one or more of such remedies  shall not preclude the  simultaneous  or later
exercise  by the Lessor of any or all of such other  remedies.  No waiver by the
Lessor of any Lease Event of Default shall in any way be, or be construed to be,
a waiver of any  future or  subsequent  Lease  Event of  Default.  To the extent
permitted  by  applicable  law,  the  Lessee  hereby  waives  any  rights now or
hereafter conferred by statute or otherwise that may require the Lessor to sell,
lease, or otherwise use the Aircraft, Airframe or any Engine or any part thereof
in  mitigation  of the Lessor's  damages as set forth in this Section 17 or that
may  otherwise  limit or modify any of the Lessor's  rights and remedies in this
Section 17.

                  Notwithstanding  any  of  the  foregoing  provisions  of  this
Section 17, so long as any Loan  relating to the  Aircraft or other  Obligations
(other than  principal and interest on Loans relating to other aircraft or spare
engines) are outstanding  under the Credit  Agreement,  all rights of the Lessor
under this  Section 17 shall be  exercised  only by the Agent as assignee of the
Lessor's rights under this Lease pursuant to the Aircraft Chattel Mortgage.

                  SECTION 18. LESSEE'S  COOPERATION  CONCERNING CERTAIN MATTERS.
(a) Forthwith upon the execution and delivery of each Lease Supplement from time
to time  required by the terms hereof and upon the execution and delivery of any
amendment to this Lease, the Lessee (at its expense),  unless such supplement or
amendment relates solely to the assignment of all or any portion of the Lessor's
interest  hereunder,  will cause such Lease  Supplement (and, in the case of the
initial Lease Supplement,  this Lease as well) or amendment to be duly filed and
recorded,  and maintained of record,  in accordance  with the applicable laws of
the  government  of registry of the  Aircraft.  In  addition,  the Lessee at its
expense  will  promptly and duly execute and deliver to the Lessor and the Agent
such further  documents and take such further action as the Lessor and the Agent
may from time to time reasonably  request in order more effectively to carry out
the intent and purpose of this Lease and the other Transaction  Documents and to
establish and protect the rights and remedies  created or intended to be created
in favor of the Lessor and the Agent  hereunder and under the other  Transaction
Documents,  including,  without  limitation,  if requested by the Lessor and the
Agent,  the execution and delivery of supplements or amendments  hereto,  at the
expense of the Lessee, each in recordable form, and all financing statements and
continuation  statements,  and all similar notices required by applicable law at
all times to be kept  recorded  and filed in such  manner and such places as the
Lessor and the Agent may reasonably request.

                  (b) The  Lessee  agrees at its own  expense  to furnish to the
Lessor and the Agent promptly after execution and delivery of any supplement and
amendment hereto, an opinion of counsel satisfactory to the Lessor and the Agent
(which may include the Lessee's general counsel) stating that, in the opinion of
such  counsel,  such  supplement  or  amendment  to the  Lease  (or a  financing
statement, continuation statement or similar notice thereof if and to the extent
permitted or required by applicable law) has been properly recorded or filed for
record in all public  offices in which such  recording or filing is necessary to
protect  the right,  title and  interest of the Lessor  hereunder  and the Agent
under the Loan Documents.

                  SECTION 19.  NOTICES. All notices required under the terms and
provisions  hereof shall be in writing  (including  telex,  facsimile or similar
writing)  and  shall  be  effective  (a) if  given  by  facsimile  device,  when
transmitted and the appropriate confirmation received, (b) if given by certified
mail,  three Business Days after being deposited in the United States mail, with

                                      -75-
<PAGE>

appropriate  postage prepaid,  (c) if given by telex,  upon receipt by the party
transmitting the telex of such party's  answerback code at the end of such telex
(receipt of confirmation in writing not being necessary to the  effectiveness of
any telex) and (d) if given by overnight  service or other means,  when received
or personally delivered, addressed:

                  (i) if to the Lessee,  at 2000 Westchester  Avenue,  Purchase,
         New York 10577,  Attention:  Treasurer, or to such other address as the
         Lessee shall from time to time designate in writing to the Lessor; and

                  (ii) if to the Lessor, at 2000 Westchester  Avenue,  Purchase,
         New York 10577,  Attention:  Treasurer, or to such other address as the
         Lessor shall from time to time designate in writing to the Lessee, with
         a copy to the  Agent at 60 Wall  Street,  New  York,  New  York  10005,
         Attention: David Bell.

                  SECTION 20.  NET LEASE,  TRUE  LEASE,  ETC.  (a) The  Lessee's
obligations  to pay  Rent  and all  other  amounts  payable  hereunder  shall be
absolute  and  unconditional  and  shall  not be  affected  by any  circumstance
whatsoever,   including,  without  limitation,  (i)  any  setoff,  counterclaim,
recoupment,  defense or other right that the Lessee may have against the Lessor,
the Agent, the Lenders,  any manufacturer,  any supplier or any other Person for
any reason whatsoever, (ii) any defect in the title, airworthiness,  eligibility
for registration under Title 49 of the United States Code, as amended,  or other
applicable law, condition, design, compliance with specifications,  operation or
fitness for use of, or any damage to or loss or destruction of, the Aircraft, or
any theft, interference,  interruption or cessation in or prohibition of the use
or possession  thereof by the Lessee or any sublessee for any reason whatsoever,
including, without limitation, any such interference, interruption, cessation or
prohibition  resulting from the act of any  governmental  authority or any other
Person, (iii) any Liens, encumbrances or rights of any other Person with respect
to the  Aircraft,  (iv)  the  invalidity  or  unenforceability  or  lack  of due
authorization or other infirmity of this Lease or any other Transaction Document
or document or instrument  executed  pursuant hereto or thereto,  or any lack of
right,  power or authority of the Lessor or the Lessee or any other party to any
other  Transaction  Document  to enter into this Lease or any other  Transaction
Document or any such  document or  instrument,  (v) any loss of or damage to the
Aircraft,  Airframe,  any Engine or any Part, (vi) any  insolvency,  bankruptcy,
reorganization  or similar  proceedings  by or  against  the Lessee or any other
Person, or (vii) any failure,  breach or delay by the Lessor or any other Person
in  performing  or  complying  with any term of this  Lease or any  other  cause
whether  similar  or  dissimilar  to the  foregoing,  any  present or future law
notwithstanding,  it being the intention of the parties that all Rent payable by
the Lessee  hereunder  shall  continue to be payable in all events in the manner
and at the  times  provided  herein.  Such  Rent  shall  not be  subject  to any
abatement  and the  payments  thereof  shall not be subject to any setoff or any
reduction for any reason  whatsoever,  including any present or future claims of
the Lessee against the Lessor or any other Person under this Lease or otherwise.
The Lessee hereby  waives,  and hereby agrees to waive at any future time at the
request of the Lessor,  to the full extent now or then  permitted by  applicable
law, any and all rights that it may now have or that at any time  hereafter  may
be conferred  upon it, by statute or otherwise,  to terminate,  cancel,  quit or
surrender  this Lease except in accordance  with the express terms hereof.  Each
payment of Rent made by the Lessee to the Lessor shall be final as to the Lessor
and the Lessee.  The Lessee will not seek to recover all or any part of any such
payment of Rent from the Lessor for any reason whatsoever.

                                      -76-
<PAGE>

         (b) It is the  intention  of the parties that the Lessor and the Agent,
as assignee of the  Lessor's  right  under this Lease  pursuant to the  Aircraft
Chattel Mortgage, shall be entitled to the benefits of 11 U.S.C. ss. 1110 or any
analogous  section of the Federal  bankruptcy laws, as amended from time to time
with  respect  to the right to  repossess  the  Airframe,  Engines  and Parts as
provided herein,  and in any  circumstances  where more than one construction of
the terms and conditions of this Lease is possible,  a  construction  that would
preserve  such  benefits  shall  control  over any  construction  that would not
preserve such benefits or would render them doubtful.  To the extent  consistent
with the  provisions  of 11 U.S.C.  ss.  1110 or any  analogous  section  of the
federal  bankruptcy  laws, as amended from time to time, it is hereby  expressly
agreed, that notwithstanding any other provisions of the federal bankruptcy law,
as amended from time to time, any right of the Lessor and the Agent, as assignee
of the Lessor under the Aircraft  Chattel  Mortgage,  to take  possession of the
Aircraft in compliance  with the  provisions of this Lease shall not be affected
by the provisions of 11 U.S.C. ss. 362 or ss. 363, as amended from time to time,
or any  analogous  provisions  of any  superseding  statute  or any power of the
bankruptcy court to enjoin such taking of possession.

         (c) The Lessor and the Lessee  hereby agree that this Lease,  including
any modifications, supplements and amendments thereto, is intended to be treated
as a lease for purposes of the Internal Revenue Code, and neither the Lessor nor
the Lessee  shall file any tax  returns in a manner or take any other  action or
position  inconsistent with the foregoing or with the Lessor's  ownership of the
Aircraft. Nothing contained in this Lease shall be construed as conveying to the
Lessee any right, title or interest in the Aircraft except as a Lessee only. The
Aircraft  shall  at all  times  during  the  term of this  Lease be the sole and
exclusive property of the Lessor.

         SECTION 21. PURCHASE OPTION.

         (a) PURCHASE OPTION.  So long as no Lease Event of Default has occurred
and is continuing,  the Lessee shall have the option to purchase the Aircraft at
the end of the Term for a purchase  price equal to the higher of the Fair Market
Sales Value  (assuming  that the Aircraft are in the  condition  required by the
Lease) as of such date and  Stipulated  Loss Value plus all accrued Rent and all
Supplemental  Rent then due.  Upon the payment by the Lessee of the full of such
amounts,  the Lessor shall convey to the Lessee all right, title and interest of
the  Lessor  in and to the  Aircraft  on an  "as-is,  where is"  basis,  without
recourse or warranty.

         (b) NOTICE OF PURCHASE.  In order to exercise any purchase option under
Section 21, the Lessee  shall be required to give not less than 90 days (but not
more than 360 days) irrevocable  prior written notice to the Lessor.  The Lessee
will give the Lessor prior written irrevocable notice not less than 90 days (but
not more than 360 days) before the  expiration of the Term of its  determination
to return the Aircraft  and not exercise any purchase  option under this Section
21. If the Lessee  fails to give notice as required  herein,  the Lessee will be
deemed to have elected to return the Aircraft to the Lessor.

                  SECTION  22.  LESSOR'S  RIGHT TO PERFORM  FOR  LESSEE.  If the
Lessee fails to make any payment of Rent  required to be made by it hereunder or
fails to perform or comply with any of its agreements contained herein, then the
Lessor may itself make such payment or perform or comply with such agreement but
shall not be  obligated  hereunder  to do so, and the amount of such payment and
the amount of the reasonable  expenses of the Lessor incurred in connection

                                      -77-
<PAGE>

with such payment or the performance of or compliance  with such  agreement,  as
the case may be, together with interest  thereon at the Past Due Rate,  shall be
deemed Supplemental Rent, payable by the Lessee upon demand.

                  SECTION 23.  MISCELLANEOUS.  (a) Any  provision  of this Lease
that is  prohibited  or  unenforceable  in any  jurisdiction  shall,  as to such
jurisdiction,   be   ineffective   to  the   extent  of  such   prohibition   or
unenforceability  without  invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render  unenforceable  such  provision  in any  other  jurisdiction.  No term or
provision of this Lease may be changed, waived, discharged or terminated orally,
but only by an instrument in writing signed by the Lessor,  Holdings, the Lessee
and the Agent.  This Lease shall  constitute an agreement of lease,  and nothing
contained herein shall be construed as conveying to the Lessee any right,  title
or interest in the Aircraft except as a lessee only.  Neither the Lessee nor any
Affiliate of the Lessee will file any tax returns in a manner  inconsistent with
the  foregoing  fact or with the Lessor's  ownership of the Aircraft or with the
parties' agreement that this Lease be treated as a tax lease for purposes of the
Internal Revenue Code. The section and paragraph  headings in this Lease and the
table of contents are for  convenience  of reference  only and shall not modify,
define,  expand or limit any of the terms or provisions hereof and all reference
herein to numbered sections, unless otherwise indicated, are to sections of this
Lease.  THIS LEASE HAS BEEN  DELIVERED IN THE STATE OF NEW YORK AND SHALL IN ALL
RESPECTS BE GOVERNED BY AND  CONSTRUED IN  ACCORDANCE  WITH THE INTERNAL LAWS OF
THE STATE OF NEW YORK,  WITHOUT REGARD TO CONFLICT OF LAWS  PRINCIPLES.  EACH OF
HOLDINGS,  THE LESSEE AND THE LESSOR HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL
PROCEEDING TO WHICH IT IS A PARTY INVOLVING,  DIRECTLY OR INDIRECTLY, ANY MATTER
(WHETHER  ARISING IN TORT,  CONTRACT  OR  OTHERWISE)  IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED  WITH THIS LEASE OR ANY OTHER  TRANSACTION  DOCUMENT OR
THE  RELATIONSHIP  ESTABLISHED  HEREUNDER OR THEREUNDER  AND WHETHER  ARISING OR
ASSERTED  BEFORE  OR AFTER THE DATE  HEREOF  OR  BEFORE  OR AFTER  THE  PAYMENT,
OBSERVANCE OR PERFORMANCE OF HOLDINGS', THE LESSEE'S OR THE LESSOR'S OBLIGATIONS
UNDER THIS LEASE OR ANY OTHER TRANSACTION  DOCUMENT.  This Lease may be executed
by the parties hereto in separate  counterparts,  each of which when so executed
and delivered  shall be an original,  but all such  counterparts  shall together
constitute but one and the same instrument.

         (b) This Lease,  together with the  agreements,  instruments  and other
documents  required  to  be  executed  and  delivered  in  connection  herewith,
supersedes all prior agreements and understanding of the parties with respect to
the subject matter hereof and thereof, except any agreements referred to herein.

         (c) The time  stipulated  in this Lease for all payments and notices by
the  Lessee  to the  Lessor  and  for  the  performance  of the  Lessee's  other
obligations under this Lease will be of the essence of this Lease.

                                      -78-
<PAGE>

                  SECTION 24.  Security  for Lessor's  Obligations.  In order to
secure the obligations,  the Lessor has agreed in the Aircraft Chattel Mortgage,
among other things,  to assign to the Agent this Lease and the Lease Supplements
and to mortgage in favor of the Agent the Aircraft,  subject to the reservations
and conditions therein set forth. All rights of the Lessor hereunder are subject
to the  Aircraft  Chattel  Mortgage  and the Lessor and the Lessee agree that so
long as the lien of the Aircraft  Chattel  Mortgage has not been  discharged  in
accordance with its terms, (i) all payments hereunder shall be made to the Agent
for the  benefit  of  Lenders to the  extent of the  Lenders'  interest  in such
payments,  (ii) all notices  from or to the Lessor  shall be copied to the Agent
and (iii)  the  Lessee  shall  not take any  actions  that the  Lessor  would be
prohibited  from taking under the terms of the Aircraft  Chattel  Mortgage.  The
Lessee hereby  acknowledges  due notice of, and consents to, such assignment and
to the creation of such mortgage and security  interest.  To the extent, if any,
that this Lease and any Lease Supplement constitutes chattel paper (as such term
is in effect in any applicable jurisdiction), no security interest in this Lease
or any Lease Supplement may be created through the transfer or possession of any
counterpart other than the original executed counterpart  containing the receipt
therefor executed by the Agent on the signature page hereof or thereof.

                    (Remainder of page  intentionally  left blank)
<PAGE>

IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this Lease to be
duly executed as of the day and year first above written.

                                       ATLAS FREIGHTER LEASING III, INC.,
                                         Lessor

                                       By  William C. Bradley
                                           -------------------------------
                                           Name:  William C. Bradley
                                           Title: Treasurer and Secretary

<PAGE>
                                       ATLAS AIR, INC.,
                                         Lessee

                                       By  William C. Bradley
                                           -------------------------------
                                           Name:  William C. Bradley
                                           Title: Vice President and Treasurer

<PAGE>
                                      Accepted and Agreed:

                                       ATLAS AIR WORLDWIDE HOLDINGS, INC.

                                       By  William C. Bradley
                                           -------------------------------
                                           Name:  William C. Bradley
                                           Title: Vice President and Treasurer
<PAGE>

                           SCHEDULE TO EXHIBIT 10.6.3

The agreements listed below are substantially  identical to this exhibit and are
not being filed  separately as exhibits  pursuant to instruction 2 to Regulation
S-K, Item 601.

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------
REGISTRATION         MANUFACTURER'S SERIAL    LESSEE           LESSOR                    AGREEMENT
NUMBER               NUMBER(S)
----------------------------------------------------------------------------------------------------------------------
<S>                  <C>                      <C>              <C>                       <C>
N509MC               21221                    Atlas Air, Inc.  Atlas Freighter Leasing   Amended and Restated Lease
                                                               III                       (N509MC) dated as of
                                                                                         November 30, 2004

----------------------------------------------------------------------------------------------------------------------
N512MC               21220                    Atlas Air, Inc.  Atlas Freighter Leasing   Amended and Restated Lease
                                                               III                       (N512MC) dated as of
                                                                                         November 30, 2004

----------------------------------------------------------------------------------------------------------------------
N517MC               23300                    Atlas Air, Inc.  Atlas Freighter Leasing   Amended and Restated Lease
                                                               III                       (N517MC) dated as of
                                                                                         November 30, 2004

----------------------------------------------------------------------------------------------------------------------
N522MC               21783                    Atlas Air, Inc.  Atlas Freighter Leasing   Amended and Restated Lease
                                                               III                       (N522MC) dated as of
                                                                                         November 30, 2004

----------------------------------------------------------------------------------------------------------------------
N523MC               21782                    Atlas Air, Inc.  Atlas Freighter Leasing   Amended and Restated Lease
                                                               III                       (N523MC) dated as of
                                                                                         November 30, 2004

----------------------------------------------------------------------------------------------------------------------
N524MC               21784                    Atlas Air, Inc.  Atlas Freighter Leasing   Amended and Restated Lease
                                                               III                       (N524MC) dated as of
                                                                                         November 30, 2004

----------------------------------------------------------------------------------------------------------------------
N526MC               22337                    Atlas Air, Inc.  Atlas Freighter Leasing   Amended and Restated Lease
                                                               III                       (N526MC) dated as of
                                                                                         November 30, 2004

----------------------------------------------------------------------------------------------------------------------
N527MC               22471                    Atlas Air, Inc.  Atlas Freighter Leasing   Amended and Restated Lease
                                                               III                       (N527MC) dated as of
                                                                                         November 30, 2004

----------------------------------------------------------------------------------------------------------------------
N528MC               22472                    Atlas Air, Inc.  Atlas Freighter Leasing   Amended and Restated Lease
                                                               III                       (N528MC) dated as of
                                                                                         November 30, 2004

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------
REGISTRATION         MANUFACTURER'S SERIAL    LESSEE           LESSOR                    AGREEMENT
NUMBER               NUMBER(S)
----------------------------------------------------------------------------------------------------------------------
<S>                  <C>                      <C>              <C>                       <C>
N534MC               21832                    Atlas Air, Inc.  Atlas Freighter Leasing   Amended and Restated Lease
                                                               III                       (N534MC) dated as of
                                                                                         November 30, 2004

----------------------------------------------------------------------------------------------------------------------
N808MC               21048                    Atlas Air, Inc.  Atlas Freighter Leasing   Amended and Restated Lease
                                                               III                       (N808MC) dated as of
                                                                                         November 30, 2004

----------------------------------------------------------------------------------------------------------------------
N809MC               20887                    Atlas Air, Inc.  Atlas Freighter Leasing   Amended and Restated Lease
                                                               III                       (N809MC) dated as of
                                                                                         November 30, 2004

----------------------------------------------------------------------------------------------------------------------
CF6-50E2 Spare       530168; 517530;          Atlas Air, Inc.  Atlas Freighter Leasing   Amended and Restated Lease
Engines              517790; 517602;                           III                       (CF6-50E2 Spare Engines)
                     517547; 517,538;                                                    dated as of November 30,
                     517,539; 455167; 530255                                             2004
----------------------------------------------------------------------------------------------------------------------
CF6-80C2 BSF Spare   704,699; 704860; 704918  Atlas Air, Inc.  Atlas Freighter Leasing   Amended and Restated Lease
Engines                                                        III                       (CF6-80C2 BSF Spare
                                                                                         Engines) dated as of
                                                                                         November 30, 2004

----------------------------------------------------------------------------------------------------------------------
</TABLE>EXHIBIT 10.6.7

                          CONSENT AND SECOND AMENDMENT

         CONSENT AND SECOND  AMENDMENT (this  "Amendment"),  dated as of May 31,
2005,  among ATLAS  FREIGHTER  LEASING III,  INC., a Delaware  corporation  (the
"Borrower"), the lenders from time to time party to the Credit Agreement (each a
"Lender"  and,  collectively,  the  "Lenders"),  and DEUTSCHE BANK TRUST COMPANY
AMERICAS,  as  Administrative  Agent  (in  such  capacity,  the  "Administrative
Agent").  Unless otherwise defined herein, all capitalized terms used herein and
defined in the Credit  Agreement  referred  to below are used  herein as therein
defined.

                              W I T N E S S E T H :
                              - - - - - - - - - -

         WHEREAS,  the Borrower,  the Lenders and the  Administrative  Agent are
parties to that certain Amended and Restated Credit Agreement,  dated as of July
27, 2004 (as amended,  supplemented and/or otherwise modified from time to time,
the "Credit Agreement");

         WHEREAS,  the Borrower has  requested  that the Lenders  amend  certain
provisions of the Credit Agreement and enter into certain consents in respect of
the  Credit  Agreement,  each of the  Leases  and each of the  Aircraft  Chattel
Mortgages as set forth below; and

         WHEREAS,  on January 24, 2005,  Airframe  N808MC and Engine Nos. 517943
and 455157 (collectively, the "Damaged Engines") were damaged in an accident;

         NOW, THEREFORE, it is agreed;

A.       AMENDMENTS TO THE CREDIT AGREEMENT

         1.       The definition of "Spare Engine Pool" appearing in Section 1.1
of the Credit  Agreement is hereby  amended by (x)  deleting  the text  "455167"
appearing therein, and (y) inserting the text "517557" in lieu thereof.

         2.       The proviso to Section  2.4B(ii)(c) of the Credit Agreement is
hereby  amended by (x) deleting the text "Section  4(f)(iv)(A)  or  4(f)(iv)(B)"
appearing  therein,  and  (y)  inserting  the  text  "Section   4(f)(iii)(A)  or
4(f)(iii)(B)" in lieu thereof.

         3.       Schedule  2.3 of the Credit  Agreement  is hereby  amended and
restated in the form of Schedule 2.3 attached hereto.

B.       CONSENT

         1.       The Lenders  hereby  consent  and agree to (i) the  settlement
(the  "Settlement")  entered into by the Borrower with its insurance  carrier in
respect of the damage to Airframe N808MC and the Damaged Engines as set forth in
that certain  letter dated April 6, 2005 from Atlas Air Worldwide  Holdings Inc.
to Willis Global Aviation,  (ii) the mandatory  prepayment (the "Prepayment") to
the Lenders in accordance with Section 2.4B(ii)(b) of the Credit Agreement,  for
application to the Loans in accordance with Section 2.4B(iii)(b) of the Credit

<PAGE>

Agreement, of $12,249,824 (the "Net Proceeds"),  which is an amount equal to the
gross cash proceeds under the Settlement,  totaling $12,550,000, less actual and
documented  reasonable costs incurred in connection with the Settlement,  in the
amount of $300,176,  (iii) the Prepayment  being made by Atlas, on behalf of the
Borrower, in advance of the receipt of cash payments under the Settlement,  (iv)
the Prepayment as full satisfaction of the Borrower's  obligations under Section
2.4B(ii)(b) of the Credit Agreement in respect of the Settlement and relating to
Airframe  N808MC and the Damaged  Engines,  (v) the  termination of the Lease in
respect of Aircraft N808MC,  and (vi) the sale of Airframe  N808MC,  the Damaged
Engines and Engine Nos. 517598 and 517658 by the Borrower to Atlas.

         2.       The Lenders  hereby  consent and authorize the  Administrative
Agent to enter into such amendments to the Aircraft Chattel Mortgages and to the
Leases,  in respect of Aircraft N808MC and of each of the Damaged  Engines,  and
such  other  related  documents,  agreements  and  instruments  (the  "Amendment
Documents")  deemed  necessary  or  desirable  by the  Administrative  Agent  to
implement the  transactions  contemplated  by the Settlement and the Prepayment,
including to release the Administrative  Agent's Lien on Airframe N808MC, on the
Damaged  Engines,  and on Engine  Nos.  517598 and 517658  and to  disclaim  any
interest of the Administrative Agent in the Settlement.

         3.       The Lenders  hereby  consent to further amend Section 14(b) of
each  of the  Leases  and  Section  4(g)(ii)  of each  of the  Aircraft  Chattel
Mortgages  to reduce  the  minimum  required  insured  value in  respect of each
Aircraft to the greater of the Stipulated  Loss Value (as defined in each Lease)
and $15,000,000.

C.       MISCELLANEOUS PROVISIONS

         1.       In order to induce the  Lenders to enter into this  Amendment,

the Borrower hereby  represents and warrants to each of the Lenders that (i) all
of the representations and warranties (excluding,  solely in respect of Aircraft
N808MC, Engine 517943 and Engine 455167, the representations and warranties made
in Section 4.5(B) of the Credit Agreement) contained in the Credit Agreement and
in the other Loan Documents are true and correct in all material respects on and
as of the Swap Consent  Effective Date and the Second  Amendment  Effective Date
(each as defined  below),  both before and after giving effect to this Amendment
(unless such  representations  and warranties relate to a specific earlier date,
in which case such  representations  and warranties shall be true and correct as
of such earlier  date),  and (ii) there exists no Default or Event of Default on
the Swap Consent Effective Date and on the Second Amendment Effective Date, both
before  and after  giving  effect to this  Amendment.

         2.       This   Amendment  is  limited  as  specified   and  shall  not
constitute  an  amendment,  modification,  acceptance  or  waiver  of any  other
provision of the Credit Agreement or any other Loan Document.

         3.       This  Amendment may be executed in any number of  counterparts
and by the  different  parties  hereto on separate  counterparts,  each of which
counterparts when executed and delivered shall be an original,  but all of which
shall  together  constitute  one and the  same  instrument.  A  complete  set of
counterparts  executed  by all the  parties  hereto  shall  be  lodged  with the
Borrower and the Administrative Agent.

                                      -2-
<PAGE>

         4.       THIS  AMENDMENT AND THE RIGHTS AND  OBLIGATIONS OF THE PARTIES
HEREUNDER  SHALL BE CONSTRUED IN ACCORDANCE  WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.

         5.       The amendment  provided in Section A.1 above,  and the consent
provided in Section B.2 above,  solely as such consent relates to the amendments
to the Leases  and to the  Aircraft  Chattel  Mortgages  in respect of  Aircraft
N808MC, Aircraft N517MC and the Spare Engine Pool, and related documentation, in
all cases  required to implement the "swap" under the relevant Loan Documents of
(x) Engine No.  517577 for  Engine  No.  455167,  and (y) Engine No.  517612 for
Engine  No.  517943,  shall  become  effective  on the date (the  "SWAP  CONSENT
EFFECTIVE  Date") when the Borrower and the Required Lenders shall have signed a
counterpart  hereof (whether the same or different  counterparts) and shall have
delivered (including by way of telecopier) the same to the Administrative Agent.
This Amendment,  including all other  amendments and consents  hereunder,  shall
become  effective on the date (the "SECOND  Amendment  Effective Date") when the
Borrower  and the  Required  Lenders  shall  have  signed a  counterpart  hereof
(whether the same or different counterparts) and shall have delivered (including
by way of telecopier) the same to the  Administrative  Agent, the Administrative
Agent shall have received  (including by way of telecopier)  the other Amendment
Documents  and  related  legal  opinions  duly  executed  and  delivered  by the
appropriate  parties thereto,  and the Administrative  Agent shall have received
the Net Proceeds in immediately available funds.

         6.       From and after the Swap Consent  Effective Date and the Second
Amendment  Effective  Date,  all  references in the Credit  Agreement and in the
other Loan Documents to the Credit Agreement shall be deemed to be referenced to
the Credit Agreement as modified hereby.

                                   *   *   *

                                      -3-
<PAGE>

IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly
executed and delivered as of the date first written above.

                    ATLAS FREIGHTER LEASING III, INC.

                    By: /s/ William C. Bradley
                        ----------------------------------
                        Name:  WILLIAM C. BRADLEY
                        Title: TREASURER & SECRETARY

<PAGE>

                    DEUTSCHE BANK TRUST COMPANY AMERICAS,
                    as Administrative Agent

                    By: /s/ Mark B. Cohen
                        ----------------------------------
                        Name:  Mark B. Cohen
                        Title: Managing Director

                    By: /s/ Steven A. Cohen
                        ----------------------------------
                        Name:  Steven A. Cohen
                        Title: Director
<PAGE>

                    NAME OF LENDER:

                    ANCHORAGE CAPITAL MASTER OFFSHORE, LTD.

                    By: /s/ Kevin Ulrich
                        ----------------------------------
                        Name:  Kevin Ulrich
                        Title: Director

                [Signature Page to Second Amendment and Consent
                 to the Amended and Restated Credit Agreement]
<PAGE>

                    NAME OF LENDER:

                    Canpartners Investments IV, LLC.

                    By: /s/ R. Christian B. Evensen
                        ----------------------------------
                        Name:  R. Christian B. Evensen
                        Title: Managing Director

PROPORTIONATE VOTING PROVISION

The above signed, CANPARTNERS INVESTMENTS IV, LLC ("Canyon"), is a Lender to
ATLAS FREIGNTER LEASING III, INC., dated as of JULY 27, 2004 (the "Credit
Agreement"). Canyon's approval of a CONSENT AND SECOND AMENDMENT has been
requested pursuant to the terms of the Credit Agreement.

Canyon hereby votes its percentage interest as a Lender in favor of and/or
against the approval of the CONSENT AND SECOND AMENDMENT in direct proportion to
the votes of those other Lenders under the Credit Agreement that have voted for
or against the approval of the CONSENT AND SECOND AMENDMENT (without counting
failure to vote or abstentions.)

                [Signature Page to Second Amendment and Consent
                 to the Amended and Restated Credit Agreement]
<PAGE>

                    NAME OF LENDER:

                    CITIGROUP FINANCIAL PRODUCTS, INC.,

                    By: /s/ Vincent Farrell
                        ----------------------------------
                        Name:
                        Title: AUTHORIZED SIGNATORY

                [Signature Page to Second Amendment and Consent
                 to the Amended and Restated Credit Agreement]
<PAGE>

                    NAME OF LENDER:

                    LISPENARD STREET CREDIT (MASTER) LTD.

                    By: /s/ Timothy Joyce
                        ----------------------------------
                        Name:  Timothy Joyce
                        Title: Managing Director

                [Signature Page to Second Amendment and Consent
                 to the Amended and Restated Credit Agreement]
<PAGE>

                    NAME OF LENDER:

                    Intermarket Corp, as agent for Fernwood Associates,
                    Fernwood Restructurings, Fernwood Foundation Fund

                    By: /s/ Thomas P. Borger
                        ----------------------------------
                        Name:  Thomas P. Borger
                        Title: Managing Director

                [Signature Page to Second Amendment and Consent
                 to the Amended and Restated Credit Agreement]
<PAGE>

                    NAME OF LENDER:

                    GOLDMAN SACHS CREDIT PARTNERS LP

                    By: /s/ Pedro Ramirez
                        ----------------------------------
                        Name:  Pedro Ramirez
                        Title: Authorized Signatory

                [Signature Page to Second Amendment and Consent
                 to the Amended and Restated Credit Agreement]
<PAGE>

                    NAME OF LENDER:

                    MERRILL LYNCH CREDIT PRODUCTS, LLC

                    By: /s/ Neyda Darias
                        ----------------------------------
                        Name:  NEYDA DARIAS
                        Title: VICE PRESIDENT

                [Signature Page to Second Amendment and Consent
                 to the Amended and Restated Credit Agreement]
<PAGE>

                    Sankaty Advisors, LLC as Collateral
                    Manager for Prospect Funding I,
                    LLC as Term Lender

                    NAME OF LENDER:

                    By: /s/ Timothy Barns
                        ----------------------------------
                        Name:  Timothy Barns
                        Title: Managing Director

                [Signature Page to Second Amendment and Consent
                 to the Amended and Restated Credit Agreement]
<PAGE>

                    RZB FINANCE LLC:

                    By: /s/ Christoph Hoedl
                        ----------------------------------
                        Name:  CHRISTOPH HOEDL
                        Title: GROUP VICE PRESIDENT

                    By: /s/ John A. Valiska
                        ----------------------------------
                        Name:  JOHN A. VALISKA
                        Title: FIRST VICE PRESIDENT

                [Signature Page to Second Amendment and Consent
                 to the Amended and Restated Credit Agreement]
<PAGE>

                    Sankaty High Yield Asset Partners, L.P.

                    NAME OF LENDER:

                    By: /s/ Timothy Barns
                        ----------------------------------
                        Name:  TIMOTHY BARNS
                        Title: SENIOR VICE PRESIDENT

                [Signature Page to Second Amendment and Consent
                 to the Amended and Restated Credit Agreement]
<PAGE>

                    Sankaty High Yield Partners II, L.P.

                    NAME OF LENDER:

                    By: /s/ Timothy Barns
                        ----------------------------------
                        Name:  TIMOTHY BARNS
                        Title: SENIOR VICE PRESIDENT

                [Signature Page to Second Amendment and Consent
                 to the Amended and Restated Credit Agreement]
<PAGE>

                    Sankaty High Yield Partners III, L.P.

                    NAME OF LENDER:

                    By: /s/ Timothy Barns
                        ----------------------------------
                        Name:  TIMOTHY BARNS
                        Title: SENIOR VICE PRESIDENT

                [Signature Page to Second Amendment and Consent
                 to the Amended and Restated Credit Agreement]
<PAGE>

                    Sankaty High Yield Partners III, L.P.

                    NAME OF LENDER:

                    By: /s/ Timothy Barns
                        ----------------------------------
                        Name:  TIMOTHY BARNS
                        Title: SENIOR VICE PRESIDENT

                [Signature Page to Second Amendment and Consent
                 to the Amended and Restated Credit Agreement]

<PAGE>

                    NAME OF LENDER:

                    SOL Loan Funding LLC for itself or as agent for
                    SOL2 Loan Funding LLC

                    By: /s/ Suzanne Smith
                        ----------------------------------
                        Name:  SUZANNE SMITH
                        Title: AS ATTORNEY-IN-FACT

                [Signature Page to Second Amendment and Consent
                 to the Amended and Restated Credit Agreement]
<PAGE>

                    NAME OF LENDER:

                    U.S. BANK NATIONAL ASSOCIATION

                    By: /s/ Dale L. Welke
                        ----------------------------------
                        Name:  Dale l. Welke
                        Title: Vice President

                [Signature Page to Second Amendment and Consent
                 to the Amended and Restated Credit Agreement]

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