Document:

EXHIBIT 10.6.8

                           CONSENT AND LIMITED WAIVER

      CONSENT AND LIMITED WAIVER (this "WAIVER"), dated as of July 27, 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.

                                   WITNESSETH:

      WHEREAS, the Borrower, the Lenders and the Administrative Agent have
entered into an Amended and Restated Credit Agreement, dated as of July 27, 2004
(as amended, supplemented or otherwise modified, the "CREDIT AGREEMENT"); and

      WHEREAS, subject to the terms and conditions set forth below, the parties
hereto wish to provide a waiver in respect of Section 6.5 of the Credit
Agreement, and of certain provisions of the Leases, as provided herein;

      NOW, THEREFORE, it is agreed;

A.    LIMITED WAIVER TO THE CREDIT AGREEMENT

      1. Notwithstanding anything in Section 6.5 of the Credit Agreement to the
contrary, effective on the Waiver Effective Date, the Lenders waive the
limitation on Holdings and its Subsidiaries to, directly or indirectly,
repurchase (the "REPURCHASE") from the employees and directors (the "RSU
RECIPIENTS") of Holdings and its Subsidiaries that number of shares of Holdings'
Common Stock necessary for Holdings to pay to such RSU Recipients an amount
equal to all withholding taxes (including, without limitation, state, federal,
local and FICA (if applicable)) imposed on such RSU Recipients in connection
with the issuance by Holdings of up to 250,000 restricted share units to such
RSU Recipients pursuant to Holdings' 2004 Long Term Incentive and Share Award
Plan; PROVIDED that, before and after giving effect to such Repurchase, Holdings
will be in compliance on a Pro Forma Basis with the covenant set forth in
subsection 7(f)(2) of each of the Leases; and PROVIDED FURTHER that such
Repurchase shall be excluded from the calculation of the $1,000,000 limit
contained in Section 7(e)(2) of each of the Leases.

B.    CONSENT

      1. The Lenders hereby consent to the omnibus limited waiver in respect of
the Leases in the form attached hereto as Exhibit A.

<PAGE>

C.    MISCELLANEOUS PROVISIONS

      1. In order to induce the Lenders to enter into this Waiver, the Borrower
hereby represents and warrants to each of the Lenders that (i) all of the
representations and warranties contained in the Credit Agreement and in the
other Loan Documents are true and correct in all material respects on and as of
the Waiver Effective Date (as defined below), both before and after giving
effect to this Waiver (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 Waiver Effective Date, both before and after giving
effect to this Waiver.

      2. This Waiver 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 Waiver 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.

      4. THIS WAIVER 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. This Waiver shall become effective on the date (the "WAIVER 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.

      6. From and after the Waiver 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.

                                      * * *

                                       -2-

<PAGE>

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

                                    ATLAS FREIGHER LEASING III, INC.

                                    By: /s/ William C. Bradley
                                        -----------------------------
                                        Name:  William C. Bradley
                                        Title: Treasurer & Secretary

<PAGE>

                                    DEUTSCHE BANK TRUST COMPANY
                                    AMERICAS, Individually and as Administrative
                                    Agent

                                    By: /s/ David J. Bell
                                        ------------------------
                                        Name:  David J. Bell
                                        Title: Managing Director

                                    By: /s/ Robert M. Wood
                                        -------------------------
                                        Name:  Robert M. Wood, Jr
                                        Title: Director

<PAGE>

                                    ANCHORAGE CAPITAL MASTER OFFSHORE, LTD:

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

                   [Signature Page to the Consent and Limited
              Waiver to the Amended and Restated Credit Agreement]

<PAGE>

                                    NAME OF LENDER:

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

                                    APEX (IDM) CDO I, LTD.
                                    By: Babson Capital Management LLC
                                        as Collateral Manager

                                    By: /s/ Russell D. Morrison
                                        --------------------------
                                        Name:  Russell D. Morrison
                                        Title: Managing Director

                   [Signature Page to the Consent and Limited
              Waiver to the Amended and Restated Credit Agreement]

<PAGE>

                                    NAME OF LENDER:

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

                                    ELC (CAYMAN) LTD. CDO SERIES 1999-I
                                    By: Babson Capital Management LLC
                                        as Collateral Manager

                                    By: /s/ Russell D. Morrison
                                        --------------------------
                                        Name:  Russell D. Morrison
                                        Title: Managing Director

                   [Signature Page to the Consent and Limited
              Waiver to the Amended and Restated Credit Agreement]

<PAGE>

        `                           NAME OF LENDER:

                                    FERNWOOD RESTRUCTURINGS LIMITED

                                    By: /s/ Robert Gaviglio
                                        ----------------------
                                        Name:  Robert Gaviglio
                                        Title: VP

                   [Signature Page to the Consent and Limited
              Waiver to the Amended and Restated Credit Agreement]

<PAGE>

                                    NAME OF LENDER:

                                    FERNWOOD FOUNDATION FUND LLC

                                    By: /s/ Robert Gaviglio
                                        ----------------------
                                        Name:  Robert Gaviglio
                                        Title: VP

                   [Signature Page to the Consent and Limited
              Waiver to the Amended and Restated Credit Agreement]

<PAGE>

                                    NAME OF LENDER:

                                    FERNWOOD ASSOCIATES LLC

                                    By: /s/ Robert Gaviglio
                                        ----------------------
                                        Name:  Robert Gaviglio
                                        Title: VP

                   [Signature Page to the Consent and Limited
              Waiver to the Amended and Restated Credit Agreement]

<PAGE>

                                    GOLDMAN SACHS CREDIT PARTNERS L.P.:

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

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

                   [Signature Page to the Consent and Limited
              Waiver to the Amended and Restated Credit Agreement]

<PAGE>

                                    NAME OF LENDER:
                                    DiMaio Ahmad Capital LLC as advisor to
                                    Lispenard Street Credit (Master) Ltd.

                                    By: /s/ Nasser Ahmad
                                        ------------------------
                                        Name:  Nasser Ahmad
                                        Title: Managing Director

                    Signature Page to the Consent and Limited
           Waiver to the AFL III Amended and Restated Credit Agreement

<PAGE>

                                    NAME OF LENDER:

                                    Restoration Holdings Ltd.

                                    By: /s/ Pamela M. Lawrence
                                        -------------------------
                                        Name:  Pamela M. Lawrence
                                        Title: Director

                   [Signature Page to the Consent and Limited
              Waiver to the Amended and Restated Credit Agreement]

<PAGE>

                                    NAME OF LENDER:

                                    RZB Finance LLC

                                    By: /s/ Christoph Hoedl
                                        ---------------------------
                                        Name:  Christoph Hoedl
                                        Title: Group Vice President

                                        /s/ Dan Dobrjanskyj
                                        DAN DOBRJANSKYJ
                                        VICE PRESIDENT

                   [Signature Page to the Consent and Limited
              Waiver to the Amended and Restated Credit Agreement]

<PAGE>

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

                                    Sankaty High Yield Partners III, L.P.

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

                                    By: /s/ Kristin W. Mugford
                                        -------------------------
                                        Name:  KRISTIN W. MUGFORD
                                        Title: MANAGING DIRECTOR

                   [Signature Page to the Consent and Limited
              Waiver to the Amended and Restated Credit Agreement]

<PAGE>

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

                                    Sankaty High Yield Partners II, L.P.

                                    By: /s/ Kristin W. Mugford
                                        -------------------------
                                        Name:  KRISTIN W. MUGFORD
                                        Title: MANAGING DIRECTOR

                   [Signature Page to the Consent and Limited
              Waiver to the Amended and Restated Credit Agreement]

<PAGE>

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

                                    Sankaty High Yield Asset Partners, L.P.

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

                                    By: /s/ Kristin W. Mugford
                                        -----------------------------
                                        Name:  KRISTIN W. MUGFORD
                                        Title: MANAGING DIRECTOR

                   [Signature Page to the Consent and Limited
              Waiver to the Amended and Restated Credit Agreement]

<PAGE>

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

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

                                    By: /s/ Kristin W. Mugford
                                        -----------------------------
                                        Name:  KRISTIN W. MUGFORD
                                        Title: MANAGING DIRECTOR

                   [Signature Page to the Consent and Limited
              Waiver 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/ Dominic Blea
                                        -----------------------------
                                        Name:   DOMINIC BLEA
                                        Title:  AS ATTORNEY-IN-FACT

                   [Signature Page to the Consent and Limited
              Waiver to the Amended and Restated Credit Agreement]

<PAGE>

                                    NAME OF LENDER:

                                    SUFFIELD CLO, LIMITED
                                    By: Babson Capital Management LLC
                                        as Collateral Manager

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

                                    By: /s/ Russell D. Morrison
                                        -----------------------------
                                        Name:   Russell D. Morrison
                                        Title:  Managing Director

                   [Signature Page to the Consent and Limited
              Waiver 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 the Consent and Limited
              Waiver to the Amended and Restated Credit Agreement]

<PAGE>

                            OMNIBUS LIMITED WAIVER(1)

      OMNIBUS LIMITED WAIVER (this "WAIVER"), dated as of July 27, 2005, among
ATLAS AIR WORLDWIDE HOLDINGS, INC. ("HOLDINGS"), ATLAS FREIGHTER LEASING III,
INC., a Delaware corporation ("LESSOR"), ATLAS AIR, INC., a Delaware corporation
("LESSEE") and DEUTSCHE BANK TRUST COMPANY AMERICAS, as administrative agent
under the Credit Agreement (in such capacity, the "AGENT"). Unless otherwise
defined herein, all capitalized terms used herein and defined in the Leases
referred to below are used herein as therein defined.

                                  WITNESSETH:

      WHEREAS, the Lessor, the lenders from time to time party thereto (each a
"LENDER" and, collectively, the "LENDERS") and the Agent have entered into an
Amended and Restated Credit Agreement, dated as of July 27, 2004 (as amended,
supplemented or otherwise modified, the "CREDIT AGREEMENT");

      WHEREAS, Lessor and Lessee are party to fourteen Amended and Restated
Lease Agreements, each dated as of July 27, 2004 (each a "LEASE" and,
collectively, the "LEASES"), which Leases are further described on Annex A
attached hereto; and

      WHEREAS, subject to the terms and conditions set forth below, the parties
hereto wish to provide a waiver in respect of Section 7(e) of each of the Leases
as provided herein;

      NOW, THEREFORE, it is agreed;

A.    LIMITED WAIVER TO THE LEASES

      1. Notwithstanding anything in Section 7(e) of the Credit Agreement to the
contrary, effective on the Waiver Effective Date, the Lenders waive the
limitation on Holdings and its Subsidiaries to, directly or indirectly,
repurchase (the "REPURCHASE") from the employees and directors (the "RSU
RECIPIENTS") of Holdings and its Subsidiaries that number of shares of Holdings'
Common Stock necessary for Holdings to pay to such RSU Recipients an amount
equal to all withholding taxes (including, without limitation, state, federal,
local and FICA (if applicable)) imposed on such RSU Recipients in connection
with the issuance by Holdings of up

----------

(1)   This Waiver to the Amended and Restated Lease Agreement has been executed
      in several counterparts. To the extent, if any, that this Waiver to the
      Amended and Restated Lease Agreement constitutes chattel paper (as such
      term is defined in the Uniform Commercial Code as in effect in any
      applicable jurisdiction), no security interest in this Waiver to the
      Amended and Restated Lease Agreement may be created through the transfer
      or possession of any counterpart other than the original. The counterpart
      to be deemed the original shall be the counterpart that contains the
      receipt therefor executed by Deutsche Bank Trust Company Americas, as
      Administrative Agent, on the signature page thereof and no security
      interest in this Waiver to the Amended and Restated Lease Agreement may be
      created through the transfer of any counterpart other than said original
      counterpart.

<PAGE>

to 250,000 restricted share units to such RSU Recipients pursuant to Holdings'
2004 Long Term Incentive and Share Award Plan; PROVIDED that, before and after
giving effect to such Repurchase, Holdings will be in compliance on a Pro Forma
Basis with the covenant set forth in subsection 7(f)(2) of each of the Leases;
and PROVIDED FURTHER that such Repurchase shall be excluded from the calculation
of the $1,000,000 limit contained in Section 7(e)(2) of each of the Leases.

B.    MISCELLANEOUS PROVISIONS

      1. In order to induce the Agent to enter into this Waiver, Holdings hereby
represents and warrants to each of the Lenders that (i) all of the
representations and warranties contained in the Leases are true and correct in
all material respects on and as of the Waiver Effective Date, both before and
after giving effect to this Waiver (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 Waiver Effective Date, both before
and after giving effect to this Amendment.

      2. This Waiver is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Leases.

      3. This Waiver 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 Holdings and the Agent.

      4. THIS WAIVER 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. This Waiver shall become effective on the date (the "WAIVER EFFECTIVE
DATE") when Holdings, Lessor, Lessee and the Agent 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 Agent.

      6. From and after the Waiver Effective Date, all references in the Leases
and in the other Loan Documents to the Leases shall be deemed to be referenced
to the Leases as modified hereby.

                                      * * *

                                      -2-

<PAGE>

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

                                    ATLAS FREIGHTER LEASING III, INC.

                                    BY: /s/ William C. Bradley
                                        -----------------------------
                                        Name:  William C. Bradley
                                        Title: Treasurer & Secretary

                                    ATLAS AIR, INC.

                                    BY: /s/ Dorinda Pannozzo
                                        -----------------------------
                                        Name:  Dorinda Pannozzo
                                        Title: Assistant Treasurer

Accepted and Agreed:

                                    ATLAS AIR WORLDWIDE HOLDINGS, INC.

                                    By: /s/ Jeffrey H. Erickson
                                        -----------------------------
                                        Name:  JEFFREY H. ERICKSON
                                        Title: PRESIDENT & CEO

<PAGE>

Accepted and Agreed:

                                    DEUTSCHE BANK TRUST COMPANY
                                    AMERICAS, as Agent

                                    By: /s/ David J. Bell
                                        -----------------------------
                                        Name:  David J. Bell
                                        Title: Managing Director

                                    By: /s/ Robert M. Wood
                                        -----------------------------
                                        Name:  Robert M. Wood, Jr.
                                        Title: DirectorEXHIBIT 10.7.1

                                 LEASE AGREEMENT
                                   (MSN 32838)

                            Dated as of July 16, 2002

                                     Between

                      TUOLUMNE RIVER AIRCRAFT FINANCE, INC.
                                     Lessor

                                       and

                                 ATLAS AIR, INC.
                                     Lessee

                      United States Registration No. N416MC
                      One Boeing 747-47UF Aircraft bearing
                       Manufacturer's Serial Number 32838
                 with four GE Model CF6-80C2-B5F Engines bearing
       Engine Manufacturer's Serial Nos. 706464, 706465, 706466 and 706467

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

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                       PAGE
                                                                                       ----
<S>                                                                                    <C>
SECTION 1.    DEFINITIONS ..........................................................     1

SECTION 2.    ACCEPTANCE AND LEASE .................................................     1

SECTION 3.    TERM AND RENT ........................................................     1

     (a)   Basic Term ..............................................................     1

     (b)   Basic Rent ..............................................................     1

     (c)   Adjustments to Basic Rent ...............................................     3

     (d)   Supplemental Rent .......................................................     3

     (e)   Payments in General .....................................................     3

     (f)   Business Day Convention .................................................     4

     (g)   Verification ............................................................     4

     (h)   Tax Compliance ..........................................................     4

     (i)   General Tax Indemnity ...................................................     5

     (j)   General Indemnity .......................................................    15

SECTION 4.    DISCLAIMER; LESSOR'S AND LESSEE'S REPRESENTATIONS, WARRANTIES AND
              AGREEMENTS ...........................................................    20

     (a)   Disclaimer ..............................................................    20

     (b)   Lessee's Representations and Warranties .................................    21

     (c)   Lessor's Covenants ......................................................    21

     (d)   Manufacturers' Warranties ...............................................    22

SECTION 5.    RETURN OF THE AIRCRAFT ...............................................    22

     (a)   Condition Upon Return ...................................................    22

     (b)   Storage and Related Matters .............................................    22

     (c)   Return of Other Engines .................................................    23

     (d)   Obligations Continue Until Return .......................................    23

SECTION 6.    LIENS ................................................................    23

SECTION 7.    REGISTRATION, MAINTENANCE, OPERATION AND REGISTRATION; POSSESSION
              AND PERMITTED SUBLEASES; INSIGNIA ....................................    24

     (a)   Registration, Maintenance, Operation and Registration ...................    24

     (b)   Possession and Permitted Subleases ......................................    27
</TABLE>

                                       -i-

<PAGE>

<TABLE>
<CAPTION>
                                                                                       PAGE
                                                                                       ----
<S>                                                                                    <C>
     (c)   Certain Limitations on Subleasing or Other Relinquishments of
           Possession ..............................................................    30

     (d)   Wet Leasing, ACMI Contracts or Similar Arrangements; Mergers;
           Assignments .............................................................    31

     (e)   Subordination, Non-Disturbance and Attornment of a Permitted
           Sublessee ...............................................................    31

     (f)   Insignia ................................................................    32

SECTION 8.    REPLACEMENT AND POOLING OF PARTS; ALTERATIONS, MODIFICATIONS AND
              ADDITIONS ............................................................    32

     (a)   Replacement of Parts ....................................................    32

     (b)   Pooling of Parts; Temporary Replacement Parts ...........................    33

     (c)   Alterations, Modifications and Additions ................................    33

SECTION 9.    VOLUNTARY TERMINATION ................................................    34

     (a)   Termination Event .......................................................    34

     (b)   Optional Sale of the Aircraft; Lessor Retention Option; Revocation of
           Termination Notice ......................................................    35

     (c)   Title Transfer ..........................................................    36

     (d)   Termination as to Engines; Replacement ..................................    37

SECTION 10.   LOSS, DESTRUCTION, REQUISITION, ETC ..................................    37

     (a)   Event of Loss with Respect to the Aircraft ..............................    37

     (b)   Event of Loss with Respect to an Engine .................................    39

     (c)   Application of Payments from Governmental Authorities for Requisition
           of Title, etc ...........................................................    40

     (d)   Requisition for Use of the Aircraft by the United Government or the
           Government of Registry of the Aircraft ..................................    40

     (e)   Requisition for Use of an Engine by the United States Government or
           the Government of Registry of the Aircraft ..............................    41

     (f)   Application of Payments During Existence of Event of Default ............    41

SECTION 11.   INSURANCE ............................................................    42

     (a)   Lessee's Obligation to Insure ...........................................    42

     (b)   Insurance for Own Account ...............................................    42

     (c)   Indemnification by Government in Lieu of Insurance ......................    42
</TABLE>

                                      -ii-

<PAGE>

<TABLE>
<CAPTION>
                                                                                       PAGE
                                                                                       ----
<S>                                                                                    <C>
     (d)   Application of Insurance Proceeds .......................................    42

SECTION 12.   INSPECTION ...........................................................    42

SECTION 13.   ASSIGNMENT ...........................................................    44

SECTION 14.   EVENTS OF DEFAULT ....................................................    45

SECTION 15.   REMEDIES .............................................................    47

SECTION 16.   LESSEE'S COOPERATION CONCERNING CERTAIN MATTERS ......................    50

SECTION 17.   NOTICES ..............................................................    51

SECTION 18.   NET LEASE; NO SET-OFF, COUNTERCLAIM, ETC .............................    51

SECTION 19.   RENEWAL OPTIONS; PURCHASE OPTIONS; VALUATION .........................    52

     (a)   Renewal Options; Renewal Term, Additional Renewal Term ..................    52

     (b)   Purchase Options ........................................................    53

     (c)   Valuation ...............................................................    54

SECTION 20.   BURDENSOME PURCHASE OPTION ...........................................    55

SECTION 21.   CHANGE OF CITIZENSHIP ................................................    55

SECTION 22.   LESSOR'S RIGHT TO PERFORM FOR LESSEE .................................    55

SECTION 23.   INVESTMENT OF SECURITY FUNDS .........................................    56

SECTION 24.   JURISDICTION .........................................................    56

SECTION 25.   MISCELLANEOUS ........................................................    56

SECTION 26.   THIRD PARTY BENEFICIARY ..............................................    57

SECTION 27.   LEASE FOR U.S. FEDERAL INCOME TAX LAW PURPOSES; SECTION 1110 OF
              BANKRUPTCY CODE ......................................................    57

     (a)   Lease for Federal Income Tax Law Purposes ...............................    57

     (b)   Section 1110 of Bankruptcy Code .........................................    57

SECTION 28.   ENTIRE AGREEMENT .....................................................    57

SECTION 29.   CONFIDENTIALITY ......................................................    57
</TABLE>

                                      -iii-
<PAGE>

                                 LEASE AGREEMENT
                                   (MSN 32838)

      This LEASE AGREEMENT (MSN 32838)(this "LEASE") dated as of July 16, 2002,
between TUOLUMNE RIVER AIRCRAFT FINANCE, INC., a corporation organized and
existing pursuant to the laws of the State of Delaware ("LESSOR"), and ATLAS
AIR, INC., a corporation organized and existing pursuant to the laws of the
State of Delaware ("LESSEE");

                                   WITNESSETH:

SECTION 1. DEFINITIONS. Capitalized terms used but not defined herein shall have
the respective meanings and rules of usage set forth or incorporated by
reference, and shall be construed and interpreted in the manner described, in
ANNEX A.

SECTION 2. ACCEPTANCE AND LEASE. Lessor hereby agrees to lease the Aircraft to
Lessee (subject to satisfaction of the conditions set forth herein to lease to
Lessee hereunder), and Lessee hereby agrees to lease the Aircraft from Lessor
(subject to satisfaction of the conditions set forth herein to lease from Lessor
hereunder), as evidenced by the execution by Lessor and Lessee of a Lease
Supplement leasing the Aircraft hereunder. Lessee hereby agrees that such
execution shall, without further act, irrevocably constitute acceptance by
Lessee of such Aircraft for all purposes of this Lease.

SECTION 3. TERM AND RENT.

      (a) BASIC TERM. The Basic Term shall commence on the Delivery Date and end
on the Basic Term Expiration Date.

      (b) BASIC RENT.

            (i) During the Basic Term, Lessee shall pay to Lessor, on each Rent
Payment Date, Basic Rent in Dollars in an amount equal to the percentage of
Lessor's Cost specified in EXHIBIT B-1 for such Rent Payment Date. Each payment
of Basic Rent shall be final, subject to SECTION 18 herein. The amounts and
periods of Lessee's liability for Basic Rent in respect of use of the Aircraft
during the Basic Term shall be as allocated in accordance with the column
entitled "Allocation of Basic Rent" in EXHIBIT B-2. Such Basic Rent payments and
such allocations shall be adjusted pursuant to SECTION 3(c).

            (ii) It is the intention of the parties hereto that the allocation
of Basic Rent as provided in this SECTION 3(b) and as provided in EXHIBIT B-2
constitutes a specific allocation of fixed rent within the meaning of Treasury
Regulation Section 1.467-1(c)(2)(ii)(A) with the effect that, pursuant to
Treasury Regulation Sections 1.467-1(d) and 1.467-2, Lessor and Lessee, on any
federal income tax returns filed by them (or on any return on which their income
is included), shall accrue the amounts of rental income and rental expense,

<PAGE>

respectively, set forth for each period under the column entitled "Proportional
Rent" on EXHIBIT B-2. Because there shall be from time to time a difference
between (A) the cumulative amount of Basic Rent paid by Lessee (as provided in
EXHIBIT B-1) and (B) the cumulative amount of Basic Rent allocated (as provided
in EXHIBIT B-2) there shall be considered to exist a loan solely for purposes of
Section 467 of the Code the amount of which is based on the cumulative amount of
Basic Rent paid by Lessee and the cumulative amount of the Proportional Rent
accrued by Lessee adjusted to account for an interest component, as provided in
Treasury Regulation Section 1.467-4(b)(1)(the "SECTION 467 LOAN"). If there is
an amount in excess of zero set forth under the column entitled "Lessor 467 Loan
Balance" on EXHIBIT B-3, such amount (the "LESSOR 467 LOAN") represents a loan
solely for purposes of Section 467 of the Code from Lessee to Lessor. If there
is an amount in excess of zero set forth under the column entitled "Lessee 467
Loan Balance" EXHIBIT B-3, such amount (the "LESSEE 467 LOAN") represents a loan
solely for purposes of Section 467 of the Code from Lessor to Lessee. If there
shall be a Lessor 467 Loan, Lessor shall deduct as interest expense and Lessee
shall accrue as interest income, in each case, in an amount equal to the amount
set forth under the caption entitled "Lessor 467 Loan Interest" for the
applicable period identified on EXHIBIT B-3 (the "LESSOR 467 LOAN INTEREST"). If
there shall be a Lessee 467 Loan, Lessor shall accrue as interest income and
Lessee shall deduct as interest expense, in each case, in an amount equal to the
amount set forth for the applicable period identified on EXHIBIT B-3 (the
"LESSEE 467 LOAN INTEREST").

            (iii) At such time as Termination Value shall be payable hereunder,
the amount payable by Lessee shall be calculated by reference to EXHIBIT C
(Termination Values) on which EXHIBIT C includes thereon in Column A the
applicable Pre-Adjustment Termination Value, in Column B the then Lessee 467
Loan Balance or Lessor 467 Loan Balance, as the case may be and assuming all
other amounts payable (including Basic Rent) under the Lease or the other
Operative Documents due on or before such date have been paid when due, and in
Column C the actual amount (after giving effect to the then current Lessee 467
Loan Balance or Lessor 467 Loan Balance, as the case may be) to be paid by
Lessee as Termination Value on the applicable date provided in this Lease or
other Operative Documents. Only after all amounts payable and all other
obligations owed to Lessor in respect of this Lease and the other Operative
Documents have been paid and satisfied in full, Lessor shall have an obligation
to make a cash payment of a sum equal to the Lessor 467 Loan Balance solely as
and to the extent expressly provided in (i) SECTION 9(b) (Retention of Aircraft
by Lessor after Voluntary Termination) and (ii) SECTION 15 (Remedies) if Lessor
has been paid in full all damages and other amounts directly or indirectly
referenced in SECTION 15, except damages calculated by reference to Termination
Value and if, after all statutes of limitations, periods to make a claim or
other applicable periods have expired, Lessor has not elected any remedy
described in SECTION 15 or any other remedy pursuant to which Lessor claims
damages or other payment from Lessee calculated by reference to Termination
Value. Notwithstanding any other provision of this Lease or the other Operative
Documents to the contrary, Lessor shall not have any obligation to make a cash
payment in the amount of

                                       -2-

<PAGE>

Lessor 467 Loan Balance except as expressly provided in this SECTION 3(b)(iii)
and in no event, regardless of whether expressly provided in this SECTION
3(b)(iii), shall Lessor have any obligation to make a cash payment in the amount
of Lessor 467 Loan Balance if a Default pursuant to SECTION 14(a),(b),(e) OR (f)
or an Event of Default has occurred and is continuing.

      (c) ADJUSTMENTS TO BASIC RENT.

            (i) In the event that Lessee pays an indemnity obligation under the
Tax Indemnity Agreement, then the Basic Rent and Termination Value amounts set
forth in EXHIBIT C shall be recalculated upwards or downwards by the Lessor
using the same methods and assumptions (except to the extent such assumptions
shall be varied to take into account the Loss (as defined in the Tax Indemnity
Agreement) that is the subject of such indemnification and any prior or
contemporaneous Loss) used to calculate Basic Rent amounts and the Termination
Value amounts on the Delivery Date in order to (1) maintain the Lessor's Net
Economic Return and (2) to the extent possible consistent with CLAUSE(1) hereof,
minimize the Net Present Value of Rents to Lessee.

            (ii) Any recalculation of Basic Rent and Termination Value amounts
pursuant to this SECTION 3(c) shall be determined by Lessor and shall be subject
to the verification procedure set forth in SECTION 3(g) hereto.

            (iii) Any such adjusted Basic Rent and Termination Value amounts
shall be set forth in a Lease Supplement or an amendment to the Lease.

      (d) SUPPLEMENTAL RENT. Lessee shall pay (or cause to be paid) promptly to
Lessor, or to whosoever shall be entitled thereto, any and all Supplemental
Rent, including, without limitation, Termination Value, as the same shall become
due and owing and all other amounts of Supplemental Rent within five (5)
Business Days after demand or within such other relevant period as may be
provided in any Operative Document, as applicable, and in the event of any
failure on the part of Lessee to pay any Supplemental Rent when due, Lessor
shall have all rights, powers and remedies provided for herein, in any other
Operative Document, as applicable, or by law or equity or otherwise in the case
of nonpayment of Basic Rent. Lessee also will pay to Lessor, or to whosoever
shall be entitled thereto, on demand, as Supplemental Rent, to the extent
permitted by applicable law, interest at the Past Due Rate on any part of any
installment of Basic Rent not paid when due for any period from the due date for
such installment of Basic Rent until the same shall be paid in full and on any
part of any payment of Supplemental Rent not paid when due for the period until
the same shall be paid in full.

      (e) PAYMENTS IN GENERAL. All payments of Rent shall be made directly by
Lessee by wire transfer of immediately available funds in Dollars prior to 11:00
a.m., New York time, on the date of payment, to Lessor at its account at Bankers
Trust Company, New York, New York ABA No. 021-001-033 for the account of GE
Capital Aviation Services,

                                       -3-

<PAGE>

Inc., as Manager, Account No. 50-234-585 (MSN 32838) (or such other account of
Lessor in the continental United States of America as Lessor shall direct in a
notice to Lessee at least ten (10) Business Days prior to the date such payment
of Rent is due) with the following notation:

"The attached wire is being received by GE Capital Aviation Services, Inc. on
behalf of Tuolumne River Aircraft Finance, Inc., as lessor under the Lease
Agreement (MSN 32838), dated as of July 16, 2002, between Atlas Air, Inc. and
Tuolumne River Aircraft Finance, Inc."

      (f) BUSINESS DAY CONVENTION. Notwithstanding anything to the contrary
contained herein, if any date on which any payment becomes due and payable is
not a Business Day, then such payment shall not be made on such scheduled date
but shall be made on the next succeeding Business Day (unless such date falls
into the next month, in which case such payment shall be made on the next
preceding Business Day) with the same force and effect as if made on such
scheduled date and (to the extent any such payment is made on such next
succeeding Business Day no interest shall accrue on the amount of such payment
to such next succeeding Business Day.

      (g) VERIFICATION. Any recalculation of Basic Rent amounts and Termination
Value amounts and pursuant to this Lease shall be determined by the Lessor, and
shall maintain the Lessor's Net Economic Return except as assumptions have been
modified pursuant to this SECTION 3 or pursuant to the Tax Indemnity Agreement,
as the case may be; PROVIDED HOWEVER, that Lessee may request (i) Lessee's
independent public accountants to verify such calculations and (ii) if Lessee
believes that such calculations by the Lessor are in error, then Babcock & Brown
LP or any other nationally recognized firm of accountants or lease advisory firm
selected by the Lessee and acceptable to Lessor shall be permitted to verify
such calculations and the Lessor will make available to such firm (subject to
the execution by such firm of a confidentiality agreement acceptable to the
Lessor) the methodology and assumptions and any changes made therein pursuant to
this SECTION 3. In the event of a verification under CLAUSE (ii) of the first
sentence of this paragraph the determination by such firm of accountants shall
be final. Lessee will pay the reasonable costs and expenses of the verification
under CLAUSE (ii) of the first sentence of this paragraph unless an error
adverse to Lessee is established by such firm, and if as a result of such
verification process the Basic Rent is adjusted and such adjustment causes the
Net Present Value of Rents to decline by five (5) or more basis points or causes
a material reduction in Termination Values, the Lessor shall pay the reasonable
costs and expenses of such verification process. Such recalculated Basic Rent
amounts and Termination Value amounts shall be set forth in a Lease Supplement
or an amendment to the Lease.

      (h) TAX COMPLIANCE. Any adjustments made pursuant to this SECTION 3 shall
be made so as to avoid (except to the extent indemnified pursuant to the Tax
Indemnity Agreement) any risk that the Lease could not constitute a "true lease"
for federal income tax

                                       -4-

<PAGE>

purposes or result in an unindemnified loss of assumed tax benefits, except to
the extent that on the Delivery Date, the Lease was not a "true lease." All
adjustments required pursuant to the Lease shall be set forth in a Lease
Supplement or in an amendment to the Lease. In addition, all adjustments shall
be in compliance with Treasury Regulations Section 1.467-3(c)(4) (or any
successor regulation applicable at the time of the adjustment) and the
requirements of Sections 4.02(5) and 4.07(1) of Revenue Procedure 2001-29.

      (i) GENERAL TAX INDEMNITY.

            (A) INDEMNITY. Except as provided in SECTION 3(i)(B) hereof, Lessee
agrees that each payment of Rent shall be free and clear of, and without
deduction for, any and all withholdings on account of Taxes of any nature
whatsoever. If any such deduction or withholding is required, Lessee shall pay
an additional amount such that the net amount actually received by the recipient
of such payment, after such deduction or withholding, will be equal to the
amount that would have been received if no such deduction or withholding had
been required. If Lessee pays an additional amount pursuant to the preceding
sentence in respect of any Taxes that are not subject to indemnification
pursuant to the following provisions of this SECTION 3(i)(A), then the Lessor
shall reimburse Lessee for such Taxes within thirty (30) days of written notice
accompanied by evidence of payment of such Taxes paid by Lessee. Except as
provided in SECTION 3 (i)(B) hereof, Lessee hereby agrees to indemnify, protect,
defend and hold harmless Lessor on an After-Tax Basis from and against any and
all Taxes however imposed, whether levied or imposed upon Lessor, Lessee, or any
user or Person in possession of the Aircraft or any Part, by the United States
or any state or local government or taxing authority of or in the United States,
any territory or possession of the United States, any international authority or
any foreign country or political subdivision or taxing authority thereof or
therein upon or with respect to (A) the Aircraft, the Airframe, an Engine or any
Part; (B) the manufacture, ownership, delivery, lease, sale, alteration, change
in registration, sublease, possession, use, operation, condition, transfer,
control, occupancy, servicing, maintenance, financing, construction, repair,
abandonment, substitution, replacement, re-registration, hire, presence,
location, addition, renovation, insuring, repossession, non-use, interchange,
inspection, overhaul, testing, modification, storage, purchase, acceptance,
rejection, return, non-delivery or registration of or other disposition, action
or event with respect to the Aircraft, the Airframe, an Engine or any Part, or
the imposition of any lien (other than a Lessor Lien), modification,
improvement, transfer of title, return or other disposition thereof; (C) the
rentals, receipts or earnings arising therefrom; (D) the execution or delivery
of, or the exercise of any rights or remedies under, the Operative Documents, or
any amendment or supplement thereto and any other documents contemplated thereby
or the transaction contemplated thereby; and (E) the payment or receipt of any
amounts pursuant to the Operative Documents, or any amendment or supplement
thereto and any other documents contemplated thereby or the transaction
contemplated thereby, or otherwise in connection with the transactions
contemplated by the Operative Documents.

                                       -5-

<PAGE>

            (B) EXCLUSIONS FROM GENERAL TAX INDEMNITY. The provisions of SECTION
3(i)(A) shall not apply to and Lessee shall have no liability hereunder for:

                  (1) Taxes (other than amounts necessary to make payments on an
After-Tax Basis) on, based on, measured by or with respect to the gross or net
income, gross or net receipts, including capital gains taxes, minimum or
alternative taxes, tax preferences, excess profits taxes, capital taxes,
accumulated earnings taxes, branch profits taxes, personal holding company
taxes, taxes applicable to passive foreign investment companies, successor
taxes, estate taxes, net worth, franchise or conduct of business (but not
excluding sales, use, excise, license, rental, ad valorem, non-recoverable value
added tax (to the extent that such ad valorem or value added tax is not imposed
as a substitute for an income tax that is not subject to indemnification
hereunder and, if imposed as a substitute for such an income tax, to the extent
such ad valorem or value added tax exceeds such income tax that it replaces) or
property taxes and other similar taxes) and any withholding taxes on, or
measured by, gross or net income or receipts imposed on Lessor by the United
States or by any state or local government or taxing authority in the United
States or by any foreign government or taxing authority except to the extent
such Tax (a) results from, or would not have been imposed but for (x) the
location, operation, registration or use of the Aircraft or any Part in such
jurisdiction, (y) the identity, location, place of business, activities or
presence of Lessee, any Permitted Sublessee, user or person in possession of the
Aircraft or any Part or any Affiliate of the foregoing (each, a "LESSEE PERSON")
in such jurisdiction (including the execution and delivery by such Person of any
Operative Document in such jurisdiction), or (z) the making of any payment under
the Operative Documents by, or on behalf of, Lessee to Lessor in or from such
jurisdiction, and (b) exceeds the Tax that would have been imposed by such
jurisdiction on the Lessor in the absence of those activities described in
CLAUSES (x), (y) AND (z) herein;

                  (2) Taxes imposed on the Lessor that would not have been
imposed but for a Lessor's Lien;

                  (3) Taxes imposed on Lessor resulting from a voluntary sale,
assignment, transfer or other disposition by the Lessor of the Aircraft, the
Airframe, an Engine or any Part, the Operative Documents or any interest in the
Rent unless such transfer or other disposition (i) is made in connection with
the exercise of any remedies of Lessor in accordance with and pursuant to
SECTION 15 of the Lease when an Event of Default has occurred and is continuing,
(ii) arises in connection with (A) an Event of Loss, (B) the return of the
Aircraft upon termination of the Lease, (C) the purchase of the Aircraft by
Lessee pursuant to SECTION 19(b) of the Lease, (D) the substitution of any
Replacement Airframe pursuant to SECTION 10(a) of the Lease or (E) a termination
of the Lease under SECTION 9 of the Lease, (iii) results from (A) the
maintenance of the Aircraft during the Basic Term (including the replacement and
substitution of parts and modifications and improvements to the Aircraft) or (B)
any Lease or assignment of Lessee's or any Permitted Sublessee's rights during
the

                                       -6-

<PAGE>

Basic Term or (iv) is made at Lessee's request or direction;

                  (4) Taxes imposed on Lessor resulting from a transfer of the
Lessor's interest in the Aircraft, Airframe, an Engine or any Part arising out
of or relating to bankruptcy or similar proceedings in which Lessor is the
debtor, or any foreclosure by a creditor of Lessor, unless, in each case, such
sale, assignment, transfer or other disposition results from a transfer or
disposition made pursuant to an exercise of remedies following an Event of
Default;

                  (5) Taxes imposed on the Lessor resulting from the willful
misconduct or gross negligence of Lessor;

                  (6) Taxes relating to the Lessee, Aircraft, the Airframe, an
Engine or any Part for any period after (x) the expiration or early termination
of the Lease in accordance with the terms of the Lease or (y) possession of the
Aircraft, the Airframe, an Engine or any Part has been redelivered by Lessee to
Lessor in accordance with the terms of the Lease (in each case as it relates to
Taxes for the returned items) or placement of the Aircraft in storage at the
request of the Lessor in accordance with the terms of the Lease, except to the
extent that Taxes are incurred in connection with the exercise of any remedies
of Lessor in accordance with and pursuant to SECTION 15 of the Lease when an
Event of Default has occurred and is continuing and to the extent such Taxes
relate to events, acts or omissions occurring or matters arising prior to or
simultaneously with the time of the occurrence of the earlier of (x) or (y), and
until Lessee has satisfied in full its obligations under the Lease;

                  (7) Taxes imposed on any transferee of Lessor to the extent
such Tax exceeds the amount of Tax that would have been imposed on the Lessor;
PROVIDED, HOWEVER, the exclusion provided in this CLAUSE (7) shall not apply to
(i) transferees mat acquired their interest in connection with the exercise of
remedies following an Event of Default, and (ii) "gross-up" amounts necessary to
make payments on an After-Tax Basis, as required under the Operative Documents;

                  (8) Taxes imposed on Lessor by a government or taxing
authority of any jurisdiction to the extent such Taxes would not have been
imposed on Lessor in the absence of activities of such Lessor in such
jurisdiction unrelated to the transactions contemplated by the Lease;

                  (9) Taxes being contested pursuant to the contest provisions
contained in SECTION 3(i)(D) but only for so long as Lessee is complying with
its obligations under SECTION 3(i)(D);

                  (10) Taxes imposed on Lessor for which Lessee is obligated to
indemnify Lessor under the Tax Indemnity Agreement;

                                       -7-

<PAGE>

                  (11) Interest, penalties and additions to Tax imposed upon
Lessor to the extent imposed as a result of the failure of Lessor to timely and
properly file any return required to be filed by Lessor, unless such failure is
caused by Lessee's failure to timely provide information required to be provided
under the Operative Documents (including pursuant to SECTION 3(i)(C) herein);

                  (12) Taxes imposed on Lessor by section 4975 of the Code or
any successor provision thereto as a consequence of Lessor engaging in a
"prohibited transaction" within the meaning of such provision; and

                  (13) Taxes imposed on Lessor that would not have been imposed
but for Lessor's breach of any covenant or the inaccuracy of any representation
or warranty of Lessor in any of the Operative Documents.

      References to Lessor shall include such Lessor's respective successors and
permitted assigns, officers, directors, servants, employees, agents and
Affiliates.

            (C) PAYMENTS.

                  (1) All Taxes shall be paid when due and payable and all
amounts payable as indemnities pursuant to this SECTION 3(i) shall be payable to
the extent not theretofore paid, no later than thirty (30) days following
Lessee's receipt of written demand by Lessor; PROVIDED, HOWEVER, that in the
case of Taxes which are being contested pursuant to subsection (D) of this
SECTION 3(i), any amount payable by Lessee pursuant to SUBSECTION (A) of this
SECTION 3(i) shall, unless otherwise required by SUBSECTION (D) of this SECTION
3(i), not be required to be paid until thirty (30) days after such contest is
finally resolved.

                  (2) At Lessee's written request, the computation of the amount
of any indemnity payment owed by Lessee or any amount owed by Lessor to Lessee
pursuant to this SECTION 3(i) shall be verified and certified by an
internationally recognized independent public accounting firm mutually selected
by the Lessor and Lessee. The costs of such verification (including the fee of
such public accounting firm) shall be borne by Lessee unless such verification
shall result in an adjustment in Lessee's favor of 5% or more of the net present
value of the payment as computed by such Lessor, in which case the costs shall
be paid by Lessor. Such determination shall be final and binding, absent
manifest error on the part of the certified public accountants. Lessor hereby
agrees to provide the accountants with all information and materials as shall be
reasonably necessary in connection therewith; PROVIDED that in no event will the
Lessor be required to deliver its income tax returns or tax books to such
accountant. Any information provided to such accountants by any Person shall be
deemed by the parties to be (and the accountants will confirm in writing that
they will treat such information as) the private, proprietary and confidential
property of such Person, and no Person other than such Person and the
accountants shall be entitled thereto, other than as required by Law. In no
event shall Lessee have the right to examine the information supplied

                                       -8-

<PAGE>

to the verifying firm or the tax returns or books of the Lessor in connection
with the verifying procedures described herein. Lessee and the Lessor agree that
the accountant's sole responsibility shall be to verify the amount of any
payment hereunder and that the interpretation of the Operative Documents are not
within the scope of the accountant's responsibility. Lessor shall provide Lessee
with such certifications, information and documentation as shall be in such
Lessor's possession and as shall be reasonably requested by Lessee to minimize
any indemnity payment pursuant to this SECTION 3(i); PROVIDED, HOWEVER, that
Lessor shall not be required to provide any information that would, in its good
faith judgment, cause the Lessor any material adverse tax consequences.

                  (3) Lessor shall promptly forward to Lessee any written
notice, bill or advice received by it from any government or taxing authority
concerning any Tax for which it seeks indemnification under this SECTION 3(i);
PROVIDED, HOWEVER, that the failure to provide such notice shall not adversely
affect Lessor's rights to an indemnity under this SECTION 3(i) except to the
extent that such failure effectively precludes Lessee's ability to contest
(through Lessor or, if permitted, in its own name) such Tax pursuant to SECTION
3(i)(D). Lessee shall pay any amount for which it is liable pursuant to this
SECTION 3(i) directly to the appropriate government or taxing authority if
legally permissible or, upon demand of Lessor, to Lessor on an After-Tax Basis
and free of interest within thirty (30) days of such demand (or, if a contest
occurs in accordance with SECTION (3)(i)(D), within thirty (30) days after a
Final Determination (as defined below)), but in no event less than five (5)
business days prior to the date the Tax to which such amount payable hereunder
relates is due, provided, Lessee shall not be required to make any payment in
respect of Taxes being contested in accordance with SECTION 3(i)(D) pursuant to
this SECTION 3(i)(C) unless Lessor elects to pay such Tax claimed and sue for a
refund as provided in SECTION 3(i)(D). Lessee shall furnish to Lessor the
original or a certified copy of a receipt for Lessee's payment of any Tax
subject to indemnification under this SECTION 3(i) or such other evidence of
payment of such Tax reasonably acceptable to Lessor. For purposes of this
SECTION 3(i), a "Final Determination" shall mean (A) a decision, judgment,
decree or other order by any court of competent jurisdiction that occurs
pursuant to the provisions of SECTION 3(i)(D), which decision, judgment, decree
or other order has become final and unappealable or the time for filing such
appeals has expired, (B) a closing agreement or settlement agreement entered
into in accordance with SECTION 3(i)(D) that has become binding and is not
subject to further review or appeal absent fraud or misrepresentation, (C) the
termination of administrative proceedings and the expiration of the time for
instituting a claim in a court proceeding, or (D) in any case where judicial
review shall at the time be unavailable by reasons of the proposed adjustment
involving a decrease in a net operating loss or business credit carryforward, a
decision, judgment, decree or other order of an administrative official or
agency of competent jurisdiction, which decision, judgment, decree or other
order has become final (i.e., when all administrative appeals in accordance with
SECTION 3(i)(D) hereof have been exhausted by either party).

                                       -9-

<PAGE>

                  (4) To the extent permitted by applicable law, interest at the
Base Rate plus two percent (2.0%) shall be paid, on demand, on any amount or
indemnity not paid when due pursuant to this SECTION 3(i) (including any amounts
payable to Lessee hereunder until the same shall be paid). Such interest shall
be paid in the same manner as the unpaid amount in respect of which such
interest is due.

            (D) CONTESTS.

                  (1) If a written claim is made against Lessor or if any
proceeding is commenced against Lessor (including a written notice of such
proceeding) for Taxes as to which Lessee could be liable for payment or
indemnity hereunder, such Lessor shall promptly give Lessee notice in writing of
such claim (PROVIDED, HOWEVER, that the failure to provide such notice shall not
affect Lessee's obligations hereunder to the Lessor unless such failure shall
effectively preclude Lessee's right to contest such claim) and shall not take
any action with respect to such claim or Tax without the consent of Lessee for
thirty (30) days following the receipt of such notice by Lessee; PROVIDED,
HOWEVER, that, if Lessor shall be required by Law to take action prior to the
end of such 30-day period, Lessor shall, in such notice to Lessee, so inform
Lessee, and Lessor shall take no action without the consent of Lessee for as
long as it is legally able to do so (it being understood that Lessor shall be
entitled to pay the Tax claimed and sue for a refund prior to the end of such
30-day period if (i)(A) the failure to so pay the Tax would result in penalties
(unless immediately reimbursed by Lessee) or (B) the failure to so pay would
result in criminal penalties and (ii) Lessor uses its good faith efforts to take
any action so required in connection with so paying the Tax in a manner that is
the least prejudicial to the pursuit of the contest). In addition, Lessor shall
(PROVIDED that Lessee shall have agreed to keep such information confidential
other than to the extent necessary in order to contest the claim in writing in a
manner reasonable satisfactory to Lessor) furnish Lessee with copies of any
requests for information from any taxing authority relating to such Taxes with
respect to which Lessee may be required to indemnify hereunder. If requested by
Lessee in writing within thirty (30) days or such shorter period as may be
required by Law after its receipt of such notice, Lessor shall, at the expense
of Lessee (including all reasonable out-of-pocket costs, and reasonable in-house
or outside attorney and accountants fees), in good faith contest (or, if
permitted by applicable law, allow Lessee to contest), through appropriate
administrative and judicial proceedings the validity, applicability or amount of
such Taxes by resisting payment thereof, not paying the same except under
protest if protest is necessary and proper or if the payment is made, using
reasonable efforts to obtain a refund thereof in an appropriate administrative
and/or judicial proceeding. If requested to do so by Lessee in writing, Lessor
shall appeal any adverse administrative or judicial decision, except that Lessor
shall not be required to (nor shall Lessee have the right to) pursue any appeals
to the United States Supreme Court. If and to the extent Lessor by exercise of
reasonable good faith efforts is able to separate the contested issue or issues
(which cannot include income tax issues) from other issues arising in the same
administrative or judicial proceeding that are unrelated to the transactions
contemplated by

                                      -10-

<PAGE>

the Operative Documents without, in the good faith judgment of Lessor,
materially adversely affecting it, Lessor shall permit Lessee to control the
conduct of any such proceeding and shall provide to Lessee such information or
data that is in such Lessor's control or possession that is reasonably necessary
to conduct such contest and Lessee shall consult with the Lessor and keep it
reasonably informed of the progress of such contest. In the case of a contest
controlled by Lessor, Lessor shall conduct and control such contest, PROVIDED
Lessor consults with Lessee in good faith regarding the manner of contesting
such claim and shall keep Lessee reasonably informed regarding the progress of
such contest but Lessor shall have ultimate control over all aspects of such
contest. Lessor shall not fail to take any action expressly required by this
SECTION 3(i)(D) (including, without limitation, any action regarding an appeal
of an adverse determination with respect to any claim) or settle or compromise
any claim without the prior written consent of Lessee except as contemplated by
SECTION 3(i)(D) herein.

                        (2) Notwithstanding the foregoing, in no event shall
Lessor be required to take any action (or to permit Lessee to take any action)
unless and until (A) Lessee shall have agreed to pay Lessor on demand on an
After-tax Basis all reasonable costs and expenses that Lessor shall incur in
connection with contesting such claim, (including without limitation, all costs,
expenses, losses, reasonable legal and accounting fees, disbursements,
penalties, fines, additions to Tax or interest thereon), (B) if such contest
shall involve the payment of the claim, Lessee shall advance the amount thereof
plus (to the extent indemnified hereunder) interest, penalties and additions to
tax with respect thereto that are required to be paid prior to the commencement
of such contest on an interest-free basis and with no additional net after-tax
cost to Lessor (and Lessor shall promptly pay to Lessee any net realized tax
benefits resulting from any imputed interest deduction arising from such
interest free advance from Lessee plus any net tax benefits resulting from
making any such payment), (C) Lessor shall have reasonably determined that the
action to be taken will not result in any material risk of forfeiture,
foreclosure, sale or loss of the Aircraft or the creation of any Lien (other
than a Permitted Lien) (unless Lessee shall have adequately bonded such Lien or
otherwise made provisions to protect the interests of Lessor in a manner
reasonably satisfactory to Lessor in its sole discretion), (D) no Event of
Default shall have occurred and be continuing at the time the contest is begun
unless Lessee has provided security for its obligations hereunder by advancing
to Lessor before proceeding with such contest, the amount of the Tax being
contested, plus any interest and penalties and an amount estimated in good faith
by Lessor for reasonable expenses, (E) in the case of a contest that is being
pursued by Lessor, the aggregate amount of the claim together with the amount of
all related claims that have been or could be raised with any or all of the
other Aircraft leased by Lessor to Lessee or raised in any other audit for which
Lessee would have an indemnity obligation under this SECTION 3(i)(D) is at least
$50,000, and (F) if requested prior to or during the contest by Lessor,
independent tax counsel selected by Lessee and reasonably acceptable to Lessor,
renders to Lessor a written opinion that there is a reasonable basis (under the
standard set forth in ABA Formal Opinion 85-352 or any successor thereto) for
contesting such claim.

                                      -11-

<PAGE>

In the case of any contest controlled by the Lessee hereunder, Lessor (including
its counsel (at Lessor's expense)) shall have the right to participate in all
proceedings and Lessee shall consult with Lessor in good faith regarding the
manner of contesting such claim and shall keep Lessor reasonably informed
regarding the progress of such contest and, if requested by Lessor, provide an
opinion of tax counsel selected by Lessee and reasonably acceptable to Lessor to
the effect that there is a Reasonable Basis for contesting such claims.
Notwithstanding the foregoing, Lessee shall not be permitted to control or
conduct any contest if such contest involves Taxes based on or measured by the
gross or net income of Lessor and PROVIDED, that if Lessor determines in good
faith that it is reasonably likely that such contest may have a material adverse
impact on it, Lessor may retain or reassert control of any contest Lessee would
otherwise be permitted to contest, and if Lessor shall release, waive,
compromise or settle any claim which may be indemnifiable by Lessee pursuant to
this SECTION 3(i) without the written permission of Lessee, Lessee's obligation
to indemnify Lessor with respect to such claim (and any claim the contest of
which is materially prejudiced as a result of the release, waiver, compromise or
settlement) shall terminate, subject to this SECTION 3(i)(D), and subject to
SECTION 3(i)(C), Lessor shall repay to Lessee any amount previously paid or
advanced to Lessor with respect to such claim (but not amounts paid or advanced
for costs and expenses of any contests to the extent such amounts have already
been expended) plus interest at the rate that would have been payable by the
relevant taxing authority with respect to a refund of such Tax.

                        (3) Notwithstanding anything contained in this SECTION
3(i) to the contrary, Lessor shall not be required to contest any claim if the
subject matter thereof shall be of a continuing nature and shall previously have
been decided adversely by a court of competent jurisdiction pursuant to the
contest provisions of this SECTION 3(i)(D), unless there shall have been a
change in Law (or interpretation thereof) or a change in facts after the date
with respect to which such previous contest shall have been decided, and Lessor
shall have received, at Lessee's expense, an opinion of independent tax counsel
selected by Lessee and reasonably acceptable to Lessor to the effect that as a
result of such change in Law (or interpretation thereof) or change in facts, it
is more likely than not that Lessor will prevail in such contest.

                        (4) Nothing contained in this SECTION 3(i) shall require
Lessor to contest or permit Lessee to contest a claim which it would otherwise
be required to contest pursuant to this SECTION 3(i) if Lessor shall waive
payment by Lessee of any amount that might otherwise be payable by Lessee under
this SECTION 3(i) by way of indemnity in respect of such claim (and any other
claim for Taxes with respect to any other taxable year the contest of which is
effectively precluded by Lessor's declination to take action with respect to the
claim).

                  (E) REFUNDS AND SAVING.

                        (1) If Lessor shall receive a refund or credit (or would
have

                                      -12-

<PAGE>

received such refund or credit but for a counterclaim or other claim not
indemnified by Lessee hereunder (a "DEEMED REFUND OR CREDIT")) with respect to
all or any part of any Taxes paid, reimbursed or advanced by Lessee, in each
case, whether by means of a deduction, credit, refund or otherwise, and which
was not taken into account in computing such payment or indemnity, Lessor shall
pay to Lessee within thirty (30) days of such receipt or, in the case of a
deemed refund or credit, within thirty (30) days of the final resolution of such
contest, an amount equal to the lesser of (A) the amount of such refund or
credit or deemed refund or credit actually realized by Lessor, plus any
additional net tax savings actually realized by Lessor as a result of any
payment made pursuant to this sentence (including this CLAUSE (A)), and (B) such
tax payment, reimbursement or advance by Lessee to Lessor theretofore made
pursuant to this SECTION 3(i) and the excess, if any, of the amount described in
CLAUSE (A) over the amount described in CLAUSE (B) shall be carried forward and
applied to reduce PRO TANTO any subsequent obligations of Lessee to make
payments to Lessor pursuant to this SECTION 3(i). If, in addition to such refund
or credit (or deemed refund or credit), Lessor shall receive or be credited with
(or would have received but for a counterclaim or other claim not indemnified by
Lessee hereunder) an amount representing interest on the amount of such refund
or credit or deemed refund or credit, as the case may be, Lessor shall pay to
Lessee within thirty (30) days of such receipt or, in the case of a deemed
refund or credit, within thirty (30) days of the final resolution or such
contest, that portion of such interest that shall be fairly attributable to
Taxes paid, reimbursed or advanced by Lessee prior to the receipt of such refund
or credit or deemed refund or credit. Lessor agrees to reasonably cooperate with
Lessee in claiming and pursuing any such refunds or credits of any Taxes payable
or indemnifiable pursuant to this SECTION 3(i).

                        (2) If Lessor shall realize a tax savings by reason of
any Tax paid or indemnified by Lessee pursuant to this SECTION 3(i) (whether
such Tax savings shall be by means of a foreign tax credit, depreciation or cost
recovery deduction or otherwise) and such savings was not otherwise taken into
account in computing such payment or indemnity, Lessor shall pay to Lessee an
amount equal to the lesser of (A) the amount of such tax savings, plus any
additional tax savings realized as the result of any payment made pursuant to
this sentence when, as if, and to the extent realized, and (B) the amount of all
payments made by Lessee to Lessor (reduced by any payments previously made by
Lessor to Lessee pursuant to this SECTION 3(i)), and the excess, if any, of the
amount described in CLAUSE (A) over the amount described in CLAUSE (B) shall be
carried forward and applied to reduce PRO TANTO any subsequent obligations of
Lessee to make payments to Lessor pursuant to this SECTION 3(i). Lessor shall
not have any obligation to make any payment while an Event of Default has
occurred and is continuing.

                        (3) If Lessor shall have paid Lessee any refund or
credit of all or any part of any Tax paid by Lessee and it is subsequently
determined that Lessor was not entitled to such refund or credit, such
determination shall be treated as the imposition of a Tax for which Lessee is
obligated to indemnify Lessor pursuant to the provisions of this

                                      -13-

<PAGE>

SECTION 3(i) without regard to the exclusions contained in SECTION 3(i)(B),
other than CLAUSE (5) thereof.

                        (4) Any amount which is payable to Lessee by Lessor
pursuant to this SECTION 3(i) shall not be paid to Lessee if an Event of Default
has occurred and is continuing or if any payment is due and owing by Lessee to
Lessor under the Lease or any other Operative Document. At such time as there
shall not be continuing any such Event of Default or there shall not be due and
owing any such payment, such amount (to the extent not theretofore otherwise
applied) shall be paid to Lessee.

                  (F) TAX FILING. If any report, return or statement is
required to be filed by Lessor with respect to any Tax that is subject to
indemnification under this SECTION 3(i), Lessee (at its expense) shall (A)
notify Lessor in writing of such requirement not later than thirty (30) days
prior to the date such report, statement or return is required to be filed
(determined without regard to extensions) and (B) either (I) if permitted by
applicable law, prepare such report, statement or return for filing, send a copy
of such report, statement or return to Lessor and timely file such report,
statement or return with the appropriate taxing authority, or (II) if Lessee is
not permitted by law to file such report, statement or return, or if so directed
by Lessor, prepare and furnish to Lessor not later than thirty (30) days prior
to the date such report, statement or return is required to be filed (determined
without regard to extensions) a proposed form of such report, statement or
return for filing by Lessor; PROVIDED, HOWEVER, that if such report, statement
or return requires information particularly within the control of Lessor that is
not provided to Lessee within a reasonable amount of time of Lessee's written
request, Lessee shall prepare (and furnish to Lessor within the time frame
specified above) a draft of such report, statement or return by completing those
portions of such report, statement or return which can be completed based upon
the information then available to Lessee. Each of Lessor or Lessee, as the case
may be, shall timely provide the other party, with all information in its
possession that the other party may reasonably require and request to satisfy
its obligation under this PARAGRAPH (F).

                  (G) FORMS/INFORMATION.

                        (1) Lessor agrees to furnish from time to time to Lessee
or to such other Person as Lessee may designate, at Lessee's written request,
such duly executed and properly completed forms as may be necessary or
appropriate in order to claim any reduction of or exemption from any withholding
or other Tax imposed by any government or taxing authority, if (A) such
reduction or exemption is available to Lessor and not otherwise materially
adverse to its overall filing, litigation or planning positions, in the good
faith judgment of Lessor and (B) Lessee has provided Lessor with any information
necessary to complete such form not otherwise reasonably available to Lessor.
Notwithstanding the foregoing, with respect to Taxes imposed by way of
withholding, Lessor shall be required to provide any certifications, information
and documentation necessary or appropriate in order to minimize any indemnity
payment regardless of whether or not providing such form would be

                                      -14-

<PAGE>

materially adverse to its overall filing, litigation or planning position unless
there has been a change in applicable Law enacted, adopted or issued after the
Closing Date.

                        (2) Within a reasonable time after Lessee receives from
Lessor a written request for specified information or copies of specified
records reasonably necessary to enable such Person to file its Tax returns, to
engage in an audit or contest Taxes imposed upon it, including information
specifying the location of the Aircraft during the Tax filing period to which
the return or contest relates, Lessee shall, at its own expense, if reasonably
available, provide such information or copies of such records to the requesting
Party.

                  (H) SUBROGATION. Upon payment of any Tax by Lessee pursuant to
this SECTION 3(i) to or on behalf of Lessor, Lessee, without any further action,
shall be subrogated to any claims that Lessor may have relating thereto. Lessor
shall cooperate with Lessee to permit Lessee to pursue such claims.

                  (I) PAYMENTS ON AFTER-TAX BASIS. Lessee agrees that,
notwithstanding anything to the contrary that may be contained herein, with
respect to any payment or indemnity under this SECTION 3(i), Lessee's indemnity
obligation shall include any amount necessary to hold Lessor harmless on an
After-Tax Basis.

                  (J) AFFILIATED GROUP. For purposes of this SECTION 3(i), the
term "Lessor" shall include any combined, consolidated or affiliated group (and
any member thereof) of which Lessor is or shall become a member if combined or
consolidated returns are or shall be filed for such affiliated group for
foreign, federal, state or local Tax purposes.

                  (K) SURVIVAL. All indemnities, obligations, adjustments and
payments provided for in this SECTION 3(i) shall survive, and remain in full
force and effect, notwithstanding the expiration or other termination of this
Lease or any other Operative Document. The obligations of Lessee in respect of
all such indemnities, obligations, adjustments and payments are expressly made
for the benefit of, and shall be enforceable by, the Lessor entitled thereto,
without declaring the Lease to be in default or taking other action thereunder.

      (j) GENERAL INDEMNITY.

            (i) INDEMNITY. Lessee shall indemnify, protect, defend and hold
      harmless each Indemnitee from, against and in respect of, and shall pay on
      a net After-Tax Basis, any and all Expenses of any kind or nature
      whatsoever that may be imposed on, incurred by or asserted against any
      Indemnitee, relating to, resulting from, or arising out of or in
      connection with, any one or more of the following:

                        (1) The execution, delivery and performance of the

                                      -15-

<PAGE>

Operative Documents and the GE Funding Letter Agreement and the Transactions
contemplated hereby and thereby;

                        (2) The manufacture, purchase, acceptance or rejection
of the Airframe or any Engine or Parts;

                        (3) The Aircraft, the Airframe, any Engine or
any Part, including, without limitation, with respect thereto, (i) the
registration, reregistration, ownership, delivery, nondelivery, inspection,
lease, sublease, possession, storage, use, non-use, operation, maintenance,
overhaul, testing, modification, alteration, condition, replacement, repair,
substitution, sale, transfer, return, or other disposition of the Aircraft,
Airframe, Engine(s) (or any engine used on the Airframe) or any Part or part
used on the Aircraft, the Airframe or any Engine (or any engine used on the
Airframe) by Lessee, or any other Person, (ii) any claim or penalty arising out
of violations of applicable Laws by Lessee (or any Permitted Sublessee), (iii)
strict tort liability, whether or not arising out of the negligence of any
Indemnitee (whether active, passive or imputed), (iv) death or property damage
of passengers, shippers or others, (v) environmental control, noise or
pollution, (vi) any Liens in respect of the Aircraft, any Engine or any Part;
(vi) latent or other defects whether or not discoverable and (vii) any claim for
patent, trademark or copyright infringement; or

                        (4) Any breach of or failure to perform or observe, or
any other noncompliance with, any covenant or agreement or other obligation to
be performed by Lessee under any Operative Agreement or the falsity of any
representation or warranty of Lessee in any Operative Agreement other than in
the Tax Indemnity Agreement.

            (ii) EXCEPTIONS. Notwithstanding anything contained in SECTION
3(j)(i), the foregoing indemnity shall not extend to an Indemnitee (and Lessee
shall not be required to indemnify, protect, defend and hold harmless any
Indemnitee pursuant to SECTION 3(j)(i)) with respect to any Expense to the
extent such Expense is related to one of more of the following:

                        (1) For any Taxes or a loss of Tax benefit, whether or
not Lessee is required to indemnify therefor pursuant to SECTION 3(i) hereof or
to the Tax Indemnity Agreement;

                        (2) Except to the extent fairly attributable to acts or
events occurring prior thereto, acts or events (other than acts or events
related to the performance by Lessee of its obligations pursuant to the terms of
the Operative Agreements) that occur after: (i) with respect to the Airframe,
any Engine or any Part, the return of possession (it being understood that the
date of the placement of the Aircraft in storage as provided in SECTION 5 hereof
constitutes the date of return of the Aircraft under this Lease) of such
Airframe, Engine or Part pursuant to the terms of and in compliance with this
Lease (other than pursuant to SECTION 15 hereof, in which case Lessee's
liability under this SECTION 3(j) shall survive for so

                                      -16-

<PAGE>

long as Lessor shall be entitled to exercise remedies under such SECTION 15) or
(ii) if the Aircraft is not required to be returned, the termination of the Term
in accordance with this Lease;

                        (3) To the extent attributable to any Transfer
(voluntary or involuntary) by or on behalf of Lessor of any interest in the
Aircraft or this Lease except for out-of-pocket costs and expenses incurred as a
result of such Transfer, if, at the time of such Transfer, an Event of Default
shall have occurred and be continuing;

                        (4) To the extent attributable to the gross negligence
or willful misconduct of such Indemnitee or any related Indemnitee (as defined
below) (other than gross negligence or willful misconduct imputed to such person
by reason of its interest in the Aircraft or any Operative Agreement);

                        (5) To the extent attributable to the incorrectness or
breach of any representation or warranty of such Indemnitee or any related
Indemnitee contained in or made pursuant to any Operative Agreement;

                        (6) To the extent attributable to the failure by such
Indemnitee or any related Indemnitee to perform or observe any agreement,
covenant or condition on its part to be performed or observed in any Operative
Agreement;

                        (7) To the extent attributable to the offer or sale by
such Indemnitee or any related Indemnitee of any interest in the Aircraft or
this Lease or any similar interest (other than during and in connection with the
continuance of an Event of Default or pursuant to and in accordance with
SECTIONS 9, 10, 15, 19 or 20 hereof), in violation of the Securities Act or
other applicable federal, state or foreign securities Laws (other than any
thereof caused by the acts or omissions of Lessee);

                        (8) Other than during the continuation of an Event of
Default, to the extent attributable to the authorization or giving or
withholding of any future amendments, supplements, waivers or consents with
respect to any Operative Agreement other than such as have been requested by
Lessee or as are required by the terms of the Operative Agreements (unless such
requirement results from the actions of an Indemnitee not required by or made
pursuant to the Operative Agreements);

                        (9) To the extent attributable to any amount which such
Indemnitee or any related Indemnitee expressly agrees to pay or such Indemnitee
or any related Indemnitee expressly agrees shall not be paid by or be reimbursed
by Lessee;

                        (10) To the extent that such Expense is a loss of future
profits, a cost or expense unreasonably incurred by, or an ordinary and usual
operating or overhead expense of, such Indemnitee (it being understood that
out-of-pocket expenses

                                      -17-

<PAGE>

payable to third parties do not constitute "ordinary and usual operating or
overhead expenses");

                        (11) To the extent attributable to the deregistration of
the Aircraft under the Act as a result of Lessor or any related Indemnitee not
being a Citizen of the United States as a result of any act of Lessor or any
related Indemnitee (not taken at the request of the Lessee);

                        (12) For any Lessor Lien;

                        (13) To the extent incurred by or asserted against an
Indemnitee or any related Indemnitee as a result of any "prohibited
transaction", within the meaning of Section 406 of ERISA or Section 4975(c)(1)
of the Code;

                        (14) For any loss attributable to, arising from or in
connection with any inspections or inspection rights arising from or in
connection with any of the Operative Documents or the Transactions; or

                        (15) To the extent attributable to any Indemnitee or
any related Indemnitee in its capacity as the manufacturer, seller, servicer,
repairer, tester, refurbisher or storage keeper of the Aircraft, Airframe,
Engine or any Part.

            For purposes of this SECTION 3(j), a Person shall be considered a
"related" Indemnitee with respect to an Indemnitee if such Person is an
Affiliate or employer of such Indemnitee, a director, officer, employee, agent,
or servant of such Indemnitee or any such Affiliate or a successor, permitted
assignee or Transferee of any of the foregoing.

            (iii) SEPARATE AGREEMENT. This Agreement constitutes a separate
agreement with respect to each Indemnitee and is enforceable directly by each
such Indemnitee.

            (iv) NOTICE. If a claim for any Expense that an Indemnitee shall be
indemnified against under this SECTION 3(j) is made, such Indemnitee shall give
prompt written notice thereof to Lessee. Notwithstanding the foregoing, the
failure of any Indemnitee to notify Lessee as provided in this SECTION
3(j)(iv), or in SECTION 3(j)(v), shall not release Lessee from any of its
obligations to indemnify such Indemnitee hereunder, except to the extent that
such failure results in an additional Expense to Lessee (in which event Lessee
shall not be responsible for such additional expense) or materially impairs
Lessee's ability to contest such claim.

            (v) NOTICE OF PROCEEDINGS; DEFENSE OF CLAIMS; LIMITATIONS. (a) In
case any action, suit or proceeding shall be brought against any Indemnitee for
which Lessee is responsible under this SECTION 3(j), such Indemnitee shall
notify Lessee of the

                                      -18-

<PAGE>

commencement thereof and Lessee may, at its expense, participate in and to the
extent that it shall wish (subject to the provisions of the following
paragraph), assume and control the defense thereof and, subject to this SECTION
3(j)(v), settle or compromise the same.

                  (b) Lessee or its insurer(s) shall have the right, at its or
their expense, to investigate or, if Lessee or its insurer(s) shall agree not to
dispute liability to the Indemnitee giving notice of such action, suit or
proceeding under this SECTION 3(j)(v) for indemnification hereunder or under any
insurance policies pursuant to which coverage is sought, control the defense of,
any action, suit or proceeding, relating to any Expense for which
indemnification is sought pursuant to this SECTION 3(j)(v), and each Indemnitee
shall cooperate with Lessee or its insurer(s) with respect thereto; PROVIDED,
that Lessee shall not be entitled to control the defense of any such action,
suit, proceeding or compromise any such Expense during the continuance of any
Event of Default arising hereunder. In connection with any such action, suit or
proceeding being controlled by Lessee, such Indemnitee shall have the right to
participate therein, at its sole cost and expense, with counsel reasonably
satisfactory to Lessee; PROVIDED, that such Indemnitee's participation does not,
in the reasonable opinion of the independent counsel appointed by the Lessee or
its insurers to conduct such proceedings, interfere with the defense of such
case. Notwithstanding any of the foregoing to the contrary, Lessee shall not be
entitled to assume responsibility for and control of any such judicial or
administrative proceedings if such proceedings will involve a material risk of
the sale, forfeiture or loss of the Aircraft or any part thereof unless in such
an event Lessee shall have posted adequate bond or other security in respect to
such risk, or if such proceedings could result in any criminal liability for
such Indemnitee.

                  (c) In no event shall any Indemnitee enter into a settlement
or other compromise with respect to any Expense without the prior written
consent of Lessee, which consent shall not be unreasonably withheld or delayed.
Any settlement or compromise without such consent of Lessee shall be deemed a
waiver by such Indemnitee of its right to be indemnified with respect to such
Expense under this SECTION 3(j).

                  (d) In the case of any Expense indemnified by the Lessee
hereunder which is covered by a policy of insurance maintained by Lessee
pursuant to SECTION 11 of this Lease, at Lessee's expense, each Indemnitee
agrees to cooperate with the insurers in the exercise of their rights to
investigate, defend or compromise such Expense as may be required to retain the
benefits of such insurance with respect to such Expense.

                  (e) If an Indemnitee is not a party to this Agreement, Lessee
may require such Indemnitee to agree in writing to the terms of this SECTION
3(j) and SECTION 24 prior to undertaking any defense of or making any payment to
such Indemnitee under this SECTION 3(j).

                  (f) Nothing herein shall be deemed to be a guarantee by Lessee
of any residual value of the Aircraft.

                                      -19-

<PAGE>

                  (g) Nothing contained in this SECTION 3(j)(v) shall be deemed
to require an Indemnitee to contest any Expense or to assume responsibility for
or control of any judicial proceeding with respect thereto.

            (vi) INFORMATION. Lessee will provide the relevant Indemnitee with
such information not within the control of such Indemnitee, as is in Lessee's
control or is reasonably available to Lessee, which such Indemnitee may
reasonably request and will otherwise cooperate with such Indemnitee so as to
enable such Indemnitee to fulfill its obligations under SECTION 3(j)(v). The
Indemnitee shall supply Lessee with such information not within the control of
Lessee, as is in such Indemnitee's control or is reasonably available to such
Indemnitee, which Lessee may reasonably request to control or participate in any
proceeding to the extent permitted by SECTION 3(j)(v).

            (vii) EFFECT OF OTHER INDEMNITIES; SUBROGATION; FURTHER ASSURANCES.
Upon the payment in full by Lessee of any indemnity provided for under this
Agreement, Lessee, without any further action and to the full extent permitted
by Law, will be subrogated to all rights and remedies of the person indemnified
(other than with respect to any of such Indemnitee's insurance policies) in
respect of the matter as to which such indemnity was paid. Each Indemnitee will
give such further assurances or agreements and cooperate with Lessee to permit
Lessee to pursue such claims, if any, to the extent reasonably requested by
Lessee and at Lessee's expense.

            (viii) REFUNDS. If an Indemnitee receives any refund, in whole or in
part, with respect to any Expense paid by Lessee hereunder, it will promptly pay
the amount refunded (but not an amount in excess of the amount Lessee or any of
its insurers has paid in respect of such Expense) over to Lessee unless an Event
of Default shall have occurred and be continuing, in which case such amounts
shall be paid over to Lessor to hold as security for Lessee's obligations under
the Operative Agreements or, if requested by Lessee, applied to satisfy such
obligations.

SECTION 4. DISCLAIMER; LESSOR'S AND LESSEE'S REPRESENTATIONS, WARRANTIES AND
AGREEMENTS.

      (a) DISCLAIMER. LESSOR LEASES AND LESSEE TAKES THE AIRCRAFT, EACH ENGINE
AND EACH PART THEREOF "AS-IS," "WHERE-IS" AND "WITH ALL FAULTS." EXCEPT AS
EXPRESSLY PROVIDED HEREIN, NONE OF LESSOR NOR ITS AFFILIATES MAKES, HAS MADE OR
SHALL BE DEEMED TO HAVE MADE, AND EACH HEREBY EXPRESSLY DISCLAIMS AND WILL BE
DEEMED TO HAVE EXPRESSLY DISCLAIMED, ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, AS TO THE TITLE, AIRWORTHINESS, WORKMANSHIP, CONDITION, DESIGN,
OPERATION, MERCHANTABILITY OR FITNESS FOR USE OR FOR A PARTICULAR PURPOSE OF THE
AIRCRAFT, EACH ENGINE OR ANY PART THEREOF; AS TO THE ABSENCE OF LATENT OR OTHER

                                      -20-

<PAGE>

DEFECTS, WHETHER OR NOT DISCOVERABLE; AS TO THE ABSENCE OF ANY INFRINGEMENT OF
ANY PATENT, TRADEMARK OR COPYRIGHT; 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, EACH ENGINE OR ANY PART
THEREOF.

      (b) LESSEE'S REPRESENTATIONS AND WARRANTIES. Lessee hereby represents and
warrants, which representations and warranties shall survive the execution and
delivery of this Lease and the delivery of the Aircraft, that

            (i) except for (A) the filing for recordation (and the recordation)
of this Lease, Lease Supplement No. 1, and the FAA Bill of Sale, all with the
FAA, (B) the registration of the Aircraft with the FAA pursuant to the Act in
the name of the Lessor, (C) the filing of a protective Uniform Commercial Code
financing statement with the Secretary of State of the State of Delaware (and
assignments thereof and continuation statements at periodic intervals), (D) the
taking of possession and retention by the Lessor of the original counterparts of
the Lease and Lease Supplement No. 1 and (E) the affixation of placards referred
to in SECTION 7(f) of this Lease, no further filing or recording of this Lease
or of any other document (including any financing statement under Revised
Article 9 or Article 9 of the Uniform Commercial Code) and no further action is
necessary, under the laws of the United States of America or the State of
Delaware, in order to fully protect and establish Lessor's interest in the
Aircraft and this Lease as against Lessee or any third party claiming by,
through or under Lessee;

            (ii) Lessee holds all licenses, permits and franchises from the
appropriate Government Entities necessary to authorize Lessee to lawfully engage
in air transportation and to carry on scheduled commercial cargo service as
currently conducted, except where the failure to so hold any such license,
permit or franchise would not have a material adverse effect on the condition
(financial or otherwise), business or properties of Lessee;

            (iii) Lessee is a Certificated Air Carrier, and its jurisdiction of
organization is the State of Delaware;

            (iv) no Default has occurred and is continuing; and

            (v) Lessor is entitled to the protection of Section 1110 of the
Bankruptcy Code in connection with its right to take possession of the Airframe
and Engines and to enforce any of its rights or remedies under this Lease in the
event of a case under the Bankruptcy Code in which Lessee is a debtor.

      (c) LESSOR'S COVENANTS. Lessor covenants that neither it nor any Person

                                      -21-

<PAGE>

claiming by, through or under it will, through its own actions or inactions,
interfere in Lessee's continued possession, use, operation and quiet enjoyment
of the Aircraft, any Engine or any Part and other rights with respect to the
Aircraft hereunder during the Term unless an Event of Default has occurred and
is continuing, and this Lease shall not be terminated except as provided herein;
PROVIDED that Lessee is continuing to perform its duties and obligations under
this Lease for the benefit of Lessor. Lessor covenants that it will not directly
or indirectly create, incur, assume or suffer to exist any Lessor Lien on or
with respect to the Airframe or any Engine.

      (d) MANUFACTURERS' WARRANTIES. None of the provisions of this Lease shall
be deemed to amend, modify or otherwise affect the representations, warranties
or other obligations (express or implied) of the Manufacturer, the Engine
Manufacturer, any subcontractor or supplier of the Manufacturer or the Engine
Manufacturer with respect to the Airframe, the Engines or any Parts, or to
release the Manufacturer, the Engine Manufacturer, or any such subcontractor or
supplier, from any such representation, warranty or obligation. Unless an Event
of Default shall have occurred and be continuing under SECTION 14, Lessor agrees
to make available to Lessee such rights as Lessor may have (to the extent
assignable by Lessor) under any warranty with respect to the Aircraft, the
Airframe or any Engine made by the Manufacturer, the Engine Manufacturer, or any
affiliate thereof or any of its subcontractors or suppliers and any other claims
against the Manufacturer, the Engine 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 the Purchase Agreement Assignment. At any
time an Event of Default has occurred and is continuing and this Lease has been
duly declared in default, all of Lessee's rights under any warranty or other
obligation with any of such Persons, with respect to the Aircraft shall
automatically revert to Lessor.

SECTION 5. RETURN OF THE AIRCRAFT.

      (a) CONDITION UPON RETURN. Lessee shall comply with each of the provisions
of EXHIBIT B, which provisions are hereby incorporated by this reference as if
set forth in full herein. All references to "SECTION 5" or "this SECTION 5"
shall be deemed to include EXHIBIT B.

      (b) STORAGE AND RELATED MATTERS. Unless Lessee has elected to purchase the
Aircraft in accordance with the terms hereof, if Lessor gives written notice to
Lessee not less than thirty (30) days nor more than one hundred twenty (120)
days prior to the end of the Term requesting storage of the Aircraft upon its
return hereunder, Lessee will assist Lessor, at Lessor's expense, in arranging
storage for the Aircraft for a period up to thirty (30) days, commencing on the
date of such return, and upon request of Lessor to Lessee made at least ten (10)
days prior to the end of such initial thirty (30) day period, for an additional
one hundred twenty (120) day period commencing upon expiration of such initial
period, at such storage facility in the forty eight (48) contiguous states of
the United States of America as Lessee and Lessor may agree; PROVIDED that such
location shall be a location generally used

                                      -22-

<PAGE>

for the storage of commercial aircraft by aircraft owners or operators.
Notwithstanding SUBSECTION (A) of EXHIBIT B, such storage shall be deemed to be
the return location of the Aircraft for purposes of such EXHIBIT B. Such storage
shall be at Lessor's risk and expense and Lessor shall pay all applicable
storage, maintenance and insurance fees and expenses. Lessee's obligation to
assist Lessor in arranging storage for the Aircraft shall be subject to Lessor
entering into an agreement satisfactory to Lessee prior to the commencement of
the storage period with the storage facility providing, among other things, that
Lessor shall bear all storage, maintenance charges (other than those to be paid
by Lessee as set forth herein and maintenance required as a direct breach of
Lessee's obligations under this SECTION 5) and other costs (including those
costs referred to above) other than those to be paid by Lessee as set forth
herein) and incurred relating to such storage. Lessee agrees to arrange for
insurance coverage for the Aircraft during such storage period; PROVIDED that
Lessor reimburses Lessee for its out-of-pocket costs therefor.

      (c) RETURN OF OTHER ENGINES. In the event that any Engine owned by Lessor
shall not be installed on the Airframe at the time of return hereunder, Lessee
shall be required to return the Airframe hereunder with an Acceptable Alternate
Engine meeting the requirements of, and title of which is transferred to Lessor
in accordance with, this SECTION 5 and SECTION 10. Thereupon, Lessor will
transfer or cause to be transferred to Lessee on an "as-is, where-is, with all
faults" basis the Engine constituting part of such Aircraft but not installed on
such Airframe at the time of the return of the Airframe.

      (d) OBLIGATIONS CONTINUE UNTIL RETURN. If Lessee shall fail to return the
Aircraft at the time and in the condition specified herein, the Term of this
Lease shall be deemed to have been automatically extended (unless Lessor has
terminated this Lease pursuant to SECTION 15(e) hereof) and all obligations of
Lessee under this Lease shall continue in effect with respect to the Aircraft
until the Aircraft is so returned to Lessor and Lessee shall pay to Lessor an
amount equal to the Per Diem Rent for each day after the end of the Term to,
but excluding, the day of such return; PROVIDED, HOWEVER, that Lessee shall not
be responsible for Lessor's failure to accept return of the Aircraft in
accordance with this SECTION 5 in a timely manner or for any Rent with respect
to periods after Lessee has tendered the Aircraft for return in accordance with
this Lease. Any Rent owed to Lessor pursuant to this SECTION 5(d) shall be
payable upon acceptance of the Aircraft by Lessor. The provisions of this
SECTION 5(d) shall not limit any remedy the Lessor would otherwise have for
breach of SECTION 5(a).

SECTION 6. LIENS. 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 or in this Lease, except (i) the right of Lessor as owner
of the Aircraft, the rights of Lessor and Lessee under this Lease, the rights of
any Permitted Sublessee under a Permitted Sublease, and any other rights of any
Person existing pursuant to the Operative Documents, (ii) the rights of others
under agreements or arrangements to the extent permitted by the terms of

                                      -23-

<PAGE>

SECTIONS 7(b) and 8(b) hereof, (iii) Lessor Liens, (iv) Liens for Taxes of
Lessee either not yet due or being contested in good faith by appropriate
proceedings so long as such proceedings do not involve any material danger of
the sale, forfeiture or permanent loss of the Airframe or any Engine or, any
risk of any material civil liability or any risk of criminal liability on the
part of Lessor, (v) materialmen's, mechanics', workmen's, repairmen's,
employees' or other like Liens arising in the ordinary course of Lessee's or any
Permitted Sublessee's business (including those arising under maintenance
agreements entered into in the ordinary course of business) securing obligations
that are not overdue for a period of more than sixty (60) days or are being
contested in good faith by appropriate proceedings so long as such proceedings
do not involve any material danger of the sale, forfeiture or loss of the
Airframe or any Engine or any interest of the Lessor, any risk of any material
civil liability or any risk of criminal liability on the part of Lessor, (vi)
Liens arising out of any judgment or award against Lessee or any Permitted
Sublessee not covered by insurance, unless the judgment secured shall not,
within sixty (60) days after the entry thereof, have been discharged, vacated,
reversed or execution thereof stayed pending appeal or shall not have been
discharged, vacated or reversed within sixty (60) days after the expiration of
such stay or any risk of any material civil liability or any risk of criminal
liability on the part of the Lessor, (vii) any other Lien with respect to which
Lessee or any Permitted Sublessee shall have provided a sufficient bond, cash
collateral or other security or maintains adequate reserves in the reasonable
and good faith judgment of Lessor, and (viii) Liens approved in writing by
Lessor. Lessee will promptly, at its own expense, take (or cause to be taken)
such actions as may be necessary duly to discharge any such Lien not excepted
above if the same shall arise at any time during the Term.

SECTION 7. REGISTRATION, MAINTENANCE, OPERATION AND REGISTRATION; POSSESSION AND
PERMITTED SUBLEASES; INSIGNIA.

      (a) REGISTRATION, MAINTENANCE, OPERATION AND REGISTRATION.

                        (1) REGISTRATION AND MAINTENANCE. Lessee, at its own
cost and expense, shall: (A) forthwith upon the delivery thereof hereunder,
cause the Aircraft to be duly registered in the name of Lessor, subject to
CLAUSE (3) of this SECTION 7(a), and subject to Lessor's compliance with SECTION
21, to remain duly registered in the name of Lessor under the Transportation
Code; PROVIDED that Lessor shall execute and deliver all required documents and
any instruments that Lessee (or any Permitted Sublessee) may reasonably request
for the purpose of effecting and continuing such registration, and shall not
register the Aircraft or permit (except to the extent that such registration
cannot be effected with the FAA because of Lessor's failure to comply with the
U.S. citizenship requirements for registration under the Transportation Code)
the Aircraft to be registered under any laws other than the Transportation Code
at any time, except as provided in CLAUSE (3) of this SECTION 7(a); (B) on a
nondiscriminatory basis relative to the other aircraft which it operates,
maintain, service, repair and/or overhaul (or cause to be maintained, serviced,
repaired and/or overhauled) the

                                      -24-

<PAGE>

Aircraft (i) so as to keep the Aircraft in as good an operating condition as
when delivered to Lessee (ordinary wear and tear excepted) and in such condition
as necessary to enable the airworthiness certification for the Aircraft to be
maintained in good standing at all times under Part 121 of the Federal Aviation
Regulations (or under the applicable requirements of the aviation authority of
any other jurisdiction in which the Aircraft may then be registered as permitted
by SECTION 7 hereof) except (a) when the Aircraft is being temporarily stored
and is not operational, (b) when the Aircraft is being serviced, repaired,
maintained, overhauled, tested or modified as permitted or required by the terms
of this Lease or (c) when all of Lessee's Boeing 747-47UF aircraft of comparable
vintage and configuration, powered by power-plants and having systems and
avionics comparable to the Aircraft ("SIMILAR AIRCRAFT") have been grounded by
the FAA or under the laws of any jurisdiction in which the Aircraft may then be
registered as permitted by SECTION 7 hereof, or such aviation authority has
revoked or suspended the airworthiness certificates for all such aircraft, and
(ii) in accordance with the maintenance program approved by the government of
registry for the Aircraft and utilizing the same manner of maintenance, service,
repair or overhaul used by Lessee (or any Permitted Sublessee) with respect to
Similar Aircraft operated by it and without in any way discriminating against
the Aircraft on the basis of its leased status or otherwise; (C) maintain or
cause to be maintained all records, logs and other materials required to be
maintained in respect of the Aircraft by the FAA or the aviation authority of
any other jurisdiction in which the Aircraft may then be registered as permitted
by this SECTION 7 hereof; and (D) promptly furnish to Lessor any information
required to enable Lessor to perform any applicable government filings required
of the owner of the Aircraft by such registration jurisdiction.

                        (2) OPERATION. Lessee will not (and will not allow any
other Permitted Sublessee to) maintain, use, service, repair, overhaul or
operate the Aircraft in violation of any Law or certificate of any government or
governmental authority (domestic or foreign) having jurisdiction over the
Aircraft, or contrary to any airworthiness certificate, license or registration
relating to the Aircraft issued by any such authority, except (A) immaterial or
non-recurring violations with respect to which corrective measures are taken
promptly by Lessee or a Permitted Sublessee, as the case may be, upon discovery
thereof, and (B) to the extent Lessee (or any Permitted Sublessee) is contesting
in good faith and by appropriate proceedings the validity or application of any
such law, rule, regulation or order which does not involve (x) any material risk
of sale, forfeiture or permanent loss of the Aircraft, the Airframe, any Engine
or any Part, (y) any risk of criminal liability to the Lessor, or (z) any risk
of material civil liability against the Lessor. Lessee will not (and will not
allow any Permitted Sublessee to) operate the Aircraft in any area excluded from
coverage by insurance provided pursuant to SECTION 11 hereof; PROVIDED,
HOWEVER, that the failure of Lessee to comply with the provisions of this
sentence shall not give rise to an Event of Default hereunder if indemnification
from the United States Government complying with SECTION 11(c) has been
provided or where such failure is attributable to extraordinary circumstances
involving an isolated occurrence or series of incidents not in the ordinary
course of the regular operations of Lessee or any Permitted Sublessee such as a
hijacking,

                                      -25-

<PAGE>

medical emergency, equipment malfunction, weather condition, navigational error,
or other isolated extraordinary event beyond the control of Lessee or any
Permitted Sublessee and Lessee or any Permitted Sublessee is diligently and in
good faith proceeding to rectify such failure.

                        (3) REREGISTRATION. Upon Lessee's compliance with all of
the terms of SECTION 7 hereof, including, without limitation, this CLAUSE (3),
Lessor shall, at the request and sole expense of Lessee, cooperate with Lessee
to take all actions required to change the registration of the Aircraft to the
designated country. So long as no Event of Default shall have occurred and be
continuing, Lessee may elect to effect a change in registration of the Aircraft,
at Lessee's cost and expense, so long as the country of registry of the Aircraft
is a country listed in the last paragraph of this SECTION 7(a)(3). Upon the
request of Lessee and provided no Event of Default shall have occurred and be
continuing, the country list in the last paragraph of this SECTION 7(a)(3) may
be amended from time to time to include any other country which would provide
substantially equivalent protection for the rights and remedies of owner
participants, lessors or lenders in similar transactions and with which the
United States of America maintains normal diplomatic relations. In order for
Lessee to effect a change in the country of registry of the Aircraft, Lessee
shall deliver to Lessor and/or as Lessor otherwise shall direct, the following:

                        (i) an Officer's Certificate certifying that (A) the
insurance or self-insurance required by SECTION 11 of the Lease shall be in full
force and effect at the time of such change in registration after giving effect
to such change in registration, (B) such change will not result in the
imposition of, or increase in the amount of, any Tax for which Lessee is not
required to indemnify, or is not then willing to enter into a binding agreement
to indemnify Lessor pursuant to this Agreement or the Tax Indemnity Agreement,
(D) the new country of registry imposes aircraft maintenance standards not
materially less stringent than those imposed by the least stringent of the FAA,
the aeronautical authority of Canada, Switzerland, France, Germany, Japan, The
Netherlands or the United Kingdom, (E) any import or export permits necessary to
take the Aircraft into such jurisdiction of reregistration and any exchange
permits necessary to allow all Rent to continue to be paid are in full force and
effect to the extent obtainable with commercially reasonable effort and to the
extent customary to obtain, and (F) any value added tax, customs duty, tariff or
other governmental charge or tax relating to the change in jurisdiction of
registration of the Aircraft shall have been paid; and

                        (ii) a favorable opinion (subject to customary
bankruptcy and equitable exceptions and to other exceptions customary in foreign
legal opinions generally) of counsel addressed to Lessor, from counsel qualified
in the laws of the relevant jurisdiction and reasonably acceptable to the
addressees to the effect that: (A) the obligations of Lessee, and the rights and
remedies of Lessor, under the Lease shall remain valid binding and enforceable
under the laws of such jurisdiction; (B) it is not necessary, solely as a

                                      -26-

<PAGE>

consequence of such change in registration and without giving effect to any
other activity of Lessor, (or any Affiliate thereof), for Lessor to register or
qualify to do business in such jurisdiction; and (C) after giving effect to such
change in registration, the ownership interest of the Lessor in the Aircraft
shall be recognized and all filing, recording or other action necessary to
protect the same shall be undertaken. Upon receipt of the foregoing certificate
and opinion, Lessor will make such change of registration.

            Lessee shall pay all costs, expenses, fees, recording and
registration Taxes, including the reasonable fees and expenses of counsel to
Lessor, in connection with any such change in registration.

            The list of countries in which Lessee is permitted to effect a
reregistration of the Aircraft in accordance with the procedures of this SECTION
7(a)(3) is as follows:

Australia         the Netherlands
Austria           New Zealand
Bahamas           Norway
Belgium           People's Republic of China
Bermuda           Portugal
Canada            Republic of China (Taiwan)
Denmark           Singapore
Finland           South Africa
France            Spain
Greece            Sweden
Germany           Switzerland
Iceland           United Kingdom
Ireland           United States of America
Italy
Japan
Luxembourg

      (b) POSSESSION AND PERMITTED SUBLEASES. Lessee will not, without the prior
written consent of Lessor, sublease or otherwise in any manner deliver, transfer
or relinquish possession of the Airframe or any Engine or install or permit any
Engine to be installed on any airframe other than the Airframe PROVIDED that so
long as Lessee shall comply (or shall cause compliance) with the provisions of
SECTION 7 and SECTION 11 hereof, Lessee may, or may permit any Permitted
Sublessee to, without the prior written consent of Lessor:

            (i) subject the Airframe and the Engines or engines then installed
thereon to normal interchange agreements or any Engine to pooling or similar
arrangements, in each case on substantially similar terms as are customarily
obtained by similarly situated U.S. Air Carriers operating Similar Aircraft and
entered into by Lessee in the ordinary course of its business; PROVIDED that (A)
no such agreement or arrangement requires the transfer of

                                      -27-

<PAGE>

title to the Airframe, (B) if Lessor's interest in any Engine shall be divested
under any such agreement or arrangement, such divestiture shall be deemed to be
an Event of Loss with respect to such Engine and Lessee shall comply with
SECTION 10(b) hereof in respect thereof, Lessor not intending hereby to waive
any right or interest it may have to or in such Engine under Law until
compliance by Lessee with such SECTION 10(b), (c) any interchange agreement to
which the Airframe may be subject shall be with a U.S. Air Carrier or a Foreign
Air Carrier and (D) the rights of any Person (other than Lessee) under an
interchange agreement covering the Airframe shall be expressly subject and
subordinate to all of the terms of this Lease;

            (ii) deliver possession of the Airframe or any Engine to the
manufacturer thereof (or for delivery thereto) or to any organization (or for
delivery thereto) for testing, service, repair, maintenance or overhaul work on
the Airframe or Engine or any part of any thereof or for alterations or
modifications in or additions to such Airframe or Engine to the extent required
or permitted by the terms of SECTION 8(c) hereof;

            (iii) install an Engine on an airframe owned by Lessee or any
Permitted Sublessee free and clear of all Liens, except: (a) Permitted Liens and
those which apply only to the engines (other than 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),
(B) in the case of airframe interchange agreements contemplated by CLAUSE (i)
above, the rights of any U.S. Air Carrier or Foreign Air Carrier under such
interchange agreements; PROVIDED that Lessor's interest in such Engines shall
not be divested or impaired as a result thereof; (c) in the case of pooling or
similar arrangements contemplated by CLAUSE (i) above, the rights of third
parties under such pooling or similar arrangements; PROVIDED that Lessor's
interest in such Engine shall not be divested or impaired as a result thereof;
and (D) mortgage liens or other security interests; PROVIDED that (as regards
this CLAUSE (D) the documents creating such mortgage liens or other security
interests (or, if applicable, another enforceable written agreement governing
such mortgage liens or other security interests) effectively provide that such
Engine shall not become subject to the Lien of such mortgage or security
interest, notwithstanding the installation thereof on such airframe;

            (iv) install an Engine on an airframe leased to Lessee or any
Permitted Sublessee or purchased by Lessee or any Permitted Sublessee subject to
a conditional sale or other security agreement; PROVIDED that (x) such airframe
is free and clear of all Liens, except: (A) the rights of the parties to the
lease or conditional sale or other security agreement covering such airframe, or
their assignees and (B) Liens of the type permitted by CLAUSE (iii) of this
PARAGRAPH (b) and (y) such lease, conditional sale or other security agreement
effectively provides that such Engine shall not become subject to the Lien of
such lease, conditional sale or other security agreement, notwithstanding the
installation thereof on such airframe;

            (v) install an Engine on an airframe owned by Lessee, leased to

                                      -28-

<PAGE>

Lessee or a Permitted Sublessee or purchased by Lessee or a Permitted Sublessee
subject to a conditional sale or other security agreement under circumstances
where neither CLAUSE (iii) nor CLAUSE (iv) of this PARAGRAPH (b) is applicable;
PROVIDED that such installation shall be deemed an Event of Loss with respect to
such Engine and Lessee shall comply with SECTION 10(b) hereof in respect
thereof, Lessor not intending hereby to waive any right or interest it may have
to or in such Engine under applicable Law until compliance by Lessee with such
SECTION 10(b);

            (vi) to the extent permitted by SECTION 8(b) hereof, subject any
appliances, Parts or other equipment owned by Lessor and leased by Lessor and
removed from the Airframe or any Engine to any pooling arrangement referred to
in CLAUSES (i) and (iii) of this PARAGRAPH (b);

            (vii) subject the Airframe or any Engine to the Civil Reserve Air
Fleet Program and transfer possession of the Airframe or any Engine to the
United States Government or any instrumentality or agency thereof backed by the
full faith and credit of the United States Government, so long as Lessee shall
(A) promptly notify Lessor of any transfer pursuant to the Civil Reserve Air
Fleet Program in any contract year (and prompt notice of any subsequent transfer
pursuant to the Civil Reserve Air Fleet Program) and provide Lessor with the
name and address of the Contracting Office Representative for the Air Mobility
Command of the United States Air Force to whom notice must be given pursuant to
SECTION 15 hereof and (B) promptly notify Lessor upon transferring possession of
the Airframe or any Engine to the United States of America or any agency or
instrumentality thereof backed by the full faith and credit of the United States
Government;

            (viii) RESERVED; and

            (ix) so long as no Event of Default has occurred and is continuing,
Lessee may, at any time in its sole discretion, enter into any sublease with any
Permitted Sublessee; PROVIDED, HOWEVER, that no sublease entered into pursuant
to this CLAUSE (ix) shall (i) be to a Person that, at the time of entering into
such sublease, is subject to any bankruptcy, insolvency or reorganization
proceedings, (ii) permit further sublease of the Aircraft by any Permitted
Sublessee or fail to be expressly made subject and subordinate to the terms of
this Lease, (iii) require Lessor to qualify to do business in any jurisdiction
in which it is not otherwise required to do so, (iv) extend beyond the
expiration of the Basic Term or any Renewal Term or Additional Renewal Term then
in effect, unless Lessee shall have irrevocably committed to purchase the
Aircraft or renew the Lease in accordance with the terms hereof at the end of
the Basic Term, Renewal Term or Additional Renewal Term, as the case may be, to
a date beyond the latest permissible expiration date of this Lease; PROVIDED
FURTHER that in connection with a sublease to a Permitted Sublessee which is
domiciled in a foreign country (1) the United States of America maintains
diplomatic relations with the country of domicile of such Permitted Sublessee
(and, in the case of the Republic of China (Taiwan), diplomatic relations at
least as good as those in effect on the Delivery Date), (2)

                                      -29-

<PAGE>

Lessee shall have furnished Lessor an opinion of counsel reasonably satisfactory
to Lessor, in the country of domicile of such Permitted Sublessee, that (a) the
terms of such sublease are the legal, valid and binding obligations of the
parties thereto, enforceable under the laws of such jurisdiction, (b) it is not
necessary for Lessor to register or qualify to do business in such jurisdiction
(if not already so registered or qualified) as a result, in whole or in part, of
the proposed sublease, (c) Lessor's title to the Aircraft, Airframe and Engines
will be recognized in such jurisdiction, (d) the Laws of such jurisdiction of
domicile require fair compensation by the government of such jurisdiction,
payable in currency freely convertible into Dollars, for the loss of title to
the Aircraft, Airframe or Engines in the event of a requisition by such
government of such title (unless Lessee shall provide insurance in the amounts
required with respect to hull insurance under SECTION 11 covering the
requisition of title to the Aircraft, Airframe or Engines by the government of
such jurisdiction so long as the Aircraft, Airframe or Engines are subject to
such sublease) and (e) the agreement of such Permitted Sublessee that its rights
under the sublease are subject and subordinate to all the terms of this Lease is
enforceable against such Permitted Sublessee under applicable law and (3) the
terms and conditions of such sublease shall include provisions for the
maintenance, operation, possession, inspection and insurance of the Aircraft
that are the same in all material respects as the applicable provisions of this
Lease; and PROVIDED that (A) Lessee shall pay Lessor's reasonable outside legal
fees and expenses incurred in connection with any proposed sublease and shall
indemnify it for any reasonable out-of-pocket additional costs and expenses to
the extent incurred as a result of such sublease, (B) Lessee shall furnish to
Lessor evidence reasonably satisfactory that the insurance required by SECTION
11 remains in effect and (C) all necessary documents shall have been filed,
registered or recorded in such public offices in such jurisdiction as may be
required to fully preserve the Lessor's title to the Aircraft, Airframe and
Engines. Lessee shall provide Lessor with a copy of any sublease which has a
term of more than three (3) years, PROVIDED Lessee may require Lessor to enter a
suitable confidentiality agreement as to any information it reasonably may deem
commercially sensitive and confidential. Lessee shall grant a security interest
in, and shall assign for security purposes, to Lessor any sublease which has a
duration of five (5) years or more. In addition, Lessee shall furnish to Lessor
notice of any sublease within a reasonable period of time (but not more than 30
days) after the commencement of such sublease.

      (c) CERTAIN LIMITATIONS ON SUBLEASING OR OTHER RELINQUISHMENTS OF
POSSESSION. The rights of any Permitted Sublessee or other transferee who
receives possession by reason of a transfer permitted by SECTIONS 7(a) and (b)
(other than where the transfer is of an Engine which is deemed an Event of Loss)
shall be subject and subordinate to, and any Permitted Sublease or Airframe
interchange arrangement permitted by SECTIONS 7(a) and (b) shall be expressly
subject and subordinate to, all the terms of this Lease and Lessor's rights,
subject in all respects to SECTION 4(c), to repossess and to void such Permitted
Sublease or other permitted transfer upon the occurrence of an Event of Default;
and Lessee shall remain primarily liable hereunder for the performance of all of
the terms of this Lease. The terms of any such Permitted Sublease or permitted
transfer shall not by their terms permit

                                      -30-

<PAGE>

any Permitted Sublessee or other permitted transferee to take any action not
permitted to be taken by Lessee in this Lease with respect to the Aircraft. No
pooling agreements, sublease or other relinquishment of possession of the
Airframe or any Engine or Wet Lease shall in any way discharge or diminish any
of Lessee's obligations to Lessor hereunder (including, without limitation,
SECTION 5 hereof) or constitute a waiver of Lessor's rights or remedies
hereunder with respect to the Aircraft. Lessor agrees, for the benefit of Lessee
(and any Permitted Sublessee) and for the benefit of any mortgagee or other
holder of a security interest in any engine (other than an Engine) owned by
Lessee (or any Permitted Sublessee), any lessor of any engine (other than an
Engine) leased to Lessee (or any Permitted Sublessee) and any conditional vendor
of any engine (other than an Engine) purchased by Lessee (or any Permitted
Sublessee) subject to a conditional sale agreement or any other security
agreement, that no interest shall be created hereunder in any engine so owned,
leased or purchased and that Lessor or its successors or assigns will acquire or
claim, as against Lessee (or any Permitted Sublessee) or any such mortgagee,
lessor or conditional vendor or other holder of a security interest or any
successor or assignee of any thereof, any right, title or interest in such
engine as the result of such engine being installed on the Airframe.

      (d) WET LEASING, ACMI CONTRACTS OR SIMILAR ARRANGEMENTS; MERGERS;
ASSIGNMENTS. Any Wet Lease, ACMI Contract or similar arrangement under which
Lessee maintains operational control of the Aircraft shall not constitute a
delivery, transfer or relinquishment of possession of the Aircraft for purposes
of SECTION 7(b) and shall not be prohibited by the terms hereof. Neither a Wet
Lease nor an ACMI Contract shall be deemed a "sublease", and the counterparty of
a Wet Lease or an ACMI Contract shall not be deemed to be a "sublessee" for any
purposes under this Lease. Lessor acknowledges that any consolidation or merger
of Lessee or conveyance, transfer or lease of all or substantially all of
Lessee's assets otherwise permitted by the Operative Documents shall not be
prohibited by SECTION 7(b). In addition, Lessor acknowledges that the
restrictions on assignment set forth in SECTION 13 hereof shall not prohibit the
exercise by Lessee of its rights under SECTION 7(b). Any contract that is part
of the United States Civil Reserve Air Fleet Program shall not be deemed to be a
sublease for any purpose under this Lease.

      (e) SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT OF A PERMITTED
SUBLESSEE. Notwithstanding anything to the contrary contained in SECTIONS 7(b)
and 7(c), if: (A) the Lessee assigns a Permitted Sublease to Lessor as security
for the performance of Lessee's obligations under this Lease; (B) the basic rent
and supplemental rent payments under such Permitted Sublease are at least equal
to Lessee's Basic Rent and Supplemental Rent payments under this Lease and such
Permitted Sublease is expressly made subject and subordinate to this Lease; and
(C) the Lessee and the Permitted Sublessee execute and deliver a Subordination,
Non-Disturbance and Attornment Agreement in substantially the form attached
hereto as EXHIBIT F (the "ATTORNMENT AGREEMENT") to Lessor, then Lessor: (1)
shall execute and deliver such Attornment Agreement to the Lessee and Permitted
Sublessee; (2) agrees that the requirement contained in the first sentence of
SECTION 7(c) shall be deemed

                                      -31-

<PAGE>

satisfied by the Attornment Agreement; and (3) shall not disturb the Permitted
Sublessee's possession of the Aircraft, Airframe or Engines during the term of
the Permitted Sublease nor void the Permitted Sublease so long as no event of
default has occurred under the Permitted Sublease.

      (f) INSIGNIA. On or prior to the Delivery Date, or as soon as practicable
thereafter, Lessee agrees to affix and maintain (or cause to be affixed and
maintained), at its expense, in the cockpit of the Airframe adjacent to the
airworthiness certificate therein and on each Engine a nameplate bearing the
inscription:

                            Owned By and Leased From
                     Tuolumne River Aircraft Finance, Inc.

(such nameplate to be replaced, if necessary, with a nameplate reflecting the
name of any successor Lessor. Except as above provided, Lessee will not allow
the name of any Person to be placed on the Airframe or on any Engine as a
designation that might be interpreted as a claim of ownership; PROVIDED that
nothing herein contained shall prohibit Lessee or any Permitted Sublessee from
placing its customary colors and insignia on the Airframe or any Engine.

SECTION 8. REPLACEMENT AND POOLING OF PARTS; ALTERATIONS, MODIFICATIONS AND
ADDITIONS.

      (a) REPLACEMENT OF PARTS. Lessee, at its cost and expense, promptly will
replace or cause to be replaced all Parts, including any such Parts removed from
the Airframe or any Engine 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, except as otherwise provided
in PARAGRAPH (b) or (c) of this SECTION 8. In addition, at its cost and expense,
Lessee may, and may permit a Permitted Sublessee (or any maintenance provider
for the Aircraft) to, remove (or cause to be removed) in the ordinary course of
maintenance, service, repair, overhaul or testing, or as may be required or, in
Lessee's reasonable opinion, advisable, in contemplation of the return of the
Aircraft to Lessor in accordance with this Lease, any Parts, whether or not worn
out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently rendered unfit for use; PROVIDED that Lessee will, except as
otherwise provided herein, at its cost and expense, replace, or cause to be
replaced, such Parts as promptly as practicable. All replacement parts (other
than replacement parts temporarily installed on the Airframe or Engine as
provided in SECTION 8(b) hereof) shall be free and clear of all Liens (except
Permitted Liens), and shall be in as good an operating condition, and shall have
value and utility at least equal to, the Parts replaced, assuming such replaced
Parts were in the condition and repair required to be maintained by the terms
hereof (but without taking into consideration hours and cycles remaining until
overhaul) and will not, when installed, cause the useful life of the Airframe or
any Engines to be diminished. All Parts at any time removed from the Airframe or
any

                                      -32-

<PAGE>

Engine shall remain the property of Lessor, no matter where located, until such
time as such Parts shall be replaced by parts which meet the requirements for
replacement parts specified above. Upon any replacement part becoming
incorporated or installed in or attached to the Airframe or any Engine, without
further act (subject only to Permitted Liens and any arrangement permitted by
SECTION 8(b) hereof), (i) such replacement part shall become the property of
Lessor and shall become subject to this Lease and be deemed a Part for all
purposes hereof to the same extent as the Parts originally incorporated or
installed in or attached to the Airframe or such Engine and (ii) the replaced
Part shall no longer be the property of Lessor and shall no longer be deemed a
Part hereunder, or under this Lease and title to such replaced Part shall vest
in Lessee as provided in this Lease.

      (b) POOLING OF PARTS; TEMPORARY REPLACEMENT PARTS. Any Part removed from
the Airframe or any Engine as provided in SECTION 8(a) hereof may be subjected
by Lessee or any Permitted Sublessee to a normal pooling arrangement of the type
permitted for Engines under SECTION 7(b)(i); provided that the part replacing
such removed Part shall be incorporated or installed in or attached to such
Airframe or Engine in accordance with SECTION 8(a) hereof as promptly as
practicable after the removal of such removed Part. In addition, Lessee or any
Permitted Sublessee, may use temporary parts or pooled parts on the Aircraft as
temporary replacements for Parts; PROVIDED that Lessee as promptly thereafter as
practicable, either causes such pooled or temporary replacement part to become
the property of Lessor free and clear of all Liens other than Permitted Liens or
replaces such replacement part with a further replacement part owned by Lessee
which meets the requirements of SECTION 8(a) hereof and which shall become the
property of Lessor, free and clear of all Liens other than Permitted Liens.

      (c) ALTERATIONS, MODIFICATIONS AND ADDITIONS. Lessee will, at its cost and
expense, make (or cause to be made) such alterations, modifications and
additions to the Airframe and Engines as may be required during the Term to meet
the applicable standards of the FAA or the applicable aviation authority of any
other jurisdiction in which the Aircraft may then be registered as permitted by
SECTION 7 hereof; PROVIDED, HOWEVER, that Lessee or any Permitted Sublessee may,
in good faith, contest the validity or application of any such law, rule,
regulation or order by appropriate proceedings which does not adversely affect
Lessor (or its interest in the Aircraft). In addition, Lessee or any Permitted
Sublessee may from time to time alter the configuration of the Aircraft and may
make such alterations and modifications in and additions to the Airframe or any
Engine as Lessee reasonably may deem desirable in the proper conduct of its
business, including removal of Parts which Lessee or any Permitted Sublessee
reasonably deems to be obsolete or no longer suitable or appropriate for use on
the Airframe or such Engine (such Parts, "OBSOLETE PARTS"); PROVIDED that no
such alteration, modification, removal or addition impairs the condition or
airworthiness of the Airframe or such Engine, or materially diminishes the
value, utility or remaining useful life of the Airframe or such Engine below the
value, utility or remaining useful life thereof immediately prior to such
alteration, modification, removal or addition, assuming that the

                                      -33-

<PAGE>

Airframe or such Engine is in the condition required to be maintained by the
terms of the Lease, except that the value (but not the utility or remaining
useful life) of the Airframe or any Engine may be reduced by the value of
Obsolete Parts which shall have been removed so long as the aggregate value of
all Obsolete Parts which shall have been removed and not replaced shall not
exceed in the aggregate $300,000 in value at the time of removal. All parts
incorporated or installed in or attached or added to the Airframe or an Engine
as the result of such alteration, modification or addition (the "ADDITIONAL
PART" or "ADDITIONAL PARTS") shall, without further act, automatically become
the property of Lessor (provided that, Removable Parts and Parts which may be
removed by any Lessee pursuant to the next sentence shall not automatically
become property of Lessor). Notwithstanding the foregoing, Lessee or any
Permitted Sublessee may remove (and not replace) any Additional Part, PROVIDED
that such Additional Part (i) is in addition to, and not in replacement of or
substitution for, any Part originally incorporated or installed in or attached
to the Airframe or any Engine at the time of delivery thereof under this Lease
or any Part in replacement of or substitution for any such Part, (ii) is not
required to be incorporated or installed in or attached or added to the Airframe
or any Engine pursuant to the terms of SECTION 7(a)(1) or the first sentence of
this SECTION 8(c) and (iii) can readily be removed from the Airframe or such
Engine without causing any material damage to the Aircraft and without
diminishing or impairing the value, utility, condition or remaining useful life
which the Airframe or such Engine would have had at such time had such
alteration, modification or addition not occurred (a "REMOVABLE PART").
Removable Parts may be leased from or financed by third parties other than
Lessor. Upon removal of such Part, the Airframe or such Engine affected shall be
returned to the condition it was prior to such change assuming the Airframe or
such Engine was in the condition and repair required to be maintained by the
terms hereof. Upon the removal thereof as provided above, such Additional Parts
shall no longer be deemed the property of Lessor or part of the Airframe or
Engine from which it was removed and title thereto shall, without further act,
vest in Lessee (or such Permitted Sublessee or such third party lessor or
financing party of the Removable Parts, as the case may be). Any Additional Part
not removed as above provided prior to the return of the Aircraft to Lessor
hereunder shall remain the property of Lessor.

SECTION 9. VOLUNTARY TERMINATION.

      (a) TERMINATION EVENT.

            (i) Lessee shall have the right to elect to terminate this Lease on
any Rent Payment Date occurring on or after the close of the calendar year in
which the seventh (7th) anniversary of the Delivery Date occurs if Lessee shall
have made the good faith determination, which shall be evidenced by a
certificate of a Finance Officer of Lessee, certifying that the Aircraft is
economically obsolete, including if the Aircraft is to be disposed of pursuant
to a program of fleet renewal or surplus to its needs.

            (ii) Lessee shall give to Lessor at least one hundred twenty (120)
days revocable advance written notice of Lessee's intention to so terminate this
Lease

                                      -34-

<PAGE>

pursuant to CLAUSE (i) above (any such notice, a "TERMINATION NOTICE")
specifying the Rent Payment Date on which Lessee intends to terminate this Lease
in accordance with this SECTION 9 (such specified date, a "TERMINATION DATE")
and that Lessee has determined that the Aircraft is economically obsolete or
surplus to its needs.

      (b) OPTIONAL SALE OF THE AIRCRAFT; LESSOR RETENTION OPTION; REVOCATION OF
TERMINATION NOTICE. In the event that Lessee shall have exercised its right to
terminate this Lease pursuant to SECTION 9(a)(i), during the period from the
giving of the Termination Notice until the proposed Termination Date (unless
Lessee shall have revoked the Termination Notice specifying such proposed
Termination Date or Lessor shall have irrevocably elected to retain the Aircraft
pursuant to this SECTION 9(b)), Lessee, as non-exclusive agent for Lessor and
at no expense to Lessor, shall use commercially reasonable efforts to obtain
bids for the purchase of the Aircraft and, in the event it receives any bid,
Lessee shall, within five (5) Business Days after receipt thereof and at least
ten (10) Business Days prior to the proposed Termination Date, certify to
Lessor in writing the amount and terms of such bid, and the name and address of
the party or parties (who shall not be Lessee or any Affiliate of Lessee or any
Permitted Sublessee or any other Person with whom Lessee or any such Affiliate
or any Permitted Sublessee has an arrangement or understanding regarding the
future use of the Aircraft by Lessee or any such Affiliate or any Permitted
Sublessee but who may be Lessor, any Affiliate thereof or any Person contacted
by Lessor) submitting such bid. Subject to the next succeeding sentence, on or
before the Termination Date, subject to the release of all mortgage and security
interests with respect to the Aircraft: (1) Lessee shall deliver the Aircraft,
or cause the Aircraft to be delivered, to the bidder(s), if any, which shall
have submitted the highest cash bid therefor at least ten (10) Business Days
prior to such Termination Date, in the same manner and in the same condition and
otherwise in accordance with all the terms of this Lease as if delivery were
made to Lessor pursuant to SECTION 5, and shall duly transfer to Lessor title to
any engines on the Airframe and not owned by Lessor all in accordance with the
terms of SECTION 5, Lessor shall sell in accordance with the provisions of
SECTION 9(c) hereof, subject to prior or concurrent payment by Lessee of all
amounts due under CLAUSE (3) of this sentence, all of Lessor's right, title and
interest in and to the Aircraft for cash in Dollars to such bidder(s), the total
sales price realized at such sale to be retained by Lessor and (3) Lessee shall
simultaneously pay Lessor in funds of the type specified in SECTION 3(e) hereof,
an amount equal to the sum of (A) the excess, if any, of (i) the Termination
Value for the Aircraft, computed as of the Termination Date, over (ii) the sales
price of the Aircraft sold by Lessor after deducting the reasonable expenses
incurred by Lessor in connection with such sale (other than any fees,
commissions or expenses of any broker retained by more than one broker per
transaction), (B) all unpaid Basic Rent with respect to the Aircraft due prior
to (but not on) such Termination Date and (C) all Supplemental Rent due by
Lessee under this Lease or the other Operative Documents and upon such payment
Lessor simultaneously will transfer to Lessee, in accordance with the provisions
of SECTION 9(c), all of Lessor's right, title and interest in and to any Engines
constituting part of the Aircraft which were not sold with the Aircraft.
Notwithstanding the

                                      -35-

<PAGE>

preceding sentence, Lessor may elect to retain title to the Aircraft unless
Lessee shall have revoked the Termination Notice or shall have accepted a bid
for the Aircraft prior to Lessee's receipt of notice of Lessor's election. If
Lessor so elects, Lessor shall give to Lessee written notice of such election
within thirty (30) days of its receipt of a Termination Notice. Upon receipt of
notice of such an election by Lessor, Lessee shall cease its efforts to obtain
bids as provided above and shall reject all bids theretofore or thereafter
received. On the Termination Date, Lessee shall deliver the Airframe and Engines
or engines to Lessor in accordance with SECTION 5 and shall pay (i) all Basic
Rent due prior to the Termination Date, (ii) all Supplemental Rent due on or
prior to the Termination Date and (iii) the amount, if any, of the Lessee 467
Loan Balance as of such Termination Date. If no sale shall have occurred on the
Termination Date, Lessor may, but shall not be obligated to, elect to retain
title to the Aircraft and terminate the Lease, in which case Lessee shall pay
all Basic Rent due prior to the Termination Date, all Supplemental Rent and the
amount, if any, of the Lessee 467 Loan Balance as of such Termination Date. At
such time as all of the payments described in the preceding sentence shall have
been made, this Lease shall terminate and Lessee shall deliver the Aircraft to
Lessor in accordance with SECTION 5 thereof. If and only if Lessor elects to
retain the Aircraft, and only after receipt by Lessor of all amounts owing by
Lessee pursuant to this SECTION 9(b) and the satisfaction of all delivery
obligations of Lessee, Lessor shall pay to the Lessee a cash payment of a sum
equal to any Lessor 467 Loan Balance as of such Termination Value Date, subject
to SECTION 3(b)(iii). If no sale shall have occurred on the Termination Date,
this Lease shall continue in full force and effect as to the Aircraft, Lessee
shall pay the costs and expenses incurred by Lessor, if any, in connection with
the preparation for such sale other than any fees, commissions or expenses of
any broker retained by Lessor. In the event of any such sale or such retention
of the Aircraft by Lessor and upon compliance by Lessee with the provisions of
this paragraph, the obligation of Lessee to pay Basic Rent or any other amounts
hereunder shall cease to accrue and this Lease shall terminate. Lessor may
solicit cash bids on its own behalf, inquire into the efforts of Lessee to
obtain bids or otherwise act in connection with any such sale other than to
transfer (in accordance with the foregoing provisions) to the purchaser named in
the highest cash bid certified by Lessee to Lessor all of Lessor's right, title
and interest in the Aircraft, against receipt of the payments provided herein.
Lessee may revoke a Termination Notice delivered under SECTION 9(a) no more than
four (4) times during the Term.

      (c) TITLE TRANSFER. If Lessor shall be required to transfer title to the
Aircraft, Airframe or any Engine to Lessee or any other Person pursuant to this
Lease, then (a) Lessor shall (1) cause the transfer to Lessee or such other
Person, as the case may be, of all of Lessor's right, title and interest in and
to the Aircraft, Airframe or such Engine, as the case may be, free and clear of
all Lessor Liens, (2) assign to Lessee or such other Person, as the case may be,
if and to the extent permitted, all warranties of the Manufacturer and Engine
Manufacturer with respect to the Airframe, Aircraft or Engine, and (3) assign to
Lessee, if and to the extent permitted, all claims, if any, for damage to the
Aircraft, Airframe or such Engine, in each case free of Lessor Liens without
recourse or warranty of any kind whatsoever (except

                                      -36-

<PAGE>

as to the transfer described in CLAUSE (1) above and as to the absence of such
Lessor Liens, as aforesaid), and (b) Lessor shall promptly deliver a bill of
sale to Lessee or such other Person, as the case may be, evidencing such
transfer on an "as-is, where-is, with all faults" basis and conveying right,
title and interest no less than that transferred to Lessor by the Manufacturer,
without recourse, representation or warranty (except as to the absence of Lessor
Liens) and in form and substance reasonably satisfactory to Lessee or such other
Person, as the case may be.

      (d) TERMINATION AS TO ENGINES; REPLACEMENT. Lessee shall have the right at
its option at any time during the Term, on at least thirty (30) days prior
written notice, to terminate this Lease with respect to any Engine. In such
event, and prior to the date of such termination, Lessee shall replace such
Engine hereunder by complying with the terms of SECTION 10(b) to the same
extent as if an Event of Loss had occurred with respect to such Engine, and
Lessor shall transfer such right, title and interest as it may have to the
replaced Engine as provided in SECTION 5(c) No termination of this Lease with
respect to any Engine as contemplated by this SECTION 9(d) shall result in any
reduction of Basic Rent.

SECTION 10. LOSS, DESTRUCTION, REQUISITION, ETC.

      (a) EVENT OF LOSS WITH RESPECT TO THE AIRCRAFT. Upon the occurrence of an
Event of Loss with respect to the Airframe or the Airframe and the Engines
and/or engines then installed thereon, Lessee shall forthwith (and in any event,
within fifteen (15) days after such occurrence) give Lessor written notice of
such Event of Loss, and, within sixty (60) days after such Event of Loss, Lessee
shall give Lessor written notice of its election to perform one of the following
options (it being agreed that if Lessee shall not have given such notice of
election within such period, Lessee shall be deemed to have elected the option
set forth in CLAUSE (i) below). Lessee may elect either to:

            (i) make the payments specified in this CLAUSE (i), in which event
not later than the earliest of (x) the Business Day next succeeding the one
hundred eightieth (180th) day following the occurrence of such Event of Loss,
(y) the tenth (10th) day (or, if such day is not a Business Day, the next
succeeding Business Day) after receipt of insurance proceeds in respect of such
Event of Loss; PROVIDED that in no event shall payment be required under this
CLAUSE (i)(y) prior to the sixtieth (60th) day following the occurrence of such
Event of Loss or if Lessee exercises the option to substitute provided in CLAUSE
(ii) below (except as provided in the proviso contained in said CLAUSE (ii)) or
(z) an earlier Business Day irrevocably specified fifteen (15) days in advance
by notice from Lessee to Lessor (the "LOSS PAYMENT DATE"), Lessee shall pay or
cause to be paid to Lessor in funds of the type specified in SECTION 3(e)
hereof, an amount equal to the Termination Value of the Aircraft corresponding
to the Termination Value Date occurring on or immediately following the Loss
Payment Date (the "DETERMINATION DATE") together with Basic Rent due prior to
but not on the Determination Date and all other amounts that then may be due
hereunder including, without limitation, all Supplemental Rent; PROVIDED that in
any instance in which the applicable Loss

                                      -37-

<PAGE>

Payment Date shall occur after the final day of the Term, the Determination Date
shall be the last Termination Value Date in the Term; or

      (ii) so long as no Event of Default has occurred and is continuing,
substitute an aircraft or an airframe or an airframe and one or more engines, as
the case may be; PROVIDED that, if Lessee does not perform its obligation to
effect such substitution in accordance with this SECTION 10(a), during the
period of time provided herein, then Lessee shall pay or cause to be paid to
Lessor, on the Business Day next succeeding the one hundred twentieth (120th)
day following the occurrence of such Event of Loss the amount specified in
CLAUSE (i) above.

            At such time as Lessor shall have received the amounts specified in
CLAUSE (i) above and all other amounts due under the Operative Documents, (1)
the obligation of Lessee to pay the installments of Basic Rent shall cease to
accrue, (2) this Lease shall terminate, (3) Lessor will transfer or cause to be
transferred, at the sole cost and expense of Lessee, to or at the direction of
Lessee, in accordance with the provisions of SECTION 9(c) hereof, all of
Lessor's right, title and interest in and to the Airframe and any Engines
subject to such Event of Loss, as well as any Engines not subject to such Event
of Loss, and furnish to or at the direction of Lessee a bill of sale to transfer
"as is, where is, with all faults" all of Lessor's right, title and interest
therein without recourse, representation or warranty (except as to the absence
of Lessor Liens), evidencing such transfer and (4) Lessee will be subrogated to
all claims of Lessor, if any, against third parties, for damage to or loss of
the Airframe and any Engines which were subject to such Event of Loss to the
extent of the then insured value of the Aircraft.

            In the event Lessee shall elect to substitute an aircraft (or an
airframe or an airframe and one or more engines, as the case may be) pursuant to
CLAUSE (ii) above (I) Lessee shall, at its sole expense, not later than the
Business Day next succeeding the one hundred twentieth (120th) day following the
occurrence of such Event of Loss, (A) convey or cause to be conveyed to Lessor,
and to be leased by Lessee hereunder, an aircraft (or an airframe or an airframe
and one or more engines which, together with the Engines constituting a part of
the Aircraft but not installed thereon at the time of such Event of Loss
constitute the Aircraft) free and clear of all Liens (other than Permitted
Liens) that is the same model as the Airframe to be replaced, or an improved
model and having a value, utility and remaining useful life (as evidenced by an
appraisal, in form and substance reasonably satisfactory to Lessor, prepared by
a qualified independent aircraft appraiser selected by Lessee and reasonably
satisfactory to Lessor at Lessee's expense) at least equal to the Aircraft
subject to such Event of Loss assuming that the Aircraft had been maintained in
accordance with this Lease and (B) prior to or at the time of any such
substitution, Lessee, at its own expense, will (1) furnish Lessor with a bill of
sale, in form and substance reasonably satisfactory to Lessor, and a favorable
legal opinion of applicable aviation law counsel as to the title of Lessor to
the Airframe, such Aircraft (or Airframe and/or one or more Engines), (2) cause
a Lease Supplement to be duly

                                      -38-

<PAGE>

executed by Lessee above to be filed for recording pursuant to the
Transportation Code, or the applicable laws, rules and regulations of any other
jurisdiction in which the Airframe may then be registered as permitted by
SECTION 7 hereof, (3) cause a financing statement or statements with respect to
such substituted property to be filed in such place or places as are reasonably
deemed necessary by Lessor to perfect its interest therein and herein, and (4)
furnish Lessor with such evidence of compliance with the insurance provisions of
SECTION 11 with respect to such substituted property as Lessor may reasonably
request, and (5) furnish Lessor with an opinion of counsel from counsel chosen
by Lessee and reasonably acceptable to Lessor, which is in form and substance
satisfactory to Lessor to the effect that Lessor will be entitled to the
benefits of Section 1110 of the U.S. Bankruptcy Code with respect to the
substitute aircraft; PROVIDED that such opinion need not be delivered if
immediately prior to such replacement the benefits of Section 1110 of the
Bankruptcy Code were not, solely by reason of a change in law or court
interpretation thereof, available to Lessor and (II) Lessor will simultaneously
transfer to Lessee, in accordance with the provisions of SECTION 9(c) hereof,
all of Lessor's right, title and interest, if any, in and to the Aircraft or the
Airframe and one or more Engines, as the case may be, with respect to which such
Event of Loss occurred, (B) Lessee to be subrogated to all claims of Lessor, if
any, against third parties for damage to or loss of the Airframe and any Engine
which were subject to such Event of Loss to the extent of the then insured value
of the Aircraft. For all purposes hereof and of the other Operative Documents,
the property so substituted shall after such transfer be deemed part of the
property leased hereunder and shall be deemed an "Aircraft", "Airframe" and
"Engine", as the case may be, as defined in ANNEX A. No Event of Loss with
respect to the airframe or thee Airframe and the Engines or engines then
installed thereon for which substitution has been elected pursuant to this
SECTION 10(a)(ii) hereof shall result in any suspension or reduction in Basic
Rent.

      (b) EVENT OF LOSS WITH RESPECT TO AN ENGINE. Upon the occurrence of an
Event of Loss with respect to an Engine under circumstances in which there has
not occurred an Event of Loss with respect to the Airframe, (I) Lessee shall
forthwith (and in any event, within fifteen days after such occurrence) give
Lessor written notice thereof and shall, within ninety (90) days after the
occurrence of such Event of Loss, convey or cause to be conveyed to Lessor, as
replacement for the Engine with respect to which such Event of Loss occurred,
title to an Acceptable Alternate Engine. Prior to or at the time of any such
conveyance, Lessee, at its own expense, will (i) furnish Lessor with a bill of
sale and a representation as to title by Lessee, in form and substance
reasonably satisfactory to Lessor, with respect to such Acceptable Alternate
Engine, (ii) cause a Lease Supplement duly executed by Lessee (subject to
Lessor's execution thereof) to be filed for recording pursuant to the
Transportation Code, or the applicable laws, rules and regulations of any other
jurisdiction in which the Airframe may then be registered as permitted by
SECTION 7 hereof and (iii) furnish Lessor with such evidence of compliance with
the insurance provisions of SECTION 11 hereof with respect to such replacement
engine as Lessor may reasonably request and (II) Lessor will transfer to or at
the direction of Lessee in accordance with the provisions of SECTION 9(c) hereof
all of Lessor's

                                      -39-

<PAGE>

right, title and interest, if any, in and to (A) the Engine with
respect to which such Event of Loss occurred and (B) all claims, if any, against
third parties, for damage to or loss of the Engine subject to such Event of
Loss, and such Engine shall thereupon cease to be the Engine leased under the
Lease. For all purposes hereof and of the other Operative Documents, each such
replacement engine shall, after such conveyance, be deemed part of the property
leased hereunder, and shall be deemed an "Engine". No Event of Loss with respect
to an Engine under the circumstances contemplated by the terms of this SECTION
10(b) shall result in any suspension or reduction in Basic Rent.

      (c) APPLICATION OF PAYMENTS FROM GOVERNMENTAL AUTHORITIES FOR REQUISITION
OF TITLE, ETC. Any payments (other than insurance proceeds the application of
which is provided for in SECTION 11) received at any time by Lessor or by Lessee
from any governmental authority or other Person with respect to an Event of Loss
will be applied as follows:

            (i) if payments are received with respect to the Airframe (or the
Airframe and any Engine or engines then installed thereon), (A) unless the same
are replaced pursuant to the last paragraph of SECTION 10(a), so much of such
payments remaining as shall not exceed the Termination Value required to be paid
by Lessee to Lessor pursuant to SECTION 10(a), shall be applied in reduction of
Lessee's obligation to pay the Termination Value as specified in SECTION
10(a)(i), if not already paid by Lessee, or, if already paid by Lessee to
Lessor, shall be applied to reimburse Lessee for its payment of the Termination
Value as specified in SECTION 10(a)(i), and following the foregoing application,
the balance, if any, of such payments will be divided between Lessor and Lessee
to compensate Lessor for its loss of its Lessor's residual interest in the
Aircraft, and to compensate Lessee for its loss of its leasehold interest in the
Aircraft; or (B) if such property is replaced pursuant to the last paragraph of
SECTION 10(a), such payments shall be retained by Lessor or paid as Lessor shall
otherwise direct, and upon completion of such replacement procedure turned over
to Lessee to pay for the replacement; and

            (ii) if such payments are received with respect to an Engine under
circumstances contemplated by SECTION 10(b) hereof, so much of such payments for
reasonable costs and expenses shall be paid over to, or retained by, Lessee.

      (d) REQUISITION FOR USE OF THE AIRCRAFT BY THE UNITED GOVERNMENT OR THE
GOVERNMENT OF REGISTRY OF THE AIRCRAFT. In the event of the requisition for use
of the Airframe and the Engines or engines installed on the Airframe during the
Term by the United States Government or any other government of registry of the
Aircraft or any instrumentality or agency of any thereof which does not
constitute an Event of Loss, Lessee shall promptly notify Lessor of such
requisition, and all of Lessee's obligations under this Lease with respect to
the Aircraft shall continue to the same extent as if such requisition had not
occurred (except to the extent that any failure or delay in repairing or
maintaining the Aircraft shall have been caused directly by such requisition).
If, in the event of any such requisition, Lessee shall fail

                                      -40-

<PAGE>

to return the Aircraft on or before the one hundred eightieth (180th) day beyond
the end of the Term, such failure shall constitute an Event of Loss which shall
be deemed to have occurred on the last day of the Term and in such event Lessee
shall make the payment contemplated by SECTION 10(a)(i) in respect of such Event
of Loss; PROVIDED, HOWEVER, that Lessor may notify Lessee in writing on or
before the thirtieth (30th) day prior to the last day of the Term that, in the
event Lessee shall fail by reason of such requisition to return the Airframe and
Engines or engines on or before the end of the Term, such failure shall not be
deemed an Event of Loss. Upon the giving of such notice by Lessor and such
failure to return by the end of the Term, Lessee shall be relieved of all of its
obligations pursuant to the provisions of SECTION 5 (including the provisions of
ANNEX B hereto), but not under any other Section, except that if any engine not
owned by Lessor shall then be installed on the Airframe, Lessee will, at no cost
to Lessor, furnish or cause to be furnished to Lessor a full warranty (as to
title) bill of sale with respect to each such engine in form and substance
reasonably satisfactory to Lessor (together with an opinion of counsel, which
counsel and such opinion shall be reasonably satisfactory in form and substance
to Lessor) (it being agreed that Lessee's General Counsel is acceptable to
Lessor) to the effect that such full warranty bill of sale has been duly
authorized and delivered and is enforceable in accordance with its terms and
that such engines are free and clear of liens other than Lessor Liens), against
receipt from Lessor of a bill of sale evidencing the transfer, by Lessor to
Lessee or its designee of all of Lessor's right, title and interest in and to
any Engine constituting part of the Aircraft, but not then installed on the
Airframe in accordance with the provisions of SECTION 9(c). All payments
received by Lessor or Lessee from such government for the use of such Airframe
and Engines or engines during the Term shall be paid over to, or retained by,
Lessee; and all payments received by Lessor or Lessee from such government for
the use of such Airframe and Engines or engines after the end of the Term shall
be paid over to, or retained by, Lessor unless Lessee shall have exercised its
purchase option hereunder and paid in full the purchase price for the Aircraft
in connection therewith on or before the date required herein, or Lessor has
notified Lessee that failure to return the Airframe and Engines is not
considered an Event of Loss in which case such payments shall be made to Lessee.

            (e) REQUISITION FOR USE OF AN ENGINE BY THE UNITED STATES GOVERNMENT
OR THE GOVERNMENT OF REGISTRY OF THE AIRCRAFT. In the event of the requisition
for use of an Engine by the United States Government or any other government of
registry of the Aircraft or any agency or instrumentality of any thereof (other
than in the circumstances contemplated by PARAGRAPH (d)), Lessee shall replace
such Engine hereunder by complying with the terms of SECTION 10(b) to the same
extent as if an Event of Loss had occurred with respect thereto, and, upon
compliance with SECTION 10(b) hereof, any payments received by Lessor or Lessee
from such government with respect to such requisition shall be paid over to, or
retained by, Lessee.

            (f) APPLICATION OF PAYMENTS DURING EXISTENCE OF EVENT OF DEFAULT.
Any amount referred to in this SECTION 10 which is payable to or retainable by
Lessee shall not be paid to or retained by Lessee if at the time of such payment
or retention default under SECTION

                                      -41-

<PAGE>

14(a), (b), (e) or (f) or an Event of Default has occurred and is continuing,
but shall be held by or paid over to Lessor as security for the obligations of
Lessee under this Lease and, applied against Lessee's obligations hereunder as
and when due. At such time as there shall not be continuing any such default
under SECTION 14(a), (b), (e) or (f) or an Event of Default, such amount shall
be paid to Lessee to the extent not previously applied in accordance with the
preceding sentence.

SECTION 11. INSURANCE.

            (a) LESSEE'S OBLIGATION TO INSURE. Lessee shall comply with, or
cause to be complied with, each of the provisions of ANNEX B, which provisions
are hereby incorporated by this reference as if set forth in full herein.

            (b) INSURANCE FOR OWN ACCOUNT. Nothing in this SECTION 11 shall
limit or prohibit (i) Lessee (or any Permitted Sublessee) from maintaining the
policies of insurance required under ANNEX B with higher limits than those
specified in ANNEX B (and any proceeds greater than those specified in ANNEX B
shall be payable to Lessee, as provided in the policy relating thereto), or (ii)
Lessor from obtaining insurance for its own account (and any proceeds payable
under such separate insurance shall be payable as provided in the policy
relating thereto); provided, however, that no insurance may be obtained or
maintained that would limit or otherwise adversely affect the coverage of any
insurance required to be obtained or maintained by Lessee pursuant to this
SECTION 11 and ANNEX B.

            (c) INDEMNIFICATION BY GOVERNMENT IN LIEU OF INSURANCE. Lessor
agrees to accept, in lieu of insurance against any risk with respect to the
Aircraft described in ANNEX B, indemnification from, or insurance provided by,
the U.S. Government, or upon the written consent of Lessor, other Government
Entity, against such risk in an amount that, when added to the amount of
insurance (including permitted self-insurance), if any, against such risk that
Lessee (or any Permitted Sublessee) may continue to maintain, in accordance with
this SECTION 11 shall be at least equal to the amount and terms of insurance
against such risk otherwise required by this SECTION 11.

            (d) APPLICATION OF INSURANCE PROCEEDS. As between Lessor and Lessee,
all insurance proceeds received as a result of the occurrence of an Event of
Loss with respect to the Aircraft or any Engine under policies required to be
maintained (or caused to be maintained) by Lessee pursuant to this SECTION 11
will be applied in accordance with SECTION B(1)(d) of Annex B. All proceeds of
insurance required to be maintained (or caused to be maintained) by Lessee, in
accordance with this SECTION 11 and SECTION B of ANNEX B, in respect of any
property damage or loss not constituting an Event of Loss with respect to the
Aircraft, Airframe or any Engine will be applied in accordance with SECTION
B(1)(c) of ANNEX B.

SECTION 12. INSPECTION. At all reasonable times and upon at least fifteen (15)
days

                                      -42-

<PAGE>

prior written notice to Lessee, Lessor, or its authorized representative(s), may
inspect the Aircraft and inspect and make copies of the books and records of
Lessee (and any Permitted Sublessee) required to be maintained by the FAA or the
regulatory agency or body of another jurisdiction in which the Aircraft is then
registered and pursuant to which it is maintained relating to the maintenance of
the Aircraft (at Lessor's risk and expense, unless an Event of Default has
occurred and is continuing, in which case Lessee shall be responsible for the
reasonable out-of-pocket cost of such inspection by any Lessor's
representative(s), and shall keep any information or copies obtained thereby
confidential and shall not disclose the same to any Person, except (A) to Lessor
and to prospective and permitted transferees of Lessor's interest, who agree to
hold such information confidential or are otherwise under a legally enforceable
duty of confidentiality (and such prospective and permitted transferee's
counsel, independent insurance advisors or other agents), (B) to the Lessor's
counsel, independent insurance advisors or other agents who agree to hold such
information confidential or are otherwise under a legally enforceable duty of
confidentiality, or (C) to banking and other regulatory or governmental
supervisory personnel as may be required by any statute, court or administrative
order or decree or governmental ruling or regulation; PROVIDED, HOWEVER, that
any and all disclosures permitted by CLAUSE (C) above shall be made only to the
extent necessary to meet the specific requirements or needs of the Persons for
whom such disclosures are hereby permitted. Any such inspection of the Aircraft
shall be subject to safety and security rules of Lessee (and any Permitted
Sublessee) applicable to the location of the Aircraft and, shall be limited to a
visual, walk-around inspection and shall not include the opening any panels,
bays or other components of the Aircraft (although those otherwise open may be
inspected) without the express consent of Lessee, which consent Lessee may in
its sole discretion withhold; PROVIDED that unless an Event of Default has
occurred and is continuing, no exercise of such inspection right shall interfere
with Lessee's or any Permitted Sublessee's maintenance and operation of the
Aircraft, the Airframe and the Engines. Upon receipt by Lessee of a written
request from Lessor specifying that Lessor desires to have authorized
representative(s) observe the next scheduled heavy maintenance visit to be
performed on the Aircraft during the Term, Lessee shall cooperate with Lessor to
enable any such Lessor's representative(s) to observe such scheduled maintenance
to be performed on the Aircraft during the Term; PROVIDED that any such Lessor's
authorized representative(s) shall merely observe such scheduled heavy
maintenance visit, shall not interfere with or extend in any manner the normal
conduct or duration of the scheduled heavy maintenance visit, and shall not be
entitled to direct any of the work performed in connection with such scheduled
heavy maintenance visit. Upon Lessor's request made not more than two (2) times
in a calendar year, Lessee will make available to Lessor, information as to the
status of the cycles and hours of operation of the Airframe and Engines and the
status of the life-limited components of the Engines. Lessor shall not have any
duty to make any such inspection nor shall either of them incur any liability or
obligation by reason of not making such inspection. Except during the final six
(6) months of the Term or during the continuance of an Event of Default under
this Lease, all inspections by Lessor and its authorized representative(s)
provided for under this SECTION 12 shall be limited to one (1) inspection of any
kind

                                      -43-

<PAGE>

contemplated by this SECTION 12 during any calendar year and no exercise of such
inspection right shall interfere with Lessee's or any Permitted Sublessee's
maintenance and operation of the Aircraft. During the last three (3) months of
the Term (unless Lessee shall have elected to purchase the Aircraft or renew
this Lease in accordance with the terms of this Lease), with reasonable notice,
Lessee will cooperate and cause any Permitted Sublessee to cooperate, at
Lessor's sole cost (unless an Event of Default shall have occurred and be
continuing, in which case Lessee shall be responsible for such costs), in all
reasonable respects with the efforts of Lessor to sell or lease the Aircraft
including, without limitation, permitting prospective purchasers or lessees to
inspect the Aircraft, any maintenance records relating to the Aircraft then
required to be retained by the FAA or by the comparable agency or administration
of the government of registry and which establishes the maintenance standards of
the Aircraft, all in accordance with the provisions set forth above; PROVIDED
that any such cooperation shall not unreasonably interfere with the normal
operation or maintenance of the Aircraft by Lessee.

SECTION 13. ASSIGNMENT. (a) Except as provided in SECTION 7 hereof Lessee will
not, without the prior written consent of Lessor, assign in whole or in part any
of its rights or obligations hereunder. Lessor agrees that it will not assign or
convey its right, title and interest in and to this Lease or the Aircraft except
as provided herein. Subject to the foregoing, the terms and provisions of this
Lease shall be binding upon and inure to the benefit of Lessor and Lessee and
their respective successors and permitted assigns.

            (b) During the Term, Lessor shall not Transfer any or all of
its right, title or interest in the Aircraft and this Lease unless such Transfer
is a Transfer of the entire interest held by Lessor, and:

            (i) The Transferee shall have full power, authority and
legal right to execute and deliver and to perform the obligations of Lessor,
under the Operative Documents. Lessor shall provide or cause to be provided
reasonably satisfactory evidence of such power and authority to Lessee;

            (ii) The Transferee shall enter into an assignment and assumption
agreement in form and substance reasonably satisfactory to Lessee;

            (iii) Lessee shall not be obligated to pay any greater amount or
incur any greater obligation than that which it would have been obliged to pay
or incur under this Lease or the other Operative Agreements if no transfer or
assignment had taken place, and the terms and conditions of this Lease and the
other Operative Agreements insofar as they relate to the rights and obligations
of Lessee shall not be altered;

            (iv) Lessor shall deliver or cause to be delivered to Lessee, an
opinion of counsel (in form and substance reasonably satisfactory to Lessee) to
the effect that such agreement or agreements referred to in PARAGRAPHS (b)(ii)
and, if applicable, (b)(vi) hereof are legal, binding and enforceable in
accordance with its or their terms and that such

                                      -44-

<PAGE>

transfer will not violate the Act, the registration provisions of the Securities
Act of 1933, as amended, or any other applicable Federal law;

            (v) The Transferee is a Citizen of the United States (it being
understood that the existence of any such requirement is to be determined
without giving consideration to Section 47.9 of the FAA Regulations or any other
provision that may restrict Lessee's use or operation of the Aircraft), or shall
use a voting powers trust or similar arrangement in order to hold an interest in
the Aircraft or this Lease such that the Aircraft can be registered in the
United States (without giving consideration to Section 47.9 of the FAA
Regulations); and

            (vi) The Transferee shall be a single entity that is not, other
than with Lessee's consent, a commercial air carrier, a commercial aircraft
operator, a freight forwarder or an Affiliate of any of the foregoing and shall
be either (A) a Qualifying Institution or (B) any other entity the obligations
of which are guaranteed by a Qualifying Institution in any case, pursuant to a
written guaranty, in form and substance reasonably satisfactory to Lessee.

            (c) Lessor shall give written notice to Lessee at least ten (10)
days prior to any such Transfer, specifying the name and address of the proposed
Transferee, and providing financial statements of the proposed Transferee
evidencing satisfaction of the requirements described in PARAGRAPH (b)(vi)(A) or
(B) above.

            (d) Any fees, charges and expenses, including the reasonable legal
fees, charges and expenses incurred by Lessee, in connection with any Transfer
by Lessor, permitted by this SECTION 13 will be paid for by Lessor.

SECTION 14. EVENTS OF DEFAULT. Each of the following events shall constitute an
Event of Default (whether any such event shall be voluntary or involuntary or
come about or be effected by operation of law or pursuant to or in compliance
with any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body) and each such Event of Default shall
continue so long as, but only as long as, it shall not have been remedied:

            (a) Lessee shall not have made a payment of (i) Basic Rent within
five (5) Business Days after the same shall have become due or (ii) Termination
Value or Burdensome Buyout Price within ten (10) Business Days from the due
date; or

            (b) Lessee shall have failed to make a payment of Supplemental Rent
(other than Termination Value or Burdensome Buyout Price) after the same shall
have become due and such failure shall continue for thirty (30) days after
receipt by both Lessor and Lessee of written demand therefor by the party
entitled thereto (provided that any failure to pay any amount owed by Lessee
under the Tax Indemnity Agreement shall not constitute

                                      -45-

<PAGE>

an Event of Default unless notice is given by the Lessor to Lessee that such
failure shall constitute an Event of Default); or

            (c) Lessee shall have failed to perform or observe (or caused to be
performed and observed) in any material respect any covenant or agreement
(except the covenants set forth in the Tax Indemnity Agreement) to be performed
or observed by it under any Operative Document or the GE Funding Letter
Agreement, and such failure shall continue unremedied for a period of forty-five
(45) days after receipt by Lessee of written notice thereof from Lessor;
PROVIDED, HOWEVER, that if Lessee shall have undertaken to cure any such failure
and, notwithstanding the diligence of Lessee in attempting to cure such failure,
such failure is not cured within said forty-five (45) day period but is curable
with future due diligence, there shall exist no Event of Default under this
SECTION 14 so long as Lessee is proceeding with due diligence to cure such
failure and such failure is remedied not later than one year (sixty (60) days
with respect to any failure to comply with the requirements of SECTION 5 or
SECTION 13 hereof) after receipt by Lessee of such written notice; or

            (d) any representation or warranty made by Lessee herein or any
document or certificate furnished by Lessee in connection herewith or pursuant
hereto or thereto (except the representations and warranties set forth in the
Tax Indemnity Agreement and such documents or certificates as are furnished to
the Lessor solely in connection with matters dealt with in the Tax Indemnity
Agreement or any document or instrument furnished pursuant thereof) shall prove
to have been incorrect in any material respect at the time made, and such
incorrectness shall not have been cured within thirty (30) days after the
receipt by Lessee, as the case may be, of a written notice from Lessor advising
Lessee of the existence of such incorrectness; or

            (e) the commencement of an involuntary case or other proceeding in
respect of Lessee in an involuntary case under the federal bankruptcy laws, as
now or hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency or other similar law in the United States of America or
seeking the appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of either Lessee or for all or any
substantial part of its property, or seeking the winding-up or liquidation of
its affairs and the continuation of any such case or other proceeding
undismissed and unstayed for a period of ninety (90) consecutive days or an
order, judgment or decree shall be entered in any proceeding by any court of
competent jurisdiction appointing, without the consent of Lessee a receiver,
trustee or liquidator of Lessee, or of any substantial part of its property, or
sequestering any substantial part of the property of Lessee and any such order,
judgment or decree or appointment or sequestration shall be final or shall
remain in force undismissed, unstayed or unvacated for a period of ninety (90)
days after the date of entry thereof; or

            (f) the commencement by Lessee of a voluntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any other
applicable federal or

                                      -46-

<PAGE>

state bankruptcy, insolvency or other similar law in the United States of
America, or the consent by Lessee to the appointment of or taking possession by
a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other
similar official) of Lessee or for any substantial part of its property, or the
making by Lessee of any assignment for the benefit of creditors, or Lessee shall
take any corporate action to authorize any of the foregoing; or

            (g) Lessee shall fail to carry and maintain, or cause to be carried
and maintained, insurance (or governmental indemnity in lieu thereof) on and in
respect of the Aircraft, Airframe and Engines in accordance with the provisions
of SECTION 11 hereof, PROVIDED that no such lapse or cancellation shall
constitute an Event of Default until the earlier of (i) thirty (30) days (or if
thirty (30) days is unavailable pursuant to SECTION D of ANNEX B, such shorter
period as is available) after receipt by Lessor of written notice of such lapse
or cancellation or (ii) the date that such lapse or cancellation is effective as
to Lessor; PROVIDED that, with respect to the lapse or cancellation of War Risk
Insurance, no such lapse or cancellation shall constitute an Event of Default
until the earlier of (x) fourteen (14) days from any such lapse or cancellation
of the War Risk Insurance; and (y) the commencement of the first flight of the
Aircraft after such lapse or cancellation of War Risk Insurance; PROVIDED,
FURTHER, that no such lapse or cancellation shall constitute an Event of Default
so long as the Aircraft remains on the ground in one of the countries in which
Lessee is permitted to effect a re-registration as provided in SECTION 7(a)(3)
and is not in commercial operation (or is in transit to one of such countries).
Notwithstanding anything in this SECTION 14(g) to the contrary, nothing in this
SECTION 14(g) shall permit or allow Lessee to operate the Aircraft after the
lapse or cancellation of the War Risk Insurance, provided however, Lessee may
operate the Aircraft pursuant to the terms of this Lease after such War Risk
Insurance has been reinstated; or

            (h) Lessee shall have failed to satisfy the return requirement
provisions of SECTION 5(a) hereof, and such failure shall continue unremedied
for a period of sixty (60) days from the last day of the Basic Term or any
Renewal Term that is then in effect, PROVIDED that if the Aircraft has been
requisitioned by the United States Government or the government of registry of
the Aircraft as provided in SECTION 10(d) hereof, the Lessee's failure to comply
with its obligations under SECTION 5 hereof due to the Lessee's inability to
deliver the Aircraft shall not constitute an Event of Default hereunder unless
such failure shall continue unremedied beyond the earlier of (A) the one hundred
eightieth (180th) day from the last day of the Basic Term or any Renewal Term
that is then in effect, or (B) the day the requisition of the Aircraft by the
United States Government or the government of registry of the Aircraft has been
terminated (but not earlier than the sixty (60) day period specified above in
this CLAUSE (h)).

SECTION 15. REMEDIES. Upon the occurrence of any Event of Default and at any
time thereafter so long as the same shall be continuing, Lessor may, at its
option, declare by written notice to Lessee this Lease to be in default
(PROVIDED that upon the occurrence of an

                                      -47-

<PAGE>

Event of Default under SECTION 14(e) or (f) of this Lease, this Lease
automatically shall be in default without the necessity of a declaration) and at
anytime thereafter, so long as any such outstanding Events of Default shall not
have been remedied, Lessor may do one or more of the following with respect to
all or any part of the Aircraft, the Airframe and any or all of the Engines as
Lessor in its sole discretion shall elect, to the extent permitted by, and
subject to compliance with any mandatory requirements of, applicable law then in
effect; PROVIDED, HOWEVER, that during any period the Aircraft is subject to,
and activated under, the Civil Reserve Air Fleet Program in accordance with the
provisions of SECTION 7(b) hereof and in the possession of the United States
Government or an agency or instrumentality of the United States of America,
Lessor shall not, on account of any Event of Default, be entitled to do any of
the following in such manner as to limit Lessee's control under this Lease (or
any Permitted Sublessee's control under any Permitted Sublease) of any Airframe
or any Engines installed thereon, unless at least sixty (60) days (or such
lesser period as may then be applicable under the Air Mobility Command program
of the United States Government) prior written notice of default hereunder shall
have been given by Lessor by registered or certified mail to Lessee (and any
Permitted Sublessee) with a copy addressed to the Contracting Office
Representative for the Air Mobility Command of the United States of America Air
Force under any contract with Lessee (or any Permitted Sublessee) relating to
the Aircraft.

            (a) upon the written demand of Lessor and at Lessee's expense,
cause Lessee to return promptly, and Lessee shall return promptly, all or any
part of the Aircraft, the Airframe or any Engine, as Lessor may so demand, to
Lessor or its order in the manner and condition required by, and otherwise in
accordance with all the provisions of SECTION 5 hereof as if such Aircraft,
Airframe or Engine were being returned at the end of the Term, or 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 (and/or, at Lessor's option, store
the same at Lessee's premises until disposal thereof by Lessor), all without
liability accruing to Lessor for or by reason of such entry or taking of
possession or removing whether for the restoration of damage to property caused
by such action or otherwise;

            (b) with or without taking possession thereof, sell all or any part
of the Aircraft, Airframe and/or any Engine at public or private sale, as Lessor
may determine, or otherwise dispose of, hold, use, operate, lease to others or
keep idle the Aircraft as Lessor, in its sole discretion, may determine, all
free and clear of any rights of Lessee, except as hereinafter expressly set
forth in this SECTION 15;

            (c) whether or not Lessor shall have exercised, or shall thereafter
at any time exercise, any of its rights under PARAGRAPH (a) or PARAGRAPH (b)
above with respect to all or any part of the Aircraft, Airframe and/or any
Engine, Lessor, by written notice to Lessee specifying a payment date which
shall be the Termination Value Date not earlier than ten (10) days from the date
of such notice, may demand that Lessee pay to Lessor, and Lessee shall

                                      -48-

<PAGE>

pay Lessor, on the payment date so specified (including, without limitation, any
adjustments payable pursuant to SECTION 3 hereof), 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 on Rent Payment Dates occurring on or after the
Termination Value Date specified as the payment date in such notice), any unpaid
Basic Rent or Renewal Rent due on Rent Payment Dates prior to (but not on) the
payment date so specified plus whichever of the following amounts Lessor, in its
sole discretion, shall specify in such notice (together with interest, if any,
on such amount at the Past Due Rate from such Termination Value Date until the
date of actual payment of such amount): (i) an amount equal to (A) the excess,
if any, of the present value, computed as of the Termination Value Date
specified in such notice, discounted to such Termination Value Date at a rate
per annum equal to 8.6%, of all unpaid Basic Rent (if the Basic Term has not
concluded) or, if a Renewal Term has commenced, of all unpaid Basic Rent during
the remaining portion of such Renewal Term, over the aggregate fair market
rental value (computed as hereafter in this SECTION 15 provided) of such
Aircraft for the remainder of the Basic Term (if the Basic Term has not
concluded) or, if a Renewal Term has commenced, of the aggregate fair market
rental value of such Aircraft during the remaining portion of such Renewal Term,
after discounting such aggregate fair market rental value to present value as of
the Termination Value Date specified in such notice at an annual rate equal to
8.6% plus (B) the amount, if any, of the Lessee 467 Loan Balance as of the
Termination Value Date, PROVIDED THAT, only if Lessor elects the remedy provided
for in this CLAUSE (i) and only after receipt by Lessor of all amounts due and
owing from the Lessee pursuant to this SECTION 15(c)(i) and all other amounts
payable (including all other damages payable hereunder) under this Lease or any
other Operative Documents, Lessor shall pay to the Lessee a cash payment of a
sum equal to the amount, if any, of the Lessor 467 Loan Balance as of such
Termination Value Date, subject to SECTION 3(b)(iii); or (ii) an amount equal to
the excess, if any, of the Termination Value for such Aircraft, computed as of
the Termination Value Date in such notice over the fair market sales value of
such Aircraft (computed as provided below in this Section) as of the Termination
Value Date in such notice;

            (d) in the event Lessor, pursuant to PARAGRAPH (b) above, shall have
sold the Aircraft, Lessor, in lieu of exercising its rights under PARAGRAPH (c)
above with respect to such Aircraft, may, if it shall so elect, demand that
Lessee pay Lessor, and Lessee shall pay to Lessor, on the date of such sale, 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 on or after such date), any
unpaid Basic Rent or Renewal Rent with respect to the Aircraft due with respect
to the period prior to (but not on) such date (including, without limitation,
any adjustments payable pursuant to SECTION 3 hereof) plus the amount of any
deficiency between the net proceeds of such sale (after deduction of all costs
of sale) and the Termination Value of such Aircraft, computed as of the
Termination Value Date on or immediately following the date of such sale
together with interest, if any, on any overdue Rent and the amount of such
deficiency, at the annual rate equal to the Past Due Rate, from the date of such
sale to the date of actual payment of such amount; and/or

                                      -49-

<PAGE>

            (e) Lessor may cancel, terminate or rescind this Lease, and/or may
exercise any other right or remedy which may be available to it under applicable
law or proceed by appropriate court action to enforce the terms hereof or to
recover damages for breach hereof.

            For the purposes of paragraph (c) above, the "FAIR MARKET RENTAL
VALUE" or the "FAIR MARKET SALES VALUE" of the Aircraft shall be the rental
value or sales value, as the case may be, which would be obtained in an
arm's-length transaction between an informed and willing lessee or purchaser, as
the case may be, under no compulsion to lease or purchase, as the case may be,
and an informed and willing lessor or seller in possession under no compulsion
to lease, sell, as the case may be, in each case based upon the actual condition
and location and, if located outside of the United States of America, the
ability to take possession of the Aircraft, which value shall be determined by
mutual agreement or, in the absence of mutual written agreement, pursuant to an
appraisal prepared and delivered by a nationally recognized firm of independent
aircraft appraisers nominated by Lessor, and Lessor shall immediately notify
Lessee of such nomination.

            In addition, Lessee shall be liable, except as otherwise provided
above and without duplication of amounts payable hereunder, for any and all
unpaid Rent due hereunder before or during the exercise of any of the foregoing
remedies (other than Basic Rent due on or after the payment referenced in
PARAGRAPH (c) or (d) above has been made in full) and for all reasonable legal
fees and other costs and expenses (including fees of the appraisers herein above
referred to) incurred by Lessor in connection with the enforcement of any of its
rights and remedies hereunder including, without limitation, return of all or
part of the Aircraft, Airframe or any Engine in accordance with the terms of
SECTION 5 hereof or in placing such Aircraft, Airframe or Engine in the
condition and airworthiness required by such Section.

            Lessor or in the case of a public sale, Lessee at any sale of the
Aircraft or any part thereof pursuant to this SECTION 15, may bid for and
purchase such property. Lessor agrees to give Lessee at least ten (10) days
prior written notice of the date fixed for any public sale of the Aircraft,
Airframe or Engine(s) or of the date on or after which will occur the execution
of any contract providing for any private sale provided Lessor has received
prior notice thereof. Except as otherwise expressly provided above, no remedy
referred to in this SECTION 15 is intended to be exclusive, but each shall be
cumulative and in addition to any other remedy referred to above or otherwise
available to Lessor at law or in equity; and the exercise or beginning of
exercise by Lessor of any one or more of such remedies shall not preclude the
simultaneous or later exercise by Lessor of any or all of such other remedies.
No waiver by Lessor of any Event of Default shall in any way be, or be construed
to be, a waiver of any future or subsequent Event of Default.

SECTION 16. 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

                                      -50-

<PAGE>

amendment to this Lease, Lessee will cause such Lease Supplement (and, in the
case of the initial Lease Supplement, this Lease as well) or amendment or
assignment of this Lease 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, Lessee will promptly and duly execute and deliver to
Lessor such further agreements, certificates and documents and take such further
action as Lessor may from time to time request in order more effectively to
carry out the intent and purpose of this Lease and to establish and protect the
rights and remedies created or intended to be created in favor of Lessor
hereunder, subjecting to this Lease, any airframe or engine substituted for the
Airframe or any Engine pursuant to the terms thereof and the recording or filing
of counterparts thereof, in accordance with the laws of such jurisdictions as
Lessor may from time to time deem advisable. Lessee agrees to furnish to Lessor
promptly after execution and delivery of any supplement and amendment hereto, an
opinion of counsel (which may be Lessee's General Counsel, Deputy General
Counsel, Associate General Counsel or Assistant General Counsel) satisfactory in
form and substance to Lessor as to the due recording or filing of such
supplement or amendment.

            (b) AID IN LEASE OR SALE. The Lessee agrees that during the last six
(6) months of the Term (and during the storage period pursuant to SECTION 5(c)
hereof) it will cooperate in all reasonable respects with the efforts of the
Lessor to lease the Aircraft or sell all of its rights and interests therein,
including allowing potential lessees or purchasers to inspect the Aircraft and
the records relating thereto; PROVIDED that any such cooperation shall not
materially interfere with the use of the Aircraft or cause Lessee to incur
out-of-pocket expenses for which it is not reimbursed.

SECTION 17. NOTICES. All notices required under the terms and provisions hereof
shall be by telecopier or other telecommunication means (with such telecopy or
other telecommunication means to be confirmed in writing), or if such notice is
impracticable, by registered, first-class airmail, with postage prepaid, or by
personal delivery of written notice and any such notice shall become effective
when received, addressed:

            (a) if to Lessee, at Atlas Air, Inc., 2000 Westchester Avenue,
Purchase, NY 10577-2543 Attn: Dorinda Pannozzo (Facsimile No. (914) 701-875O),
or to such other addressor telecopy number as Lessee shall from time to time
designate in writing to Lessor; and

            (b) if to Lessor, c/o GE Capital Aviation Services, Inc., 201 High
Ridge Road, Stamford, Connecticut 06927-4900, Attention: Contracts Leader
(Facsimile No. (203) 357-3201), or to such other address or telecopy number as
Lessor shall from time to time designate in writing to Lessee.

SECTION 18. NET LEASE; NO SET-OFF, COUNTERCLAIM, ETC. This Lease is a net lease.
All Rent shall be paid by Lessee to Lessor in funds of the type specified in
SECTION 3(e). Except as expressly provided herein, Lessee's obligation to pay
all Rent payable hereunder

                                      -51-

<PAGE>

shall be absolute and unconditional and shall not be affected by any
circumstance including, without limitation, (i) any set-off, counterclaim,
recoupment, defense or other right which Lessee may have against Lessor or any
other Person for any reason whatsoever, (ii) any defect in the title,
registration, airworthiness, condition, design, operation, or fitness for use
of, or any damage to or loss or destruction or theft of, the Aircraft or any
Engine, or any interruption, cessation in, restriction or prohibition of the use
or possession thereof by Lessee (or any Permitted Sublessee) for any reason
whatsoever, including, without limitation, any such interruption, cessation,
restriction or prohibition resulting from the act of any government authority,
(iii) any insolvency, bankruptcy, reorganization or similar case or proceedings
by or against Lessee or any other Person, or (iv) any other circumstance,
happening or event whatsoever, whether or not unforeseen or similar to any of
the foregoing. If for any reason whatsoever this Lease shall be terminated in
whole or in part by operation of law or otherwise except as specifically
provided herein, Lessee nonetheless agrees without limitation of the other
rights or remedies of Lessor hereunder to pay to Lessor an amount equal to each
Rent payment at the time such payment would have become due and payable in
accordance with the terms hereof had this Lease not been terminated in whole or
in part. Lessee acknowledges and agrees that, notwithstanding anything elsewhere
in the Lease or the other Operative Documents which could be construed to the
contrary, (i) once paid any and all Rent paid by Lessee is property of Lessor
(or other applicable Person), and such Rent is not refundable to Lessee under
any circumstances whatsoever, and (ii) without limiting the foregoing, no
portion of any Rent constitutes a security deposit or cash collateral or other
collateral for Lessee's obligations under this Lease or any other Operative
Document and Lessee has no, and hereby disclaims any, right, title or other
interest whatsoever in or to any Rent paid hereunder, notwithstanding provisions
herein pertaining to any Lessor 467 Loan Balance (except that satisfaction by
Lessee of its Rent and other obligations hereunder or under the other Operative
Documents when and as due shall entitle the Lessee to the quiet use and
enjoyment of the Aircraft as and to the extent provided in SECTION 4(c) of this
Lease). Lessee hereby waives, to the extent permitted by applicable law, any and
all rights which it may now have or which 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. Nothing set forth in
this SECTION 18 shall be construed to prohibit Lessee from separately pursuing
any claim that it from time to time may have against Lessor or any other Person
(other than the absolute and unconditional nature of Lessee's obligations under
this Lease including, without limitation, any provisions relating to any Lessee
or Lessor 467 Loan).

SECTION 19. RENEWAL OPTIONS; PURCHASE OPTIONS; VALUATION.

      (a) RENEWAL OPTIONS; RENEWAL TERM, ADDITIONAL RENEWAL TERM.

                  (1) RENEWAL TERM. Not more than three hundred sixty-five (365)
days, and not less than two hundred twenty-five (225) days, before the scheduled
end of

                                      -52-

<PAGE>

the Basic Term or any Renewal Term or Additional Renewal Term (as hereinafter
defined), and so long as no Event of Default shall have occurred and be
continuing, Lessee may deliver to Lessor a written notice (the "RENEWAL NOTICE")
irrevocably electing to renew this Lease for a term having a duration and at a
Basic Rent as determined below (any such renewal term, a "RENEWAL TERM"). The
duration of any Renewal Term shall be a period specified by Lessee in the
Renewal Notice which is (i) not less than one year, and (ii) not more than the
number of years which, when added to the Basic Term or any prior Renewal Term,
will not exceed 80% of the estimated useful life of the Aircraft as originally
appraised. Each monthly installment of Basic Rent during any Renewal Term shall
be equal to the lesser of (A) the then fair market rental value of the Aircraft
and (B) 100% of the average annual Basic Rent during the Basic Term divided by
twelve (12). At the expiration of the Basic Term or any Renewal Term, Lessee
will also have the option to renew this Lease for two additional periods of one
year each at the then fair market rental value of the Aircraft (each an
"ADDITIONAL RENEWAL TERM") as determined in accordance with the Appraisal
Procedure.

                  (2) WAIVER. If no written notice is delivered by Lessee to
Lessor pursuant to SECTION 19(a) on or before the day specified therefor, Lessee
shall be deemed to have waived any right to renew this Lease.

                  (3) CONDITIONS PRECEDENT, PAYMENT OF BASIC RENT. At the end of
the Basic Term, any Renewal Term or the first Additional Renewal Term, if Lessee
has elected to renew this Lease as aforesaid, (i) this Lease shall continue in
full force and effect during the Renewal Term or Additional Renewal Term and
(ii) Basic Rent for such Renewal Term or Additional Renewal Term shall be
payable in monthly installments in arrears, each such installment being due and
payable on each Rent Payment Date occurring during the Renewal Term or
Additional Renewal Term, commencing with the Rent Payment Date immediately
following the commencement of the Renewal Term or Additional Renewal Term.

                  (4) TERMINATION VALUE. The amounts which are payable during
any Renewal Term or Additional Renewal Term in respect of Termination Value with
respect to the Aircraft shall take into account the fair market sales value (as
computed pursuant to SECTION 19(c)) of the Aircraft as of the commencement of
such Renewal Term or Additional Renewal Term, and the fair market sales value
(as computed pursuant to SECTION 19(c)) at the end of the Renewal Term or any
Additional Renewal Term and shall decline ratably on a monthly basis and shall
be in the amounts set forth in EXHIBIT C.

      (b) PURCHASE OPTIONS. Lessee shall have the option, upon at least two
hundred twenty-five (225) days irrevocable prior written notice to Lessor prior
to the relevant purchase date (each a "PURCHASE OPTION DATE") with respect to
the purchase options set forth in CLAUSES (1) and (2) below, to terminate this
Lease and to purchase the Aircraft: (1) on the last Business Day of the Basic
Term for a purchase price equal to fair market sales value (as computed pursuant
to SECTION 19(c)) of the Aircraft on such date; or (2) on the last Business

                                      -53-

<PAGE>

Day of any Renewal Term or Additional Renewal Term for a purchase price equal to
the fair market sales value (as computed pursuant to SECTION 19(c)) of the
Aircraft of such date; PROVIDED that Lessee shall not be entitled to exercise
any of the foregoing purchase options at any time an Event of Default of the
type described in SECTION 14(e) or (f) has occurred and is continuing, in each
case unless Lessee has obtained a final, non-appealable order from the
applicable bankruptcy court or other court having jurisdiction over the
applicable proceeding authorizing the purchase of the Aircraft and the payment
of the full purchase price therefor. For the avoidance of doubt, if an Event of
Default or Default exists under SECTION 14(a) or 14(b) hereof, Lessee may not
exercise the foregoing purchase options unless at or prior to the time it
purchases the Aircraft, Lessee pays all amounts due to Lessor under the
Operative Documents, thereby curing any such SECTION 14(a) or 14(b) Default or
Event of Default.

            Upon payment to Lessor in immediately available funds in Dollars of
the full amount of the purchase price and payment of any other amounts then due
hereunder or under the other Operative Documents to Lessor on or before the
Purchase Option Date (including all Rent and all reasonable costs or expenses of
Lessor, if any, in connection with such purchase), Lessor will transfer to
Lessee, all of Lessor's right, title and interest in and to the Aircraft, in
accordance with the provisions of SECTION 9(c).

      (c) VALUATION. At any time not earlier than three hundred sixty-five (365)
days prior to the date on which Lessee may purchase the Aircraft pursuant to
SECTION 19(b)(1) or (b)(2) hereof or renew this Lease pursuant to SECTION
19(a)(1) hereof, Lessee may deliver to Lessor a revocable notice of its intent
to exercise its renewal option or purchase option. For all purposes of this
SECTION 19 and SECTION 20, including the appraisal referred to in this SECTION
19(c), in determining "fair market rental value" or "fair market sales value",
the Aircraft shall be valued (i) as if in the condition and otherwise in
compliance with the terms of SECTION 5 upon a return of the Aircraft to Lessor
and as if it had been maintained at all times as required in accordance with
SECTION 7(a)(i), (ii) on the basis of the value which would obtain in an
arm's-length transaction between an informed and willing buyer-user or lessee
(other than a lessee or an Affiliate of a lessee currently in possession or a
used equipment or scrap dealer) under no compulsion to buy or lease and an
informed and willing seller or lessor unaffiliated with such buyer-user or
lessee and under no compulsion to sell or lease and disregarding the Lease
encumbrance, the purchase and renewal options of Lessee provided in this Lease
and (iii) in the case of such valuation for determining "fair market rental
value", assuming such lessee would have substantially the same obligations
during any Renewal Term or Additional Renewal Term, as provided hereunder
including without limitation the obligations of Lessee to carry and maintain the
insurance required by SECTION 11 hereof and to make certain payments with
reference to Termination Value during the applicable Renewal Term or Additional
Renewal Term similar to those required hereunder. Upon receipt of such notice
Lessor shall provide Lessee the "fair market rental value" or "fair market sales
value" of the Aircraft. If the parties have not so agreed within two
hundred-seventy (270) days prior to the end of the Basic Term, the Renewal Term
or Additional Renewal Term in question,

                                      -54-

<PAGE>

then the question shall be determined in accordance with the Appraisal
Procedure.

SECTION 20. BURDENSOME PURCHASE OPTION. If a Burdensome Termination Event shall
have occurred, then on any Rent Payment Date which is also a Termination Value
Date occurring no later than three hundred and sixty (360) days after Lessee
becomes aware of the Burdensome Termination Event, so long as no Event of
Default has occurred and is continuing, Lessee shall have the option, upon at
least ninety (90) days irrevocable prior notice (the "BPO NOTICE") to Lessor to
purchase the Aircraft on such date (which shall constitute an unconditional
obligation of Lessee) for a purchase price equal to the higher as of such date
of the Termination Value or the fair market sales value of the Aircraft
(determined within thirty-five (35) days after delivery of the BPO Notice by
mutual agreement of Lessor and Lessee, or if they shall be unable to agree, as
set forth in SECTION 19(c)) (such price, the "BURDENSOME BUYOUT PRICE").
Delivery of such notice by Lessee shall constitute an unconditional obligation
of Lessee to purchase the Aircraft pursuant to this SECTION 20; PROVIDED that no
such notice shall bind Lessor if an Event of Default shall have occurred and be
continuing on the purchase date or on the date of such Lessee notice. Upon such
payment in full and payment of any other amounts then due hereunder (including
all Rent due with respect to the period on or prior to such date and all
reasonable costs or expenses of Lessor in connection with such purchase), Lessor
will transfer all of Lessor's right, title and interest in and to the Aircraft
to Lessee in accordance with the provisions of SECTION 9(c).

SECTION 21. CHANGE OF CITIZENSHIP. Lessor represents and warrants to Lessee that
it is, and on the Delivery Date will be, a Citizen of the United States without
making use of any voting trust, voting powers agreement or similar arrangement.
Lessor agrees that, in the event its status is to change or has changed as a
Citizen of the United States, or it makes public disclosure of circumstances as
a result of which it believes that such status is likely to change, it will
notify Lessee of (i) such change in status promptly after obtaining Actual
Knowledge thereof or (ii) such belief as soon as practicable after such public
disclosure but in any event within ten Business Days after such public
disclosure.

            Lessor agrees, solely for the benefit of Lessee, that if, during
such time as the Aircraft is registered in the United States, (a) it shall not
be a Citizen of the United States and (b) the Aircraft shall be, or would
therefore become, ineligible for registration in the name of Lessor under the
Act and regulations then applicable thereunder (without giving consideration to
Section 47.9 of the FAA Regulations or any other provision that may restrict
Lessee's use or operation of the Aircraft), then Lessor shall, as soon as is
reasonably practicable, but in any event within 30 days after obtaining Actual
Knowledge of such ineligibility and of such loss of citizenship, effect a voting
trust or other similar arrangements or take any other action as may be necessary
to prevent any deregistration or maintain the United States registration of the
Aircraft.

SECTION 22. LESSOR'S RIGHT TO PERFORM FOR LESSEE. If Lessee fails to make any
payment of Rent required to be made by it hereunder or fails to perform or
comply with any

                                      -55-

<PAGE>

of its agreements contained herein, then (but in each case, except in the case
of failure to pay Rent or in the case of failure to maintain insurance as
required hereunder, no earlier than the fifteenth (15th) day after the
occurrence of such failure, whether or not it shall yet constitute an Event of
Default hereunder) 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 Lessor incurred in
connection 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 Lessee upon demand.

SECTION 23. INVESTMENT OF SECURITY FUNDS. Any moneys held by Lessor as security
hereunder, for future payments to Lessee at a time when there is not continuing
an Event of Default shall, until paid to Lessee or otherwise applied in
accordance with the terms hereof, be invested by Lessor, as Lessee may from time
to time direct in writing (and in absence of a written direction by Lessee,
there shall be no obligation to invest such moneys) in Cash Equivalents. There
shall be promptly remitted to Lessee or its order (but no more frequently than
monthly) any gain (including interest received) realized as a result of any such
investment (net of any fees, commissions and other expenses, if any, incurred in
connection with such investment) unless an Event of Default shall have occurred
and be continuing. Lessee shall be responsible for any net loss realized as a
result of any such investment and shall reimburse Lessor therefor on demand.

SECTION 24. JURISDICTION. Lessor and Lessee each hereby irrevocably submits
itself to the non-exclusive jurisdiction of the United States of America
District Court for the Southern District of New York and to the non-exclusive
jurisdiction of the Supreme Court of the State of New York, New York County, for
the purposes of any suit, action or other proceeding arising out of this Lease,
the subject matter hereof or any of the transactions contemplated hereby brought
by Lessor, Lessee, or their successors or permitted assigns.

SECTION 25. MISCELLANEOUS. Any provision of this Lease which 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
Lessor and Lessee. This Lease shall constitute an agreement of lease, and
nothing contained herein shall be construed as conveying to Lessee any right,
title or interest in the Aircraft except as a lessee only. 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 references 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

                                      -56-

<PAGE>

GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. 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.

SECTION 26. THIRD PARTY BENEFICIARY. This Lease is not intended to, and shall
not, provide any person not a party hereto with any rights of any nature
whatsoever against either of the parties hereto, and no person not a party
hereto shall have any right, power or privilege in respect of, or have any
benefit arising out of, this Lease.

SECTION 27. LEASE FOR U.S. FEDERAL INCOME TAX LAW PURPOSES; SECTION 1110 OF
BANKRUPTCY CODE.

      (a) LEASE FOR FEDERAL INCOME TAX LAW PURPOSES. It is the intent of the
parties to this Lease that this Lease is a true lease for U.S. Federal income
tax purposes

      (b) SECTION 1110 OF BANKRUPTCY CODE. It is the intention of each of Lessee
and Lessor that Lessor shall be entitled to the benefits of Section 1110 of the
Bankruptcy Code with respect to the right to take possession of the Aircraft,
Airframe, Engines and Parts, and to enforce any other of its rights and remedies
as provided in this Lease.

SECTION 28. ENTIRE AGREEMENT. This Lease, together with the other Operative
Agreements and the GE Funding Letter Agreement, on and as of the date hereof,
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof, and all prior or contemporaneous understandings or
agreements, whether written or oral, between the parties hereto with respect to
such subject matter are hereby superseded in their entireties. Lessee is not
assuming or incurring any obligation to the Lessor.

SECTION 29. CONFIDENTIALITY. Lessee and Lessor shall keep EXHIBITS B, B-1, B-2,
B-3, B-4, C; and ANNEX B to this Lease and the Tax Indemnity Agreement
confidential and shall not disclose, or cause to be disclosed, the same to any
Person, except (A) to prospective and permitted transferees of Lessee's or
Lessor's interest or their respective counsel or special counsel, independent
insurance brokers, auditors, or other agents who agree to hold such information
confidential, (B) to Lessee's or Lessor's counsel or special counsel,
independent insurance brokers, auditors, or other agents, Affiliates or
investors who agree to hold such information confidential, (C) as may be
required by any statute, court or administrative order or decree, legal process
or governmental ruling or regulation, including those of any applicable
insurance regulatory bodies (including, without limitation, the National
Association of Insurance Commissioners ("NAIC"), federal or state banking
examiners, Internal Revenue Service auditors or any stock exchange), (D) by
mutual agreement of Lessee or Lessor, or (E) such other Persons as are
reasonably deemed necessary by the disclosing party in order to protect the
interests of such party or for the purposes of enforcing such

                                      -57-

<PAGE>

documents by such party so long as such other parties agree to maintain the
confidentiality of such documents pursuant to the terms hereof; PROVIDED that
any and all disclosures permitted by CLAUSE (C), (D) or (E) above shall be made
only to the extent necessary to meet the specific requirements or needs of the
Persons making such disclosures.

                                      -58-

<PAGE>

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

                                          TUOLUMNE RIVER AIRCRAFT FINANCE, INC.,
                                          as Lessor

                                          By: /s/ Charles H. Meyer
                                              ----------------------------------
                                              Name:  Charles H. Meyer
                                              Title: Vice President

                                          ATLAS AIR, INC.,
                                          as Lessee

                                          By:
                                              ----------------------------------
                                              Name:
                                              Title:

<PAGE>

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

                                         TUOLUMNE RIVER AIRCRAFT FINANCE, INC.,
                                         as Lessor

                                         By:
                                             -----------------------------------
                                             Name:
                                             Title:

                                         ATLAS AIR, INC.,
                                         as Lessee

                                         By: /s/ Dorinda Pannozzo
                                             -----------------------------------
                                             Name:  Dorinda Pannozzo
                                             Title: Director - Corporate Finance

<PAGE>

            Receipt of this original counterpart of the foregoing Lease is
hereby acknowledged on the 16th day of July, 2002.

                                          TUOLUMNE RIVER AIRCRAFT FINANCE, INC.,
                                          as Lessor

                                          By: /s/ Charles H. Meyer
                                              ----------------------------------
                                              Name:  Charles H. Meyer
                                              Title: Vice President

<PAGE>

                           SCHEDULE TO EXHIBIT 10.7.1

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           LESSEE              LESSOR                   AGREEMENT
NUMBER               SERIAL NUMBER(S)
----------------------------------------------------------------------------------------------------------------------------
<S>                  <C>                      <C>                 <C>                      <C>
N418MC               32840                    Atlas Air,          AFS Investments          Lease dated November 26, 2002
                                              Inc.                XL-LLC                   between AFS Investments XL-LLC.,
                                                                                           as Lessor and Atlas Air, Inc.,
                                                                                           as Lessee with respect to
                                                                                           Aircraft N418MC
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       1

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