10-K

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

/x/
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2000

or

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-8836

HAWAIIAN AIRLINES, INC.
(Exact name of registrant as specified in its charter)

HAWAII (State or other jurisdiction of incorporation or organization)	99-0042880 (IRS Employer Identification No.)
3375 Koapaka Street, Suite G-350 Honolulu, Hawaii (Address of principal executive offices)	96819 (zip code)

Registrant's telephone number, including area code: (808) 835-3700

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Preferred Stock Purchase Rights	American Stock Exchange, Inc.
Common Stock ($.01 par value)	Pacific Exchange, Inc.

    Securities registered pursuant to Section 12(g) of the Act: None

    Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/  No / /

    Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes / /  No /x/

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the court. Yes /x/  No / /

    As of March 1, 2001, 33,715,099 shares of Common Stock of the Registrant were outstanding. The aggregate market value of voting stock held by non-affiliates (15,388,313 shares) of the Registrant on March 1, 2001 is $37,855,250.

DOCUMENTS INCORPORATED BY REFERENCE

    The Registrant's Proxy Statement for the 2001 Annual Meeting of Shareholders is incorporated herein by reference in Part III of this Form 10-K.

EXHIBIT INDEX ON PAGE 34

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TABLE OF CONTENTS

		PAGE
COVER PAGE		1
	PART I
ITEM 1.	BUSINESS.	4
ITEM 2.	PROPERTIES.	14
ITEM 3.	LEGAL PROCEEDINGS.	15
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.	15
	PART II
ITEM 5.	MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.	15
ITEM 6.	SELECTED FINANCIAL DATA.	15
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	16
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	27
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.	27
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.	28
	PART III
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.	28
ITEM 11.	EXECUTIVE COMPENSATION.	28
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.	28
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.	28
	PART IV
ITEM 14.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.	29
	EXHIBIT INDEX.	34
	SIGNATURES.	35
	TABLE INDEX
	REPORT OF INDEPENDENT AUDITORS	F-1a
	INDEPENDENT AUDITORS' REPORT	F-1b
	BALANCE SHEETS.	F-2
	STATEMENTS OF OPERATIONS.	F-4
	STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME.	F-6
	STATEMENTS OF CASH FLOWS.	F-7
	NOTES TO FINANCIAL STATEMENTS.	F-9
	SUPPLEMENTAL FINANCIAL INFORMATION.	F-29
	SELECTED FINANCIAL AND STATISTICAL DATA.	F-30
	REPORT OF INDEPENDENT AUDITORS.	S-1a
	INDEPENDENT AUDITORS' REPORT ON SCHEDULE.	S-1b
	FINANCIAL STATEMENT SCHEDULE.	S-2

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FORWARD-LOOKING STATEMENTS

    Certain statements contained here and throughout, that are not related to historical results, including, without limitation, statements regarding the Company's business strategy and objectives, future financial position and estimated cost savings, are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act and involve risks and uncertainties. Although the Company believes that the assumptions on which these forward-looking statements are based are reasonable, there can be no assurance that such assumptions will prove to be accurate and actual results could differ materially from those discussed in the forward-looking statements. All forward-looking statements contained in this Form 10-K are qualified in their entirety by this cautionary statement.

    It is not reasonably possible to itemize all of the many factors and specific events that could affect the outlook of an airline operating in the global economy. Some factors that could significantly impact capacity, load factors, revenues, expenses and cash flows include the airline pricing environment, fuel costs, labor union situations both at the Company and other carriers, low-fare carrier expansion, capacity decisions of other carriers, actions of the U.S. and foreign governments, foreign currency exchange rate fluctuations, inflation, the general economic environment and other factors discussed herein.

    Developments in any of these areas, as well as other risks and uncertainties detailed from time to time in the Company's Securities and Exchange Commission filings, could cause the Company's results to differ from results that have been, or may be, projected by, or on behalf of, the Company. The Company cautions that the foregoing list of important factors is not exclusive. The Company does not undertake to update any forward-looking statements that may be made from time to time by or on behalf of the Company.

PART I

ITEM 1. BUSINESS.

The Company

    Hawaiian Airlines, Inc. ("Hawaiian Airlines" or the "Company") is the largest airline headquartered in Hawaii, based on operating revenues of $607.2 million for 2000. The Company is engaged primarily in the scheduled transportation of passengers, cargo and mail. The Company was incorporated in January 1929 under the laws of the Territory of Hawaii. The Common Stock of the Company trades on the American Stock Exchange and The Pacific Exchange under the symbol "HA." The Company's principal offices are located at 3375 Koapaka Street, Suite G-350, Honolulu, Hawaii 96819. Its telephone and facsimile numbers are (808) 835-3700 and (808) 835-3690, respectively. Its website address is www.hawaiianair.com.

Operations

Passenger Service

    The Company's chief source of revenue is scheduled passenger airline service. Scheduled passenger airline service consists of, on average and depending on seasonality, approximately 179 flights per day with daily service between Hawaii and Las Vegas, Nevada and the four key United States ("U.S.") West Coast gateway cities of Los Angeles and San Francisco, California, Seattle, Washington and Portland, Oregon ("Transpac"); daily service among the six major islands of the State of Hawaii ("Interisland"); and twice weekly service from Hawaii to each of Pago Pago, American Samoa and Papeete, Tahiti in the South Pacific ("Southpac"). The Company also provides charter service from Honolulu to Las Vegas and to Anchorage, Alaska and from Los Angeles to Papeete, Tahiti ("Overseas

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Charter"). The Company operates a fleet of DC-9 and DC-10 aircraft to service these routes, however, as discussed below, new Boeing 717-200 aircraft will replace the DC-9 aircraft during 2001.

    During 2000, the Company's Transpac operations served Honolulu, Kahului, Maui and Kona, Hawaii and Las Vegas and the U.S. West Coast gateway cities of Los Angeles, San Francisco, Seattle and Portland. DC-10 aircraft are used to service Transpac routes. In 2000, the Transpac market represented approximately 51.9% of the Company's total operating revenues.

    Management estimates that the entire Interisland market averages approximately nine to ten million passengers annually. Approximately two-thirds of Interisland travelers are visitors to Hawaii while the balance are Hawaii residents. The Company's Interisland operations provide service to seven airports on the six major Hawaiian islands of Oahu, Hawaii, Maui, Kauai, Molokai and Lanai. The Company's Interisland routes are currently serviced with DC-9 aircraft, however, during 2001, these aircraft will be entirely replaced with new Boeing 717-200 aircraft. During 2000, the Interisland market represented approximately 30.2% of the Company's total operating revenues.

    Hawaiian Airlines currently is the sole carrier providing scheduled air service between Honolulu and American Samoa and Tahiti. These Southpac routes are serviced with DC-10 aircraft. During 2000, the Southpac market represented approximately 4.0% of the Company's total operating revenues.

    In addition to its scheduled service, the Company operated, on average, seven weekly charter flights between Honolulu and Las Vegas, two to three charter flights per week between Honolulu and Anchorage and approximately seventeen charter flights per month between Los Angeles and Papeete, Tahiti. The Company's Overseas Charter operation utilized DC-10 aircraft and produced 13.9% of the Company's total operating revenues in 2000.

    Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of this Form 10-K for further discussion on the Company's passenger service routes.

Fuel

    Aircraft fuel is a significant expense for any air carrier and even marginal changes in fuel prices can greatly impact a carrier's profitability. The following table sets forth statistics about Hawaiian Airlines' aircraft fuel consumption and cost for each of the last three years (including the beneficial impact of the Company's fuel hedging program):

Year	Gallons consumed (in thousands)	Total cost, including taxes (in thousands)		Average cost per gallon	% of operating expenses
2000	141,429	$	126,962	89.8 ¢	20.4	%
1999	120,894	$	76,148	63.0 ¢	14.4	%
1998	107,260	$	66,387	61.9 ¢	16.2	%

    The single most important factor affecting petroleum product prices, including the price of aircraft fuel, continues to be the actions of the major oil producing countries in setting targets for the production and pricing of crude oil. In addition, the markets for heating oil, diesel fuel, automotive gasoline and natural gas affect aircraft fuel prices. All petroleum product prices continue to be subject to unpredictable economic, political and market factors. Also, the balance among supply, demand and price has become more reactive to world market conditions. Accordingly, the price and availability of aviation fuel, as well as other petroleum products, continues to be unpredictable. A fuel supply shortage resulting from a disruption of oil imports or otherwise, could result in higher fuel prices or curtailment of scheduled service which could have a material adverse effect on the Company.

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    The cost of aircraft fuel increased throughout 2000 however appears to be stabilizing in early 2001. In the first two months of 2001, prices paid by the Company for jet fuel have dropped below $.90 per gallon from the more than $1.00 per gallon in the last quarter of 2000. A one-cent change in the cost per gallon of fuel has an impact on the Company's operating expenses of approximately $120,000 per month (based on 2000 consumption). Changes in fuel prices may have a greater impact on the Company than certain of its competitors with more modern, fuel-efficient aircraft, however, the Company expects to realize savings in fuel expense in 2001 with the introduction of thirteen new B717-200 aircraft to its fleet. Significant changes in fuel costs would materially affect the Company's operating results.

    Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of this Form 10-K for further discussion on aircraft fuel expense and the financial instruments used by the Company to manage market risks and hedge its financial exposure resulting from fluctuations in its aircraft fuel costs.

Aircraft

    As of December 31, 2000, the Company's fleet consisted of fifteen DC-10 and fifteen DC-9 aircraft:

    DC-10 aircraft. Of the fifteen DC-10 aircraft, ten are leased from American Airlines, Inc. ("American") on long-term operating leases expiring December 31, 2003. Three DC-10 aircraft are leased from Continental Airlines, Inc. ("Continental"), two of which were added to the Company's fleet in 2000. These aircraft are on operating leases, two of which expire in January 2002 and one in May 2002. The remaining two DC-10 aircraft, which were acquired by the Company in December 1998 and March 1999, were sold to BCI Aircraft Leasing, Inc. in a sale-leaseback transaction completed in January 2001 and continue to be operated by the Company under operating leases expiring in 2004. Heavy maintenance for the DC-10 aircraft leased from Continental is provided through a contract with Continental; the heavy maintenance for the other twelve DC-10 aircraft is provided under an agreement with American. The average age of the Company's DC-10 aircraft is 25 years.

    DC-9 aircraft. Of the fifteen DC-9 aircraft, nine are owned by the Company, five are leased under operating leases which expire at various times between 2001 and 2004, and one is under capital lease which expires on November 30, 2002. The Company intends to retire the entire DC-9 fleet during 2001 as the Boeing 717-200 aircraft (discussed below) are delivered and inducted into service. The average age of the Company's DC-9 aircraft is 23 years.

    Boeing 717-200 aircraft. In March of 2000, the Company announced that it had executed a definitive agreement with The Boeing Company ("Boeing") to acquire thirteen new Boeing 717-200 aircraft, with rights to acquire an additional seven aircraft. The Boeing 717-200 aircraft will be acquired utilizing leveraged lease financing provided by Boeing affiliates and will be delivered to the Company between February and December of 2001. The first two Boeing 717-200 aircraft were delivered to the Company on February 28, 2001 and March 14, 2001.

    The Boeing 717-200 aircraft will replace the DC-9 aircraft for the Company's interisland service. The Boeing 717-200 aircraft have the same Federal Aviation Administration Type Certificate as the DC-9, allowing easier maintenance and crew transitioning; seat eight passengers in first class and 115 in coach; utilize twin BMW Rolls-Royce BR715 engines that generate emissions below existing federal standards; and meet, as currently defined, Federal Stage 3 and proposed Stage 4 noise requirements. The 717-200 aircraft are reported to be more fuel-efficient and less costly to maintain than the Company's aging DC-9 fleet.

    In the event one or more of the Company's aircraft were to be out of service, the Company may have difficulty completing its scheduled or chartered service. Any interruption of service caused by the

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unavailability of aircraft due to unscheduled servicing or repair or otherwise, or lack of availability of substitute aircraft, could have a material adverse effect on the Company's service, reputation and profitability.

    Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of this Form 10-K and Note 5 in the Notes to Financial Statements for further discussion on the Company's sale-leaseback transactions, intended narrow-body fleet transition and aircraft fleet and the maintenance thereof.

Segment Information

    Principally all operations of the Company either originate or end in the State of Hawaii. The management of such operations is based on a system-wide approach due to the interdependence of the Company's route structure in its various markets. The Company operates as a matrix form of organization as it has overlapping sets of components for which managers are held responsible. Managers report to the Company's chief operating decision-maker on both the Company's geographic components and the Company's product and service components, resulting in the components based on products and services constituting the operating segment. As the Company offers only one service (i.e., air transportation), management has concluded that it has only one segment. Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of this Form 10-K for discussion on scheduled and chartered passenger revenues, and Note 14 in the Notes to Financial Statements for scheduled and chartered passenger revenues.

Seasonality

    The airline industry is a highly cyclical business with substantial volatility. Airlines frequently experience seasonal fluctuations in traffic that may deplete cash during off-peak periods. Other factors which may create fluctuations in cash levels that are not necessarily seasonal, include the extent and nature of fare changes and competition from other airlines, changing levels of operations, national and international events, fuel prices and general economic conditions, including inflation. Because a substantial portion of airline travel, both personal and, to a lesser extent business, is discretionary, the industry tends to experience adverse financial results in general economic downturns. Accordingly, airlines require substantial liquidity to sustain continued operations under most conditions. Working capital deficits are not uncommon in the airline industry as airlines typically have no product inventories and sales of tickets not yet flown are reflected as current liabilities.

    The Company's results are sensitive to seasonal and cyclical volatility primarily due to seasonal leisure and holiday travel. Hawaii is a popular destination for passengers flying on frequent flyer travel awards and is, in general, a popular spot for vacation travelers. Thus, traffic levels are typically lowest in the first quarter of the year with increased traffic levels occurring during June, July, August and December. Aggressive fare pricing strategies that increase the availability and size of ticket discounts are generally utilized by the Company during weaker travel periods. Because certain of the Company's costs do not vary significantly regardless of traffic levels, such seasonality may substantially affect the Company's profitability and liquidity.

Dependence on Tourism

    As the Company's base of operations principally resides in Hawaii, the Company's profitability is linked primarily to the number of travelers to, from and among the Hawaiian Islands. Tourists constitute a majority of the travelers to and from Hawaii with tourism levels being affected by, among other things, the strength of the local Hawaii economy, the popularity of Hawaii as a tourist destination in general and other global factors, including the political and economic climate in the areas from which tourists to Hawaii typically originate. In 2000, the number of visitors to Hawaii totaled

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approximately 7.0 million, a 3.5% increase over the previous year. Preliminary statistics from the Hawaii Visitors and Convention Bureau (the "HVCB") estimate that in 2000, visitors arriving aboard flights from the Continental United States increased by 4.6%, while international visitors, arriving aboard flights from foreign countries, including Canada, increased 1.6%. Year over year, the island of Oahu experienced increased visitor counts of 4.8%. Kauai, Maui, the Big Island of Hawaii, Lanai and Molokai experienced decreased visitor counts of 0.9%, 2.2%, 2.9%, 9.5% and 8.0%, respectively.

    No assurance can be given that the level of passenger traffic to Hawaii will not decline in the future. A decline in the level of Hawaii passenger traffic could have a material adverse effect on the Company's operations and profitability.

Competition

    The airline industry is highly competitive, primarily due to the effects of the Airline Deregulation Act of 1978, recodified into the Transportation Act, which has substantially eliminated government authority to regulate domestic routes and fares and has increased the ability of airlines to compete with respect to destination, flight frequencies and fares. Airline profit levels are highly sensitive to, and can be severely impacted by, among other things, adverse changes in fuel costs, average yield (seat pricing) and passenger demand.

    The U.S. airline industry has consolidated in recent years as a result of mergers and liquidations, and further consolidation may occur in the future. The consolidations have, among other things, enabled certain carriers to expand their international operations and increase their presence in the U.S. domestic market. In addition, the airline industry has experienced in recent years alliances among U.S. carriers and between large U.S. and foreign carriers, allowing those carriers within such alliances to strengthen their overall operations. Conversely, the industry has also seen in recent years the emergence and growth of low cost, low fare domestic carriers which have further intensified competitive pressures. Aircraft, skilled labor and gates at most airports continue to be available to start-up carriers. In some cases, the new entrants have initiated or triggered price discounting.

    Many of the Company's competitors are larger and have substantially greater resources. In addition, the commencement of service by new carriers on the Company's routes could negatively impact the Company's operating results. Competing airlines (including the Company) have, from time to time, reduced fare levels and increased capacity beyond market demand on routes served by the Company in order to maintain or generate additional revenues. Such activity, which may occur in the future, by competing airlines could reduce fares or passenger traffic to levels where profitable operations could not be sustained. Due to its relative smaller size, the Company may be less able than larger airlines to withstand aggressive marketing tactics or a prolonged fare war initiated by its larger competitors.

    Vigorous price competition exists, with competitors frequently offering reduced discount fares and other promotions to stimulate traffic during weaker travel periods, generate cash flow or increase relative market share in selected markets. The introduction of broadly available, deeply discounted fares by a U.S. airline could result in lower yields for the entire industry and could have a material adverse effect on the Company's operating results.

    The nature of the airline industry requires substantial financial and operating leverage. Due to high fixed costs, the expenses of each flight do not vary proportionately with the number of passengers carried, but the revenues generated from a particular flight are directly related to the number of passengers carried. Accordingly, while a decrease in the number of passengers carried would cause a corresponding decrease in revenue (if not offset by higher fares), it may result in a disproportionately greater decrease in profits. However, an increase in the number of passengers carried would have the opposite effect.

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Transpac

    On its Transpac routes, the Company currently competes with major carriers such as United Airlines, Inc. ("United"), Delta Airlines, Inc., Northwest Airlines, Inc. ("Northwest") and, to a lesser extent, Continental and American. In addition, the Company competes against charter carriers in the Transpac market. The Company believes that Transpac competition is primarily based on fare levels, flight frequency, on-time performance and reliability, name recognition, affiliations, frequent flyer programs, customer service, aircraft type and in-flight service.

Interisland

    While there are several small commuter and air taxi companies providing air transportation to Hawaii airports that cannot be served by large aircraft, the Interisland market is serviced primarily by the Company and its primary competitor in the Interisland market, Aloha Airlines, Inc. ("Aloha"). Aloha's competitive position is strengthened through its marketing affiliation with United, the largest carrier of passengers to Hawaii. Aloha participates in United's frequent flyer program and also has a code sharing agreement with United. At present, Aloha principally utilizes nineteen Boeing 737 aircraft with a schedule that averages approximately, depending on seasonality, 170 daily flights, which service the same basic Interisland routes as the Company. The Company has, depending on seasonality, approximately 160 Interisland flights per day. Also, refer to the discussion below regarding the Company's major marketing affiliations, including code sharing arrangements with American, Continental, Northwest and other airlines. The Company believes that Interisland competition is primarily based on fare levels, flight frequency, on-time performance and reliability, name recognition, affiliations, frequent flyer programs, customer service and aircraft type.

Reliance on Third Parties

    The Company has entered into agreements with contractors, including American, Northwest, Continental and certain other airlines, to provide certain facilities and services required for its operations, including aircraft leasing and maintenance, code sharing, reservations, computer services, frequent flyer programs, passenger processing, ground facilities, baggage and cargo handling and personnel training. This reliance on third parties to provide services subjects the Company to the risk that such services could be discontinued without adequate replacement services being available.

    The Company leases ten DC-10 aircraft from American. American is responsible for maintenance on all of the Company's DC-10 aircraft (leased and owned) except for the three DC-10 aircraft leased from Continental, for which Continental provides maintenance services. The maintenance agreement with American provides the Company access to spare parts, engines and rotables for the maintenance of these aircraft. As such, the Company does not maintain large inventories of spare engines or parts to support the operation of the DC-10 aircraft. The Company pays a minimum contractual power by the hour charge for maintenance services, monthly in arrears. During 2000, the Company incurred approximately $85.8 million of lease and maintenance expenses under the American leases and aircraft maintenance agreements. Maintenance performed by American on applicable DC-10 aircraft of the Company is subject to American's right to terminate such services at any time with 180 days prior notice. If American terminated the maintenance arrangement, the Company would have to seek an alternate source of maintenance service or undertake to maintain these DC-10s internally. No assurance can be given that the Company would be able to do so on a basis that is as cost-effective as the American maintenance arrangement. Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of this Form 10-K for further discussion on the Company's DC-10 aircraft fleet.

    The Company has code sharing agreements with American, American Eagle carrier Wings West Airlines, Inc., Northwest, Continental and Virgin Atlantic. The Company also participates in the

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frequent flyer programs of American, Northwest and Continental. These programs and services make the Company more competitive, but increase its reliance on third parties.

    In 2000, 1999, and 1998, a majority of the Company's ticket sales were generated by travel agents, including approximately 34%, 35%, and 40% by five large wholesalers. In 2000, Hawaii-based wholesaler, Panda Travel Inc., constituted approximately 17% of the Company's total ticket sales. Travel agents generally have a choice between two or more airlines when booking a customer's flight. Accordingly, any effort by travel agencies to favor another airline or to disfavor the Company could adversely affect the Company. Although management intends to continue to offer an attractive and competitive product to travel agencies and to maintain favorable relations with travel agencies, there can be no assurance that travel agencies will not disfavor the Company or favor other airlines in the future, either of which could have an adverse effect on the Company's operations and profitability.

Regulation

General

    As a certificated air carrier, Hawaiian Airlines is subject to the regulatory jurisdiction of the U.S. Department of Transportation (the "DOT") and the Federal Aviation Administration (the "FAA"). The DOT has jurisdiction over certain aviation matters such as the carrier's certificate of public convenience and necessity, international routes and fares, consumer protection policies including baggage liability and denied-boarding compensation and unfair competitive practices as set forth in the Transportation Act. Hawaiian Airlines and all other domestic airlines are subject to regulation by the FAA under the Transportation Act. The FAA has regulatory jurisdiction over flight operations generally, including equipment, ground facilities, security systems, maintenance and other safety matters. To assure compliance with its operational standards, the FAA requires air carriers to obtain operations, air worthiness and other certificates, which may be suspended or revoked for cause. The FAA also conducts safety audits and has the power to impose fines and other sanctions for violations of aviation safety and security regulations. As are other carriers, Hawaiian Airlines is subject to inspections by the FAA in the normal course of its business on a routine ongoing basis. Hawaiian Airlines operates under a Certificate of Public Convenience and Necessity issued by the DOT (authorizing it to provide commercial aircraft service) as well as a Part 121 Scheduled Carrier Operating Certificate issued by the FAA.

Maintenance Directives and Other Regulations

    Hawaiian Airlines has developed extensive maintenance programs, which consist of a series of phased checks of each aircraft type. These checks are performed at specified intervals measured either by time flown or by the number of takeoffs and landings ("cycles") performed. Checks range from daily "walk around" inspections, to more involved overnight maintenance checks, to exhaustive and time consuming overhauls. Aircraft engines are subject to phased, or continuous, maintenance programs designed to detect and remedy potential problems before they occur. The service lives of certain parts and components of both airframe and engines are time or cycle controlled. Parts and other components are replaced or overhauled prior to the expiration of their time or cycle limits. The FAA approves all airline maintenance programs, including changes to the programs. In addition, the FAA licenses the mechanics who perform the inspections and repairs, as well as the inspectors who monitor the work.

    The FAA frequently issues air worthiness directives, often in response to specific incidents or reports by operators or manufacturers, requiring operators of specified equipment to perform prescribed inspections, repairs or modifications within stated time periods or numbers of cycles. In the last several years, the FAA has issued a number of maintenance directives and other regulations relating to, among other things, cargo compartment fire detection/suppression systems, collision avoidance systems, airborne windshear avoidance systems, noise abatement and increased inspection

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requirements. The Company cannot predict what new air worthiness directives will be issued and what new regulations will be adopted or how they will affect the Company. The Company expects that new air worthiness directives and regulations will require the Company to incur expenditures for the purposes of complying with the directives and regulations.

    Additional laws and regulations have been proposed from time to time that could significantly increase the cost of airline operations by, for example, imposing additional requirements or restrictions on operations. Laws and regulations also have been considered from time to time that would prohibit or restrict the ownership and/or transfer of airline routes or takeoff and landing slots. Also, the award of international routes to U.S. carriers (and their retention) is regulated by treaties and related agreements between the U.S. and foreign governments, which are amended from time to time. The Company cannot predict what laws and regulations will be adopted or what changes to international air transportation treaties will be effected, if any, or how they will affect the Company.

    The Company believes that it is in compliance with all requirements necessary to maintain in good standing its operating authority granted by the DOT and its air carrier operating certificate issued by the FAA. A modification, suspension or revocation of any of the Company's DOT or FAA authorizations or certificates would have a material adverse effect upon the Company.

    Several aspects of airlines' operations are subject to regulation or oversight by Federal agencies other than the FAA and DOT. The U.S. Department of Defense regulates Civil Reserve Air Fleet and government charters. The antitrust laws are enforced by the U.S. Department of Justice. The U.S. Postal Service has jurisdiction over certain aspects of the transportation of mail and related services provided by the Company's cargo services. Labor relations in the air transportation industry are generally regulated under the Railway Labor Act. The Company and other airlines certificated prior to October 24, 1978 are also subject to preferential hiring rights granted by the Transportation Act to certain airline employees who have been furloughed or terminated (other than for cause).

Limitation on Foreign Ownership of Shares

    The Transportation Act prohibits non-U.S. citizens from owning more than 25% of the voting interest of a U.S. air carrier. The Company's Restated Articles of Incorporation prohibit the ownership or control of more than 25% (to be increased or decreased from time to time, permissible under the laws of the U.S.) of issued and outstanding voting capital stock of the Company by persons who are not "citizens of the U.S.". As of December 31, 2000, less than 25% of the Common Stock of the Company was held by non-U.S. citizens.

Insurance

    The Company is exposed to potential losses that may be incurred in the event of an aircraft accident. Any such accident could involve not only the repair or replacement of a damaged aircraft and its consequential temporary or permanent loss of service, but also significant potential claims of injured passengers and others. The Company is required by the DOT to carry liability insurance on each of its aircraft. The Company currently maintains commercial airline insurance with a major group of independent insurers that regularly participate in world aviation insurance markets including public liability insurance and coverage for losses resulting from the physical destruction or damage to the Company's aircraft which management believes is adequate and consistent with current industry practice. However, there can be no assurance that the amount of such coverage will not be changed or that the Company will not bear substantial losses from accidents. Substantial claims resulting from an accident in excess of related insurance coverage could have a material adverse effect on the Company.

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Landing Fees and Ticket Taxes

    Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of this Form 10-K for discussion on landing fees in the State of Hawaii and Federal taxes on tickets.

Employees

    As of December 31, 2000, Hawaiian Airlines had 3,313 active employees, of which 2,755 were employed on a full-time basis. The majority of Hawaiian Airlines' employees are covered by labor agreements with the International Association of Machinists and Aerospace Workers (AFL-CIO) ("IAM"), the Air Line Pilots Association International ("ALPA"), the Association of Flight Attendants ("AFA"), the Transport Workers Union ("TWU") and the Communications Section Employees Union ("CSE"). The amendable date of all six contracts was February 28, 2000. In December 2000, the Company and ALPA reached an agreement on a new 42-month contract that went into effect on January 1, 2001. Terms of the accord were ratified by ALPA's Master Executive Council. The Company is currently in direct negotiations with the IAM and AFA. If no agreement is reached in direct negotiations, federally- mandated mediation will occur and could last for an unspecified period of time. Although the overwhelming majority of labor negotiations in the airline industry are resolved in mediation, there can be no assurance that the discussions will result in an agreement and ratification between the Company and each labor group. The time required to negotiate a contract under the Railway Labor Act varies. Therefore, management cannot currently estimate the timeframe or results of the ensuing discussions. Should the Company and the labor groups be unable to reach an agreement, the Company could be adversely affected.

Executive Officers

    Information provided in the Company's Proxy Statement for the 2001 Annual Meeting of Shareholders concerning the Company's current directors and their business experience is incorporated herein by reference other than the following, which comprise the Executive Officers of the Company.

JOHN W. ADAMS has been Chairman of the Board of Directors since February 2, 1996; he is also Chairman of the Executive Committee. He has been the President since 1984 of Smith Management LLC, a private investment firm. He was a member of the Board of Directors of Harvard Industries, Inc. from October 1994 until November 1998, and was Chairman of the Board and Chief Executive Officer of Harvard Industries from February 1997 until November 1998. He served on the Board of Directors of Servico, Inc., a lodging owner and management company, from April 1994 until August 1997, being Chairman of the Board from December 1995 until he resigned from the Board. Mr. Adams was Chairman of the Board of Directors of Regency Health Services, Inc., a health care services company, from July 1994 until October 1997. Age 57.

PAUL J. CASEY was President and Chief Executive Officer from April 1997 until he was appointed Vice Chairman and Chief Executive Officer effective January 31, 2001. He has also been a director and a member of the Executive Committee of Hawaiian Airlines since April 1997. He was the President and Chief Executive Officer of the Hawaii Visitors and Convention Bureau from 1995 until March 1997. He was Managing Director-Asia/Pacific of the Thomas Cook Group during 1994. He was Vice President-International Division of Continental Airlines from 1991 until 1994, and Vice President-Asia/Pacific of Continental Airlines from 1985 until 1991. In 1999, he became a director of Outrigger Hotels, Inc., a Hawaii based company with hotel and resort properties throughout the Pacific area. Age 54.

    ROBERT W. ZOLLER, JR.  was Executive Vice President-Operations and Service from December 1999 until January 31, 2001, when he was appointed President and Chief Operating Officer. He held Vice President positions at AirTran from 1996 to 1999, including most recently Senior Vice

12

President of Maintenance and Engineering. From 1991 to 1996, he was Vice President of Operations for AMR Eagle, Inc. and Managing Director of Eagle Aviation Services, Inc. Age 54.

WILLIAM F. LOFTUS served as Executive Vice President, Chief Financial Officer and Treasurer from July 17, 2000 until February 28, 2001. He is a former Senior Vice President and Chief Financial Officer for US Airways and has held senior executive positions with several Fortune 100 companies. He is a Principal of The Loftus Group, a management consulting entity. Age 62.

    JOHN B. HAPP  has been Senior Vice President-Marketing & Sales since December 1997. He served dual roles of Vice President-Market Planning for LTU Airlines and Vice President-Marketing for their subsidiary, Go America, from 1996 to 1997. From 1989 to 1996, he held various senior marketing and business development positions at Continental Airlines, Inc., including most recently Managing Director of the Newark Business Unit. Age 45.

RUTHANN S. YAMANAKA has been Senior Vice President-People Services Group since March 1998. She was Senior Vice President-Assistant Director, Human Resources for Bank of Hawaii from July 1994 through February 1998 and Manager, Quality Assurance Administration from 1988 to 1994. Age 47.

LYN F. ANZAI has been Vice President-General Counsel and Corporate Secretary since July 1997. She was Senior Counsel in the Corporate/Investment Legal Division of Kamehameha Schools Bishop Estate from November 1990 until July 1997. Age 57.

ROLLAND F. LAWRENCE was appointed Vice President-Flight Operations on June 26, 2000. He has been a pilot with the Company since 1966 and most recently served as a DC-10 Captain. Age 60.

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    H. NORMAN DAVIES, JR.  has been Vice President-Safety and Security since January 6, 1997. He was Chief Pilot in New York for Delta Airlines, Inc. from November 1991 until June 1996. Age 64.

JOHN L. RYAN was appointed Vice President-Maintenance and Engineering on April 26, 1999. He was Director-Maintenance and Engineering with Reno Air from June 1998 through April 1999. Prior to joining Reno Air, he held a series of management positions with United Airlines from March 1962 until his retirement in June 1998 as Regional Manager of Aircraft Maintenance. Age 60.

BLAINE J. MIYASATO has been Vice President-Customer Services since January 2000. He was Vice President-In-Flight, Catering and Product Development from February 1999 to January 2000. From 1993 to 1998 he held various senior positions at the Company including Senior Director-In-Flight, Product Development and Catering. Age 38.

    EDWARD W. PINION  has been Vice President-Purchasing and Logistics since August 2000. He was Vice President of Purchasing from March 1999 until August 2000. He was manager of aviation fuels for BHP/Tesoro from March 1996 until 1999. From 1994 to 1996, he was Commander of the Defense Fuel Region, Pacific, and Commander of the Defense Logistics Agency, Pacific, at Camp H.M. Smith. Age 50.

GLENN G. TANIGUCHI has been Vice President-Schedule Planning since 1998. He was Vice President-Schedule Planning and Reservations from 1995 to 1998. He was Staff Vice President-Schedule Planning and Reservations of Hawaiian Airlines from 1991 until 1995. Age 58.

    All officers are appointed annually by the Board of Directors at their first meeting after the annual meeting of shareholders at which the Board of Directors is elected and at subsequent meetings of the Board or as directed by the Bylaws or as delegated by the Board. The following were officers of the Company during part of 2000:

JOHN L. GARIBALDI was Executive Vice President and Chief Financial Officer from May 1996 until his separation effective July 14, 2000. He was Vice President and Chief Financial Officer of The Queen's Health Systems from 1992 until 1996 and Senior Vice President-Finance and Planning and Chief Financial Officer of Aloha Airgroup, Inc./Aloha Airlines, Inc. from 1985 until 1992. Age 47.

MICHAEL P. LOO was Vice President-Controller since 1996 until his resignation in November 2000. He was Staff Vice President-Controller from 1994 until 1995. He was previously with KPMG LLP until 1993. Age 36.

CLARENCE K. LYMAN was Vice President-Finance, Treasurer and Assistant Corporate Secretary from 1991 until his separation effective August 18, 2000. Age 54.

    On March 1, 2001, CHRISTINE R. DEISTER was appointed Executive Vice President, Chief Financial Officer and Treasurer, replacing William F. Loftus. She had been employed with TWA for more than 30 years, most recently as Senior Vice President-Finance and Treasurer. Age 51.

    No executive officer of the Company bears any relationship by blood, marriage or adoption to any other executive officer or director, except that John W. Adams' sister is married to director Robert G. Coo.

    Information provided in the Company's Proxy Statement for the 2001 Annual Meeting of Shareholders is incorporated herein by reference for Part III, Items 11 through 13 of this Form 10-K.

ITEM 2. PROPERTIES.

    Information provided in Notes 4, 5, 6 and 10 to the Financial Statements contained in Part IV, Item 14 of this Form 10-K is incorporated herein by reference.

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ITEM 3. LEGAL PROCEEDINGS.

    Information provided in Note 10 to the Financial Statements contained in Part IV, Item 14 of this Form 10-K is incorporated herein by reference.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

    None.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

    The Registrant's Common Stock is traded on the American Stock Exchange and Pacific Exchange under the symbol HA. The following table sets forth the reported high and low sales prices for the Common Stock for the quarters indicated, as reported by the American Stock Exchange:

2000	First Quarter	Second Quarter	Third Quarter	Fourth Quarter
High	2-1/2	2-7/8	2-3/4	2-1/2
low	1-3/4	2-1/16	2-1/4	1-3/4

1999	First Quarter	Second Quarter	Third Quarter	Fourth Quarter
High	3-3/16	3	2-7/8	2-1/2
Low	2-3/8	2-1/2	2-3/16	2

    As of March 1, 2001, there were approximately 1,021 holders of record of the Company's Common Stock.

    Under the terms of the financing arrangement with CIT Group/Business Credit, Inc., the Company is restricted from paying any cash or stock dividends. No dividends were paid by the Company in 2000 or 1999.

    In March 2000, the Company announced that its Board of Directors approved a stock repurchase program authorizing the Company to buy up to 5 million shares of its Common Stock. In August 2000, the Board of Directors increased the authorization to 10 million shares. Under the approved stock repurchase plan, the Company may repurchase Common Stock from time to time in the open market and in private transactions. The amount and timing of any repurchases will be subject to a number of factors, including the "trading practices rules" promulgated under the Securities Exchange Act of 1934, the price and availability of the Company's stock and general market conditions. Including the effect of the repurchase of certain warrants, as of December 31, 2000, 9,242,808 shares of Common Stock had been repurchased by the Company for approximately $19.2 million.

ITEM 6. SELECTED FINANCIAL DATA.

    Information under the caption "Selected Financial and Statistical Data" on pages F-28 to F-30 contained in Part IV, Item 14 of this Form 10-K is incorporated herein by reference. The "Selected Financial and Statistical Data" on pages F-28 to F-30 should be read in connection with the accompanying Financial Statements of the Company and the notes related thereto and Part II, Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Results of Operations
2000 Compared to 1999

    For the year ended December 31, 2000, the Company incurred operating and net losses of $13.8 million and $18.6 million, respectively. As discussed below, in 2000 the Company recorded $14.9 million in pretax restructuring charges in conjunction with its intent to replace its narrow-body DC-9 Interisland fleet and a $7.6 million pretax loss on assets held for sale on the two DC-10 aircraft sold in January 2001. Excluding the effects of the restructuring charges and the loss on assets held for sale, the Company generated operating and net income of $8.7 million and $5.5 million, respectively. While total operating revenues increased by $118.3 million or 24.2%, primarily as a result of increased passenger and charter revenues, operating expenses, net of impairment loss, restructuring charges and the loss on assets held for sale, also increased by $116.1 million or 24.1%, of which $50.8 million related to year over year increases in fuel expense. In response to the Company's increased flight operations, Available Seat Mile ("ASM") growth of 14.7% and investments in infrastructure to support the Company's growth strategies, operational cost increases were incurred in wages and benefits, maintenance, aircraft fuel and certain general and administrative expense categories.

Operating Revenues

    Operating revenues totaled $607.2 million in 2000 compared to $488.9 million in 1999, an increase of $118.3 million or 24.2%.

Passenger and Charter

    The following table compares operating passenger revenues and statistics, in thousands, except as otherwise indicated, for the years ended 2000 and 1999:

Operating Passenger Revenues and Statistics	2000			1999			Increase (Decrease)			%
Scheduled:
Passenger revenues	$	475,475		$	400,251		$	75,224		18.8
Revenue passengers		5,886			5,425			461		8.5
Revenue passenger miles		4,492,395			4,076,576			415,819		10.2
Available seat miles		5,967,810			5,468,589			499,221		9.1
Passenger load factor		75.3	%		74.5	%		0.8		1.1
Yield		10.6	¢		9.8	¢		0.8	¢	8.2
Overseas Charter:
Charter revenues	$	82,358		$	46,570		$	35,788		76.8
Revenue passengers		382			283			99		35.0
Revenue passenger miles		1,165,436			803,524			361,912		45.0
Available seat miles		1,279,749			852,155			427,594		50.2
Total Operations:
Passenger revenues	$	557,833		$	446,821		$	111,012		24.8
Revenue passengers		6,268			5,708			560		9.8
Revenue passenger miles		5,657,831			4,880,100			777,731		15.9
Available seat miles		7,247,559			6,320,744			926,815		14.7

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    Significant year to year variances were as follows:

    The introduction of additional DC-10 capacity, efforts to improve fare and passenger mix and initiation and maintenance of general price increases resulted in increased scheduled passenger revenues of $75.2 million or 18.8%. Year over year, the Company experienced $22.9 million and $50.5 million increases in its Interisland and Transpac passenger revenues, respectively. These increases were principally a result of the Company carrying approximately 8% and 10% more Interisland and Transpac revenue passengers and a 7% and 11% increase in its Interisland and Transpac yield, respectively.

    Overseas charter revenues increased by $35.8 million or 76.8% in 2000. The increase is primarily associated with the Company commencing charters between Los Angeles and Tahiti on August 31, 1999 and operating additional ad hoc charters year over year.

Cargo and Other

    Cargo and other operating revenues in 2000 totaled $49.4 million, an increase of $7.3 million or 17.4% over cargo and other operating revenues in 1999. The increase is primarily due to additional capacity and increased cargo rates resulting in increased cargo revenues; general increases in the Company's contract services; and continued promotion of the Company's frequent flyer program.

Operating Expenses

    Operating expenses totaled $621.0 million in 2000, an increase of $91.6 million or 17.3% from total operating expenses of $529.4 million in 1999.

    The following table compares operating expenses per Available Seat Mile ("ASM") by major category for 2000 with 1999:

Operating Expenses Per ASM	2000		1999		Increase (Decrease)		%
Wages and benefits	2.21	¢	2.19	¢	0.02	¢	0.9
Maintenance materials and repairs	1.53		1.61		(0.08	)	(5.0	)
Aircraft fuel, including taxes and oil	1.76		1.21		0.55		45.5
Rentals and landing fees	0.54		0.50		0.04		8.0
Depreciation and amortization	0.23		0.27		(0.04	)	(14.8	)
Sales commissions	0.20		0.20		—		—
Other	1.78		1.65		0.13		7.9
	8.25		7.63		0.62		8.1
Impairment loss	—		0.74		(0.74	)	(100.0	)
Restructuring charges	0.21		—		0.21		100.0
Loss on assets held for sale	0.10		—		0.10		100.0
Total	8.56	¢	8.37	¢	0.19	¢	2.3

    All fluctuations in operating expenses per ASM were affected by an overall increase in ASM of approximately 14.7% in 2000 from 1999. Significant year to year variances were as follows:

    Wages and benefits totaled $160.5 million in 2000 versus $138.4 million in 1999, an increase of $22.1 million or 16.0%. A majority of the increase is attributable to a 3% wage increase effective January 1, 2000 and additional wages and benefits from implementation of the Company's growth strategies which resulted in increased flying operations. The Company had 3,313 active employees at the end of 2000 versus 3,091 active employees at the end of 1999.

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    Maintenance materials and repairs increased by $9.4 million or 9.3%. The Company incurred $15.9 million more DC-10 maintenance expense in 2000 than 1999 as a result of increases in the maintenance rates charged by American, the addition of three DC-10 aircraft serviced by Continental, and the number of DC-10 aircraft hours flown. The increase was offset by the reduction of DC-9 airframe and engine maintenance of $6.5 million in 2000.

    Aircraft fuel, including taxes and oil ("Aircraft Fuel") totaled $127.2 million in 2000 versus $76.4 million in 1999. Year over year, Aircraft Fuel expense increased by $50.8 million or 66.5%, primarily due to a 17.0% increase in gallons consumed and a 58.7% increase in the average cost of aircraft fuel per gallon (exclusive of taxes and the impact of the Company's fuel hedging program). The average price per gallon rose continuously throughout the year with the October, November and December prices each more than $1.00 per gallon. This brought the average purchase price for 2000 to $.90 per gallon. The Company's fuel hedging program offset more than $11.7 million of the cost increase and reduced the net fuel cost per gallon by more than $.08 to less than $.82. In 2001 increased operations offset by more fuel efficient newer aircraft should result in approximately the same fuel volume consumption as in 2000. Given this, each one cent change in the price per gallon of fuel has a $1.4 million impact on annual operating expenses. Fuel prices per gallon have dropped below $.90 early in 2001 from the more than $1.00 in the last quarter of 2000.

    Rentals and landing fees in 2000 increased by $7.8 million or 24.7% when compared to 1999. The increase is a net of $4.8 million of additional landing fees incurred in 2000, as the two year moratorium placed on landing fees at all airports in the State of Hawaii ended September 1, 1999, less $1.1 million in landing fees refunded in 2000; $3.7 million in lease rent paid for the three additional DC-10s placed into service between December 1999 and December 2000; and $.5 million in additional space rentals.

    Depreciation and amortization totaled $16.3 million in 2000 compared to $17.1 million in 1999. The decrease is due to the reduction in DC-9 property as a result of the impairment loss recorded in December 1999, offset by the additional depreciation incurred from property placed into service in 2000.

    Sales commissions in 2000 increased $2.3 million or 18.7% when compared to 1999. The increase is due to an increase in commissionable sales offset by a decrease in the commission rate.

    Other operating expenses increased by $24.4 million or 23.3% in 2000 as compared to 1999. The increase is due to a combination of additional expenses incurred in 2000 including $1.4 million in advertising and promotion costs; $4.2 million in food and beverage expenses; $3.4 million in general and administrative costs, including credit card processing fees, booking fees, and third party services; $4.5 million in aircraft and passenger service related expenses; $1.1 million in personnel expenses primarily relating to crew accomodations; $4.7 million in interrupted trips and denied boarding expenses; $1.3 million in aircraft damages; and $3.3 million in adjustments to assets held for sale inventory.

    On December 31, 1999, the Company signed, subject to approval by the Company's Board of Directors, a definitive purchase agreement with Boeing to acquire thirteen new Boeing 717-200 aircraft, with rights to purchase an additional seven aircraft. On March 2, 2000, the Company announced that the Company's Board of Directors had approved the definitive purchase agreement with Boeing. In connection with its decision to replace the present Interisland DC-9 fleet with the Boeing 717s, the Company performed an evaluation to determine, in accordance with the Financial Accounting Standards Board (the "FASB") Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," whether future cash flows (undiscounted and without interest charges) expected to result from the use and eventual disposition of these aircraft would be less than the aggregate carrying amounts of these aircraft and the related assets. As a result of the evaluation, management determined that the estimated future cash flows expected to be generated by these aircraft would be less than their carrying

18

amount, and therefore these aircraft were impaired as defined by SFAS No. 121. Consequently, the original cost basis of these aircraft and related items was reduced to reflect the fair market value as of December 31, 1999. In determining the fair market value of these assets, the Company considered recent transactions involving sales of similar aircraft and market trends in aircraft dispositions. The evaluation performed under the guidelines of SFAS No. 121 resulted in a $47 million pre-tax, non-cash impairment loss being recorded in fourth quarter 1999. The Company also recorded a $14.9 million pre-tax restructuring charge in 2000, of which $6.8 million was related to estimated costs to comply with the return condition provisions and early termination provisions of the five DC-9 aircraft under operating leases, and $8.1 million was recorded to reduce the DC-9 expendable inventory to fair market value as of December 31, 2000. The Company may incur restructuring charges throughout the year 2001 as it proceeds with its narrow-body fleet transition plan. The Company at this time does not anticipate any significant restructuring charges, if any, to be incurred.

New Accounting Pronouncements

    In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in years beginning after June 15, 2000. The Company will adopt SFAS No. 133 effective January 1, 2001. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivatives will either be offset against the change in the fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings.

    The Company elected not to utilize hedge accounting and will be recognizing the change in fair value of its derivatives through earnings. Based upon the Company's derivative positions at December 31, 2000, the Company estimates that upon adoption, a gain of approximately $335,000 will be recorded as a cumulative effect of an accounting change in the statement of net income.

1999 Compared to 1998

    For the year ended December 31, 1999, the Company incurred operating and net losses of $40.5 million and $29.3 million, respectively. As discussed below, in 1999 the Company recorded a $47 million pretax impairment loss in conjunction with its intent to replace its narrow-body DC-9 Interisland fleet and a $772,000 net charge for the cumulative effect of a change in accounting principle related to the sale of mileage credits under its frequent flyer program. Excluding the effects of the impairment loss and the cumulative effect of a change in accounting principle, the Company generated operating and net income of $6.4 million and $3.0 million, respectively. While total operating revenues increased by $62.5 million, primarily as a result of increased passenger and charter revenues, operating expenses, net of impairment loss, increased by $73.4 million. In response to the Company's increased flight operations and investments in infrastructure to support the Company's growth strategies, operational cost increases were incurred in wages and benefits, maintenance, aircraft fuel and certain general and administrative expense categories.

Operating Revenues

    Operating revenues totaled $488.9 million in 1999 compared to $426.4 million in 1998, an increase of $62.5 million or 14.7%.

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Passenger and Charter

    The following table compares operating passenger revenues and statistics, in thousands, except as otherwise indicated, for the years ended 1999 and 1998:

Operating Passenger Revenues and Statistics	1999			1998			Increase (Decrease)			%
Scheduled:
Passenger revenues	$	400,251		$	354,245		$	46,006		13.0
Revenue passengers		5,425			5,010			415		8.3
Revenue passenger miles		4,076,576			3,649,024			427,552		11.7
Available seat miles		5,468,589			4,940,001			528,588		10.7
Passenger load factor		74.5	%		73.9	%		0.6		0.8
Yield		9.8	¢		9.7	¢		0.1	¢	1.0
Overseas Charter:
Charter revenues	$	46,570		$	35,742		$	10,828		30.3
Revenue passengers		283			250			33		13.2
Revenue passenger miles		803,524			689,578			113,946		16.5
Available seat miles		852,155			733,735			118,420		16.1
Total Operations:
Passenger revenues	$	446,821		$	389,987		$	56,834		14.6
Revenue passengers		5,708			5,260			448		8.5
Revenue passenger miles		4,880,100			4,338,602			541,498		12.5
Available seat miles		6,320,744			5,673,736			647,008		11.4

    Significant year to year variances were as follows:

    The introduction of additional DC-9 and DC-10 capacity, efforts to improve fare and passenger mix and initiation and maintenance of general price increases resulted in increased scheduled passenger revenues of $46 million or 13%. Year over year, the Company experienced $5.5 million and $40 million increases in its Interisland and Transpac passenger revenues, respectively. These increases were principally a result of the Company carrying approximately 7% and 13% more Interisland and Transpac revenue passengers and a 7% increase in its Transpac yield.

    Overseas charter revenues increased by $10.8 million or 30.3% in 1999. The increase is primarily associated with the Company commencing charters between Los Angeles and Tahiti and the flying of additional ad hoc charters year over year.

Cargo and Other

    Cargo and other operating revenues in 1999 totaled $42.1 million, an increase of $5.6 million or 15.4% over cargo and other operating revenues in 1998. The increase is primarily due to additional Transpac capacity resulting in increased cargo revenues; general increases in the Company's service charges related to tickets; and continued promotion of the Company's frequent flyer program.

Operating Expenses

    Operating expenses totaled $529.4 million in 1999, an increase of $120.4 million or 29.4% from total operating expenses of $409.0 million in 1998.

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    The following table compares operating expenses per Available Seat Mile ("ASM") by major category for 1999 with 1998:

Operating Expenses Per ASM	1999		1998		Increase (Decrease)		%
Wages and benefits	2.19	¢	2.10	¢	0.09	¢	4.3
Maintenance materials and repairs	1.61		1.48		0.13		8.8
Aircraft fuel, including taxes and oil	1.21		1.17		0.04		3.4
Rentals and landing fees	0.50		0.54		(0.04	)	(7.4	)
Depreciation and amortization	0.27		0.22		0.05		22.7
Sales commissions	0.20		0.21		(0.01	)	(4.8	)
Other	1.65		1.49		0.16		10.7
	7.63		7.21		0.42		5.8
Impairment loss	0.74		—		0.74		100.0
Total	8.37	¢	7.21	¢	1.16	¢	16.1

    All fluctuations in operating expenses per ASM were affected by an overall increase in ASM of approximately 11.4% in 1999 from 1998. Significant year to year variances were as follows:

    Wages and benefits totaled $138.4 million in 1999 versus $118.9 million in 1998, an increase of $19.5 million or 16.4%. A majority of the increase is attributable to a 3% wage increase effective December 1, 1998 and additional wages and benefits from implementation of the Company's growth strategies which resulted in increased flying operations. Additional labor costs related to flight and inflight crews and ground personnel, including airport, maintenance and administrative locations approximated $8.7 million and $7.7 million, respectively. The additional labor costs also resulted in increased taxes and benefits of $3.7 million.

    Maintenance materials and repairs increased by $17.8 million or 21.2%. The Company incurred $11.9 million more DC-10 maintenance expense in 1999 than 1998, the result of increases in the maintenance rates charged by American and the number of DC-10 aircraft used and hours flown. The Company also incurred additional DC-9 airframe and engine maintenance of $5.6 million in 1999.

    Aircraft fuel, including taxes and oil ("Aircraft Fuel") totaled $76.4 million in 1999 versus $66.6 million in 1998. Year over year, Aircraft Fuel expense increased by $9.8 million or 14.7%, primarily due to a 12.7% increase in gallons consumed and a 1.8% increase in the net average cost of aircraft fuel per gallon. The cost of aircraft fuel increased throughout 1999.

    Rentals and landing fees in 1999 increased by $1.1 million or 3.6% when compared to 1998. The increase is a net of $2.9 million less in aircraft rental expense as the Company renegotiated its leases of American DC-10 aircraft in second quarter 1999; $1.4 million of additional space and parking rentals; and $2.6 million of additional landing fees as the two-year moratorium placed on landing fees at all airports in the State of Hawaii ended on September 1, 1999.

    Depreciation and amortization totaled $17.1 million in 1999 compared to $12.6 million in 1998. A majority of the $4.5 million or 35.9% increase is due to additional depreciation incurred from owned DC-9 and DC-10 aircraft and related rotable parts placed into service in 1999.

    Other operating expenses increased by $19.9 million or 23.5% in 1999 as compared to 1998. The increase is due to a combination of additional expenses incurred in 1999 including $5.4 million of aircraft service related expenses; $2.4 million in passenger food and beverage; $2.5 million of personnel expense; $1.6 million in advertising and promotion costs; and $7.0 million in general and administrative expenses, including professional and legal fees.

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    In connection with its decision to replace the present Interisland DC-9 fleet with Boeing 717-200 aircraft, the Company performed an evaluation to determine, in accordance with the Financial Accounting Standards Board (the "FASB") Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," whether future cash flows (undiscounted and without interest charges) expected to result from the use and eventual disposition of these aircraft would be less than the aggregate carrying amounts of these aircraft and the related assets. As a result of the evaluation, management determined that the estimated future cash flows expected to be generated by these aircraft would be less than their carrying amount, and therefore these aircraft are impaired as defined by SFAS No. 121. Consequently, the original cost basis of these aircraft and related items was reduced to reflect the fair market value as of December 31, 1999. In determining the fair market value of these assets, the Company considered recent transactions involving sales of similar aircraft and market trends in aircraft dispositions. The evaluation performed under the guidelines of SFAS No. 121 resulted in a $47 million pre-tax, non-cash impairment loss being recorded in fourth quarter 1999.

Cumulative Effect of Change in Accounting Principle

    Under the Company's HawaiianMiles frequent flyer program described below, the Company sells mileage credits to participating partners such as hotels, car rental agencies and credit card companies. During 1999, as promulgated by the Securities and Exchange Commissions' Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," the Company changed the method it uses to account for the sale of these mileage credits. This change, applied retroactively to January 1, 1999, totaled approximately $772,000, net of income tax benefit of approximately $515,000 and is reflected as a cumulative effect of change in accounting principle in the accompanying statements of operations. Under the new accounting method, revenue from the sale of mileage credits is deferred and recognized when transportation is provided. Previously, the resulting revenue was recorded in the period in which the credits were sold. The Company believes the new method is preferable as it results in a better matching of revenues with the period in which services are provided.

22

Aircraft, Routes and Alliances

    As previously discussed, the Company has contracted with Boeing to acquire thirteen new Boeing 717-200 aircraft during 2001. As the Boeing 717-200 aircraft are delivered and introduced into service, the Company will simultaneously retire its fleet of DC-9 aircraft used for the interisland market.

    As part of the purchase agreement for the Boeing 717-200 aircraft, the Company was required to fund through June 2001, in the aggregate, approximately $43 million in pre-delivery payments toward the acquisition of the aircraft. The $43 million is being funded through a combination of internally generated funds and use of a revolving $22.5 million secured term loan facility with Kreditanstalt Für Wiederaufbau ("KFW"), secured by Rolls-Royce Deutchland Gmbh ("Rolls-Royce"), the engine manufacturer for the 717-200. As of December 31, 2000, the Company had made approximately $39.4 million of the required $43 million in progress payments, with $32.2 million of these payments having been made in 2000, of which $22.0 million was financed by KFW as mentioned above.

    Acquisition of the Boeing 717-200 aircraft is structured using leveraged lease financing provided through Boeing affiliates. The first two aircraft have been, and each additional aircraft will be, permanently financed upon delivery and the outstanding balance due KFW under the revolving $22.5 million facility will be repaid with proceeds from the permanent lease financing of each aircraft.

    In an effort to build infrastructure and implement its present growth strategies, the Company also entered into agreements to lease three DC-10-30 aircraft from Continental Airlines, Inc. The Company took delivery of one of the DC-10-30 aircraft in 1999, one in April 2000 and one in December 2000. The leases expire in January 2002 for two of the aircraft and May 2002 for the third.

    In January 2001, the Company completed sale-leaseback transactions on the two owned DC-10s with BCI Aircraft Leasing, Inc. As of December 31, 2000, $7.6 million was recognized as a loss on assets held for sale to reduce the book value of these aircraft to net realizable value; the net realizable value of these aircraft of $12.8 million was included as assets held for sale on the Company's balance sheet; and the balance of the notes payable secured by the two aircraft of $7.1 million was classified as current portion of long-term debt on the Company's balance sheet. Upon closing of the transaction in January 2001, proceeds from the sale of the aircraft were used to pay off the notes.

    The Company also commenced the following to increase its passenger base and revenues:

(1)

expanded its Transpac operations by adding a second daily flight between Honolulu and San Francisco in June 2000;

(2)

converted three weekly flights from Los Angeles to Maui to Kona, to daily service between Los Angeles and Maui;

(3)

increased charters from six to seven weekly charter flights between Honolulu and Las Vegas;

(4)

announced plans to begin daily service between Honolulu and San Diego in June 2001.

    In line with the Company's strategies, in March 1999, the Company was awarded by the U.S. Department of Transportation authority to commence nonstop flight operations between Tokyo and Maui in January 2000. This authority was extended until January 2001. As a result of the decision by the State of Hawaii not to extend the runway at the Maui airport, the difficulty of obtaining takeoff and landing slots at the Narita International Airport and issues regarding the feasibility of servicing the route based on the current and anticipated makeup of the Company's fleet, the Company has relinquished the routing.

    Alliance relationships with other carriers are discussed in Note 11 in the Notes to Financial Statements.

23

Liquidity and Capital Resources

Liquidity

    The Company's cash and cash equivalents totaled $67.8 million at December 31, 2000, a $1.4 million increase from December 31, 1999.

    Cash from operating activities provided $63.3 million and consisted primarily of a $24.6 million increase in air traffic liability. Other changes in operating assets and liabilities provided $12.2 million consisting primarily of increases in accounts payable and accrued expenses. Depreciation and amortization totaled $16.3 million. Cash provided from operating income totaled $8.7 million (excluding the non-cash effects of the restructuring charges and loss on assets held for sale). Cash provided from nonoperating income provided $1.5 million.

    Investing activities used $52.9 million of cash. The Company incurred $39.9 million in pre-delivery payments primarily toward the acquisition of the Boeing 717-200 aircraft of which $22.0 million was advanced from a $22.5 million revolving term loan facility with KFW. Purchases of property and equipment, including aircraft improvements, continued investments in improved software, related hardware and ground equipment totaled $13.3 million.

    Financing activities used $9.0 million in cash, primarily consisting of $22.0 million of funds advanced from KFW for pre-delivery payments for the Boeing 717-200 aircraft offset by $19.2 million to repurchase 9,242,808 shares of Common Stock. Repayment of long-term debt and capital lease obligations primarily relating to aircraft totaled $12.7 million.

    The Company believes that its ability to generate cash, both internally from operations and externally from debt and equity issues, is adequate to maintain sufficient liquidity to fund its capital expenditure programs and to cover debt and other cash requirements in the foreseeable future.

Capital Resources

    The Company maintains a credit facility with CIT Group/Business Credit, Inc. The credit facility consists of two secured term loans and a secured revolving line of credit including up to $6.0 million of letters of credit. At December 31, 2000, the total availability under the credit facility was $1.4 million with aggregate loans and letters of credit outstanding in the amounts of $6.4 million and $1.5 million, respectively.

    The Company is required to fund through June 2001, a total of $43 million toward the acquisition of the Boeing 717-200 aircraft, as previously discussed. At December 31, 2000, pre-delivery payments of approximately $39.4 million had been made, of which $22.0 million was advanced by KFW. Acquisition of the Boeing 717-200 is structured using leveraged lease financing provided through Boeing affiliates. Upon delivery of the aircraft, the principal balance due KFW under the revolving $22.5 million facility will be repaid with proceeds from the permanent lease financing provided by Boeing for each aircraft. The first two Boeing 717-200 aircraft were delivered to the Company on February 28, 2001 and March 14, 2001, respectively.

    In addition to the commitments required for acquisition of the Boeing 717-200 aircraft, the Company estimates that its capital expenditures in 2001 will approximate $25.0 million. Approximately, $6.8 million is related to the acquisition of rotable parts for the B717 aircraft and $2.0 million is associated with improvements to the Company's DC-10 aircraft. The remaining $16.2 million principally represents improvements in software and related hardware, facility improvements, and purchase of ground equipment and other assets. These authorized expenditures will be funded through use of available cash and cash equivalents and internally generated funds.

24

Stock and Warrant Repurchases

    In March 2000, the Company announced that its Board of Directors had approved a stock repurchase program authorizing the Company to buy up to 5 million shares of its Common Stock. In August 2000, the Board of Directors increased the authorization to 10 million shares. Under the approved stock repurchase plan, the Company may repurchase Common Stock from time to time in the open market and in private transactions. The amount and timing of any repurchases are subject to a number of factors, including the "trading practice rules" promulgated under the Securities Exchange Act of 1934, the price and availability of the Company's stock and general market conditions. Including the effect of the repurchase of certain warrants, as of December 31, 2000, 9,242,808 shares of Common Stock had been repurchased by the Company for approximately $19.2 million.

Employees

    Refer to Business, Employees contained in Part I, Item 1 of this Form 10-K for further discussion on the Company's employees and labor groups.

Deferred Tax Assets

    As of December 31, 2000, the Company had net deferred tax assets aggregating $15.7 million based on gross deferred tax assets of $56.4 million less a valuation allowance of $28.6 million and deferred tax liabilities of $12.1 million. Utilization of these deferred tax assets is predicated on the Company being profitable in future years. The Company will continually assess the adequacy of its financial performance in determination of its valuation allowance which, should there be an adjustment required, may result in an adverse effect on the Company's income tax provision. An adjustment was made to the deferred tax assets in 2000, which resulted in a negative impact on the Company's income tax provision.

Derivative Financial Instruments

    The Company utilizes heating oil forward contracts to manage market risks and hedge its financial exposure resulting from fluctuations in its aircraft fuel costs. When fully implemented, the Company plans to employ a strategy whereby heating oil contracts may be used to cover up to 50% of the Company's anticipated aircraft fuel needs. At December 31, 2000, the Company held forward contracts to purchase 644,000 barrels of heating oil in the aggregate amount of $20.5 million through January 2002. These forward contracts represented approximately 19% of the Company's anticipated aircraft fuel needs for the months hedged. A realized net gain on liquidated contracts amounting to $11.7 million is included as a component of Aircraft Fuel Cost for the year ended December 31, 2000. The contracts are either exchanged or traded with counterparties of high credit quality; therefore, the risk of nonperformance by the counterparties is considered to be negligible.

    The Company will adopt SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective January 1, 2001. The Company estimates that upon adoption, a gain of approximately $335,000 will be recorded as a cumulative effect of an accounting change in the statement of net income.

Landing Fees and Ticket Taxes

    On September 1, 1999, landing fees at all airports in the State of Hawaii were reinstated after a two-year moratorium.

    In 1997, legislation was enacted to, among other things, gradually reduce the federal passenger excise tax from 10% to 7.5% and phase-in a $3 "head tax" per domestic flight segment by the year 2002. On October 1, 1999, the passenger excise tax decreased from 8% to 7.5%, with a corresponding

25

increase in the "head tax" from $2 to $2.25 per domestic flight segment. On January 1, 2000, the "head tax" increased from $2.25 per domestic flight segment to $2.50 per domestic flight segment. On January 1, 2001, the "head tax" further increased from $2.50 per domestic flight segment to $2.75 per domestic flight segment.

Frequent Flyer Program

    The Company's HawaiianMiles frequent flyer program was initiated in 1983. As of December 31, 2000 and 1999, HawaiianMiles had more than 909,000 and 796,000 members, respectively, including approximately 628,000 and 620,000 active members, respectively.

    The HawaiianMiles program allows passengers to earn mileage credits by flying Hawaiian Airlines and other carriers, particularly Continental and Northwest. Members may also receive mileage credits pursuant to exchange agreements maintained by Hawaiian with a variety of entities, including hotels, car rental firms, credit card issuers and long distance telephone service companies. The Company also sells mileage credits to other companies participating in the program.

    HawaiianMiles members are entitled to a choice of various awards based on accumulated mileage, with a majority of the awards being certain free air travel at a later date. Travel awards available in the HawaiianMiles program range from a 5,000 mile award, which offers a one-way Interisland flight, to 60,000 and 75,000 mile awards, which offer a round trip first-class Transpac flight and a round trip first-class Southpac flight, respectively. Miles traveled under the HawaiianMiles program are accounted for as revenue passenger miles, which, in turn, are used in the calculation of the Company's yield. Non-travel awards are valued at the incremental cost of tickets exchanged for such awards.

    The Company recognizes a liability in the period in which members have accumulated sufficient mileage points to qualify for award redemption. The liability is adjusted based on net mileage earned and utilized for award redemption on a monthly basis. The incremental cost method is used, computed primarily on the basis of fuel and catering costs, exclusive of any overhead or profit margin. In estimating the amount of such incremental costs to be accrued in the liability for potential future HawaiianMiles free travel, a current average cost per award mile is determined. Incremental fuel expended per passenger is based on engineering formulas to determine the quantity used for the weight of each added passenger and baggage. Such incremental quantity of fuel is priced at current levels. Catering is based on average cost data per passenger for the most recent 12-month period.

    As of December 31, 2000 and 1999, HawaiianMiles members had accumulated approximately 5.1 and 3.9 billion miles representing liabilities totaling approximately $2.7 and $1.4 million, respectively. The Company's accruals assume full redemption of mileage points. During the years ended December 31, 2000, 1999, and 1998, 2.1 billion, 1.7 billion, and 1.2 billion award miles were redeemed, respectively.

    The Company believes that the usage of free travel awards will not result in the displacement of revenue customers and, therefore, such usage will not materially affect the Company's liquidity or operating results. The use of free travel awards is subject to review by the Company, to limit the possibility of displacing revenue passengers. HawaiianMiles travel redemption accounted for approximately 4.0%, 4.8%, and 4.1% of Interisland traffic and a negligible percentage of Transpac and Southpac traffic in 2000, 1999, and 1998, respectively.

Information Technology Systems and Impact of Year 2000

    In prior years, the Company discussed the nature and progress of its efforts to be Year 2000 ready. In late 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems

26

successfully responded to the Year 2000 date change. The Company expensed approximately $1 million in connection with remediating its systems. This was in addition to the approximate $8 million spent by the Company to either replace or enhance existing systems, including local and wide area networks, yield management and all or portions of revenue and financial accounting. The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services of third parties.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

    The Company is subject to certain market risks, including commodity price risk (i.e., aircraft fuel prices) and price changes related to investments in equity securities. The adverse effects of potential changes in these market risks are discussed below. The sensitivity analyses presented do not consider the effects that such adverse changes may have on overall economic activity nor do they consider additional actions management may take to mitigate the Company's exposure to such changes. Actual results may differ. See the Notes to the Financial Statements for a description of the Company's accounting policies and other information related to these financial instruments.

Aircraft Fuel

    Refer to Business, Operations, Fuel contained in Part I, Item 1 of this Form 10-K and Derivative Financial Instruments, as described above for further discussion on aircraft fuel and related financial instruments.

Investments in Equity Securities

    At December 31, 2000, the Company owned approximately 51,000 depository certificates convertible, subject to certain restrictions, into the common stock of Equant, which completed an initial public offering in July 1998. As of December 31, 2000, the estimated fair value of these depository certificates was approximately $1.3 million, based upon the publicly traded market value of Equant common stock. Since the fair value of the Company's investment in the depository certificates is not readily determinable (i.e., the depository certificates are not traded on a securities exchange), the investment is carried at cost, which was not material as of December 31, 2000 or 1999.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

    The Company's financial statements, accompanying notes, Report of Independent Auditors, Independent Auditors' Report and Selected Financial and Statistical Data are contained in Part IV, Item 14 of this Form 10-K and are incorporated herein by reference.

Interests of Named Experts

    The following supplements the description of named experts for the purpose of updating such descriptions in registration statements filed by Hawaiian Airlines under the Securities Act of 1933.

    In order to obtain the consent of KPMG LLP ("KPMG") to include KPMG's reports on the Company's 1998 financial statements, included in the December 31, 2000 annual report on Form 10-K and to be incorporated by reference in certain of the Company's registration statements on Form S-8, the Company was required to provide KPMG with an indemnification. The Company has indemnified KPMG for the payment of legal costs and expenses incurred in KPMG's successful defense of a legal action or proceeding that arises as a result of the consent of KPMG to the inclusion of their reports in such registration statements. Under no circumstances shall KPMG be indemnified in the event there is a court adjudication that KPMG is guilty of professional malpractice, or in the event that KPMG becomes liable for any part of the plaintiff's damages by virtue of settlement.

27

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

    None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

    Refer to Executive Officers contained in Part I, Item 1 of this Form 10-K, for discussion on executive officers of the Company.

ITEM 11. EXECUTIVE COMPENSATION.

    Refer to the Company's Proxy Statement for the 2001 Annual Meeting of Shareholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

    Refer to the Company's Proxy Statement for the 2001 Annual Meeting of Shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

    From July 17, 2000 through February 28, 2001, William F. Loftus served as Executive Vice President, Chief Financial Officer and Treasurer of the Company. During this period, the Company paid Mr. Loftus a base salary of $152,000. During this same period, the Company paid The Loftus Group, a financial and management consulting firm of which more than ten percent (10%) is owned by Mr. Loftus, $638,535 in fees for financial consulting services, plus expenses.

    On May 19, 2000, the Company invested $3.0 million in certificates of deposit with Liberty Bank, SSB, of Austin, Texas. Liberty Bank is majority owned by John W. Adams and another individual. John W. Adams is the sole shareholder of AIP General Partner, Inc., the general partner of Airline Investors Partnership, L.P., which is the majority owner of the Company. Current directors of the Company include Mr. Adams, as well as Edward Z. Safady and Thomas J. Trzanowski, both of whom are also employees and/or directors of Liberty Bank, SSB.

    Refer to the Company's Proxy Statement for the 2001 Annual Meeting of Shareholders.

28

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)

Financial Statements.

(1)

Report of Independent Auditors of Ernst & Young LLP.

(2)

Independent Auditors' Report of KPMG LLP.

(3)

Balance Sheets, December 31, 2000 and 1999.

(4)

Statements of Operations for the Years ended December 31, 2000, 1999, and 1998.

(5)

Statements of Shareholders' Equity and Comprehensive Income for the Years ended December 31, 2000, 1999, and 1998.

(6)

Statements of Cash Flows for the Years ended December 31, 2000, 1999, and 1998.

(7)

Notes to Financial Statements.

(8)

Quarterly Financial Information (Unaudited).

(9)

Selected Financial and Statistical Data.

    Financial Statement Schedule.

(1)

Report of Independent Auditors of Ernst & Young LLP on Financial Statement Schedule for the Years Ended December 31, 2000 and 1999.



(2)

Independent Auditors' Report of KPMG LLP on Financial Statement Schedule for the Year Ended December 31, 1998.



(3)

Schedule of Valuation and Qualifying Accounts.

    Schedules not listed above are omitted because of the absence of the conditions under which they are required or because the required information is included in the financial statements or notes thereto.

(b)

Reports on Form 8-K.

(1)

Current Report on Form 8-K dated October 5, 1999 (date of event September 28, 1999) reporting Item 4, "Changes in Registrant's Certifying Accountant."

(2)

Current Report on Form 8-K/A dated October 12, 1999 (date of event September 28, 1999) reporting Item 4, "Changes in Registrant's Certifying Accountant" and Item 7, "Financial Statements, Proforma Financial Information and Exhibits."

(3)

Current Report on Form 8-K dated July 24, 2000 (date of event July 14, 2000) reporting Item 5, "Other Events."

(c)

Exhibits.

    Exhibit 3    Articles of Incorporation, Bylaws.

(1)

Restated Articles of Incorporation of the Company filed as Exhibit 3(a) to the Company's Registration Statement on Form S-3 as filed December 31, 1998 is incorporated herein by reference.



(2)

Amended and Restated Bylaws of the Company filed as Exhibit 3.1 to the Company's Current Report on Form 8-K as filed September 14, 1998 is incorporated herein by reference.

29

    Exhibit 4    Instruments Defining the Rights of Security Holders Including Indentures.

(1)

Rights Agreement dated December 23, 1994 filed as Exhibit (1) to the Company's current report on Form 8-K during the fourth quarter of 1994 (date of report—December 23, 1994) is incorporated herein by reference.



(2)

The following Agreements filed as Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 are incorporated herein by reference:



(a)

Amendment No. 1 dated as of May 4, 1995 to Rights Agreement dated as of December 23, 1994 by and between Hawaiian Airlines, Inc. and Chemical Trust Company of California;



(b)

Amendment No. 1 to 1994 Stock Option Plan dated as of May 4, 1995;



(c)

Amendment No. 1 dated as of May 4, 1995 to Warrants Nos. 1-10.




(3)

1994 Stock Option Plan, as amended, filed as Exhibit 4 to the Company's Registration Statement on Form S-8 as filed November 15, 1995 is incorporated herein by reference.



(4)

The following Agreements filed as Exhibit 4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995 are incorporated herein by reference:



(a)

Rightsholders Agreement dated as of January 31, 1996, by and among Hawaiian Airlines, Inc., Airline Investors Partnership, L.P., AMR Corporation, Martin Anderson and Robert Midkiff;



(b)

Amendment No. 2 to the Rights Agreement, as amended, dated as of January 31, 1996 by and between Hawaiian Airlines, Inc. and Chemical Trust Company of California;



(c)

Amendment No. 2 to 1994 Stock Option Plan, as amended, dated as of December 8, 1995.




(5)

1996 Stock Incentive Plan, as amended, filed as Exhibit 4 to the Company's Amendment No. 1 to Registration Statement on Form S-2 as filed July 12, 1996 is incorporated herein by reference.



(6)

Amendment No. 3 to the Rights Agreement, as amended, dated as of May 21, 1998, by and between Hawaiian Airlines, Inc. and ChaseMellon Shareholder Services, L.L., C., as successor to Chemical Trust Company of California, filed as Exhibit 4 to the Company's Amendment No. 2 to Registration Statement on Form 8-A as filed May 22, 1998 in incorporated herein by reference.

    The Company agrees to provide the Securities and Exchange Commission, upon request, copies of instruments defining the rights of security holders of long-term debt of the Company.

    Exhibit 10    Material Contracts.

(1)

The following contracts filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 are incorporated herein by reference:



(a)

Code Share Agreement, dated January 6, 1997, between the Company and Wings West Airlines, Inc. filed in redacted form since confidential treatment has been requested pursuant to Rule 24.b-2 for certain portions thereof;



(b)

Amendment No. 1 to Code Share Agreement, dated as of January 21, 1997, between the Company and Wings West Airlines, Inc.;

30

(c)

Aircraft Lease Agreement, dated as of January 3, 1997, between the Company and American Airlines, Inc. filed in redacted form since confidential treatment has been requested pursuant to Rule 24.b-2 for certain portions thereof;



(d)

Separation Agreement and Complete Settlement and Release of All claims, dated as of February, 1997, between the Company and Bruce R. Nobles;



(e)

Employment Agreement, effective as of April 14, 1997, between the Company and Paul John Casey.




(2)

Code Share Agreement, dated July 15, 1997, between the Company and American Airlines, Inc. filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 are incorporated herein by reference.



(3)

The following contracts filed as Exhibit 10 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 are incorporated herein by reference:



(a)

Employment Agreement, effective as of December 15, 1997, between the Company and John B. Happ;



(b)

Employment Agreement, effective as of March 1, 1998, between the Company and Ruthann S. Yamanaka;



(c)

Form of warrant for the Purchase of 25,696 shares of Class A Common Stock issued to AMR Corporation;



(d)

Form of Addendum to Warrant for the Purchase of Shares of Common Stock;



(e)

Form of Amendment No. 1 to Warrant Certificate No. 12 for the Purchase of Shares of Common Stock;



(f)

Form of Amendment No. 2 to Warrant Certificate No. 12 for the Purchase of Shares of Common Stock;



(g)

Form of Amendment No. 1 to Warrant Certificate No. 23 for the Purchase of Shares of Common Stock;



(h)

Form of Amendment No. 2 to Warrant Certificate No. 23 for the Purchase of Shares of Common Stock;



(i)

Aircraft Lease Agreement dated as of May 9, 1997, between American Airlines, Inc. and Hawaiian Airlines, Inc. filed in redacted form since confidential treatment has been requested pursuant to Rule 24.b-2 for certain portions thereof;



(j)

Aircraft Lease Agreement dated as of December 12, 1997, between American Airlines, Inc. and Hawaiian Airlines, Inc. filed in redacted form since confidential treatment has been requested pursuant to Rule 24.b-2 for certain portions thereof.




(4)

The following contracts filed as Exhibit 10 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 are incorporated herein by reference:



(a)

Aircraft Loan Agreement dated December 29, 1998, between Bank of Hawaii and Hawaiian Airlines, Inc. filed in redacted form since confidential treatment has been requested pursuant to Rule 24.b-2 for certain portions thereof;



(b)

Aircraft Sale and Purchase Agreement dated November 18, 1998, between Fin 3 Limited and Hawaiian Airlines, Inc. filed in redacted form since confidential treatment has been requested pursuant to Rule 24.b-2 for certain portions thereof;

31

(c)

Form of Passenger Aircraft Charter Agreement dated November 9, 1997, effective February 1, 1998 between Hawaiian Vacations, Inc. and Hawaiian Airlines, Inc;



(d)

Form of Passenger Aircraft Charter Agreement dated November 2, 1998 between Renaissance Cruises and Hawaiian Airlines, Inc.




(5)

Aircraft Loan Agreement, dated March 29, 1999, between Bank of Hawaii and Hawaiian Airlines, Inc. filed as Exhibit 99-1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, and in redacted form since confidential treatment has been requested pursuant to Rule 24.b-2 for certain portions thereof, are incorporated herein by reference.



(6)

Sublease Agreement 060 dated as of October 26, 1999 between Continental Micronesia, Inc. and the Company, in redacted form since confidential treatment has been requested pursuant to Rule 24.6-2 for certain portions thereof.



(7)

Sublease Agreement 061 dated as of October 26, 1999 between Continental Micronesia, Inc. and the Company, in redacted form since confidential treatment has been requested pursuant to Rule 24.6-2 for certain portions thereof.



(8)

Aircraft Maintenance Services Agreement dated as of October 26, 1999 by and between the Company and Continental Airlines, Inc., in redacted form since confidential treatment has been requested pursuant to Rule 24.6-2 for certain portions thereof.



(9)

Agreement between U.S. Bank National Association and the Company, effective date December 31, 1999, in redacted form since confidential treatment has been requested pursuant to Rule 24.6-2 for certain portions thereof.



(10)

Aircraft General Terms Agreement AGTA-HWI between The Boeing Company and the Company, dated as of December 31, 1999, in redacted form since confidential treatment has been requested pursuant to Rule 24.6-2 for certain portions thereof.



(11)

Purchase Agreement Number 2252 between McDonnell Douglas Corporation and the Company Relating to Model 717-22A Aircraft and the following Letter Agreements, dated as of December 31, 1999, in redacted form since confidential treatment has been requested pursuant to Rule 24.6-2 for certain portions thereof:



(a)

Customer Services Matters;



(b)

Spares Initial Provisioning;



(c)

Aircraft Performance Guarantees;



(d)

Promotional Support;



(e)

Business Matters;



(f)

Purchase Rights Aircraft and Aircraft Model Substitution;



(g)

Liquidated Damages-Non-Excusable Delay;



(h)

Guarantee Agreement;



(i)

Other Matters;



(j)

Financing Matters;



(k)

Spares Commitments;



(l)

Board Approval.

32

(12)

Further Letter Agreements relating to Purchase Agreement Number 2252 filed as exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 are incorporated herein by reference:



(a)

Supplemental Agreement No. 1;



(b)

Other Matters.




(13)

The following contracts filed as exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 are incorporated herein by reference:



(a)

Loan agreement dated May 26, 2000 between Hawaiian as Borrower and Kreditanstalt fur Wiedaraufbau as Lender and the related Secured Reimbursement Agreement dated as of May 26, 2000 between Hawaiian as Borrower and Rolls-Royce Deutschland GmbH as Guarantor, filed as Exhibit 99-1, in redacted form since confidential treatment has been requested pursuant to Rule 24.6.2 for certain portions thereof;



(b)

Commercial Cooperation Agreement between Northwest Airlines, Inc. (NW) and Hawaiian, the Partner Agreement between NW and Hawaiian, and the Multilateral Prorate Agreement among Hawaiian, NW, and KLM Royal Dutch Airways, all dated May 17, 2000, filed as Exhibit 99-2, in redacted form since confidential treatment has been requested pursuant to Rule 24.6.2 for certain portions thereof;



(c)

Employment Agreement for Robert W. Zoller, Jr. as Executive Vice President-Operations and Service, effective as of December 1, 1999, filed as Exhibit 99-3;



(d)

"Deferred Advance Payments" Letter Agreement relating to Purchase Agreement Number 2252 filed as Exhibit 99-4, in redacted form since confidential treatment has been requested pursuant to Rule 24.6.2 for certain portions thereof.




(14)

Sublease Agreement 084 dated as of December 8, 2000 between Continental Airlines, Inc. and the Company, in redacted form since confidential treatment has been requested pursuant to Rule 24.6.2 for certain portions thereof.

    Exhibit 23    Consent of experts and counsel.

(1)

Consent of Ernst & Young LLP.



(2)

Consent of KPMG LLP.

    Exhibit 24    Power of Attorney.

33

EXHIBIT INDEX

Exhibit Number		Description
10 (14	)	Sublease Agreement 084 dated as of December 8, 2000 between Continental Airlines, Inc. and the Company, in redacted form since confidential treatment has been requested pursuant to Rule 24.6.2 for certain portions thereof.
23		Consents of experts and counsel. (1) Consent of Ernst & Young LLP. (2) Consent of KPMG LLP.
24		Power of Attorney.

34

SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	HAWAIIAN AIRLINES, INC.
April 2, 2001	By:	/s/ CHRISTINE R. DEISTER Christine R. Deister Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

35

Report of Independent Auditors

The Board of Directors
Hawaiian Airlines, Inc.

    We have audited the accompanying balance sheets of Hawaiian Airlines, Inc. (the "Company") as of December 31, 2000 and 1999, and the related statements of operations, shareholders' equity and comprehensive income, and cash flows for each of the two years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

    We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

    In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hawaiian Airlines, Inc. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.

    As discussed in Note 2 to the financial statements, effective January 1, 1999, the Company changed its method of accounting for the sale of mileage credits to participating partners in its frequent flyer program.

/s/ Ernst & Young LLP

Honolulu, Hawaii
March 16, 2001

F-1a

Independent Auditors' Report

The Board of Directors
Hawaiian Airlines, Inc.:

    We have audited the accompanying statements of operations, shareholders' equity and comprehensive income, and cash flows of Hawaiian Airlines, Inc. for the year ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

    We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

    In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of Hawaiian Airlines, Inc. for the year ended December 31, 1998, in conformity with generally accepted accounting principles.

/s/ KPMG LLP

Honolulu, Hawaii
March 11, 1999

F-1b

Hawaiian Airlines, Inc.

Balance Sheets (in thousands)

December 31, 2000 and 1999

	2000			1999
ASSETS
Current Assets:
Cash and cash equivalents	$	67,832		$	66,431
Accounts receivable, net of allowance for doubtful
accounts of $500 in 2000 and 1999		25,195			24,921
Inventories		4,432			13,965
Assets held for sale		12,805			2,887
Deferred tax assets, net		7,125			9,625
Prepaid expenses and other		10,132			3,634
Total current assets		127,521			121,463
Property and Equipment:
Flight equipment		16,895			39,675
Progess payments on flight equipment		47,079			7,158
Ground equipment, buildings and leasehold improvements		41,940			30,980
Total		105,914			77,813
Accumulated depreciation and amortization		(22,171	)		(12,541	)
Property and equipment, net		83,743			65,272
Other Assets:
Long-term prepayments and other		5,530			8,930
Deferred tax assets, net		8,585			12,375
Reorganization value in excess of amounts
allocable to identifiable assets, net		31,589			33,897
Total other assets		45,704			55,202
Total Assets	$	256,968		$	241,937

See accompanying Notes to Financial Statements

F-2

Hawaiian Airlines, Inc.

Balance Sheets (in thousands, except share data)

December 31, 2000 and 1999

	2000			1999
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt	$	30,510		$	3,853
Current portion of capital lease obligations		723			3,379
Accounts payable		55,083			44,664
Air traffic liability		74,989			50,426
Other accrued liabilities		36,530			20,920
Total current liabilities		197,835			123,242
Long-Term Debt		10,763			23,858
Capital Lease Obligations		2,067			2,790
Other Liabilities and Deferred Credits:
Accumulated pension and other postretirement benefit obligations		20,715			16,397
Other		7,329			9,524
Total other liabilities and deferred credits		28,044			25,921
Shareholders' Equity:
Common Stock — $.01 par value, 60,000,000 shares authorized, 33,707,599 and 40,997,335 shares issued and outstanding in 2000 and 1999, respectively		410			410
Special Preferred Stock — $.01 par value, 2,000,000 shares authorized, seven shares issued and outstanding		—			—
Capital in excess of par value		83,418			99,418
Warrants		—			3,153
Notes receivable from Common Stock sales		(1,581	)		(1,581	)
Accumulated deficit		(53,889	)		(35,274	)
Accumulated other comprehensive income (loss) —minimum pension liability adjustment		(10,099	)		—
Shareholders' equity		18,259			66,126
Commitments and Contingent Liabilities
(Notes 3, 4, 5, 6, 8, 9, 10 and 11)
Total Liabilities and Shareholders' Equity	$	256,968		$	241,937

See accompanying Notes to Financial Statements

F-3

Hawaiian Airlines, Inc.

Statements of Operations (in thousands)

For the Years ended December 31, 2000, 1999, and 1998

	2000			1999			1998
Operating Revenues:
Passenger	$	475,475		$	400,251		$	354,245
Charter		82,358			46,570			35,742
Cargo		27,791			22,836			21,682
Other		21,596			19,220			14,746
Total		607,220			488,877			426,415
Operating Expenses:
Wages and benefits		160,459			138,418			118,885
Maintenance materials and repairs		111,240			101,801			84,004
Aircraft fuel, including taxes and oil		127,221			76,382			66,601
Rentals and landing fees		39,458			31,640			30,541
Depreciation and amortization		16,321			17,139			12,607
Sales commissions		14,798			12,471			11,655
Impairment loss		—			46,958			—
Restructuring charges		14,927			—			—
Loss on assets held for sale		7,575			—			—
Other		129,023			104,605			84,717
Total		621,022			529,414			409,010
Operating Income (Loss)		(13,802	)		(40,537	)		17,405
Nonoperating Income (Expense):
Interest and amortization of debt expense		(3,034	)		(3,448	)		(2,042	)
Interest income		4,291			2,377			1,639
Loss on disposition of equipment		(85	)		(1,013	)		(831	)
Other, net		305			2,708			(163	)
Total		1,477			624			(1,397	)
Income (Loss) Before Income Taxes and Cumulative Effect of Change in Accounting Principle		(12,325	)		(39,913	)		16,008
Income Tax Benefit (Provision)		(6,290	)		11,418			(7,803	)
Net Income (Loss) Before Cumulative Effect of Change in Accounting Principle		(18,615	)		(28,495	)		8,205
Cumulative Effect of Change in Accounting Principle, Net of Income Taxes		—			(772	)		—
Net Income (Loss)	$	(18,615	)	$	(29,267	)	$	8,205

See accompanying Notes to Financial Statements

F-4

Hawaiian Airlines, Inc.

Statements of Operations (in thousands, except per share data)

For the Years ended December 31, 2000, 1999, and 1998

	2000			1999			1998
Net Income (Loss) Per Common Stock Share:
Basic
Before cumulative effect of change in accounting principle	$	(0.48	)	$	(0.70	)	$	0.20
Cumulative effect of change in accounting principle, net of income taxes		—			(0.02	)		—
Net Income (Loss) Per Common Stock Share	$	(0.48	)	$	(0.72	)	$	0.20
Diluted
Before cumulative effect of change in accounting principle	$	(0.48	)	$	(0.70	)	$	0.19
Cumulative effect of change in accounting principle, net of income taxes		—			(0.02	)		—
Net Income (Loss) Per Common Stock Share	$	(0.48	)	$	(0.72	)	$	0.19
Weighted Average Number of Common Shares Outstanding:
Basic		38,537			40,997			40,921	*
Diluted		39,038			40,997			42,205	*

The following table shows a reconciliation of the weighted average shares outstanding used in computing basic and diluted net income (loss) per Common Stock share:

Weighted average Common Stock Shares outstanding	38,537	40,997	40,921	*
Incremental Common Stock shares issuable upon exercise of outstanding warrants and stock options (treasury stock method)	501	—	1,284
Weighted average Common Stock Shares and Common Stock Share equivalents	39,038	40,997	42,205	*

*

Includes shares reserved for issuance under the Consolidated Plan of Reorganization dated September 21, 1993, as amended.

See accompanying Notes to Financial Statements

F-5

Hawaiian Airlines, Inc.

Statements of Shareholders' Equity and Comprehensive Income (in thousands)

For the Years ended December 31, 2000, 1999, and 1998

	Common Stock		Special Preferred Stock		Capital in excess of par value			Warrants			Notes receivable from Common Stock sales			Accumulated deficit			Accumulated comprehensive income (loss)			Total
Balance at December 31, 1997	$	409	$	—	$	99,237		$	3,153		$	(1,714	)	$	(14,212	)	$	—		$	86,873
Net income		—		—		—			—			—			8,205			—			8,205
Minimum pension liability adjustment		—		—		—			—			—			—			(4,506	)		(4,506	)
Comprehensive income																					3,699
Exercise of options to acquire 112,500 shares of Common Stock		1		—		181			—			133			—			—			315
Balance at December 31, 1998		410		—		99,418			3,153			(1,581	)		(6,007	)		(4,506	)		90,887
Net loss		—		—		—			—			—			(29,267	)		—			(29,267	)
Minimum pension liability adjustment		—		—		—			—			—			—			4,506			4,506
Comprehensive loss																					(24,761	)
Balance at December 31, 1999		410		—		99,418			3,153			(1,581	)		(35,274	)		—			66,126
Net loss		—		—		—			—			—			(18,615	)		—			(18,615	)
Minimum pension liability adjustment		—		—		—			—			—			—			(10,099	)		(10,099	)
Comprehensive loss																					(28,714	)
Repurchase of warrants to acquire 1,949,338 shares of Common Stock		—		—		522			(3,153	)		—			—			—			(2,631	)
Repurchase of 7,293,470 shares of Common Stock		—		—		(16,522	)		—			—			—			—			(16,522	)
Balance at December 31, 2000	$	410	$	—	$	83,418		$	—		$	(1,581	)	$	(53,889	)	$	(10,099	)	$	18,259

See accompanying Notes to Financial Statements

F-6

Hawaiian Airlines, Inc.

Statements of Cash Flows (in thousands)

For the Years ended December 31, 2000, 1999 and 1998

	2000			1999			1998
Cash Flows From Operating Activities:
Net income (loss)	$	(18,615	)	$	(29,267	)	$	8,205
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		12,137			12,591			7,663
Amortization		4,184			4,548			4,944
Net periodic postretirement benefit cost		1,117			752			915
Impairment loss		—			46,958			—
Restructuring charges		14,927			—			—
Loss on assets held for sale		7,575			—			—
Loss on disposition of equipment		85			1,013			831
Decrease (increase) in restricted cash		—			6,432			(1,738	)
Decrease (increase) in accounts receivable		(274	)		5,074			(5,040	)
Decrease (increase) in inventories		1,453			(5,419	)		804
Decrease (increase) in prepaid expenses and other		(2,461	)		(598	)		(234	)
Decrease (increase) in deferred taxes, net		6,290			(22,000	)		—
Increase in accounts payable		10,419			15,781			1,296
Increase in air traffic libability		24,563			27,076			962
Increase in other accrued liabilities		8,763			5,622			1,583
Other, net		(6,843	)		3,567			10,002
Net cash provided by operating activities		63,320			72,130			30,193
Cash Flows From Investing Activities:
Additions to property and equipment		(13,261	)		(34,776	)		(27,946	)
Progress payments on flight equipment		(39,921	)		(7,158	)		—
Net proceeds from disposition of equipment		233			260			1,153
Sale of investment securities		—			—			4,001
Net cash used in investing activities		(52,949	)		(41,674	)		(22,792	)
Cash Flows From Financing Activities:
Issuance of long-term debt		22,839			12,704			13,359
Repayment of long-term debt		(9,277	)		(2,979	)		(1,533	)
Repayment of capital lease obligations		(3,379	)		(4,761	)		(4,244	)
Repurchase of warrants		(2,631	)		—			—
Issuance of Common Stock		—			—			182
Repurchase of Common Stock		(16,522	)		—			—
Proceeds on notes receivable from Common Stock sales		—			—			133
Net cash provided by (used in) financing activities		(8,970	)		4,964			7,897
Net increase in cash and cash equivalents		1,401			35,420			15,298
Cash and cash equivalents — Beginning of Year		66,431			31,011			15,713
Cash and cash equivalents — End of Year	$	67,832		$	66,431		$	31,011

See accompanying Notes to Financial Statements

F-7

Hawaiian Airlines, Inc.

Statements of Cash Flows (in thousands)

For the Years ended December 31, 2000, 1999, and 1998

	2000			1999		1998
Supplemental Cash Flow Information:
Interest paid	$	1,273		$	3,197	$	1,864
Income taxes paid		332			163		761
Supplemental Schedule of Noncash Activities:
Minimum pension liability adjustment		(10,099	)		4,506		(4,506	)
Property and equipment financed through capital lease		—			350		—

See accompanying Notes to Financial Statements

F-8

Hawaiian Airlines, Inc.

Notes to Financial Statements

1.  Business and Organization

    Hawaiian Airlines, Inc. ("Hawaiian Airlines" or the "Company") was incorporated in January 1929 under the laws of the Territory of Hawaii and is the largest airline headquartered in Hawaii, based on operating revenues of $607.2 million for 2000. The Company is engaged primarily in the scheduled transportation of passengers, cargo and mail. The Company's passenger airline business is its chief source of revenue. Scheduled passenger service consists of, on average and depending on seasonality, approximately 179 flights per day with daily service from Hawaii, principally Honolulu to Las Vegas, Nevada and the four key United States ("U.S.") West Coast gateway cities of Los Angeles and San Francisco, California, Seattle, Washington and Portland, Oregon ("Transpac"), daily service among the six major islands of the State of Hawaii ("Interisland") and twice weekly service to Pago Pago, American Samoa and Papeete, Tahiti in the South Pacific ("Southpac"). The Company also provides charter service from Honolulu to Las Vegas and Anchorage, Alaska and from Los Angeles to Papeete, Tahiti ("Overseas Charter"). The Company operates a fleet consisting of DC-9 aircraft and DC-10 aircraft.

2.  Summary of Significant Accounting Policies

Cash and Cash Equivalents

    The Company considers all investments purchased with an original maturity of three months or less to be cash equivalents. Short-term cash equivalent investments at December 31, 2000 and 1999 were valued at cost and amounted to $40.3 million and $41.0 million, respectively. Included in the December 31, 2000 and 1999 cash and cash equivalent balances are $1.2 million and $2.8 million, respectively, in outstanding checks.

Inventories

    Inventories consists primarily of expendable parts for flight equipment and supplies which are stated at average cost, less an allowance for obsolescence.

Property and Equipment

    Owned property and equipment are stated at cost, except for assets determined to be impaired which are stated at fair market value. Costs of major improvements are capitalized. Depreciation and amortization are provided on a straight-line basis over the following estimated useful lives:

Flight equipment	2-15 years, 15% residual value
Ground equipment	5-15 years
Airport terminal facility	30 years
Buildings	15-20 years
Leasehold improvements	Shorter of lease term or useful life

    Maintenance and repairs are charged to operations as incurred, except that costs of overhauling engines are charged to operations in the year the engines are removed for overhaul and scheduled heavy airframe overhauls and major structural modifications on DC-9 aircraft are recorded under the deferral method whereby the cost of overhaul is capitalized and amortized over the shorter of the period benefited or the lease term. Additionally, provision is made for the estimated cost of scheduled heavy airframe overhauls required to be performed on leased DC-9 aircraft prior to their return to lessors. Commencing January 1, 2000, due to the Company's intentions to replace its DC-9 fleet in 2001 and the resultant reduction of DC-9 flight equipment and related assets to fair market value as of

F-9

December 31, 1999, heavy airframe overhauls and major structural modifications on DC-9 aircraft are expensed. See Note 10.

    Maintenance and repairs on DC-10 aircraft are charged to operations on a flight hour basis. See Notes 5 and 11.

Reorganization Value in Excess of Amounts Allocable to Identifiable Assets

    The Company emerged from Chapter 11 bankruptcy on September 12, 1994 (the "Effective Date") with Hawaiian Airlines being the sole surviving corporation. Under fresh start reporting, the reorganization value of the entity was allocated to the Company's assets and liabilities on a basis substantially consistent with the purchase method of accounting. The portion of reorganization value not attributable to specific tangible or identifiable intangible assets of the Company is reflected as reorganization value in excess of amounts allocable to identifiable assets ("Excess Reorganization Value") in the accompanying balance sheets. Excess Reorganization Value is amortized on a straight-line basis over 20 years. Accumulated amortization at December 31, 2000 and 1999 totaled approximately $20.1 million and $17.8 million, respectively. The estimated income tax benefit from the expected utilization of net operating loss carryforwards arising prior to the Effective Date has also been applied as a reduction to Excess Reorganization Value. The Company will continue to assess and evaluate whether the remaining useful life of the asset requires revision or, through the use of estimated future undiscounted cash flows over the remaining life of the asset, whether the remaining balance of the asset is recoverable. The assessment of the recoverability of the unamortized amount will be impacted if estimated future operating cash flows are not achieved.

Air Traffic Liability

    Passenger fares are recorded as operating revenues when the transportation is provided. The value of unused passenger tickets is included as air traffic liability. The Company performs periodic evaluations of this estimated liability, and any adjustments resulting therefrom, which can be significant, are included in results of operations for the periods in which the evaluations are completed.

Frequent Flyer Program

    The Company sponsors a frequent flyer program and records an estimated liability for the incremental cost associated with providing the related free transportation during the period a free travel award is earned. Incremental costs primarily include fuel and catering.

    The Company also sells mileage credits to participating partners such as hotels, car rental agencies and credit card companies. During 1999, as promulgated by the Securities and Exchange Commission's Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," the Company changed the method it uses to account for the sale of these mileage credits. This change, applied retroactively to January 1, 1999, totaled approximately $772,000, net of income tax benefit of approximately $515,000 and is reflected as a cumulative effect of change in accounting principle in the accompanying statements of operations. This change also increased the Company's net loss for the year ended December 31, 1999 by $1.0 million, pre-tax. The amounts resulting from the change being applied retroactively to January 1, 1998 and 1997 were not material. Under the new accounting method, revenue from the sale of mileage credits is deferred and recognized when transportation is provided. Previously, the resulting revenue was recorded in the period in which the credits were sold. The Company believes the new method is preferable as it results in a better matching of revenues with the period in which services are provided.

F-10

Derivative Financial Instruments

    The Company utilizes derivative financial instruments principally comprised of heating oil forward contracts to manage market risks and hedge its exposure to fluctuations in its aircraft fuel costs. These contracts qualify for hedge accounting treatment as they manage risk, identify firm commitments for set time periods and meet correlation criteria for effectiveness. The Company accounts for its derivative contracts on a deferral basis. Initial and subsequent margin deposit requirements are reflected in prepaid expenses and other assets. Realized and unrealized gains and losses, fees and commissions are deferred and recognized upon settlement of the underlying contract. The Company's practice is to not hold or issue financial instruments for trading purposes.

    The Company will adopt Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective January 1, 2001. See Note 2—New Accounting Pronouncements.

Sales Commissions

    Commissions from the sale of passenger traffic are recognized as expense when the transportation is provided and the related revenue is recognized. The amount of sales commissions not yet recognized as expense is included in prepaid expenses and other current assets in the accompanying balance sheets.

Advertising Costs

    The Company expenses the costs of advertising as incurred. Advertising expense was $5.3 million, $5.7 million, and $4.5 million for the years ended December 31, 2000, 1999, and 1998, respectively.

Impairment

    In accordance with the Financial Accounting Standards Board (the "FASB") SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets.

Income Taxes

    Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Stock Option Plans

    The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board (the "APB") No. 25, "Accounting for Stock Issued to Employees," in accounting for its fixed stock options. As such, compensation cost is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price.

F-11

Earnings (Loss) Per Share

    Basic earnings per share represents income available to common shareholders divided by the weighted average number of Common Stock shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue Common Stock shares were exercised or converted into Common Stock shares or resulted in the issuance of Common Stock shares that then shared in the earnings of the Company. Outstanding rights, warrants and options to purchase shares of the Company's Common Stock are not included in the computation of diluted earnings per share if inclusion of these rights, warrants and options is antidilutive. Options and warrants to purchase approximately 2.5 million, 1.4 million, and 1.4 million shares of Common Stock in 2000, 1999, and 1998, respectively, were outstanding, but not included in the computation of diluted earnings per share as inclusion of these options and warrants would be antidilutive. See Note 9.

Use of Estimates in the Preparation of Financial Statements

    The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates.

    Material estimates that are particularly susceptible to significant change relate to the determination of air traffic liability, accruals for loss contingencies and the amounts reported for accumulated pension and other postretirement benefit obligations. Management believes that such estimates have been appropriately established in accordance with accounting principles generally accepted in the United States.

Segment Information

    Principally all operations of the Company either originate or end in the State of Hawaii. The management of such operations is based on a system-wide approach due to the interdependence of the Company's route structure in its various markets. The Company operates as a matrix form of organization as it has overlapping sets of components for which managers are held responsible. Managers report to the Company's chief operating decision-maker on both the Company's geographic components and the Company's product and service components, resulting in the components based on products and services constituting the operating segment. As the Company offers only one service (i.e., air transportation), management has concluded that it has only one segment.

Reclassifications

    Certain prior year amounts were reclassified to conform to the 2000 presentation. Such reclassifications had no effect on previously reported financial condition and/or results of operations.

New Accounting Pronouncements

    In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in years beginning after June 15, 2000. The Company will adopt SFAS No. 133 effective January 1, 2001. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivatives will either offset against the change in the fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings.

F-12

    The Company elected not to utilize hedge accounting and will be recognizing the change in fair value of its derivatives through earnings. Based upon the Company's derivative positions at December 31, 2000, the Company estimates that upon adoption, a gain of approximately $335,000 will be recorded as a cumulative effect of an accounting change in the statement of net income.

3.  Financial Instruments and Fair Values

    The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximate fair value due to the short maturity of those instruments. The carrying amount of notes receivable from Common Stock sales approximates fair value as the terms of such instruments are reflective of terms offered for similar instruments of comparable maturities.

    The estimated fair values of long-term debt amounted to $41.1 million and $26.5 million at December 31, 2000 and 1999, respectively. These fair values were estimated by discounting the future cash flow requirements of each instrument at rates currently offered at the respective year-end dates to the Company for similar debt instruments of comparable maturities.

    The Company utilizes heating oil forward contracts to manage market risks and hedge its financial exposure resulting from fluctuations in its aircraft fuel costs. When fully implemented, the Company plans to employ a strategy whereby heating oil contracts are used to cover up to 50% of the Company's anticipated aircraft fuel needs. At December 31, 2000, the Company held forward contracts to purchase 644,000 barrels of heating oil in the aggregate amount of $20.5 million through January 2002. These forward contracts represented approximately 19% of the Company's anticipated aircraft fuel needs for the months hedged. A realized net gain on liquidated contracts amounting to $11.7 million is included as a component of aircraft fuel expense for the year ended December 31, 2000. The contracts generally have maturities of one year or less and are either exchanged or traded with counterparties of high credit quality; therefore, the risk of non-performance by the counterparties is considered to be negligible.

    The Company will adopt SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective January 1, 2001. The Company estimates that upon adoption, a gain of approximately $335,000 will be recorded as a cumulative effect of an accounting change in the statement of net income.

    At December 31, 2000, the Company owned approximately 51,000 depository certificates convertible, subject to certain restrictions, into the common stock of Equant, which completed an initial public offering in July 1998. As of December 31, 2000, the estimated fair value of these depository certificates was approximately $1.3 million, based upon the publicly traded market value of Equant common stock. Since the fair value of the Company's investment in the depository certificates is not readily determinable (i.e., the depository certificates are not traded on a securities exchange), the investment is carried at cost, which was not material as of December 31, 2000 or 1999.

4.  Flight Equipment

    All of the Company's aircraft are leased except for two DC-10s and nine DC-9s. At December 31, 2000 and 1999, the composition of the Company's aircraft fleet is as follows:

	2000		1999
Aircraft Type	Leased	Owned	Leased	Owned
DC-10	13	2	11	2
DC-9	6	9	11	4
Total	19	11	22	6

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    The Company intends to replace its Interisland DC-9 fleet in 2001. See Note 10.

    The Company sold its two DC-10 aircraft in January 2001. See Note 5.

5.  Leases

Aircraft Leases

    Ten DC-10 aircraft are leased from American Airlines, Inc. ("American") under operating leases which terminate on December 31, 2003. Three DC-10-30 aircraft are leased from Continental Airlines, Inc. Two of the leases expire in January 2002 and one expires in May 2002.

    In January 2001, the Company completed sale-leaseback transactions on the two owned DC-10 aircraft with BCI Aircraft Leasing, Inc. and will continue to utilize the two aircraft under operating leases expiring in early 2004. As of December 31, 2000, $7.6 million was recognized as a loss on assets held for sale to reduce the book value of these aircraft to net realizable value; the net realizable value of these aircraft of $12.8 million was included as assets held for sale on the Company's balance sheet; and the balance of the notes payable secured by the two aircraft of $7.1 million was classified as current portion of long-term debt on the Company's balance sheet. Upon closing of the transaction in January 2001, proceeds from the sale of the aircraft were used to pay off the notes.

    Five DC-9 aircraft and related flight equipment are leased under operating and one under capital lease, for various periods through the year 2004. The Company is negotiating early termination of these leases and all DC-9 aircraft will be returned or retired during 2001 as the B717-200 aircraft are delivered and inducted into service. Estimated costs to comply with the return condition provisions and early termination provisions of the five DC-9 aircraft under operating leases of $6.8 million have been recorded as a restructuring charge in 2000—See Note 10. During 2001, the Company will take delivery of thirteen new Boeing 717-200 aircraft under operating leases with Boeing entities.

    Lease rent for all aircraft has been expensed under the straight line method.

Other Leases

    The Company leases office space for its headquarters, airport facilities, ticket offices and certain ground equipment in varying terms through 2013.

General

    Rent expense for aircraft, office space, real property and other equipment during 2000, 1999, and 1998 was $30.4 million, $26.9 million, and $28.4 million, respectively, net of sublease rental income.

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    Scheduled future minimum lease commitments under operating and capital leases for the Company as of December 31, 2000, in thousands, are as follows:

	Operating Leases		Capital Leases
2001	$	23,160	$	928
2002		16,280		842
2003		14,943		242
2004		3,603		242
2005		3,427		242
Thereafter		26,845		1,320
Total minimum lease payments	$	88,258	$	3,816
Less amount representing interest (rates ranging from 8.0% to 10.25%)				1,027
Present value of capital lease obligations				2,789
Less current portion of capital lease obligations				722
Capital lease obligations, excluding current portion			$	2,067

    The above table does not include the minimum lease payments resulting from the leasing of the two DC-10 aircraft in January 2001 and the thirteen Boeing 717 aircraft which are scheduled to be delivered during 2001.

    In addition to scheduled future minimum lease payments, the Company is required to pay for, under agreement with American, monthly DC-10 maintenance charges. These charges are based on flight hours for the month and are expensed as incurred. See Note 11. For the years ended December 31, 2000, 1999, and 1998, the Company incurred $74.0 million, $66.3 million, and $55.4 million, respectively, in maintenance charges under such agreement.

    The net book value of property held under capital leases as of December 31, 2000 and 1999 totaled $2.1 million and $6.8 million, respectively. Amortization of property held under capital leases is included in depreciation and amortization expense in the accompanying statements of operations.

6.  Debt

    At December 31, 2000 and 1999, the Company's long-term debt consisted of the following, in thousands:

	2000			1999
Secured obligations due 2001-2006	$	41,273		$	27,711
Current portion		(30,510	)		(3,853	)
Long-term debt obligations, excluding current portion	$	10,763		$	23,858

    Secured obligations due 2001-2006 are as follows:

(1)

A promissory note executed in 1999 for the acquisition of a used DC-10-30 aircraft. The note is secured by lien on the aircraft, as described in the security agreement. The note is due in 2006 and is payable in monthly installments of principal and interest of $132,436. Interest accrues at 8.56%

F-15

per annum. As of December 31, 2000 and 1999, $3.7 million and $7.7 million was outstanding, respectively, however the balance was paid in full in January 2001 as a result of a sale-leaseback transaction on the aircraft;

(2)

A promissory note executed in 1999 for the acquisition of a used DC-9-50 aircraft. The note is secured by first priority liens on the aircraft and other collateral as described in the security agreement. The note is due in 2005 and is payable in monthly installments of principal and interest ranging from $70,000 to $61,857. Interest accrues at 9.95% per annum. At December 31, 2000 and 1999, $2.8 million and $3.3 million was outstanding, respectively;

(3)

A promissory note executed in 1998 for the acquisition of a used DC-10-30 aircraft. The note is secured by lien on the aircraft, as described in the security agreement. The note is due in 2005 and is payable in monthly installments of principal and interest of $131,553. Interest accrues at 8.15% per annum. As of December 31, 2000 and 1999, $3.4 million and $7.5 million was outstanding, respectively, however the balance was paid in full in January 2001 as a result of a sale-leaseback transaction on the aircraft;

(4)

A promissory note executed in 1998 for the acquisition of a used DC-9-50 aircraft. The note is secured by first priority liens on the aircraft, other collateral as described in the security agreement and a $1.0 million letter of credit issued under the Credit Facility defined below. The note is due in 2005 and is payable in monthly installments of principal and interest ranging from $78,039 to $34,673. Interest accrues at 8.95% per annum. At December 31, 2000 and 1999, $3.0 million and $3.7 million was outstanding, respectively;

(5)

The Company maintains a Credit Facility with CIT Group/Business Credit, Inc. (the "Credit Facility"). The Credit Facility consists of two secured term loans and a secured revolving line of credit including up to $6.0 million of letters of credit. The term loans will amortize in equal installments over periods of 48 and 60 months, respectively. The outstanding principal amounts of the term loans will become due and payable upon termination of the Credit Facility. Available credit is subject to change determined by recalculation of the borrowing base, repayments due under the term loans and repayments arising from the disposition and other changes in the related collateral securing the Credit Facility. The Credit Facility has an initial term of three years from April 29, 1996 and renews automatically for successive terms of two years each, unless terminated by either party on at least 60 days notice prior to the end of the then-current term. Interest accrues at prime (9.5% at December 31, 2000) plus 2.0%. The Company may terminate the Credit Facility at any time, on 30 days notice.

    As of December 31, 2000, the total availability under the Credit Facility was $1.4 million with aggregate loans and letters of credit outstanding in the amounts of $6.4 million and $1.5 million, respectively. As of December 31, 1999, the total availability under the Credit Facility was $8.8 million with aggregate loans and letters of credit outstanding in the amounts of $5.5 million and $3.2 million, respectively.

    The Credit Facility is secured by a first lien on substantially all of the Company's property, excluding the Company's owned and leased aircraft, the Company's aircraft engines while installed on aircraft and certain security deposits. In addition, terms of the Credit Facility restrict the Company from paying any cash or stock dividends on its Common Stock.

(6)

In connection with the acquisition of the thirteen Boeing 717-200 aircraft, a revolving $22.5 million secured term loan agreement was executed in May 2000 with Kreditanstalt Für Wiederaufbau ("KFW"). The loan agreement provides for the financing of certain pre-delivery payments due Boeing under the Purchase Agreement. The loan agreement is secured by a guaranty provided by the engine manufacturer, Rolls-Royce Deutschland Gmbh and its parent, Rolls-Royce plc (the "Guarantors") which guarantees the Company's obligation to pay certain scheduled principal and

F-16

interest payments and certain other payments under the loan agreement. As a condition precedent to the guaranty, the Company has executed a secured reimbursement agreement granting the Guarantors a first priority security interest in the Purchase Agreement in the event of non-performance by the Company. The loans are due one month following the actual scheduled delivery of the aircraft to which each loan relates; upon delivery of the aircraft, the principal balance due KFW under the revolving $22.5 million facility will be repaid with proceeds from the permanent lease financing provided by Boeing for each aircraft. Interest accrues on outstanding promissory notes at LIBOR (6.62257% at December 31, 2000) plus 150 basis points. At December 31, 2000, $22.0 million was outstanding. As of December 31, 2000, $.9 million of interest on the KFW loan has been capitalized.

    Maturities of long-term debt for the Company, including those estimated for the Credit Facility, as of December 31, 2000, in thousands, are as follows:

2001	$	30,510
2002		1,351
2003		1,439
2004		1,038
2005		698
Thereafter		6,237

7.  Income Taxes

    Income tax expense is based on an estimated annual effective tax rate, which differs from the federal statutory rate of 35% in 2000, 1999 and 1998, primarily due to state income taxes and certain nondeductible expenses. The Company's reorganization and the associated implementation of fresh start reporting gave rise to significant items of expense for financial reporting purposes that are not deductible for income tax purposes.

	2000		1999			1998
Deferred taxes
Federal	$	5,095	$	(9,249	)	$	6,005
State		1,195		(2,169	)		1,408
		6,290		(11,418	)		7,413
Current payable
Federal		—		—			316
State		—		—			74
		—		—			390
Provision (benefit) for income taxes	$	6,290	$	(11,418	)	$	7,803

    The estimated income tax benefit from the expected utilization of net operating loss carryforwards arising prior to the Effective Date has been, and will continue to be, applied as a reduction to Excess Reorganization Value, not as a reduction to income tax expense. While accounting principles generally accepted in the United States require that a provision for income tax be recorded, a majority of the provision for 2000 and 1998 did not require cash outlay as it was offset by net operating loss carryforwards available to the Company. In 1999 and 1998, approximately $1.3 million and $7.4 million, respectively, of estimated income tax benefit from the expected utilization of these net operating loss carryforwards has been applied as a reduction to Excess Reorganization Value.

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    Income tax expense in 2000, 1999, and 1998 differs from the "expected" tax expense (benefit) for that year computed by applying the respective year's U.S. federal corporate income tax rate to income (loss) before income taxes and cumulative effect of change in accounting principle as follows:

	2000			1999			1998
Computed "expected" tax expense (benefit)	$	(4,314	)	$	(13,969	)	$	5,600
Amortization of Excess Reorganization Value		807			983			1,200
State income taxes, net of federal income
tax benefit		(478	)		(2,096	)		800
Change in deferred tax valuation allowance		10,579			3,569			—
Other		(304	)		95			203
	$	6,290		$	(11,418	)	$	7,803

    The tax effects of temporary differences that give rise to significant portions of the Company's deferred tax assets and deferred tax liabilities at December 31, 2000 and 1999 are presented below, in thousands:

	2000			1999
Deferred tax assets:
Net operating loss carryforwards	$	11,976		$	15,062
Impairment loss		22,199			18,783
Accumulated pension and other postretirement benefit obligations		5,846			8,159
Provision for loss on devalued assets		—			2,805
Accrued vacation		3,372			2,638
Airframe return provision		6,151			2,437
Accounts receivable, principally due to allowance for doubtful accounts		200			200
Alternative minimum tax credit		758			446
Other		5,945			2,049
Total gross deferred tax assets		56,447			52,579
Less valuation allowance allocated to pre-reorganization deferred tax assets		13,255			(14,047	)
		43,192			38,532
Less valuation allowance allocated to post-reorganization deferred tax assets		15,341			(3,970	)
Net deferred tax assets		27,851			34,562
Deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation		(12,141	)		(12,562	)
Net deferred taxes	$	15,710		$	22,000

    As of December 31, 2000, the Company had net deferred tax assets aggregating $15.7 million based on gross deferred tax assets of $56.4 million less a valuation allowance of $28.6 million and deferred tax liabilities of $12.1 million. The valuation allowance for deferred tax assets as of December 31, 2000, 1999, and 1998 was $28.6 million, $18.0 million, and $24.5 million, respectively. The net change in the total valuation allowance was an increase of $10.6 million for the year ended December 31, 2000 and a decrease of $6.5 million and $9.6 million for the years ended December 31, 1999 and 1998, respectively. Any reduction to the pre-reorganization valuation allowance presented above will result in a reduction of Excess Reorganization Value.

    Utilization of the Company's deferred tax assets are predicated on the Company being profitable in future years. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income

F-18

during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The Company will continually assess the adequacy of its financial performance in determination of its valuation allowance which, should there be an adjustment required, may result in an adverse effect on the Company's income tax provision. An adjustment was made to the deferred tax assets in 2000, which resulted in a negative impact on the Company's income tax provision.

    The Company underwent an ownership change in January 1996, as defined under Section 382 of the Internal Revenue Code ("IRC Section 382"). IRC Section 382 places an annual limitation on the amount of income that can be offset by net operating loss carryforwards generated in pre-ownership change years. The ownership change resulted in an IRC Section 382 limitation of approximately $1.7 million plus certain "built-in" income items. This new limitation applies to all net operating losses incurred prior to the ownership change. As of December 31, 2000, the Company has total net operating loss carryovers of approximately $29.9 million to offset future taxable income. If not utilized to offset future taxable income, the net operating loss carryforwards will expire between the years 2003 and 2009. Utilization of approximately $17.3 million of net operating loss carryforwards will first result in a $6.9 million reduction of deferred tax assets. Utilization of the remaining $12 million of net operating loss carryforwards will result in a $5 million reduction in Excess Reorganization Value.

8.  Benefit Plans

Defined Benefit Pension Plans

    The Company sponsors three defined benefit pension plans covering its Air Line Pilots Association, International ("ALPA"), International Association of Machinists and Aerospace Workers (AFL-CIO) ("IAM") and other personnel (salaried, Transport Workers Union ("TWU"), Communications Section Employees ("CSE")). The plans for the IAM and other employees were frozen effective October 1, 1993. As a result of the freeze, there will be no further benefit accruals. The pilots plan is funded based on minimum Employee Retirement Income Security Act of 1974 (ERISA) requirements, but not less than the normal cost plus the 20-year amortization of unfunded liability.rior service cost over 20 years. Funding for the ground personnel plans is based on minimum (ERISA) requirements. Plan assets consist primarily of common stocks, government and convertible securities, insurance contract deposits and cash management and mutual funds.

    In addition to providing pension benefits, the Company sponsors two unfunded defined benefit postretirement medical and life insurance plans. Employees in the Company's pilot group are eligible for certain medical, dental and life insurance benefits under one plan if they become disabled or reach normal retirement age while working for the Company. Employees in the Company's non-pilot group are eligible for certain medical benefits under another plan if they meet specified age and service requirements at the time of retirement.

F-19

    The following tables summarize changes to benefit obligations, plan assets, funded status and amounts included in the accompanying balance sheets as of December 31, 2000 and 1999, in thousands:

	Pension Benefits						Other Benefits
Change in benefit obligation	2000			1999			2000			1999
Benefit obligation at beginning of year	$	182,573		$	183,014		$	14,548		$	14,139
Service cost		4,400			4,172			739			730
Interest cost		13,626			12,656			1,076			950
Amendments		—			—			506			—
Actuarial (gain) loss		14,320			(8,023	)		183			(639	)
Benefits paid		(9,478	)		(9,246	)		(646	)		(632	)
Benefit obligation at end of year		205,441			182,573			16,406			14,548
Change in plan assets
Fair value of assets at beginning of year		178,640			158,684			—			—
Actual return on plan assets		1,316			20,981			—			—
Employer contribution		8,245			8,221			646			632
Benefits paid		(9,478	)		(9,246	)		(646	)		(632	)
Fair value of assets at end of year		178,723			178,640			—			—
Funded status		(26,718	)		(3,933	)		(16,406	)		(14,548	)
Unrecognized actuarial net (gain) loss		39,062			10,228			(11,061	)		(12,145	)
Unrecognized prior service cost		—			—			506			—
Prepaid (accrued) benefit cost at end of year	$	12,344		$	6,295		$	(26,961	)	$	(26,693	)
Amounts recognized in the accompanying balance sheets
Prepaid benefit cost	$	19,697		$	17,642		$	—		$	—
Accrued benefit liability		(17,452	)		(11,347	)		(26,961	)		(26,693	)
Intangible asset		—			—			—			—
Accumulated other comprehensive loss		10,099			—			—			—
Prepaid (accrued) benefit cost at end of year	$	12,344		$	6,295		$	(26,961	)	$	(26,693	)
Weighted average assumptions at end of year
Discount rate		7.5	%		7.5	%		7.5	%		7.5	%
Expected return on plan assets		9.0	%		9.0	%		Not applicable			Not applicable
Rate of compensation increase		Various	*		4.5	%		Not applicable			Not applicable

*

Compensation for pilots was assumed to increase 13.2% in 2001, 10.5% in 2002, 9.8% in 2003, 3.5% in 2004 and 4.5% after 2004. The rate of compensation increase is not applicable to the frozen plans.

    At December 31, 2000, the health care cost trend rate was assumed to increase by 7.0% for 2001 and decrease gradually to 4.0% over 6 years and remain level thereafter. At December 31, 1999, the health care cost trend rate was assumed to increase by 7.25% for 2000 and decrease gradually to 4.0% over 7 years and remain level thereafter.

    The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for plans with accumulated benefit obligations in excess of plan assets were $147.7 million, $128.0 million and $110.5 million, respectively, as of December 31, 2000, and $124.8 million, $114.7 million and $106.7 million, respectively, as of December 31, 1999.

F-20

    The following table sets forth the net periodic benefit cost for the years ended December 31, 2000, 1999, and 1998:

	Pension Benefits									Other Benefits
Components of Net Periodic Benefit Cost
	2000			1999			1998			2000			1999			1998
Service cost	$	4,400		$	4,172		$	4,047		$	739		$	730		$	739
Interest cost		13,626			12,656			12,078			1,075			950			1,037
Expected return on plan assets		(15,830	)		(14,342	)		(13,473	)		—			—			—
Recognized net actuarial (gain) loss		—			544			—			(900	)		(928	)		(861	)
Net periodic benefit cost	$	2,196		$	3,030		$	2,652		$	914		$	752		$	915

    Assumed health care cost trend rates have a significant impact on the amounts reported for other benefits. A one-percentage point change in the assumed health care cost trend rates would have the following effects:

	1-Percentage- Point Increase		1-Percentage- Point Decrease
Effect on total of service and interest cost
components	$	261,000	$	(216,000	)
Effect on postretirement benefit obligation	$	2,083,000	$	(1,748,000	)

Other Benefit Plans

    The Company sponsors separate deferred compensation plans (401(k)) for its pilots, flight attendants and ground and salaried personnel. Participating employer cash contributions are not required under the terms of the pilots' plan. The Company is required to contribute up to 7.0% of defined compensation pursuant to the terms of the flight attendants' plan. Contributions to the flight attendants' plan are funded currently and totaled approximately $1.7 million, $1.4 million, and $1.3 million in 2000, 1999, and 1998, respectively. The Company is also required to contribute 4.04% of eligible earnings to the ground and salaried plan for eligible employees as defined by the plan. Contributions to the ground and salaried 401(k) plan totaled $2.3 million, $2.1 million, and $2.0 million in 2000, 1999, and 1998, respectively.

9.  Capital Stock, Warrants, Rights and Options

Authorized Capital Stock

    As of December 31, 2000 and 1999, the authorized capital stock of the Company consists of 60,000,000 shares of Common Stock, par value $.01 per share, and 2,000,000 shares of Special Preferred Stock, par value $.01 per share.

    Under the terms of the Credit Facility, the Company is restricted from paying any cash or stock dividends. No dividends were paid by the Company in 2000 or 1999.

    In March 2000, the Company announced that its Board of Directors approved a stock repurchase program authorizing the Company to buy up to 5 million shares of its Common Stock. In August 2000, the Board of Directors increased the authorization to 10 million shares. Under the approved stock repurchase plan, the Company may repurchase Common Stock from time to time in the open market and in private transactions. The amount and timing of any repurchases will be subject to a number of factors, including the "trading practices rules" promulgated under the Securities Exchange Act of 1934, the price and availability of the Company's stock and general market conditions. Including the effect of the repurchase of certain warrants, as of December 31, 2000, 9,242,808 shares of Common Stock had been repurchased by the Company for approximately $19.2 million.

F-21

Special Preferred Stock

    Four shares of Series B Special Preferred Stock are owned by Airline Investors Partnership, L.P. ("AIP") with such shares entitling AIP to nominate directors. The Association of Flight Attendants ("AFA"), IAM and ALPA each hold one share of Series C Special Preferred Stock, Series D Special Preferred Stock and Series E Special Preferred Stock, respectively, (collectively the "Special Preferred Stock") which entitle each union to nominate one director. The holders of each series of the Special Preferred Stock are entitled to fill a vacancy on the Board of Directors caused by the removal, resignation or death of a director nominated by that series if the Board fails to fill such vacancy within 30 days. AIP has agreed with each of IAM, ALPA and AFA that so long as the right to have a representative on the Board is in its respective collective bargaining agreement, AIP will vote its shares in favor of such union's nominee for the Board of Directors. In addition to the rights described above, the Special Preferred Stock (1) is senior to Common Stock and each series is pari passu with each other with respect to rights on liquidation, dissolution and winding up and will be entitled to receive $.01 per share, and no more, before any payments are made to holders of any stock ranking junior to the Special Preferred Stock; (2) has no dividend rights other than at any time that a dividend is declared and paid on the Common Stock dividends in an amount per share equal to twice the dividend per share paid on the Common Stock will be paid on the Special Preferred Stock; (3) is entitled to one vote per share and votes with the Common Stock as a single class on all matters submitted to the shareholders of the Company; (4) automatically converts into one share of Common Stock upon the transfer of such share from the person to whom originally issued to any person that is not an affiliate of such person; and (5) does not have preemptive rights in connection with future issuances of the Company's capital stock.

Shareholder Rights Plan

    In December 1994, the Board of Directors of the Company authorized adoption of a shareholder rights plan (the "Rights Plan") pursuant to which there would be attached to each share of Common Stock of the Company one preferred stock purchase right (a "PSP Right"). The Rights Plan, as amended, provides that in the event any person (with certain exceptions) becomes the beneficial owner of 15.0% or more of the outstanding common shares, each PSP Right (other than a PSP Right held by the 15.0% shareholder) will be exercisable, on and after the close of business on the tenth business day following such event, to purchase Hawaiian Airlines Common Stock at 50% of the market value of such stock. The Rights Plan further provides that if, on or after the occurrence of such event, the Company is merged into any other corporation or 50.0% or more of the Company's assets or earning power are sold, each PSP Right (other than a PSP Right held by the 15.0% shareholder) will be exercisable to purchase common shares of the acquiring corporation at 50% of the market value of such stock. The PSP Rights expire on December 1, 2004 (unless previously triggered) and are subject to redemption by the Company at $0.01 per PSP Right at any time prior to the first date upon which they become exercisable.

Warrants

    In January 1996, due to its participation in certain recapitalization efforts of the Company, American's parent company, AMR Corporation ("AMR"), received, among other things, warrants (the "AMR Warrants") which, subject to certain conditions, entitled AMR to purchase up to 1,949,338 shares of the Company's Common Stock at $1.07 per share, as adjusted pursuant to applicable anti-dilution provisions. One-half of the warrants were exercisable immediately and the remaining one-half were to become exercisable only if American and the Company entered into a code sharing arrangement. In July 1997, the Company consummated the code share marketing agreement with American. All of the warrants became exercisable upon implementation of the code share agreement with American on March 2, 1998. On June 20, 2000, the Company repurchased from AMR all of the

F-22

outstanding warrants for approximately $2.6 million. The 1,949,338 shares associated with the warrants have been counted toward the 10 million shares of Common Stock that the Company is authorized to repurchase under the stock repurchase program. The estimated fair value of the codeshare agreement and the underlying warrants approximated $2.3 million and has been reflected in the accompanying balance sheets as other assets. The amount included in other assets is being amortized on a straight-line basis over five years from the implementation date of the code share agreement.

Stock Option Plans

    Under the 1994 Stock Option Plan, 600,000 shares of Common Stock were reserved for grants of options to officers and key employees of the Company. Under the 1996 Stock Incentive Plan, As Amended, 4,500,000 shares of Common Stock has been reserved for issuance of discretionary grants of options to the Company's employees. The Company also has a 1996 Nonemployee Director Stock Option Plan under which 500,000 shares of Common Stock were reserved for issuance and grants of options to nonemployee members of the Board of Directors. Stock options are granted with an exercise price equal to the Common Stock's fair market value at the date of grant, generally vest over a period of four years and expire, if not previously exercised, 10 years from the date of grant.

F-23

    Stock option activity during the periods indicated is as follows:

					Weighted average of exercise price of shares under plan
	Shares of Common Stock
	Available for options		Under plan
Balance at December 31, 1997	1,540,500		544,500		$	3.09
Authorized
1996 Stock Incentive Plan	2,500,000		—			—
Granted
1996 Stock Incentive Plan	(1,035,000	)	1,035,000			3.50
1996 Nonemployee Director Stock
Option Plan	(56,000	)	56,000			3.50
Exercised
1994 Stock Option Plan	—		(112,500	)		1.62
Forfeited
1996 Stock Incentive Plan	28,000		(28,000	)		3.56
Balance at December 31, 1998	2,977,500		1,495,000		$	3.49
Granted
1996 Stock Incentive Plan	(200,000	)	200,000			2.34
1996 Nonemployee Director Stock
Option Plan	(32,000	)	32,000			2.31
Forfeited
1996 Stock Incentive Plan	45,000		(45,000	)		3.50
1996 Nonemployee Director Stock
Option Plan	25,000		(25,000	)		3.69
Balance at December 31, 1999	2,815,500		1,657,000		$	3.33
Granted
1996 Stock Incentive Plan	(975,000	)	975,000			2.63
1996 Nonemployee Director Stock
Option Plan	(56,000	)	56,000			2.63
Forfeited
1996 Stock Incentive Plan	35,000		(35,000	)		3.00
1996 Nonemployee Director Stock
Option Plan	24,000		(24,000	)		3.69
Balance at December 31, 2000	1,843,500		2,629,000		$	3.05

    As of December 31, 2000, vesting requirements and exercise periods under each respective plan are as follows:

	Vesting	Exercise Period
1994 Stock Option Plan	Fully vested	Through 2005
1996 Stock Incentive Plan	Various from 2001 through 2004	Various from 2001 through 2010
1996 Nonemployee Director Stock Option Plan	Through 2001	Various from 2001 through 2010

F-24

    At December 31, 2000, the range of exercise prices and weighted-average remaining contractual lives of outstanding options was $1.62 to $4.06 and 7.5 years, respectively.

    At December 31, 2000, 1999, and 1998, the number of options exercisable was 1,143,000, 646,500, and 316,000, respectively, with weighted-average exercise prices of $3.38, $3.42, and $3.14, respectively.

    The Company applies APB Opinion No. 25 in accounting for stock options. Had the Company determined compensation cost based on the fair value at the grant date of the respective options under SFAS No. 123, the Company's net income (loss) would have been reduced or increased to the pro forma amounts indicated below:

	2000			1999			1998
Net Income (Loss)
As reported	$	(18,615	)	$	(29,267	)	$	8,205
Pro forma	$	(19,475	)	$	(29,933	)	$	7,146
Basic earnings per share
As reported	$	(0.48	)	$	(0.72	)	$	0.20
Pro forma	$	(0.51	)	$	(0.73	)	$	0.17
Diluted earnings per share
As reported	$	(0.48	)	$	(0.72	)	$	0.19
Pro forma	$	(0.50	)	$	(0.73	)	$	0.17

    The per share weighted-average fair value of stock options granted during 2000, 1999, and 1998 was $1.22, $1.22, and $1.78, respectively, on the date of grant using a Black Scholes option-pricing model with the following weighted-average assumptions:

	2000	1999	1998
Expected dividend yield	0.0%	0.0%	0.0%
Expected volatility	34.0%	34.0%	40.0%
Risk-free interest rate	5.19%	5.38% to 6.36%	5.76%
Expected life	Up to 7 years	Up to 7 years	Up to 7 years

    Pro forma net income (loss) reflects only options granted since December 31, 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income (loss) amounts presented above because compensation cost is reflected over the various options' vesting periods and compensation cost for options granted prior to January 1, 1997 is not considered.

10. Commitments and Contingent Liabilities

Aircraft Commitments

    As previously discussed, the Company has executed a purchase agreement with Boeing to acquire thirteen new Boeing 717-200 aircraft during the year 2001, with monthly deliveries of the aircraft between February and December 2001, with two units to be delivered in June and September 2001.

    As part of the purchase agreement for the Boeing 717-200 aircraft, the Company is required to fund, through June 2001, in the aggregate, approximately $43 million toward the acquisition of the aircraft. The $43 million is being funded through a combination of internally generated funds and use of a revolving $22.5 million secured term loan facility with KFW, secured by Rolls-Royce Deutchland GmbH ("Rolls-Royce"), the engine manufacturer for the 717-200. As of December 31, 2000, the Company had made approximately $39.4 million of the required $43 million in progress payments, with $32.2 million of these payments having been made in 2000.

F-25

    Acquisition of the Boeing 717-200 aircraft is structured using leveraged lease financing provided through Boeing affiliates. The first two aircraft have been, and each additional aircraft will be, permanently financed upon delivery and the outstanding balance due KFW under the revolving $22.5 million facility will be repaid with the permanent financing of each aircraft during 2001.

    In connection with its decision to replace the present Interisland DC-9 fleet with the Boeing 717s, the Company performed an evaluation to determine, in accordance with the Financial Accounting Standards Board (the "FASB") Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," whether future cash flows (undiscounted and without interest charges) expected to result from the use and eventual disposition of these aircraft would be less than the aggregate carrying amounts of these aircraft and the related assets. As a result of the evaluation, management determined that the estimated future cash flows expected to be generated by these aircraft would be less than their carrying amount, and therefore these aircraft are impaired as defined by SFAS No. 121. Consequently, the original cost basis of these aircraft and related items was reduced to reflect the fair market value as of December 31, 1999. In determining the fair market value of these assets, the Company considered recent transactions involving sales of similar aircraft and market trends in aircraft dispositions. The evaluation performed under the guidelines of SFAS No. 121 resulted in a $47 million pre-tax, non-cash impairment loss being recorded in fourth quarter 1999. The Company also recorded a $14.9 million pre-tax restructuring charge in 2000, of which $6.8 million was related to estimated costs to comply with the return condition provisions and early termination provisions of the five DC-9 aircraft under operating leases, and $8.1 million to reduce the DC-9 expendable inventory to fair market value as of December 31, 2000.

Litigation and Contingencies

    All claims asserted against the Company for alleged prepetition and/or administrative claims on or before the Effective Date of the Company's reorganization have been resolved utilizing reserved Common Stock shares and the Company's Chapter 11 Bankruptcy proceeding has been closed.

    The Company is party to several other claims and legal actions. In 1999, the Department of Taxation ("DOT") of the State of Hawaii informally advised the Company that it was prepared to issue proposed tax assessment notices to the Company's lessors of DC-9 aircraft under operating leases for general excise tax liability on the lease rent paid to such lessors. Pursuant to the leases, the Company would, subject to certain defenses, including but not limited to the Company's prior discharge in bankruptcy of certain obligations, be liable to the lessors for such taxes and possibly interest and penalties thereon. During 2000, the State DOT sent actual assessments for this alleged tax liability to lessors of the Company's DC-9 aircraft operating leases. The lessors authorized the Company to negotiate a resolution of these assessments. In December, the Company and the State DOT finalized a confidential settlement of all such liability through 2000.

Los Angeles Airport Operating Terminal

    On December 1, 1985, the Company entered into an interline agreement with other airlines, which agreement was amended and restated as of September 1, 1989 for, among other things, the sharing of costs, expenses and certain liabilities related to the acquisition, construction and renovation of certain passenger terminal facilities at the Los Angeles International Airport ("Facilities"). Current tenants and participating members of LAX Two Corporation (the "Corporation"), a mutual benefit corporation, are jointly and severally obligated to pay their share of debt service payments related to Facilities Sublease Revenue Bonds issued to finance the acquisition, construction and renovation of the Facilities which totaled $111.9 million at completion. The Corporation leases the Facilities from the Regional Airports Improvement Corporation under a lease agreement. In addition, the Corporation is also obligated to make annual payments to the city of Los Angeles for charges related to its terminal ground rental. All

F-26

leases of the Corporation are accounted for as operating leases with related future commitments as of December 31, 2000 amounting to approximately $225.6 million. Rent expense relating to these operating leases totaled $5.6 million, $4.7 million, and $4.9 million in 2000, 1999, and 1998, respectively.

    Member airlines pay the expenses associated with the Facilities on a prorata share basis calculated primarily upon their respective numbers of passengers utilizing the Facilities. The Company accounts for its obligation under this agreement as an operating lease and incurred $1,068,000, $605,000, and $592,000 of rent expense in 2000, 1999, and 1998, respectively.

Union Contract Negotiations

    As of December 31, 2000, Hawaiian Airlines had 3,313 active employees, of which 2,755 were employed on a full-time basis. The majority of Hawaiian Airlines' employees are covered by labor agreements with the International Association of Machinists and Aerospace Workers (AFL-CIO) ("IAM"), the Air Line Pilots Association, International ("ALPA"), the Association of Flight Attendants ("AFA"), the Transport Workers Union ("TWU") and the Communications Section Employees Union ("CSE"). The amendable date of all six contracts was February 28, 2000. In December 2000, the Company and ALPA reached an agreement on a new 42-month contract that went into effect on January 1, 2001. Terms of the accord were ratified by ALPA's Master Executive Council. The Company is currently in direct negotiations with the IAM and AFA. If no agreement is reached in direct negotiations, federally- mandated mediation will occur and could last for an unspecified period of time. Although the overwhelming majority of labor negotiations in the airline industry are resolved in mediation, there can be no assurance that the discussions will result in an agreement and ratification between the Company and each labor group. The time required to negotiate a contract under the Railway Labor Act varies. Therefore, management cannot currently estimate the timeframe or results of the ensuing discussions. Should the Company and the labor groups be unable to reach an agreement, the Company could be adversely affected.

11. Reliance on Third Parties

    The Company has entered into agreements with contractors, including American, Northwest Airlines, Inc. ("Northwest"), Continental Airlines, Inc. ("Continental") and certain other airlines, to provide certain facilities and services required for its operations, including aircraft leasing and maintenance, code sharing, reservations, computer services, frequent flyer programs, passenger processing, ground facilities, baggage and cargo handling and personnel training. This reliance on third parties to provide services subjects the Company to the risk that such services could be discontinued without adequate replacement services being available.

    The Company leases ten DC-10 aircraft from American. American is responsible for maintenance on all of the Company's DC-10 aircraft (leased and owned) except for the three DC-10 aircraft leased from Continental, for which Continental provides maintenance services. The maintenance agreement with American provides the Company access to spare parts, engines and rotables for the maintenance of these aircraft. As such, the Company does not maintain large inventories of spare engines or parts to support the operation of the DC-10 aircraft. The Company pays a minimum contractual power by the hour charge for maintenance services, monthly in arrears. During 2000, the Company incurred approximately $85.8 million of lease and maintenance expenses under the American leases and aircraft maintenance agreements. Maintenance performed by American on applicable DC-10 aircraft of the Company is subject to American's right to terminate such services at any time with 180 days prior notice. If American terminated the maintenance arrangement, the Company would have to seek an alternate source of maintenance service or undertake to maintain its DC-10s internally. No assurance can be given that the Company would be able to do so on a basis that is as cost-effective as the American maintenance arrangement. See Notes 4 and 5.

F-27

    The Company has code sharing agreements with American, American Eagle carrier Wings West Airlines, Inc., Northwest and Continental. The Company also participates in the frequent flyer programs of American, Northwest, Continental and Virgin Atlantic. These programs and services make the Company more competitive, but increase its reliance on third parties.

    In 2000 and 1999, one particular Hawaii-based wholesaler constituted approximately 17% of the Company's total operating revenues. Travel agents generally have a choice between one or more airlines when booking a customer's flight. Accordingly, any effort by travel agencies to favor another airline or to disfavor the Company could adversely affect the Company. Although management intends to continue to offer an attractive and competitive product to travel agencies and to maintain favorable relations with travel agencies, there can be no assurance that travel agencies will not disfavor the Company or favor other airlines in the future, either of which could have an adverse effect on the Company's operations and profitability.

12. Related Party Transactions

    From July 17, 2000 through February 28, 2001, William F. Loftus served as Executive Vice President, Chief Financial Officer and Treasurer of the Company. During this period, the Company paid Mr. Loftus a base salary of $152,000. During this same period, the Company paid The Loftus Group, a financial and management consulting firm of which more than ten percent (10%) is owned by Mr. Loftus, $638,535 in fees for financial consulting services, plus expenses.

    On May 19, 2000, the Company invested $3.0 million in certificates of deposit with Liberty Bank, SSB, of Austin, Texas. Liberty Bank is majority owned by John W. Adams and another individual. John W. Adams is the sole shareholder of AIP General Partner, Inc., the general partner of Airline Investors Partnership, L.P., which is the majority owner of the Company. Current directors of the Company include Mr. Adams, as well as Edward Z. Safady and Thomas J. Traznowski, both of whom are also employees and/or directors of Liberty Bank, SSB.

13. Concentration of Business Risk

    The Company's scheduled service operations are primarily focused on providing air transportation service to, from, or throughout the Hawaiian Islands. Therefore, the Company's operations, including its ability to collect its outstanding receivables, are significantly affected by economic conditions in the State of Hawaii and by other factors affecting the level of tourism in Hawaii.

14. Segment Information

    The Company operates as a matrix form of organization and offers only one service (i.e., air transportation), resulting in management concluding that it operates one industry segment. The Company's principal line of business, the scheduled and chartered transportation of passengers, constitutes more than 90% of its operating revenues. The following table delineates scheduled and chartered passenger revenue of the Company, in thousands:

	2000		1999		1998
Transpac	$	286,765	$	236,234	$	196,670
Interisland		167,048		144,131		138,614
Southpac		21,662		19,886		18,961
Overseas Charter		82,358		46,570		35,742
	$	557,833	$	446,821	$	389,987

F-28

Hawaiian Airlines, Inc.

Supplemental Financial Information

Unaudited Quarterly Financial Information (in thousands, except for per share data)

	First Quarter			Second Quarter		Third Quarter			Fourth Quarter
2000:
Operating revenues	$	136,033		$	154,557	$	169,901		$	146,729
Operating income (loss)		(4,455	)		7,509		1,020			(17,876	)
Net income (loss)		(2,598	)		4,618		(218	)		(20,417	)
Net income (loss) per Common Stock share:
Basic		(0.06	)		0.11		(0.01	)		(0.59	)
Diluted		(0.06	)		0.11		(0.01	)		(0.58	)

	First Quarter			Second Quarter		Third Quarter		Fourth Quarter
1999:*
Operating revenues	$	109,675		$	121,973	$	134,826	$	122,403
Operating income (loss)		1,139			4,008		6,925		(52,609	)
Net income (loss)		(169	)		1,708		3,382		(34,188	)
Net income (loss) per Common Stock share:
Basic		(0.04	)		0.04		0.08		(0.83	)
Diluted		(0.04	)		0.04		0.08		(0.83	)

*

During fourth quarter of 1999, the Company changed its method of accounting for the sale of mileage credits under its frequent flyer program. Therefore, effective January 1, 1999, the Company recorded a $772,000 cumulative effect of a change in accounting principle, net of tax, and has restated the quarterly information for 1999 presented herein.

F-29

Hawaiian Airlines, Inc.

Selected Financial and Statistical Data (in thousands)

	2000			1999			1998			1997			1996
Summary of Operations:
Operating revenues	$	607,220		$	488,877		$	426,415		$	404,216		$	384,473
Operating expenses		621,022			529,414			409,010			401,714			382,446
Operating income (loss)		(13,802	)		(40,537	)		17,405			2,502			2,027
Interest expense, net		1,257			(1,071	)		(403	)		(394	)		(2,432	)
Gain (loss) on disposition of equipment		(85	)		(1,013	)		(831	)		(140	)		(729	)
Other, net		305			2,708			(163	)		(820	)		(297	)
Income (loss) before income taxes, extraordinary items and cumulative effect of change in accounting principle		(12,325	)		(39,913	)		16,008			1,148			(1,431	)
Income taxes		(6,290	)		11,418			(7,803	)		(1,720	)		(868	)
Net income (loss) before extraordinary items and cumulative effect of change in accounting principle		(18,615	)		(28,495	)		8,205			(572	)		(2,299	)
Extraordinary items, net of income taxes		—			—			—			—			766
Net income (loss) before cumulative effect of change in accounting principle		(18,615	)		(28,495	)		8,205			(572	)		(1,533	)
Cumulative effect of change in accounting principle, net of income taxes		—			(772	)		—			(450	)		—
Net income (loss)	$	(18,615	)	$	(29,267	)	$	8,205		$	(1,022	)	$	(1,533	)

F-30

Hawaiian Airlines, Inc.

Selected Financial and Statistical Data (in thousands, except per share data) (continued)

	2000			1999			1998			1997			1996
Net Income (Loss) per Common Stock Share:
Basic
Before extraordinary items and cumulative effect
of change in accounting principle	$	(0.48	)	$	(0.70	)	$	0.20		$	(0.02	)	$	(0.08	)
Extraordinary items, net		—			—			—			—			0.03
Cumulative effect of change in accounting principle, net		—			(0.02	)		—			(0.01	)		—
Net income (loss) per Common Stock share	$	(0.48	)	$	(0.72	)	$	0.20		$	(0.03	)	$	(0.05	)
Diluted
Before extraordinary items and cumulative effect
of change in accounting principle	$	(0.48	)	$	(0.70	)	$	0.19		$	(0.02	)	$	(0.08	)
Extraordinary items, net		—			—			—			—			0.03
Cumulative effect of change in accounting principle, net		—			(0.02	)		—			(0.01	)		—
Net income (loss) per Common Stock share	$	(0.48	)	$	(0.72	)	$	0.19		$	(0.03	)	$	(0.05	)
Weighted Average Shares Outstanding:
Basic		38,537			40,997			40,921	*		40,361	*		29,032	*
Diluted		39,038			40,997			42,205	*		40,361	*		29,032	*
Shareholders' Equity Per Share (Without Dilution)	$	0.54		$	1.61		$	2.22		$	2.12		$	2.11
Shares Outstanding at End of Period		33,708			40,997			40,997	*		40,889	*		39,262	*
Balance Sheet Items:
Total assets	$	256,968		$	241,937		$	221,911		$	200,824		$	196,289
Property and equipment, net		83,743			65,272			84,922			66,243			45,794
Long-term debt, excluding current portion		10,763			23,858			14,454			3,991			6,353
Capital lease obligations, excluding current portion		2,067			2,790			5,966			10,580			7,387
Shareholders' equity		18,259			66,126			90,887			86,873			82,873

*

Includes shares reserved for issuance under the Consolidated Plan of Reorganization dated September 21, 1993, as amended.

F-31

Hawaiian Airlines, Inc.

Selected Financial and Statistical Data (in thousands, except as otherwise indicated) (unaudited) (continued)

	2000		1999		1998		1997		1996
Scheduled Operations:
Revenue passengers	5,886		5,425		5,010		4,964		4,971
Revenue passenger miles	4,492,395		4,076,576		3,649,024		3,479,056		3,324,005
Available seat miles	5,967,810		5,468,589		4,940,001		4,699,609		4,571,955
Passenger load factor	75.3	%	74.5	%	73.9	%	74.0	%	72.7	%
Passenger revenue per passenger mile	10.6	¢	9.8	¢	9.7	¢	9.5	¢	9.8	¢
Overseas Charter Operations:
Revenue passengers	382		283		250		253		190
Revenue passenger miles	1,165,436		803,524		689,578		683,384		515,982
Available seat miles	1,279,749		852,155		733,735		739,619		528,787
Total Operations:
Revenue passengers	6,268		5,708		5,260		5,217		5,161
Revenue passenger miles	5,657,831		4,880,100		4,338,602		4,162,440		3,839,987
Available seat miles	7,247,559		6,320,744		5,673,736		5,439,228		5,100,742
Passenger load factor	78.1	%	77.2	%	76.5	%	76.5	%	75.3	%
Revenue Per ASM	8.38	¢	7.73	¢	7.52	¢	7.43	¢	7.54	¢
Cost Per ASM	8.57	¢	8.38	¢	7.21	¢	7.39	¢	7.50	¢

F-32

Report of Independent Auditors

The Board of Directors
Hawaiian Airlines, Inc.

    We have audited the financial statements of Hawaiian Airlines, Inc. (the "Company") as of December 31, 2000 and 1999, and for each of the two years in the period ended December 31, 2000, and have issued our report thereon dated March 16, 2001 (included elsewhere in this Form 10-K). Our audits also included the financial statement schedule for these related periods listed in item 14(a)(9) (Selected Financial and Statistical Data) of this Form 10-K. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audit.

    In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ Ernst & Young LLP

Honolulu, Hawaii
March 16, 2001

S-1a

Independent Auditors' Report on Schedule

The Board of Directors
Hawaiian Airlines, Inc.:

    Under date of March 11, 1999, we reported on the statements of operations, shareholders' equity and comprehensive income, and cash flows of Hawaiian Airlines, Inc. for the year ended December 31, 1998, which are included herein. In connection with our audit of the aforementioned financial statements, we also audited the related financial statement schedule of Hawaiian Airlines, Inc. for the year ended December 31, 1998. The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audit.

    In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP

Honolulu, Hawaii
March 11, 1999

S-1b

Hawaiian Airlines, Inc.

Valuation and Qualifying Accounts (in thousands)

Years Ended December 31, 2000, 1999, and 1998

COLUMN A	COLUMN B		COLUMN C ADDITIONS			COLUMN D		COLUMN E
Description	Balance at Beginning of Year		(1) Charged to Costs and Expenses		(2) Charged to Other Accounts	Deductions		Balance at End of Year
Allowance for Doubtful Accounts:
2000	$	500	795		—	795	(a)	$	500
1999	$	500	1,060		—	1,060	(a)	$	500
1998	$	500	350		—	350	(a)	$	500
Allowance for Obsolescence of Flight Equipment Expendable Parts and Supplies:
2000	$	120	8,080	(b)	—	196		$	8,004
1999	$	120	—		—	—		$	120
1998	$	120	—		—	—		$	120

(a)

Doubtful accounts written off, net of recoveries

(b)

Restructuring charge related to the write-down of DC-9 expendable parts

S-2

QuickLinks

TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
PART I
The Company
Operations
Segment Information
Seasonality
Dependence on Tourism
Competition
Reliance on Third Parties
Regulation
Employees
Executive Officers
PART II
Results of Operations 2000 Compared to 1999
Operating Revenues
Operating Expenses
New Accounting Pronouncements
1999 Compared to 1998
Operating Revenues
Operating Expenses
Cumulative Effect of Change in Accounting Principle
Aircraft, Routes and Alliances
Liquidity and Capital Resources
Stock and Warrant Repurchases
Employees
Deferred Tax Assets
Derivative Financial Instruments
Landing Fees and Ticket Taxes
Frequent Flyer Program
Information Technology Systems and Impact of Year 2000
Aircraft Fuel
Investments in Equity Securities
Interests of Named Experts
PART III
PART IV
EXHIBIT INDEX
SIGNATURES
Hawaiian Airlines, Inc. Balance Sheets (in thousands) December 31, 2000 and 1999
Hawaiian Airlines, Inc. Balance Sheets (in thousands, except share data) December 31, 2000 and 1999
Hawaiian Airlines, Inc. Statements of Operations (in thousands) For the Years ended December 31, 2000, 1999, and 1998
Hawaiian Airlines, Inc. Statements of Operations (in thousands, except per share data) For the Years ended December 31, 2000, 1999, and 1998
Hawaiian Airlines, Inc. Statements of Shareholders' Equity and Comprehensive Income (in thousands) For the Years ended December 31, 2000, 1999, and 1998
Hawaiian Airlines, Inc. Statements of Cash Flows (in thousands) For the Years ended December 31, 2000, 1999 and 1998
Hawaiian Airlines, Inc. Statements of Cash Flows (in thousands) For the Years ended December 31, 2000, 1999, and 1998
Stock Option Plans
Hawaiian Airlines, Inc. Supplemental Financial Information Unaudited Quarterly Financial Information (in thousands, except for per share data)
Hawaiian Airlines, Inc. Selected Financial and Statistical Data (in thousands)
Hawaiian Airlines, Inc. Selected Financial and Statistical Data (in thousands, except per share data) (continued)
Hawaiian Airlines, Inc. Selected Financial and Statistical Data (in thousands, except as otherwise indicated) (unaudited) (continued)
Hawaiian Airlines, Inc. Valuation and Qualifying Accounts (in thousands) Years Ended December 31, 2000, 1999, and 1998

EX-10.(14)

    -------------------------------------------------------------------------
                CONFIDENTIAL: SCHEDULES 1 and 2 of this Sublease
        Agreement are subject to restrictions on dissemination set forth
                                 in Section 18.
    -------------------------------------------------------------------------



                             SUBLEASE AGREEMENT 084

                          Dated as of December 8, 2000

                                     between

                             HAWAIIAN AIRLINES, INC.

                                     Lessee

                                       and

                           CONTINENTAL AIRLINES, INC.

                                     Lessor

                  One McDonnell Douglas Model DC-10-30 Aircraft
                       Manufacturer's Serial Number 46991
            United States Registration Marks N35084 (formerly N6857X)



THE SINGLE EXECUTED ORIGINAL OF THIS SUBLEASE TOGETHER WITH ANY ORIGINAL
SUBLEASE SUPPLEMENT DELIVERED PURSUANT HERETO EACH MARKED "ORIGINAL" SHALL BE
THE "ORIGINAL" AND ALL OTHER COUNTERPARTS OF THIS SUBLEASE AND ANY SUBLEASE
SUPPLEMENT SHALL BE MARKED "DUPLICATE ORIGINAL". TO THE EXTENT THAT THIS
SUBLEASE AND ANY SUBLEASE SUPPLEMENT CONSTITUTES CHATTEL PAPER, AS SUCH TERM IS
DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE
JURISDICTION, NO SECURITY INTEREST MAY BE CREATED THROUGH TRANSFER OR POSSESSION
OF ANY COUNTERPART OTHER THAN THE "ORIGINAL". THIS IS NOT THE ORIGINAL.






                                TABLE OF CONTENTS




SECTION                                                                                                   PAGE
- ---------                                                                                                 ----

                                                                                                     
Section 1.    Definitions .................................................................................  1

Section 2.    Delivery and Acceptance .....................................................................  5
       2.1    Agreement to Sublease .......................................................................  5
       2.2    Conditions Precedent to Sublease of Aircraft by Lessee ......................................  6
       2.3    Conditions to Sublease of Aircraft by Lessor ................................................  6
       2.4    Aircraft Delivery Condition; Inspection .....................................................  7
       2.5    Reconfiguration and Painting Costs ..........................................................  9
       2.6    Reimbursement of Costs ......................................................................  9
       2.7    Security Deposit ............................................................................ 10

Section 3.    Term and Rent ............................................................................... 10
       3.1    Term ........................................................................................ 10
       3.2    Basic Rent .................................................................................. 10
       3.3    Supplemental Rent ........................................................................... 12
       3.4    Payments .................................................................................... 12

Section 4.    Representations, Warranties and Covenants; Disclaimers ...................................... 13
       4.1    Of Lessee ................................................................................... 13
       4.2    Of Lessor ................................................................................... 14
       4.3    Subordination of Sublease to Head Lease ..................................................... 16

Section 5.    Return of Aircraft .......................................................................... 16

Section 6.    Liens ....................................................................................... 16

Section 7.    Title, Registration, Operation, Possession and Records ...................................... 17
       7.1    Title, Registration and Operation ........................................................... 17
       7.2    Possession .................................................................................. 18
       7.3    Records and Reports ......................................................................... 19
       7.4    Recognition of Rights ....................................................................... 19

Section 8.    Maintenance; Replacement and Pooling of Parts; Alterations, Modifications and
              Additions ................................................................................... 19
       8.1    Maintenance ................................................................................. 19
       8.2    Replacement of Parts ........................................................................ 20
       8.3    Pooling of Parts ............................................................................ 21
       8.4    Alterations, Modifications and Additions .................................................... 21

Section 9.    General Indemnity............................................................................ 23



Section 10.   Loss, Destruction, Requisition, Etc ......................................................... 28
       10.1   Event of Loss with Respect to Airframe ...................................................... 28
       10.2   Event of Loss with Respect to an Engine ..................................................... 28
       10.3   Application of Payments ..................................................................... 30
       10.4   Requisition of Aircraft for Use by the Government ........................................... 30
       10.5   Application of Payments During existence of Event of Default ................................ 31

Section 11.   Insurance ................................................................................... 31
       11.1   Liability and Hull Insurance ................................................................ 31
       11.2   Government Indemnity ........................................................................ 33
       11.3   Certificates of Insurance ................................................................... 33
       11.4   Application of Insurance Proceeds ........................................................... 34

Section 12.   Inspection .................................................................................. 34

Section 13.   Assignment .................................................................................. 34
       13.1   Assignment by Lessee ........................................................................ 34
       13.2   Assignment by Lessor ........................................................................ 35

Section 14.   Events of Default ........................................................................... 36

Section 15.   Remedies .................................................................................... 37
       15.1   Default; Remedies ........................................................................... 37
       15.2   No Waiver, Etc .............................................................................. 38

Section 16.   Notices ..................................................................................... 38

Section 17.   Lessee's Obligations; Lessor's Breach ....................................................... 39
       17.1   Lessee's Obligations ........................................................................ 39
       17.2   Lessor's Breach; Right of Setoff ............................................................ 39

Section 18.   Confidentiality ............................................................................. 39

Section 19.  [Reserved] ................................................................................... 40

Section 20.   Right to Perform for Lessee ................................................................. 40

Section 21.   Quiet Enjoyment ............................................................................. 40

Section 22.   Investment of Funds ......................................................................... 40

Section 23.   Additional Covenants of Lessee .............................................................. 40
       23.1   Maintenance of Status ....................................................................... 40
       23.2  [Reserved] ................................................................................... 40
       23.3   Financial Information ....................................................................... 41

Section 24.   Miscellaneous ............................................................................... 41



                                       2


Exhibit A     Sublease Supplement
Schedule 1    Certain Financial Terms
Schedule 2    Return Conditions


                                       3


         SUBLEASE AGREEMENT 084, dated as of December 8, 2000, between HAWAIIAN
AIRLINES, INC., a Hawaii corporation  ("Lessee"), and CONTINENTAL AIRLINES,
INC., a Delaware corporation ("Lessor").

         Lessor and Lessee agree as follows:

         Section 1. DEFINITIONS. Unless the context otherwise requires, the
following terms shall have the following meanings for all purposes of this
Sublease and shall be equally applicable to both the singular and the plural
forms of the terms herein defined. Any agreement referred to below shall mean
such agreement as amended, supplemented and modified from time to time in
accordance with its respective terms.


         "Act" means that portion of the United States Code comprising the
provisions formerly referred to as the Federal Aviation Act of 1958, as amended
from time to time.


         "Affiliate" means, with respect to any Person, any other Person which,
directly or indirectly, controls or is controlled by or is under common control
with such Person.


         "Aircraft" means the Airframe, together with the three Engines
described on the Sublease Supplement for the Airframe (or any Replacement Engine
substituted for either of such Engines hereunder), whether or not any of such
initial or Replacement Engines may from time to time be installed on such
Airframe or may be installed on any other airframe or on any other aircraft,
together with the records, manuals and documents pertaining to the Aircraft.


         "Airframe" means (i) the McDonnell Douglas Model DC-10-30 aircraft
(excluding Engines or engines from time to time installed thereon) described on
the Sublease Supplement executed on the Delivery Date and subleased hereunder by
Lessor to Lessee, and (ii) any and all Parts so long as the same shall be
incorporated in such airframe and any and all Parts removed from such airframe
so long as title to such Parts shall remain vested in Lessor in accordance with
the terms of Section 8.


         "Basic Rent" means the rent payable for the Aircraft pursuant to
Section 3.2 during the Term.

         "Business Day" shall mean a day other than a Saturday, Sunday or other
day on which banks are required or authorized to close in New York, New York or
Honolulu, Hawaii. Any reference in this Sublease to "days" shall mean calendar
days unless Business Days are specified.


         "Code" means the United States Internal Revenue Code of 1986, as
amended from time to time.

         "Continental Indemnitee" means Lessor and its successors, assigns,
affiliates, directors, officers, employees, agents and servants.


                                       1



         "Default" means any event or condition which, with notice or lapse of
time or both, would constitute an Event of Default.


         "Delivery Date" means the date of the Sublease Supplement relating to
the Aircraft, which date shall be the date on which the Aircraft is delivered to
and accepted by Lessee and subleased to Lessee hereunder and which date shall be
on or around December 15, 2000.


         "DOT" means the United States Department of Transportation or any
governmental person, agency or authority succeeding to the functions of such
Department of Transportation.


         "Engine" means (i) each of the three General Electric Model CF6-50C2
engines identified by manufacturer's serial number on the Sublease Supplement
subjecting the Airframe to this Sublease, whether or not from time to time
installed on such Airframe or installed on any other airframe or on any other
aircraft and (ii) any Replacement Engine, whether or not from time to time
installed on the Airframe or any other airframe or on any other aircraft,
together in each case with any and all Parts incorporated in such Engine and any
and all Parts removed from such Engine so long as title to such Parts shall
remain vested in Lessor in accordance with the terms of Section 8. At such time
as a Replacement Engine shall be substituted hereunder and the Engine for which
the substitution is made shall be released, such replaced Engine shall cease to
be an Engine hereunder. The term "Engines" means as of any date of
determination, all Engines then subleased hereunder, including any Replacement
Engine.


         "Equipment" means, as of any date of determination and as the context
may require, any or all of the Aircraft, Airframe and Engines subleased to the
Lessee hereunder on such date. An "item of Equipment" means the Airframe or any
or all of the Engines, as the context may require.


         "Escrow Agreement" shall mean the escrow agreement referred to in
Section 3.2(c) that shall be entered into by Lessor, Lessee and an escrow agent
to be chosen by both of them for the deposit and withdrawal of Heavy Maintenance
Reserves.


         "Events of Default" are listed in Section 14.

         "Event of Loss" means, with respect to the Aircraft, Airframe or any
Engine, any of the following events with respect to such property: (i) loss of
such property due to destruction, damage beyond economic repair or rendition of
such property unfit for normal use by Lessee by any cause whatsoever, or any
damage to such property which results in an insurance settlement with respect to
such property on the basis of a total loss or a constructive total loss; (ii)
the disappearance, loss, theft, hijacking, condemnation, confiscation or seizure
of, or requisition of use or title of, such property for a period in excess of
180 days, other than a requisition for use by the Government provided (at
Lessor's election, as provided in Section 10.4) that such requisition of use
does not extend beyond the end of the Term; (iii) any divestiture of title to an
Engine treated as an Event of Loss pursuant to Section 7.2 or other provision
hereof; or (iv) the operation or location of such property, while under
requisition for use by the Government, in any area excluded from coverage by any
insurance policy in effect with respect thereto required by the terms of Section
11, if Lessee shall be unable to obtain an indemnity in lieu thereof from the


                                       2



Government on the terms provided in Section 11.2. An Event of Loss with respect
to the Aircraft shall be deemed to have occurred if an Event of Loss occurs with
respect to the Airframe which constitutes a part of the Aircraft.


         "FAA" means the Federal Aviation Administration or any governmental
person, agency or other authority succeeding to the functions of the Federal
Aviation Administration.


         "Facility Lien" means any Lien on the Aircraft or the Sublease granted
to or for the benefit of a financial institution or other Person(s) (the
"Lender") in connection with any financing of the Aircraft, which Facility Lien
shall meet the conditions set forth in Section 4.2(f).


         "Government" means the federal government of the United States of
America or any instrumentality or agency thereof whose obligations are backed by
the full faith and credit of the United States of America.


         "Head Lease" means (a) in the case of the Airframe, Lease Agreement 084
dated as of February 3, 1997 (as supplemented, amended and assigned) between
First Security Bank, National Association, as owner trustee and lessor, and
Lessor, as lessee, and (b) in the case of any Engine not owned by Lessor and not
covered by such Lease Agreement 084, the lease agreement covering such Engine.


         "Head Lessor" means (a) in the case of the Airframe, First Security
Bank, National Association, as owner trustee and lessor under the Head Lease
referred to in clause (a) of the definition of "Head Lease" or any of its
successors and assigns in such capacity, and (b) in the case of any Engine not
owned by Lessor and not covered by the Head Lease referred to in clause (a) of
the definition of "Head Lease", the lessor under the relevant Head Lease
referred to in clause (b) of the definition of "Head Lease" covering such
Engine.


         "Head Lessor Lien" means (i) a Facility Lien, (ii) the Liens on the
Airframe and Engines arising under the Head Leases, (iii) any Lien on the
Airframe or any Engine created by a Head Lessor or Owner or resulting from the
affirmative act of the Head Lessor or Owner that is not related to or expressly
permitted by the Sublease or consented to by Lessee, (iv) any Lien on the
Airframe or any Engine resulting from claims against a Head Lessor or Owner not
related to the transactions contemplated by this Sublease, and (v) any Lien
resulting from Taxes imposed against a Head Lessor or Owner which are not
indemnified against by Lessee.


         "Heavy Maintenance Reserves" means the monthly payments by Lessee to be
made pursuant to Section 3.2(c).

         "Indemnitee" means Lessor, each Head Lessor, Owner, Lender, if any,
their respective successors, permitted assigns, affiliates, directors, officers,
agents, trustees and employees.


         "Lease Adjustment Payments" has the meaning specified in Section
3.2(d).

         "Lender" means any bank or other financial institution providing debt
financing to the Head Lessor or Owner of the Airframe or an Engine.


                                       3



         "Lessor" means Continental Airlines, Inc.

         "Lessor Liens" means any Liens of any duly authorized Person or Person
with apparent authority claiming by, through or under Lessor which arise as a
result of (i) claims against any such Person not related to or expressly
permitted by this Sublease, (ii) any act or omission of any such Person which is
not expressly permitted by this Sublease, (iii) taxes or expenses imposed
against any such Person (or the consolidated group of taxpayers of which it is a
member) for which Lessee is not obligated to indemnify pursuant to Section 9
hereof or (iv) claims against any such Person arising out of any transfer by
such Person of its interest in the Aircraft or the Operative Agreements, other
than a transfer resulting from Lessor's exercise of remedies pursuant to Section
15.


         "Lien" means any mortgage, pledge, lien, encumbrance, lease, security
interest or claim affecting the title to or any interest in property subject to
the Operative Agreements.


         "MSA" means the Maintenance Services Agreement dated as of [October 26,
1999] between Lessee and Lessor, as amended.


         "Officer's Certificate" means a certificate signed by the Chairman, the
President, any Vice President, the Treasurer, any Assistant Treasurer, the
Secretary or Assistant Secretary of the Person providing such certificate.


         "Operative Agreements" means this Agreement and each Sublease
Supplement.

         "Overdue Rate" means the Prime Rate plus 150 basis points.

         "Owner" means (a) with respect to the Airframe, AII DC-10-30-46991,
Inc., the beneficial owner of the Airframe, and its successors and assigns, and
(b) with respect to any Engine not covered by the Head Lease referred to in
clause (a) of the definition of "Head Lease", the beneficial owner of such
Engine.


         "Parts" means all appliances, parts, instruments, avionics,
appurtenances, accessories, furnishings and other equipment or components of
whatever nature (other than complete Engines or engines and other than Removable
Parts) which are from time to time incorporated in the Airframe or any Engine or
so long as title to such Parts shall remain vested in Lessor in accordance with
Section 8 hereof after removal from the Airframe or any Engine.


         "Permitted Lessor / Head Lessor Liens" is defined in Section 4.2(f).

         "Permitted Lien" means any Lien referred to in clauses (a) through (i)
of Section 6.

         "Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.


                                       4



         "Prime Rate" means the rate per annum announced from time to time by
the head office of The Chase Manhattan Bank, N.A. as its prime or base lending
rate.


         "Rent" means Basic Rent and Supplemental Rent.

         "Rent Payment Date" means the 31st day after the Delivery Date and the
same day of each month thereafter during the Term.


         "Replacement Engine" means a General Electric Model CF6-50C2 engine (or
an improved make and/or model engine suitable for installation and use on the
Airframe) which shall have been substituted for an Engine subleased hereunder
pursuant to the applicable terms hereof.


         "Securities Act" means the Securities Act of 1933, as amended.

         "Security Deposit" means the initial security deposit and the
additional security deposit in each case referred to in Section 2.7.


         "Stipulated Loss Value" means the amount designated as Stipulated Loss
Value on Schedule 1 hereto.

         "Sublease", "this Sublease", "this Agreement", "hereby", "herein",
"hereof", "hereunder", or other like words mean this Sublease Agreement 084,
including without limitation supplementation hereof by one or more Sublease
Supplements.


         "Sublease Supplement" means a supplement to this Sublease substantially
in the form attached as Exhibit A hereto, subjecting the Aircraft or other
property to this Sublease.


         "Supplemental Rent" means all amounts, liabilities and obligations
(other than Basic Rent) which Lessee assumes or agrees to pay to Lessor or any
other Person hereunder, including, without limitation, (i) Stipulated Loss Value
payments, (ii) all amounts required to be paid by Lessee under the indemnities
contained in Section 9 hereof and (iii) Lease Adjustment Payments.


         "Term" means the term for which the Aircraft is subleased pursuant to
Section 3 hereof.


         Section 2.  DELIVERY AND ACCEPTANCE.

         2.1 AGREEMENT TO SUBLEASE. Subject to satisfaction of the applicable
conditions contained in Section 2.3 below, Lessor hereby agrees to tender
delivery of the Aircraft on the Delivery Date at Honolulu, Hawaii and
simultaneously to sublease to Lessee hereunder, and subject to satisfaction of
the applicable conditions contained in Section 2.2 below, Lessee hereby agrees
to accept such delivery and to sublease from Lessor hereunder the Aircraft. By
execution and delivery of the Sublease Supplement regarding the Aircraft, (i)
Lessor and Lessee shall each confirm the satisfaction of the conditions
contained in Section 2.3 and 2.2, respectively, below and (ii) Lessee shall
confirm to Lessor that Lessee has irrevocably accepted the Aircraft for all


                                       5


purposes hereof. Lessee shall inspect the Aircraft on or prior to the Delivery
Date and will become knowledgeable as to its operating condition.


         2.2 CONDITIONS PRECEDENT TO SUBLEASE OF AIRCRAFT BY LESSEE. Lessee's
obligation to sublease the Aircraft under the Sublease shall be subject to the
following having been complied with to the satisfaction of or waived by Lessee
on or before the Delivery Date, each document, instrument or opinion referred to
below to be reasonably satisfactory in form and substance to Lessee:


         2.2.1 AUTHORIZATION, EXECUTION AND DELIVERY OF DOCUMENTS. The Lessor
shall have duly authorized, executed and delivered the Operative Agreements, the
Escrow Agreement and the MSA, and all such agreements shall be in full force and
effect on the Delivery Date.


         2.2.2 OPINIONS OF COUNSEL. Lessee shall have received a favorable
opinion of counsel to Lessor as to the matters referred to in Sections 2.2.1,
4.2(a), 4.2(b) and the first clause of 4.2(c) hereof and the opinion of special
FAA counsel referred to in Section 2.3.6 below.


         2.2.3 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Lessor contained in Section 4.2 hereof shall be true and correct
on and as of the Delivery Date as though made on and as of the Delivery Date
(except to the extent that such representations and warranties relate solely to
an earlier date in which case such representation or warranties shall be true
and correct as of such earlier date).


         2.2.4 NO LOSS OR DESTRUCTION OF THE AIRCRAFT. Neither the Airframe nor
any Engine shall have suffered an Event of Loss or damage that affects the
operation, utility or performance of the Aircraft and cannot be repaired in
accordance with the maintenance manual or manufacturer's guidelines within 45
days.


         2.2.5 DELIVERY CONDITION OF AIRCRAFT. Lessor shall have complied with,
and satisfied, the covenants set forth in Section 2.4 hereof, Lessee shall have
completed its inspection and acceptance flight of the Aircraft as provided in
Section 2.4 and the Aircraft shall have met the requirements of the delivery
condition set forth in Section 2.4 or Lessor and Lessee shall have entered into
an agreement to address any failure to satisfy any of the foregoing.


         2.2.6 LIENS. Lessor shall have delivered a certificate from an officer
of Lessor stating that there is no Lessor Lien or, to Lessor's knowledge, Head
Lessor Lien on the Aircraft other than any Permitted Lessor/Head Lessor Liens.


         2.2.7 FILING. On such Delivery Date, the Sublease and the Sublease
Supplement for the Aircraft shall have been duly filed with the FAA pursuant to
the Act.


         2.2.8 ALL NECESSARY APPROVALS. All necessary approvals for the
transactions set forth in this Sublease have been obtained, including without
limitation, the final approvals of Head Lessor and Owner.


                                       6



         2.3. CONDITIONS TO SUBLEASE OF AIRCRAFT BY LESSOR. The obligation of
Lessor to sublease the Aircraft to Lessee on the Delivery Date is subject to the
following conditions having been complied with to the satisfaction of or waived
by Lessor on or before the Delivery Date (each document, instrument, certificate
or opinion referred to below to be reasonably satisfactory in form and substance
to Lessor):


         2.3.1 AUTHORIZATION, EXECUTION AND DELIVERY OF DOCUMENTS. The Operative
Agreements, the MSA and the Escrow Agreement shall have been duly authorized,
executed and delivered by Lessee and shall be in full force and effect on the
Delivery Date.


         2.3.2 REPRESENTATIONS AND WARRANTIES CORRECT; EVENT OF DEFAULT. After
giving effect to the sublease of the Aircraft pursuant to this Agreement, the
representations and warranties of Lessee contained in Section 4.1 hereof shall
be true and correct on and as of the Delivery Date as if such representations
had been made on and as of the Delivery Date, except to the extent that such
representations and warranties relate solely to an earlier date (in which case
such representations and warranties shall be correct on and as of such earlier
date), and (ii) no Event of Default shall have occurred and be continuing.


         2.3.3 INSURANCE CERTIFICATES. Lessor shall have received a broker's
report and insurance certificates signed by Lessee's regularly retained
independent aircraft insurance broker or brokers evidencing Lessee's due
compliance with the insurance provisions of the Sublease.


         2.3.4 FILING. On such Delivery Date, the Sublease and the Sublease
Supplement for the Aircraft shall have been duly filed with the FAA pursuant to
the Act.


         2.3.5 OPINION OF COUNSEL FOR LESSEE. Lessor shall have received a
favorable opinion from counsel to Lessee as to the matters referred to in
Sections 2.3.1, 4.1(a), 4.1(b) and 4.1(d).


         2.3.6 OPINION OF OKLAHOMA CITY COUNSEL. Lessor and Lessee shall have
received a favorable written opinion or opinions addressed to them from Lytle,
Soule & Curlee, special counsel in Oklahoma City, the cost of which shall be
borne equally by Lessor and Lessee.


         2.3.7 NO LOSS OR DESTRUCTION OF THE AIRCRAFT. Neither the Airframe nor
any Engine shall have suffered an Event of Loss or damage that affects the
utility, operation or performance of the Aircraft and cannot be repaired in
accordance with the maintenance manual or manufacturer's guidelines within 45
days.


         2.3.8 ADOPTION BY LESSEE OF CONTINENTAL'S MAINTENANCE PROGRAM. Lessee
shall have adopted Lessor's "Maintenance Program" with respect to the Airframe
(as such term is defined in the MSA), as contemplated by Article 3.G of the MSA.


         2.4.     AIRCRAFT DELIVERY CONDITION; INSPECTION.  Lessor covenants
that prior to the Delivery Date,

         (a) Lessee or its representatives will be entitled to complete a
standard ground and test flight inspection of the Aircraft including log books
and records and shall not be required to


                                       7


accept the Aircraft unless the condition of the Aircraft is reasonably
satisfactory;

         (b) the Aircraft will be equipped with a 28 first class and 254 coach
seating configuration and painted with Lessee's tail and fuselage logo against
Lessor's existing white and gray paint scheme, unless mutually agreed to
otherwise;

         (c) Lessor will provide one shipset of galley equipment and 26 LD3
containers and one additional shipset of galley equipment, which additional
shipset shall be delivered to Lessee in Los Angeles, separately from the
Aircraft;

         (d) the Aircraft shall

                  (1)      have a currently valid Standard Certificate of
                           Airworthiness issued by the FAA and be fully equipped
                           with three Engines or other engines meeting the
                           requirements of Replacement Engines;


                  (2)      be in good operating condition, ordinary wear and
                           tear excepted;

                  (3)      comply with all outstanding Federal Aviation
                           Regulations, Airworthiness Directives and mandatory
                           Service Bulletins affecting the Aircraft which by
                           their terms require compliance on or before the
                           Delivery Date;


                  (4)      Adhere strictly to the corrosion prevention and
                           treatment cards as prescribed in the Lessor's
                           maintenance program in respect of the Aircraft;

                  (5)      Not have any open, deferred or placarded log book
                           items generated by the flight crew unless agreed upon
                           by both parties;

                  (6)      Have all windows in a serviceable condition in
                           accordance with the Lessor's maintenance manual;

                  (7)      Have all doors free moving, correctly rigged and
                           fitted with serviceable seals, in accordance with the
                           Lessor's maintenance manual limits;


                  (8)      Have all leading edges serviceable and clean in
                           accordance with the Lessor's maintenance manual.  Any
                           repairs to leading edges shall be in accordance the
                           Lessor's maintenance manuals;

                  (9)      Have all control surfaces clean by airline standards
                           and free of delamination in accordance with the
                           Lessor's maintenance manual;

                  (10)     Have all unpainted cowlings and fairings clean by
                           airline standards and tightly fitted in accordance
                           with the Lessor's maintenance manual limits;


                                       8


                  (11)     Have both wings free of fuel leaks in accordance with
                           the Lessor's maintenance manual limits with any
                           repairs thereto being permanent repairs;


                  (12)     Have the ceilings, sidewalls and bulkhead panels
                           clean, free of major cracks and stains in accordance
                           with the Lessor's maintenance manual limits;


                  (13)     Have all carpets and seat covers in a good condition
                           (normal wear and tear excepted) clean and stain-free
                           by normal limits in good condition (normal wear and
                           tear excepted);


                  (14)     Have all seats and frames thereof serviceable in
                           accordance with the Lessor's maintenance manual
                           limits and be in good condition (normal wear and tear
                           excepted);


                  (15)     Have all signs and decals clean and legible by
                           Lessor's normal standards; and

                  (16)     Have all required emergency equipment in good working
                           order.

         (e) Lessor will request a letter, satisfactory to Lessee, from the Head
Lessor and Owner of the Airframe agreeing not to disturb Lessee's possession and
use of the Aircraft unless an Event of Default occurs hereunder.


For the avoidance of doubt, the standard ground inspection referred to in clause
(a) above shall not include borescoping the Engines or auxiliary power unit or
the opening of any access panels.


         2.5. RECONFIGURATION AND PAINTING COSTS. Any start-up costs associated
with the reconfiguration and painting of the Aircraft as shall be for the
account of Lessee and shall be paid, or deducted from the Security Deposit and
reconciled, within 30 days after receipt by Lessee of an invoice for such
start-up costs but in no event, more than 90 days from Delivery Date.


         2.6. REIMBURSEMENT OF COSTS. (a) If the transactions set forth in this
Sublease do not occur or the Aircraft is not otherwise delivered pursuant hereto
- - in either case due to the failure of Lessor to obtain the final approvals set
forth in Section 2.2.8, then (1) Lessor shall reimburse Lessee for the
reasonable actual costs and expenses associated with the documentation of such
transactions, including without limitation, attorneys' fees and the costs of
preparation and review of documents, (2) Lessee shall reimburse Lessor for the
start-up costs referred to in Section 2.5; (3) Lessor shall refund the Security
Deposit to Lessee, less deduction for any unpaid amounts under the preceding
clause (2) of this paragraph (a); (4) this Sublease shall terminate and (5)
neither party shall have any further obligation to the other party hereunder.

         (b) If the transactions set forth in this Sublease do not occur because
Lessee and Lessor disagree as to whether the Aircraft meets the delivery
conditions set forth in Section 2.4(a) and


                                       9


(b), each party acting reasonably, then (1) each party shall bear its own actual
costs and expenses associated with the documentation of such transactions,
including without limitation, attorneys' fees and the costs of preparation and
review of documents, (2) Lessee shall reimburse Lessor for the start-up costs
referenced in Section 2.5 and for any costs incurred or that will be incurred by
Lessor to reconfigure the Aircraft back to its previous configuration and
restore the previous colors, (3) Lessor shall refund the Security Deposit to
Lessee, less deduction for any unpaid amounts under the preceding clause (2) of
this paragraph (b); (4) this Sublease shall terminate and (5) neither party
shall have any further obligation to the other party hereunder.


         2.7 SECURITY DEPOSIT. Lessor acknowledges receipt from Lessee of an
initial security deposit in the amount set forth on Schedule 1 hereto opposite
the caption "Initial Security Deposit" in cash. Within two Business Days of the
signing of this Sublease, Lessee shall provide to Lessor an additional security
deposit in the amount set forth on Schedule 1 hereto opposite the caption
"Additional Security Deposit" in cash, which together with the initial security
deposit, shall be a security deposit for Lessee's obligations under Sections 2.5
and 2.6 of this Sublease Agreement. If the delivery of the Aircraft under the
Sublease Agreement shall not be consummated due to Lessee's failure to satisfy
the closing conditions contained in Sections 2.3.1 through 2.3.8 or due to
Lessee's failure to perform its obligations under Section 2.1, Lessor shall
return the Security Deposit, less deduction for any unpaid amounts under clause
(2) of Section 2.6(b). If the delivery of the Aircraft does not occur because of
the inability of Lessor to satisfy the closing conditions set forth in Sections
2.2.1 through 2.2.7, Lessor shall refund the entire Security Deposit (without
interest) to Lessee. Upon delivery of the Aircraft to, and acceptance by,
Lessee, Lessor shall return the Security Deposit to Lessee less the
reconfiguration costs. Said reconfiguration costs shall be fully documented by
Lessor and provided to Lessee.



         Section 3.  TERM AND RENT.

         Section 3.1. TERM. Unless otherwise earlier terminated pursuant to the
provisions hereof, the term of this Sublease with respect to the Aircraft shall
commence on the Delivery Date thereof and shall continue until May 18, 2002.


         Section 3.2. BASIC RENT AND MAINTENANCE RESERVES. (a) Lessee hereby
agrees to pay Basic Rent to Lessor in arrears throughout the Term in monthly
installments on each Rent Payment Date, with each such installment of Basic Rent
being in an amount equal to the amount designated as monthly Basic Rent on
Schedule 1 hereto.

                  (b) Notwithstanding the foregoing, if Lessee fails to return
the Aircraft to Lessor on or before the anticipated last day of the Term (i.e.,
May 18, 2002) in the condition required hereunder, Basic Rent shall accrue
thereafter until the Aircraft is so returned at a monthly amount equal to the
amount designated as monthly "Holdover Basic Rent" on Schedule 1 hereto;
PROVIDED, HOWEVER, that notwithstanding the foregoing, (1) Basic Rent shall
accrue at the regular monthly Basic Rent amount and not at the Holdover Basic
Rent amount for up to five days after May 18, 2002 for so long as (W) the
redelivery location designated by Lessor pursuant to Article 5 is not Houston,
Texas, Los Angeles, California or Honolulu, Hawaii, (X) Lessee is unable to
return the Aircraft as a result of conditions or events that are not within
Lessee's


                                       10


control or power to avoid or prevent, (Y) Lessee has ceased commercial operation
of the Aircraft and (Z) Lessee makes diligent efforts to return the Aircraft,
and (2) no Basic Rent shall accrue whatsoever if Lessee's failure to return the
Aircraft on the date set forth herein is a result of the failure of Lessor to
perform its obligations under the MSA. If the conditions or events mentioned in
clause (X) of the preceding sentence continue to prevent Lessee from returning
the Aircraft by May 24, 2002, beginning on that date and continuing until the
Aircraft is returned in the condition required hereunder, Basic Rent shall
accrue at the daily rate designated as "Holdover Basic Rent" on Schedule 1
hereto.


         (c) During the first 12 months of the Term, not later than the fifth
day of each calendar month, Lessee shall make payment in respect of the Heavy
Maintenance Reserves in an amount equal to the amount set forth on Schedule 1
hereto opposite the caption "Heavy Maintenance Reserve" for a total of twelve
such payments. Until the completion of the mid-D check on the Aircraft due in
June 2001, Lessee shall make the Heavy Maintenance Reserve payments to an
interest-bearing account controlled jointly by Lessor and Lessee and identified
in the Escrow Agreement. After the mid-D check on the Aircraft is completed, the
Lessee shall pay the remaining monthly Heavy Maintenance Reserve payments
directly to the Lessor on the fifth day of each calendar month, and upon receipt
by Lessor of such payments, such payments shall become property of Lessor, and
Lessor shall not be required to return any portion of such payments to Lessee.
Any fees, costs and expenses payable under the Escrow Agreement shall be
deducted from interest earned on the Heavy Maintenance Reserves, and the Lessor
shall retain all interest on the escrowed amount of Heavy Maintenance Reserves.


         If the total cost of the mid-D Check on the Aircraft exceeds the amount
identified as "mid-D Check Estimate" in Schedule 1, then Lessee shall pay to
Lessor, within 30 days of the completion of the mid-D Check, in immediately
available funds an amount equal to the lesser of (A) one-half of the amount by
which the actual cost of the mid-D Check exceeds the mid-D Check Estimate and
(B) ______.

         If the total cost of the mid-D Check on the Aircraft is less than the
amount identified as "mid-D Check Estimate" in Schedule 1, then Lessee shall
receive a credit equal to one-half of the amount by which the mid-D Check
Estimate exceeds the actual cost of the mid-D Check, such credit to be applied
to the remaining Heavy Maintenance Reserve payments in inverse order of the date
on which such payments are due.


         Following completion of the mid-D Check on the Aircraft, Lessor and
Lessee shall execute a joint instruction under the Escrow Agreement releasing
the escrowed Heavy Maintenance Reserves, together with all interest accrued
thereon, to Lessor or as Lessor directs so long as the MSA is in effect or, if
the MSA is not then in effect, to the facility performing the heavy maintenance
work (the "Maintenance Facility") and in either case in accordance with any
applicable requirements regarding time and manner of payment of the heavy
maintenance provider performing such work.


         (d) Not later than the fifth day of each calendar month after the
commencement of the Term, Lessee shall deliver to Lessor a report showing the
flight hours flown by the Aircraft for the preceding calendar month and shall
make payment to Lessor in an amount equal to the sum


                                       11


of (1) the product of (X) the number of flight hours flown by the Aircraft
during such month and (Y) the amount set forth on Schedule 1 hereto opposite the
caption "D Check Financial Adjustment" and (2) the product of (A) the number of
flight hours flown by the Aircraft during such month and (B) the amount set
forth on Schedule 1 hereto opposite the caption "Landing Gear Financial
Adjustment"; provided that the number of flight hours used in computing the
amount of the monthly payments (which are collectively referred to herein as
"Lease Adjustment Payments") shall not be less than ______ flight hours. Upon
payment to the Lessor, the Lease Adjustment Payments shall become property of
Lessor, and Lessor shall not be required to return any portion of the Lease
Adjustment Payments to Lessee.


         Section 3.3. SUPPLEMENTAL RENT. Lessee also agrees to pay to Lessor, or
to whomsoever shall be entitled thereto, any and all Supplemental Rent when and
as the same shall become due and owing. Lessee will also pay to Lessor, or to
whomsoever shall be entitled thereto as Supplemental Rent, to the extent
permitted by applicable law, interest at the Overdue Rate on any part of any
installment of Basic Rent or Supplemental Rent not paid when due for any period
from and including the date on which the same was due to but excluding the date
of payment in full.


         Section 3.4. PAYMENTS. Payments of Basic Rent and any and all other
payments payable to Lessor hereunder shall be paid in funds of the United States
of America which shall be immediately available not later than 1:00 p.m., New
York City time, on the date due by wire transfer to the account of Lessor, at
The Chase Manhattan Bank, ABA Number 021 0000 21, Account Number ______, Ref:
Sublease 084, or to such other financial institution located in the continental
United States as directed by Lessor in writing to Lessee at least three Business
Days prior to the due date of such payment. Whenever any payment of Rent or
other payment to be made hereunder shall be due on a day which is not a Business
Day, such payment shall be made on the next succeeding day which is a Business
Day and (provided such payment is made on such next succeeding Business Day) no
interest shall accrue with respect to such amount from such scheduled payment
date to such next Business Day, provided that if such next succeeding Business
Day is more than two calendar days after the date on which such payment is due,
such payment shall be made on the preceding Business Day.


         Section 4.  REPRESENTATIONS, WARRANTIES AND COVENANTS; DISCLAIMERS.

         4.1  OF LESSEE. Lessee hereby makes the following representations,
warranties and covenants to Lessor:

                  (a) ORGANIZATION, ETC. Lessee is a corporation duly organized
and validly existing in good standing under the laws of the State of Hawaii and
has the corporate power and authority to perform its obligations under the
Operative Agreements to which it is a party.


                  (b) AUTHORIZATION, ETC. The Operative Agreements to which it
is a party have been duly authorized by all necessary corporate action on the
part of Lessee, do not require any approval of the stockholders of Lessee (or if
such approval is required, such approval has been obtained), and neither the
execution and delivery hereof nor the consummation of the transactions
contemplated hereby nor compliance by Lessee with any of the terms and
provisions


                                       12


hereof will contravene its Certificate of Incorporation or By-Laws or any law or
governmental rule or regulation (as in effect on the date this representation is
made) applicable to Lessee or result in any breach of, or constitute any default
under, or result in the creation of any Lien (other than Permitted Liens) upon
any property of Lessee under any material indenture, mortgage or other agreement
to which Lessee is a party or by which Lessee or its properties or assets may be
bound.

                  (c) CONSENTS. Lessee has received or has complied with every
necessary consent, approval, order, or authorization of, or registration with,
or the giving of prior notice to, any federal or state governmental authority
having jurisdiction over Lessee required to be received or complied with on or
prior to the Delivery Date to the extent required for the Lessee to execute and
deliver the Operative Agreements to which it is a party currently in effect and
to perform any of the transactions contemplated hereby and thereby.

                  (d) ENFORCEABILITY, ETC. The Operative Agreements to which it
is a party have been (or, upon execution thereof by Lessee, will be) duly
executed and delivered by Lessee, and the Operative Agreements to which it is a
party will, upon execution and delivery by the other party or parties thereto,
constitute (or, upon execution thereof by Lessee, shall constitute) legal,
valid, and binding obligations of Lessee, enforceable in accordance with their
respective terms except as enforcement thereof may be limited by bankruptcy,
insolvency, moratorium, reorganization or other similar laws and general
principles of equity.

                  (e) NO LIENS.  On the Delivery Date, the Aircraft shall be
free and clear of all Liens (other than Permitted Liens) attributable to Lessee.

                  (f) NO DEFAULTS.  No Event of Default or event that, with the
giving of notice or lapse of time or both, would become such Event of Default
has occurred and is continuing.

         4.2.     OF LESSOR.  Lessor hereby makes the following representations,
warranties and covenants to Lessee:

                  (a) ORGANIZATION, ETC. Lessor is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to enter into and perform
its obligations under the Operative Agreements.


                  (b) AUTHORIZATION, ETC. The Operative Agreements have been
duly authorized, executed and delivered by Lessor, do not require any approval
of its stockholders or consent of any trustee or holder of any of its
indebtedness or other obligations for borrowed money or any instrument or
agreement with respect thereto and assuming the due authorization, execution,
and delivery by the other parties thereto constitute legal, valid and binding
obligations of Lessor enforceable against it in accordance with their respective
terms except as enforcement thereof may be limited by bankruptcy, insolvency,
moratorium, reorganization or other similar laws and general principles of
equity.


                  (c) NO VIOLATION. Neither the execution, delivery or
performance by Lessor of the Operative Agreements nor the consummation of any of
the transactions by Lessor



                                       13


contemplated thereby contravenes any law, regulation, order or judgment
applicable to or binding on Lessor, or any provision of the charter or by-laws
(each as amended to date) of Lessor or will result in the creation of a Lien on
any part of the Aircraft under, or will result in a breach of, or constitute a
default under, or contravene any provisions of, any contract, agreement or
instrument to which Lessor is a party or by which it or its properties are
bound, except for the Liens of the Operative Agreements.


                  (d) NO CONSENTS OR APPROVALS. Neither the execution, delivery
or performance by Lessor of the Operative Agreements nor the consummation by
Lessor of any of the transactions contemplated thereby requires the consent or
approval of, the giving of notice to, the registration with, the recording or
filing of any documents with, or the taking of any other action in respect of,
any Federal, state or local governmental commission, authority, agency or body
except for the filings and recordings of this Sublease and the Sublease
Supplement with the FAA and filings, if any, made pursuant to any routine
recording or regulatory requirements applicable to Lessor.


                  (e) U.S. CITIZENSHIP. As of the date hereof to Lessor's
knowledge, each of the Owner and Head Lessor of the Airframe is a "citizen of
the United States," as defined in Section 40102(a)(15) of the Act. If either the
Owner or Head Lessor of the Airframe is not now or ceases to be a "citizen of
the United States" within the meaning of the foregoing definition, LESSOR agrees
to take appropriate measures under the Head Lease with respect to the Airframe
to prevent deregistration of the Airframe under the Act or limitation on use or
operation of the Aircraft.


                  (f) LESSOR'S LIENS. There is no Lien on the Aircraft
attributable to Lessor or to Lessor's knowledge, Head Lessor or Owner except for
(i) Liens of the type identified in clauses (a), (b), (f), (g) and (h) of
Section 6 hereof, (ii) a Facility Lien with respect to the Airframe in favor of
Summit Bank and (iii) with respect to Engines only, Liens in favor of a Head
Lessor, Owner or Lender so long as such Person does not interfere with Lessee's
possession and use of such Engine (collectively, "Permitted Lessor / Head Lessor
Liens"). Lessor shall, at its own cost and expense, promptly take such action as
may be necessary to discharge duly any Head Lessor Lien or Lessor Lien on the
Airframe or any part thereof other than a Permitted Lessor / Head Lessor Lien.
In addition, if any Head Lessor, Owner or Lender holding a Lien on an Engine
shall interfere with Lessee's use and possession of such Engine, Lessor shall
(a) provide Lessee with a replacement engine for use on the Airframe, (b) induce
such Head Lessor, Owner or Lender to enter into an engine exchange or (c) take
other appropriate steps to cure such interference. Lessor will indemnify and
hold harmless the Lessee from and against any loss, cost or expense (including
legal fees and expenses incurred by Lessee) as a result of the imposition or
enforcement against the Aircraft, or any part thereof, of any Lessor Lien or
Head Lessor Lien.

                  (g)      NO TRANSFER.  Lessor shall not transfer any interest
in the Aircraft or the Sublease except in compliance with Section 15.4.

                  (h) DISCLAIMERS. SUBJECT TO SATISFACTION OR WAIVER OF THE
CONDITIONS SET FORTH IN SECTION 2 HEREOF, LESSOR SUBLEASES AND LESSEE


                                       14


EXPRESSLY AGREES TO TAKE THE AIRCRAFT "AS IS" AND LESSOR DOES NOT MAKE, HAS NOT
MADE AND SHALL NOT BE DEEMED TO HAVE MADE, AND EACH HEREBY EXPRESSLY DISCLAIMS,
ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE,
AIRWORTHINESS, VALUE, CONDITION, COMPLIANCE WITH SPECIFICATIONS, DESIGN,
QUALITY, DURABILITY, OPERATION, MERCHANTABILITY OR FITNESS FOR USE OF THE
AIRCRAFT, OR ANY PART THEREOF, AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS,
WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF ANY INFRINGEMENT OF ANY
PATENT, TRADEMARK 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, OR ANY PART THEREOF, IT BEING
UNDERSTOOD THAT LESSOR SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY WITH
RESPECT TO ANY OF THE FOREGOING MATTERS AND THAT ALL RISKS OF ANY NATURE
INCIDENT THERETO ARE TO BE BORNE BY LESSEE.


         Lessor agrees to and does hereby authorize Lessee to exercise for the
account of Lessor such rights as Lessor may have under any warranty, express or
implied, with respect to the Aircraft condition required to be maintained by the
Lessee hereunder during the Term made by the manufacturer of the Airframe,
Engines or any Part thereof, any subcontractor or supplier thereof, or any other
seller thereof, and Lessor agrees to exert its diligent efforts, at Lessee's
expense, to enforce such rights as Lessor may have with respect thereto for the
benefit of Lessee; provided, however, that upon an Event of Default and
termination of this Sublease or upon the expiration of the Term in accordance
with the terms hereof all such rights shall immediately revert to Lessor.
Notwithstanding the foregoing, Lessor shall not be deemed to have assigned to
Lessee any such warranty unless the proceeds thereof are allocable to an
obligation that Lessee is required to perform hereunder.


         4.3 SUBORDINATION OF SUBLEASE TO HEAD LEASE. LESSEE ACKNOWLEDGES THAT
THIS SUBLEASE IS SUBJECT AND SUBORDINATE TO ALL THE TERMS OF THE RESPECTIVE HEAD
LEASES AND FACILITY LIENS COVERING THE AIRFRAME AND ENGINES, INCLUDING WITHOUT
LIMITATION THE RIGHTS OF THE HEAD LESSOR OF THE AIRFRAME TO REPOSSESSION
PURSUANT TO ARTICLE 14 OF THE HEAD LEASE AND SIMILAR REMEDIES IN FAVOR OF THE
HEAD LESSORS AND OWNERS OF THE ENGINES. WITHOUT LIMITING THE FOREGOING, THE HEAD
LESSORS AND OWNERS OF THE AIRFRAME AND THE ENGINES MAY AVOID OR TERMINATE THIS
SUBLEASE FOLLOWING AN EVENT OF DEFAULT UNDER THE HEAD LEASES AND FACILITY LIENS
COVERING SUCH EQUIPMENT. IF THE HEAD LESSOR OF THE AIRFRAME DECLARES THE HEAD
LEASE TO BE IN DEFAULT, THE LESSOR'S RIGHTS UNDER THIS SUBLEASE SHALL
AUTOMATICALLY BE DEEMED ASSIGNED AS SECURITY TO SUCH HEAD LESSOR.


         If as a result of an event of default under, or termination of, any
Head Lease or Facility Lien covering the Airframe or Engines, the rights of
Lessee under this Sublease are terminated, and no Event of Default by Lessee
under this Sublease has occurred and is continuing, then such event of default
under, or termination of, such Head Lease or Facility Lien shall be a breach by

                                       15


Lessor under this Sublease that will entitle Lessee to all rights and remedies
in respect of such default under all applicable laws. In addition, Lessor agrees
to indemnify Lessee from and against any and all losses, costs and liabilities
incurred by Lessee resulting therefrom.


         Section 5. RETURN OF AIRCRAFT. Upon the expiration or termination of
this Sublease, Lessee will return the Aircraft to Lessor at Lessee's sole cost
and expense by delivering the same to Houston, Texas, or to any other location
approved by mutual agreement. At the time of such return, the Aircraft shall
meet the conditions set forth on Schedule 2 hereto and at such time if the
conditions set forth on Schedule 2 are satisfied, the parties shall execute such
documentation as each shall reasonably request evidencing the satisfaction of
such conditions and the termination of this Sublease (except for those
obligations herein expressly stated to survive the termination hereof).


         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, the Airframe or
any Engine, title thereto or any interest therein except: (a) the respective
rights of the parties to the Operative Agreements; (b) the rights of others
under agreements or arrangements to the extent expressly permitted by the terms
of the Operative Agreements; (c) Lessor Liens; (d) Head Lessor Liens; (e)
Facility Liens; (f) liens for taxes, assessments or other governmental charges
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 loss of the Aircraft, the Airframe or any Engine; (g)
materialmen's, mechanics', workers', repairers', employees' or other like Liens
for amounts the payment of which is either not yet delinquent for more than 60
days or is 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 Aircraft, the Airframe or any Engine; (h) Liens arising out of any
judgment or award unless the judgment secured shall not, within 60 days after
entry thereof, have been discharged or vacated or execution thereof stayed
pending appeal or shall not have been discharged, vacated or reversed within 60
days after the execution of such stay and provided such Lien presents no
material risk of the forfeiture or loss of the Aircraft, Airframe or any Engine
or of Lessor's interest therein, and (i) any other Lien with respect to which
Lessee shall have provided security in form and amount adequate in the
reasonable judgment of Lessor. Lessee will promptly take (or cause to be taken)
such action at its own expense as may be necessary duly to discharge any such
Lien not excepted above if the same shall arise at any time. If Lessee fails to
take such action, Lessee hereby authorizes Lessor to take such action at
Lessee's expense, and Lessee agrees to pay Lessor Supplemental Rent within 10
Business Days after written demand therefor by Lessor as reimbursement of any
amounts paid by Lessor to discharge any such non-excepted Lien, together with
any expenses associated with such discharge. In any event, all Liens referred to
in clauses (f), (g), (h) and (i) above shall be removed prior to return of the
Aircraft at the end of the Term.


         Section 7.   TITLE, REGISTRATION, OPERATION, POSSESSION AND RECORDS.

                                       16


                  7.1  TITLE, REGISTRATION AND OPERATION.

                           (a)  TITLE, REGISTRATION. Lessee acknowledges that
title to the Airframe and each Engine shall remain vested in the relevant Head
Lessor or Owner during the Term. At its own expense, Lessee shall maintain the
registration of the Airframe with the FAA to reflect the interest of Head Lessor
as owner of the Airframe. Lessee shall reasonably cooperate with each Head
Lessor to the extent Lessee's cooperation is required, in connection with
causing any documents evidencing any Lender's interest in the Aircraft pursuant
to any Facility Lien to be filed with the FAA. Lessee agrees to take no action
which would result in the Airframe failing to remain duly registered in the name
of Head Lessor of the Airframe with the FAA under the Act (it being understood
that Lessee shall not be required to comply with this covenant to the extent
that Head Lessor or Owner of the Airframe fails to comply with its covenants to
maintain its citizenship pursuant to the Participation Agreement dated as of
February 3, 1997 between Lessor and the Head Lessor and the Owner of the
Airframe or takes any other action which precludes or prevents such registration
from being maintained and makes such compliance by Lessee impossible).


                           (b)  NAMEPLATE.  If permitted under applicable law or
governmental regulation and to the extent provided by Lessor, Lessee agrees to
maintain in the cockpit of the Airframe and on each Engine the nameplates or
stencils currently installed on the Airframe and Engines and any substitute
nameplate or other markings that may be provided by Lessor or reasonably
requested by Lessor to be obtained by Lessee (such nameplates or other markings
to be replaced, if necessary, with a nameplate or other markings reflecting the
name of any successor Head Lessor, Owner or Lender or the addition of the name
of a Lender within a reasonable period of time after notice by Lessor).


                           (c)  COMPLIANCE WITH LAWS.  Lessee agrees that it
will not maintain, repair, test, use or operate the Aircraft, the Airframe or
any Engine or allow the Aircraft, the Airframe or any Engine to be used or
operated in violation of any law or any rule, regulation or order of any
government or governmental authority having jurisdiction (domestic or foreign)
over the operation of the Aircraft or of any airworthiness certificate, license
or registration relating to the Aircraft, the Airframe or any Engine issued by
any such authority or in violation of or in conflict with any applicable
maintenance or operations manual or manufacturer's guidelines or inconsistent
with prudent commercial airline standards, except for minor and nonrecurring
violations with respect to which corrective measures are taken upon discovery
thereof and except to the extent Lessee or a representative thereof is
contesting the validity or application of any such law, rule, regulation, order,
certificate, license or registration in good faith in any reasonable manner
which does not create a material risk of loss or forfeiture of the Aircraft, the
Airframe or any Engine.


                           (d)  INSURANCE REQUIREMENTS; GOVERNMENT REQUISITION;
INDEMNITY; USE. Lessee agrees not to operate, use or locate the Aircraft, the
Airframe or any Engine, or permit the Aircraft, the Airframe or any Engine to be
operated, used or located (i) in any area excluded from coverage by the
insurance required by the terms of Section 11, except in the case of a
requisition by the Government where Lessee obtains indemnity in lieu of such
insurance from the Government against the risks and in the amounts required by
Section 11 covering such area,



                                       17


or (ii) in any recognized or, in Lessee's reasonable judgment, threatened area
of hostilities unless fully covered by insurance satisfying the terms of Section
11, or unless the Aircraft, the Airframe or such Engine is operated or used
under contract with the Government under which contract the Government assumes
liability in an amount not less than the amount of insurance and providing
coverage as full and complete as otherwise required by Section 11 for any
damage, loss, destruction or failure to return possession of the Aircraft, the
Airframe or such Engine at the end of the term of such contract or for injury to
persons or damage to property of others.


                  7.2. (a) POSSESSION. Except as expressly provided herein,
Lessee will not sell, sub-sublease or otherwise deliver, transfer or relinquish
possession of the Aircraft, the Airframe or any Engine or install any Engine, or
permit any Engine to be installed, on any airframe other than the Airframe;
provided, however, that, so long as no Event of Default has occurred and is
continuing, Lessee may, without such consent, deliver possession of the
Aircraft, Airframe or any Engine, or Part thereof, (i) to any Person for the
purpose of shipping or (ii) to the manufacturer thereof or to any other
organization for testing, service, repair, maintenance or overhaul work or
similar purposes or for alterations or modifications in or additions to the
Aircraft, Airframe or any Engine as required or permitted by this Agreement.


         (b) LIMITATIONS ON TRANSFERS OF POSSESSION IMPOSED BY THE HEAD LEASES.
Lessee acknowledges that the Head Leases specifically prohibit any sublessee of
the Aircraft (including the Lessee) from sub-subleasing the Aircraft.


         Without limiting the foregoing, Lessee agrees that it will not do any
of the following without the prior written consent of Lessor and the relevant
Head Lessor:

         (1)  UNITED STATES GOVERNMENT. Transfer possession of the Aircraft,
Airframe or any Engine to the Government pursuant to a contract or to the Civil
Reserve Air Fleet Program or any similar or substitute programs;

         (2)  INSTALLATION OF ENGINES.  Install an Engine on an airframe owned
by Lessee; or

         (3) INSTALLATION OF ENGINES ON OTHER AIRFRAMES. Install an Engine on an
airframe leased to, or purchased by, Lessee subject to a lease, conditional
sale, trust indenture or other security agreement.


                  7.3. RECORDS AND REPORTS. To the extent required under the
MSA, Lessee shall maintain all records, logs and other materials required by the
FAA and any other governmental authority having jurisdiction over the operation
of the Aircraft to be maintained in respect of the Aircraft, the Airframe and
each Engine. From time to time upon Lessor's reasonable request, Lessee shall
provide such information concerning the current location of the Aircraft and
Engines and the status of Lessee's operation, use and maintenance of the
Aircraft and Engines as Lessee routinely records, such information to be
provided on the form that Lessee customarily uses to report such information.


                  7.4 RECOGNITION OF RIGHTS. Lessor hereby agrees (and covenants
to require any Lender to agree) for the benefit of each lessor, conditional
seller, indenture trustee or secured


                                       18


party of any engine leased to or purchased by Lessee subject to a lease,
conditional sale, trust indenture or other security agreement that neither
Lessor nor any Lender will acquire or claim, as against such lessor, conditional
seller, indenture trustee or secured party, any right, title or interest in any
engine as the result of such engine being installed on the Airframe at any time
while such engine is subject to such lease, conditional sale, trust indenture or
other security agreement and owned by such lessor or conditional seller or
subject to a trust indenture or security interest in favor of such indenture
trustee or secured party.


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

                  8.1 MAINTENANCE. Except as provided in Section 8.4, Lessee
shall at its sole cost and expense enter into the MSA or an amendment to the MSA
with respect to the Aircraft. If for whatever reason Lessee terminates the MSA
with respect to the Aircraft, from and after the date of such termination, at
its own cost and expense, Lessee shall

         (a) maintain, service, overhaul, repair, alter, modify and test the
Aircraft, the Airframe and each Engine, or cause the Aircraft, the Airframe and
each Engine to be maintained, serviced, overhauled, repaired, altered, modified
and tested in accordance with any manufacturer's operating manual, instructions
or service bulletins and in accordance with Lessee's standard practices from
similar equipment (including without limitation an FAA-approved maintenance
program for the Aircraft, Airframe and Engines), which practices at all times
shall be at or above the standard of the industry for maintenance of similar
equipment; and in the case of Aircraft, without prejudice to Lessee's right to
receive contribution to the cost of compliance in accordance with Section 8.4
hereof, so as to keep the Aircraft, the Airframe and each Engine and each part
thereof in as good operating condition as originally delivered hereunder,
ordinary wear and tear excepted, and so as to keep the Aircraft in such
operating condition as may be necessary to enable the airworthiness certificate
of the Aircraft to be maintained under the applicable laws, rules, regulations
of each government or governmental authority having jurisdiction over the
maintenance of the Aircraft;

         (b) maintain all records, logs and other materials required by the FAA
to be maintained in respect of each item of Equipment;

         (c) promptly furnish to Lessor such information as may be required to
enable the Head Lessors and Owners to file any reports required to be filed by
it with any governmental authority because of Head Lessors' or Owners' ownership
of the Equipment;

         (d) not discriminate against the Aircraft (as compared to other
aircraft of the same type owned or operated by Lessee) in contemplation of the
expiration or termination of the Sublease with respect to the maintenance of the
Aircraft, other than withdrawal of the Aircraft from use and operation as is
necessary to prepare the Aircraft for return to Lessor upon such expiration or
termination; and

         (e) Lessee agrees not to operate, use or locate the Aircraft, the
Airframe or any Engine, or permit the Aircraft, the Airframe or any Engine to be
operated, used or located (i) in any area


                                       19


excluded from coverage by the insurance required by the terms of Section 8, or
(ii) in any war zone or in any recognized or, in Lessee's reasonable judgment,
threatened area of hostilities unless fully covered by war risk insurance
satisfying the terms of Section 11, or unless the Aircraft, the Airframe or such
Engine is operated or used under contract with the Government under which
contract the Government assumes liability in an amount not less than the amount
of insurance and providing coverage as full and complete as otherwise required
by Section 11 for any damage, loss, destruction or failure to return possession
of the Aircraft, the Airframe or such Engine at the end of the term of such
contract or for injury to persons or damage to property of others.


                  8.2 REPLACEMENT OF PARTS. Except as otherwise provided herein
and if for whatever reason Lessee terminates the MSA with respect to the
Aircraft, from and after the date of such termination, Lessee, at its own cost
and expense, will promptly replace (or cause to be replaced) all Parts which may
from time to time be incorporated in the Aircraft, Airframe or any Engine and
which may from time to time become worn out, time-expired, lost, stolen,
destroyed, seized, confiscated, damaged beyond economic repair or permanently
rendered unfit for use for any reason whatsoever. In addition, Lessee may, at
its own cost and expense, remove (or cause to be removed under the MSA) in the
ordinary course of maintenance, service, repair, overhaul or testing any Parts,
whether or not worn out, time-expired, lost, stolen, destroyed, seized,
confiscated, damaged beyond economic repair or permanently rendered unfit for
use; provided, however, that Lessee, except as otherwise provided herein, at its
own cost and expense, will replace (or cause to be replaced) such Parts as
promptly as practicable with equivalent Parts of the same make, model and part
number or an improved make, model or part number and made by the same
manufacturer and in accordance with Lessor's maintenance policies and
procedures. All replacement Parts shall be free and clear of all Liens (except
for pooling arrangements permitted by Section 8.3 hereof) and shall be in good
operating condition and have a value and utility not less than the value and
utility of the Parts replaced (assuming such replaced Parts were in the
condition required hereunder) and be of the same manufacturer and make and have
the same or an improved part number or serial number of the replaced Part.
Except as otherwise provided in Section 8.4 hereof, all Parts at any time
removed from the Aircraft, Airframe or any Engine shall remain the property of
the relevant Head Lessor or Owner of the Airframe or such Engine, no matter
where located, until such time as such Parts shall be replaced by Parts which
have been incorporated in the Aircraft, Airframe or such Engine and which meet
the requirements for replacement Parts specified above. Immediately upon any
replacement Part becoming incorporated in the Aircraft, Airframe or such Engine
as above provided, without further act, (i) title to the replaced Part shall
thereupon vest in Lessee free and clear of all Lessor Liens and Head Lessor
Liens and all rights of Lessor, Head Lessors or Owners, and the replaced Part
shall no longer be deemed a Part hereunder, (ii) title to such replacement Part
shall thereupon vest in the Head Lessor of the Airframe (in the case of
replacement Parts incorporated in the Airframe or the Head Lessor or Owner of
the relevant Engine (in the case replacement Parts incorporated in such Engine)
(subject only to Permitted Liens), and (iii) such replacement Part shall become
subject to this Sublease and be deemed part of the Aircraft, Airframe or such
Engine for all purposes hereof to the same extent as the Parts originally
incorporated in such Aircraft, Airframe or Engine.

                                       20



                  8.3 POOLING OF PARTS. If for whatever reason Lessee terminates
the MSA with respect to the Aircraft, from and after the date of such
termination, any Part removed from the Aircraft, Airframe or any Engine may be
subjected by Lessee to a normal pooling arrangement customary in the airline
industry and entered into in the ordinary course of business of Lessee, so long
as a Part replacing such removed Part shall be incorporated in the Aircraft,
Airframe or such Engine in accordance with Section 8.2 as promptly as
practicable after the removal of such removed Part. In addition, any replacement
Part when incorporated in the Aircraft, Airframe or any Engine may be owned by
any air carrier subject to such a normal pooling arrangement, so long as Lessee
as promptly thereafter as practicable and at its sole cost and expense either
(i) causes title to such replacement Part to vest in the relevant Head Lessor or
Owner in accordance with Section 8.2, free and clear of all Liens (except
Permitted Liens), or (ii) replaces (or causes to be replaced) such replacement
Part by incorporating in the Aircraft, Airframe or such Engine a further
replacement Part owned by Lessee free and clear of all Liens (except Permitted
Liens) and by causing title to such further replacement Part to vest in the
relevant Head Lessor or Owner in accordance with Section 8.2.


                  8.4 ALTERATIONS, MODIFICATIONS AND ADDITIONS. Lessee shall
make (or cause to be made under the MSA or otherwise) such alterations and
modifications in and additions to the Aircraft, Airframe and each Engine as may
be required from time to time to meet the standards of the FAA, to the extent
made mandatory in respect of the Aircraft (a "Mandatory Modification"). If
Lessee's actual, direct cost of such Mandatory Modification (that is, without
markup and after subtracting from the amount of such cost the amount of any
related contribution payments received by Lessee from any third party by way of
any warranty claim or similar claim) exceeds an amount equal to ______ for any
single event and ______ for multiple such events, provided Lessee shall have
paid all amounts of Rent due hereunder, the Lessor shall pay to the Lessee an
amount in cash calculated as follows:


   Amount to be Paid by Lessor =  (Cost of Modification Minus  ______)  x  A / B

   Where

   A        =        84 minus the number of months remaining in the Term

   And

   B        =        84.

or, if Lessor elects to do so, credited toward any amounts owed by Lessee under
Section 2 of this Sublease upon return of the Aircraft at the expiration or
earlier termination of this Sublease in accordance with its terms.


         In addition, Lessee, at its own cost and expense, may from time to time
request that Lessor make under the MSA such alterations and modifications in and
additions to the Aircraft, Airframe or any Engine as Lessee may deem desirable
in the proper conduct of its business; provided, however, that (1) no such
alteration, modification or addition shall diminish the value or utility of the
Aircraft, Airframe or such Engine below the value, utility and airworthiness

                                       21


thereof immediately prior to such alteration, modification or addition, assuming
such item of Equipment was then in the condition and airworthiness required to
be maintained by the terms of this Sublease; and (2) such alteration,
modification or addition is done on a non-discriminatory basis. Except as
otherwise provided herein, title to all Parts (other than Removable Parts (as
defined below)) incorporated in the Aircraft, Airframe or such Engine as the
result of such alteration, modification or addition shall, without further act,
vest in the relevant Head Lessor or Owner and become subject to this Sublease.
Notwithstanding the foregoing sentence of this Section 8.4, so long as no Event
of Default shall have occurred and be continuing, Lessee may, at any time during
the Term, request that Lessor under the MSA remove any Part (such Part being
referred to herein as a "Removable Part") if (i) such Part is in addition to,
and not in replacement of or substitution for, any Part originally incorporated
in the Aircraft, Airframe or such Engine at the time of delivery thereof to
Lessor, (ii) such Part is not required, in Lessor's determination, to be
incorporated or installed in or attached or added to such item of Equipment
pursuant to the terms of Section 7.1(c) or 8.1 hereof or the first sentence of
this Section 8.4 and (iii) such Part can be removed from the Aircraft, Airframe
or such Engine without diminishing or impairing, in Lessor's determination, the
value or utility which the Aircraft, Airframe or such Engine would have had at
such time had such alteration, modification or addition not occurred. Removable
Parts may be leased from third parties other than Lessor. Upon the removal by
Lessee (or by Lessor under the MSA) of any Part as above provided, title thereto
shall, without further act, vest in Lessee and such Part shall no longer be
deemed part of the Aircraft, Airframe or such Engine from which it was removed.
Any Part not removed as above provided prior to the return of the Aircraft,
Airframe or such Engine to Lessor hereunder shall remain the property of the
relevant Head Lessor or Owner; provided that Lessor may require Lessee, in
connection with the return of the Aircraft pursuant to Section 5, to remove any
Removable Part from the Aircraft and to restore the Aircraft to its condition
prior to the addition of such Removable Part. Lessor shall not bear any
liability for any alteration, modification or addition or for any grounding or
suspension of certification of any item of Equipment or for loss of revenue.


         Section 9. INDEMNITY.

         Section 9.1 [RESERVED]

         Section 9.2 GENERAL INDEMNITY. (a) Lessee hereby agrees to assume
liability for and to indemnify, protect, save and keep harmless the Lessor and
each Head Lessor, Owner and Lender (if any) and their respective successors,
permitted assigns, affiliates, directors, officers, employees, agents and
servants (in this Section 9.2 and in Section 9.3 hereof, collectively, the
"Indemnitees") from and against any and all liabilities (including liability in
tort, absolute or otherwise), obligations, losses, damages, penalties, claims,
actions, suits, costs, expenses and disbursements of whatsoever kind and nature
(including reasonable legal fees and expenses) (any and all "Claims"), imposed
on, incurred by or asserted against any Indemnitee (whether or not also
indemnified against by any other Person under any other document) in any way
relating to or arising out of (i) this Sublease or (ii) the delivery, sublease,
possession, use, operation, condition, return or other disposition of any item
of Equipment, to the extent incurred or arising out of events occurring at any
time after delivery of the Aircraft to Lessee hereunder and prior to return of
the Aircraft to Lessor hereunder in full compliance by the Lessee with all of
the terms of this Sublease with respect thereto (including latent and other
defects, whether or not


                                       22


discoverable by any Indemnitee or the Lessee, and any claim for patent,
trademark or copyright infringement); provided, however, that the Lessee shall
not be required (A) to indemnify Lessor in respect of any amounts which Lessor
has specifically agreed to pay hereunder, (B) to indemnify any Head Lessor or
Owner or any of its Affiliates against loss, liability or expense incurred by
any such Affiliate as a result of any claim against any such Affiliate in its
capacity as manufacturer of the Engines and components thereof including claims
for patent, trademark or copyright infringement, (C) to pay any cost, expense or
disbursement (including legal fees and expenses) in connection with the entering
into or withholding any future amendments, supplements, waivers or consents with
respect to this Sublease or under any Head Lease other than such as have been
requested by Lessee, (D) to indemnify any Indemnitee for loss, liability or
expense resulting from the willful misconduct or gross negligence of such
Indemnitee or its successors, assigns, affiliates, agents or servants or, in the
case of any Owner, any owner trustee acting for such Owner or, in the case of
any such owner trustee, the relevant Owner, (E) to indemnify any Indemnitee for
any loss, liability or expense which any of them may incur as the result of any
failure or refusal of any of them to perform or observe any agreement, covenant
or condition contained in any Operative Document, or (G) to indemnify any
Indemnitee for any loss, liability or expense which any of them may incur as the
result of any Head Lessor Lien or Lessor Lien; provided further that Lessee does
not under this Section 9.2 assume liability for, or indemnify, protect, save and
keep harmless, any Indemnitee from or against or in respect of any liabilities,
obligations, losses, damages, penalties, claims, actions or suits in any way
relating to or arising out of any Taxes, as defined in Section 9.3.


         Upon payment in full of any indemnities contained in this Section 9.2
by the Lessee, it shall be subrogated to any rights of the Indemnitee in respect
of the matter against which indemnity has been given, but any amount recovered
by the Lessee as a result of such subrogation shall, unless all amounts then due
to such Indemnitee from the Lessee have been paid, be held in trust by the
Lessee for and shall, to the extent of any such amount then due, be paid
promptly after demand to, such Indemnitee. If any Indemnitee shall have
knowledge of any claim or liability hereby indemnified against, it shall give
prompt written notice hereof to the Lessee and each other interested party, but
the failure to do so shall not relieve Lessee from any liability which it may
have to such Indemnitee or any other Indemnitee except to the extent that the
Lessee shall demonstrate that such liability was materially increased as a
result of such failure.


         If the Lessee is required to make payment under this Section 9.2, the
Lessee shall pay the Indemnitee any amount which, after deduction of all taxes
required to be paid by such Indemnitee in respect of the receipt thereof under
the laws of the United States or of any foreign country or any political
subdivision of either (after giving credit for any savings in respect of any
taxes by reason of deductions, credits or allowances in respect of the payment
of the expense indemnified against) shall be equal to the amount of such
payment.

         (b) CONTEST. With respect to any Claim imposed on, incurred by, or
asserted against one or more Continental Indemnitees but not imposed on,
incurred by or asserted against any other Indemnitees, Lessee shall be entitled,
at its sole cost and expense, acting through counsel reasonably acceptable to
the respective Continental Indemnitee, (i) in any judicial or administrative
proceeding that involves solely one or more such Claims, to assume
responsibility


                                       23


for and control thereof, (ii) in any judicial or administrative proceeding
involving one or more such Claims and other claims related or unrelated to the
transactions contemplated by this Sublease, to assume responsibility for and
control of such Claims to the extent that the same may be and is severed from
such other claims (and such Continental Indemnitee shall use its best efforts to
obtain such severance), and (iii) in any other case involving such Claim, to be
consulted by such Continental Indemnitee with respect to judicial proceedings
subject to the control of such Continental Indemnitee. 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 involving such a Claim (A) while an Event of Default under the
Sublease shall have occurred and be continuing, (B) if such proceedings will
involve any material risk of the sale, forfeiture or loss of, or the creation of
any Lien (other than a Permitted Lien) on the Aircraft, any item of Equipment,
this Sublease or any part thereof unless Lessee shall have protected Lessor
against such risk in a manner acceptable to Lessor, (C) such Claims involved
relate in any way to the business of any Indemnitee other than the transactions
contemplated by this Sublease, (D) such Claims, in the opinion of independent
counsel for such Continental Indemnitee reasonably satisfactory to Lessee, have
a reasonable possibility of otherwise compromising or jeopardizing any
substantial interests of such Indemnitee, or (E) promptly following the request
of a Continental Indemnitee, Lessee shall not have furnished such Continental
Indemnitee with an opinion of independent counsel reasonably satisfactory to
such Continental Indemnitee to the effect that there exists a meritorious basis
for contesting such Claims. The Continental Indemnitee may participate with its
own counsel, at its own expense, in any judicial proceeding controlled by Lessee
pursuant to the preceding provisions. The Continental Indemnitee shall supply
Lessee with such information reasonably requested by Lessee as is necessary or
advisable for Lessee to control or participate in any proceeding to the extent
permitted by this Section 9.2(b). Such Continental Indemnitee shall not enter
into a settlement or other compromise with respect to any such Claims without
the prior written consent of Lessee, which consent shall not be unreasonably
withheld or delayed, unless such Continental Indemnitee waives its right to be
indemnified with respect to such Claims under this Section 9.2.


         9.3 GENERAL TAX INDEMNITY. (a) Lessee agrees to pay and to indemnify
and hold each Indemnitee (as defined in Section 9.2 hereof) harmless from all
license, documentation, recording and registration fees, taxes, levies, imposts,
duties, assessments, fees, charges and withholdings of any nature whatsoever,
together with any penalties, fines, additions to tax or interest thereon,
howsoever imposed, whether levied or imposed upon an Indemnitee or otherwise, by
any Federal state or local government or governmental subdivision or taxing
authority in the United States or by any foreign country or foreign taxing
authority or territory or possession of the United States or any subdivision or
taxing authority of any of the foregoing, upon or with respect to (i) the
Equipment or any part thereof, (ii) the ownership, delivery, subleasing,
possession, use, operation, storage, sale, transfer of title, return, or other
disposition of the Equipment, (iii) the rentals or receipts arising from this
Sublease, (iv) the execution, delivery or performance of the Operative
Agreements, (v) any payment made pursuant to any such agreement or document or
(vi) the property or the income or other proceeds received with respect to
property held by the Lessor hereunder (all such license, documentation,
recording and registration fees, taxes, levies, imposts, duties, assessments,
fees, charges, withholdings,


                                       24


penalties, fines, additions to tax and interest imposed as aforesaid being
hereinafter in this Section 9.3 called "Taxes").

         (b)  EXCLUSIONS. Lessee shall have no obligation to indemnify an
Indemnitee under this Section 9.3 for

         (i) any Taxes to the extent contested by the Lessee in good faith in
accordance with the provisions of paragraph (c) below,

         (ii) any Taxes imposed as a result of a sale, transfer, assignment or
         other disposition, whether prior to, during or after the Term, with
         respect to any item of Equipment, by an Indemnitee of any interest in
         such item of Equipment, the trust created by the trust agreement
         between any Head Lessor and Owner (the "Owner Trust"), this Sublease or
         any Head Lease unless such sale, transfer, assignment or other
         disposition is made as the result of the exercise of remedies after an
         Event of Default pursuant to Article 14 hereof, but in no event shall
         the Lessee be liable for any Taxes on, based on, or measured by or
         related to any income or gain realized upon any such disposition;


         (iii) any Taxes imposed with respect of an item of Equipment for any
period (A) prior to the delivery of such item of Equipment by Lessor to Lessee
pursuant to this Sublease or (B) after the redelivery of such item of Equipment
to Lessor or its designee or (C) after the expiration of the Term with respect
thereto;

         (iv) any Taxes imposed on or for the account of any Lender;

         (v) any Taxes on, based on or measured by, the net income of an
Indemnitee and any Taxes enacted by any jurisdiction after the date of this
Sublease which are, in effect, a substitute for or in lieu of any such Taxes and
any Taxes, however denominated, based on or measured by, value added, except any
such Taxes to the extent imposed on the receipt of a payment under this Section
9.3;

         (vi) any Taxes to the extent that such Taxes would not have been
imposed had there not been a transfer by an original Indemnitee of an interest
in an item of Equipment, the Owner Trust, this Sublease, or any Head Lease or,
if such Taxes would have been imposed on or with respect to such original
Indemnitee, such original Indemnitee would not have been entitled to
indemnification with respect to such Taxes;

         (vii) any Taxes consisting of penalties, fines or interest imposed as a
result of the failure of an Indemnitee to file any return or pay any amount when
due, unless the Lessee was responsible for such filing or payment;

         (viii) any Taxes included in the original cost to any Head Lessor of
acquiring the Aircraft or any Engine;

         (ix) any Taxes to the extent such Taxes would not have been imposed had
the Owner Trust and the Head Lessor of the Airframe been resident in the State
of Utah; and

                                       25


         (x) any Taxes imposed with respect to any fees or compensation received
by Lessor.

         (c) CONTEST. If a claim is made against an Indemnitee for any Taxes
indemnified against under this Section 9.3, such Indemnitee will, within 10 days
after such Indemnitee is aware of such claim, notify the Lessee in writing of
such claim, but the failure to do so will not relieve the Lessee from any
liability which it may have to such Indemnitee if, notwithstanding such failure,
the Lessee's ability to contest such claim under this paragraph (c) is not
adversely affected. If requested by the Lessee in writing, the Indemnitee shall
permit the Lessee to contest such claim at Lessee's expense, upon receipt of an
indemnity undertaking from Lessee reasonably satisfactory to the Indemnitee for
such Taxes and for all costs, expenses, legal and accountants' fees and
disbursements, penalties, fines, additions to tax and interest resulting from
such contest. Lessee may contest such claim, in the name of the Lessee or such
Indemnitee, to the extent permitted by law, by (i) seeking administrative review
of the claim, (ii) resisting payment thereof if possible, (iii) not paying the
same except under protest, if protest is necessary and proper, (iv) if payment
is made, using reasonable efforts to obtain a refund thereof in appropriate
administrative or judicial proceedings, or both and (v) taking any other
reasonable action appropriate to contest the claim.


         (d) REPORTS. In case any report or return is required to be made with
respect to any obligation of the Lessee under this Section 9.3 and unless an
Indemnitee shall notify the Lessee that it intends to make such report or
return, the Lessee either shall make such report or return in such manner as
will show, if appropriate, the interest of the Lessor, Head Lessor and Owner in
the Aircraft or other item of Equipment, or shall promptly notify such
Indemnitee, Lessor, Head Lessor and Owner of such requirement and shall make
such report or return in such manner as shall be reasonably satisfactory to such
Indemnitee, the Lessor, Head Lessor and Owner. All costs and expenses (including
legal and accountants' fees) of preparing any such return or report shall be
borne by the Lessee. If an Indemnitee has notified the Lessee pursuant to this
subsection that it intends to make any report or return, the Indemnitee shall
give the Lessee written notice prior to either filing any return, statement or
report with respect to any Taxes for which indemnification would be payable by
the Lessee under this Section 9.3 or paying any such Taxes and shall send a copy
of such report or return to the Lessee at least 10 days prior to the date on
which such report or return is due to be filed or payment is to be made.

         (e) Repayments. If an Indemnitee obtains a refund of any Taxes with
respect to which the Lessee has paid an indemnity under this Section 9.3 or a
reduction in any Taxes as a result of the payment or incurrence of any Tax for
which the Lessee has paid an indemnity under this Section 9.3, the Indemnitee
shall pay to the Lessee the amount of such refund or reduction, including any
interest received thereon, plus any net reduction of Taxes imposed on such
Indemnitee resulting from the payment to the Lessee under this subsection. An
Indemnitee is not required to make any payments to the Lessee under this
subsection to the extent that such payments would exceed the aggregate payments
by the Lessee to such Indemnitee under this Section 9.3.

         (f) PAYMENTS. The Lessee agrees to pay any amount it is required to pay
under this Section 9.3 promptly after the Indemnitee requests the payment in
writing, but the Lessee is not


                                       26


required to make any payment before the Indemnitee has paid the Taxes in respect
of which the Lessee's payment is to be made. If the Lessee is required to
indemnify any Person for Taxes under this Section 9.3, the Lessee shall pay to
such Person an amount which, after deduction of all Taxes required to be paid by
such Person in respect of the receipt of such amount under the laws of the
United States or of any foreign country or any political subdivision of either
(after giving credit for any savings in respect of any such Taxes by reason of
deductions, credits or allowances in respect of the payment of the expenses
indemnified against), shall be equal to the amount of the indemnification
required. Each Indemnitee agrees to pay the Lessee any amount it is required to
pay the Lessee under this Section 9.3 promptly after the Indemnitee receives a
refund with respect to such Taxes or realizes a reduction in Taxes giving rise
to an obligation to make such payment. Any demand for payment to the Lessee and
any payment to the Lessee shall be accompanied by a written statement describing
in reasonable detail the computation of the payment. If the Lessee requests, the
statement will be verified, at the Lessee's expense, by independent public
accountants of recognized standing selected by the Indemnitee submitting the
statement.

         (g) AGREEMENT OF INDEMNITEE. If an Indemnitee is not a party to this
Sublease, the Lessee may require the Indemnitee to agree to the terms of this
Section 9.3 prior to making any payment to the Indemnitee under this Section
9.3.


         9.4 SURVIVAL. All indemnities and agreements contained in Sections 9.2
and 9.3 will survive any investigation or inspection made by or on behalf of any
Indemnitee or the Lessee and the expiration or other termination of this
Sublease, in whole or in part for a period of five (5) years.


          Section 10. LOSS, DESTRUCTION, REQUISITION, ETC.

                  10.1 EVENT OF LOSS WITH RESPECT TO AIRFRAME.

          (a) LESSEE'S NOTICE. Upon the occurrence of an Event of Loss with
respect to the Airframe, Lessee shall forthwith (and in any event within five
Business Days after such occurrence with respect to the Airframe) give Lessor
written notice of such Event of Loss.

          (b)  PAYMENT OF STIPULATED LOSS VALUE.  On or before
the earlier to occur of (i) the 60th day following the date of the occurrence of
such Event of Loss, or (ii) two business days following the receipt of insurance
proceeds with respect to such occurrence (if such proceeds are not paid directly
to Lessor or Head Lessor), Lessee shall pay or cause to be paid to Lessor (or to
such other party as Lessor directs), in the manner and in funds of the type
specified in Section 3.4, (A) the Stipulated Loss Value for the Aircraft as of
the date when such payment is made and (B) any other Rent (including Basic Rent)
which is due and payable through and including the date of payment (excluding
the payment, if any, of Basic Rent due on the date of payment); provided,
however, that if any Rent Payment Dates shall occur after such Event of Loss and
prior to payment of the Stipulated Loss Value for the Aircraft, Lessee shall
make the payment of Basic Rent required to be made on such Rent Payment Date. In
the event


                                       27


of payment in full of the Stipulated Loss Value for the Aircraft and all other
Rent and amounts then due and payable hereunder, (A) the obligation of Lessee to
pay Rent hereunder with respect to the Aircraft for any period commencing after
the date of payment of such amounts shall terminate, (B) the Term for the
Aircraft shall end, and (C) Lessor shall use its best efforts to cause the Head
Lessor to Transfer the Aircraft to Lessee (to the extent permitted by Lessee's
insurer).

          (c)  NO REDUCTION OF BASIC RENT.  Unless and until
Lessee pays the amounts required pursuant to Section 10.1(b), no Event of Loss
with respect to an Airframe under the circumstances contemplated by the terms of
this Section 10.1 shall result in any reduction of Basic Rent or any
Supplemental Rent that might be due hereunder.


                  10.2  EVENT OF LOSS WITH RESPECT TO AN ENGINE.

                           (a)  EVENT OF LOSS.  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, Lessee shall give Lessor
prompt written notice (and in any event within ten days after such occurrence)
thereof and shall, as promptly as possible and in any event, within 115 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 a Replacement Engine free and clear of all Liens, other than
Permitted Liens, and having a value and utility at least equal to, and being in
as good operating condition as, the Engine with respect to which such Event of
Loss occurred, assuming such Engine was in the condition required by the terms
hereof immediately prior to the occurrence of such Event of Loss. Prior to or at
the time of any such conveyance, Lessee will promptly, at its sole cost and
expense:


                  (i) furnish Lessor with a full warranty bill of sale in form
         and substance reasonably satisfactory to the relevant Head Lessor or
         Owner duly conveying title to the Replacement Engine to the relevant
         Head Lessor or Owner and take such other action as such Head Lessor or
         Owner may reasonably request in order that title to such Replacement
         Engine shall be duly vested in such Head Lessor or Owner;


                  (ii) cause a Sublease Supplement subjecting such Replacement
         Engine to this Sublease, duly executed by Lessee, to be delivered to
         Lessor for execution and, upon such execution, to be filed for
         recordation with the FAA pursuant to the Act;


                  (iii) furnish Lessor and the relevant Head Lessor, Owner and
         Lender with evidence of compliance with the insurance provisions of
         Section 11 with respect to the Replacement Engine;


                  (iv) furnish Lessor and the relevant Head Lessor, Owner and
         Lender with an officer's certificate signed by an officer of Lessee
         certifying that, upon consummation of such replacement, no Event of
         Default will exist hereunder;


                   (v) furnish Lessor and the relevant Head Lessor, Owner and
         Lender with a certificate of an independent aircraft engineer
         certifying that such Replacement Engine


                                       28


         has a value and utility at least equal to the Engine so replaced
         assuming such Engine was in the condition required by the terms hereof
         immediately prior to the occurrence of such Event of Loss; and


                  (vi) furnish such other certificates or documents to effect
         such replacement as Lessor or the relevant Head Lessor, Owner or Lender
         may reasonably request.


                           (b)  RECORDATION AND OPINIONS.  In the case of any
Replacement Engine conveyed to the relevant Head Lessor or Owner under this
Section 10.2, promptly upon the recordation of the Sublease Supplement covering
such Replacement Engine pursuant to the Act, Lessee, at its sole cost and
expense will cause to be delivered to Lessor, the relevant Head Lessor, Owner
and Lender an opinion of counsel satisfactory to each of them as to the due
recordation of such Sublease Supplement and, so long as the Facility Lien exists
and assuming that Lessor, the relevant Head Lessor, Owner and Lender have taken
all necessary action to perfect the Facility Lien with respect to the
Replacement Engine, as to the existence of Liens on the Replacement Engine to
the same effect as the opinion of FAA counsel delivered in connection with the
original recordation of the Sublease.

                           (c)  CONVEYANCE; REPLACEMENT ENGINE.  Upon full
compliance by Lessee with the terms of this Section 10.2 and if no Event of
Default shall have occurred and be continuing, Lessor shall use its best efforts
to cause the Head Lessor or Owner of the Engine that was subject to such Event
of Loss to Transfer to Lessee or as the Lessee shall direct the Engine with
respect to which such Event of Loss occurred (to the extent permitted by
Lessee's insurer). Upon such Transfer, such Engine subject to such Event of Loss
shall cease to an "Engine" hereunder.


                           (d)  NO REDUCTION OF BASIC RENT.  No Event of Loss
with respect to an Engine under the circumstances contemplated by the terms of
this Section 10.2 shall result in any reduction of Basic Rent.

                  10.3 APPLICATION OF PAYMENTS. Any payments received at any
time by Lessor or Lessee from any governmental authority or other Person with
respect to any Event of Loss, other than a requisition for use by the Government
not constituting an Event of Loss, will be applied as follows:


                           (a)  REPLACEMENT OF ENGINE.  If such payments are
received with respect to an Engine that has been or is being replaced by Lessee
pursuant to Section 10.2 such payments shall be paid over to, or retained by,
Lessee, provided Lessee shall have fully performed or, concurrently therewith,
will fully perform the terms of Section 10.2 with respect to the Event of Loss
for which such payments are made.

                           (b)  NONREPLACEMENT.  If such payments are received
with respect to the Airframe or the Airframe and the Engines or engines
installed on the Airframe, so much of such payments as shall not exceed the
Stipulated Loss Value thereof and other amounts required to be


                                       29


paid by Lessee hereunder shall be applied in reduction of Lessee's obligation to
pay such Stipulated Loss Value and other amounts required to be paid by Lessee
hereunder, if not already paid by Lessee, or, if already paid by Lessee, shall
so long as no Event of Default shall have occurred and be continuing, be applied
to reimburse Lessee for its payment of such Stipulated Loss Value and other
amounts, and the balance, if any, of such payment remaining thereafter shall be
paid to Lessee.


                  10.4 REQUISITION OF AIRCRAFT FOR USE BY THE GOVERNMENT. In the
event of the transfer during the Term of possession to the Government of the
Airframe and the Engines or engines installed thereon not constituting an Event
of Loss, Lessee shall promptly notify Lessor of such requisition and all
Lessee's obligations under this Sublease with respect to the Aircraft and
Engines shall continue to the same extent as if such requisition had not
occurred; provided that if the Airframe and Engines or engines installed thereon
are not returned by the Government prior to the end of the Term, Lessor, upon
notice given not less than 30 days before the end of the Term, may elect to
treat such event as constituting an Event of Loss with respect to the Aircraft
and Lessee shall be obligated upon expiration of such Term to pay the Stipulated
Loss Value with respect to the Aircraft on such date, and other Rent due and
payable. If Lessor does not elect to treat such event as an Event of Loss,
Lessee shall be obligated to return the Airframe and Engines or engines to
Lessor pursuant to, and in all other respects to comply with the provisions of,
Section 5 promptly upon their unconditional return by the Government. All
payments received by Lessor or Lessee from the Government for the use of the
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 the
Government for the use of the Airframe and Engines or engines after the Term
shall be paid over to, or retained by, Lessor and shall be applied to any Basic
Rent payments owed by Lessee to Lessor under this Sublease, unless Lessor has
elected to treat such requisition for use by the Government as an Event of Loss,
in which case, if Lessee has made all payments with respect to such Event of
Loss all such payments shall be paid over to Lessee.


                  10.5 APPLICATION OF PAYMENTS DURING EXISTENCE OF EVENT OF
DEFAULT. Any amount referred to in this Section 10 which is payable or
creditable to or retainable by Lessee shall not be paid or credited to or
retained by Lessee if, at the time of such payment, credit or retention, an
Event of Default shall have occurred and be continuing hereunder but shall be
paid to and held by Lessor as security for the obligations of Lessee under this
Sublease and, if Lessor declares this Sublease to be in default pursuant to
Section 15 hereof, applied against Lessee's obligations hereunder as and when
due and at such time as there shall not be continuing any such Event of Default,
such amount shall be paid to Lessee to the extent not previously applied in
accordance with the terms hereof.


         Section 11.  INSURANCE.

                  11.1 LIABILITY AND HULL INSURANCE. Lessee shall at all times
procure and maintain, on or in respect of the Aircraft, Airframe and Engines,
policies of insurance in such form, of such type and with Lessee's customary
insurers, who shall be insurers of recognized responsibility, as follows:

                                       30


         (a) Public liability, property damage liability, passenger liability,
contractual liability and cargo and baggage liability insurance with respect to
the Aircraft, Airframe and Engines of a type and form customarily carried by
United States commercial air carriers and in an amount equal to or greater than
the amounts carried by Lessee on similar equipment owned or leased by Lessee and
in no event less than the limit of liability set forth on Schedule 1 hereto
(unless the Aircraft is not then being operated, in which case the Aircraft
shall continue to be covered by such liability insurance as would then be
considered standard in the airline industry practice for aircraft that are not
being operated). With respect to the insurance described in this clause, Lessee
may self-insure by way of deductible or otherwise in accordance with the then
current airline industry practice and in an amount not exceeding that which is
maintained by Sublessee in accordance with its fleet-wide practice; provided
that the amount of such self-insurance with respect to the Aircraft shall not
exceed ______ for any one occurrence.


         Any policies of insurance carried in accordance with this paragraph (a)
shall (A) name Head Lessor of the Airframe as owner of the Airframe, (B) name
each Indemnitee as an additional insured, (C) provide that in respect of the
interest of each Indemnitee in such policies the insurance shall not be
invalidated by any action or inaction of Lessee and shall insure each Indemnitee
regardless of any breach or violation of any warranty, declaration or condition
contained in such policies by Lessee, (D) provide that if such insurance is to
be cancelled for any reason whatever, or any material change is to be made in
the coverage which materially adversely affects the interest of any Indemnitee
or if such insurance may be allowed to lapse for nonpayment of premium, such
cancellation, change or lapse shall not be effective as to such Indemnitee for
30 days (seven days or such shorter period as may be generally available in case
of any war risk and allied perils coverage) after written notice is received by
each Indemnitee from such insurers of such cancellation, change or lapse, (E) be
effective with respect to both domestic and international operation, (F) provide
that the insurers shall waive any right to any setoff, recoupment or
counterclaim or any other deduction, by attachment or otherwise, (G) provide
that all the provisions thereof, except the limits of the liability of the
insurer under such policy, shall operate in the same manner as if there were a
separate policy covering each insured, (H) provide that each Indemnitee shall
not be liable for any insurance premium, (I) be primary and without right of
contribution from other insurance which may provide coverage to each Indemnitee
and (J) expressly provide that the insurers shall waive any rights of
subrogation against each Indemnitee.


         (b) All-risk aircraft hull insurance (including flight, taxiing and
ingestion coverage) covering the Aircraft and all risk insurance on the Engines
and Parts while removed from the Aircraft including, without limitation,
war-risk insurance if the Aircraft, the Airframe or any Engine is being operated
(i) in any recognized or, in Lessee's reasonable judgment, threatened area of
hostilities, or (ii) on international routes and war risk insurance is
customarily maintained by other U.S. air carriers operating on such routes,
which war risk insurance shall be of the type and form, and in an amount not
less than that, carried by Lessee on similar equipment owned or leased by Lessee
and is in an amount not less than the Stipulated Loss Value. With respect to the
insurance described in this clause, Lessee may self-insure by way of deductible
or otherwise in accordance with the then current airline industry practice and
in an amount not exceeding that which is maintained by Lessee in accordance with
its fleet-wide practice, and in an amount not exceeding that which is maintained
by Sublessee in accordance with its fleet-wide practice;


                                       31


provided that the amount of such self-insurance with respect to the Aircraft
shall not exceed ______ for any one occurrence; and provided, further, that a
deductible will not apply in the event of a total loss of the Aircraft.


         Any policies maintained in accordance with this paragraph (b) shall (A)
provide that each Indemnitee is an additional insured thereunder and that the
Head Lessor of the Airframe (or, if designated by Lessor, the Head Lessor's
Lender) is named as sole loss payee thereunder for the account of all interests;
(B) provide that all payments up to but not exceeding the Stipulated Loss Value
shall be payable directly to the Head Lessor of the Airframe; provided, that
unless Lessor shall provide notice to such insurers that an Event of Default has
occurred and is continuing, any payment not in excess of ______ may be paid
directly to Lessee; (C) provide that if such insurance is to be canceled for any
reason whatever, or any material change is to be made in the coverage which
adversely affects the interest of Lessor, any Head Lessor, Owner or Lender, if
any, if such insurance may be allowed to lapse for non-payment of premium, such
cancellation, change or lapse shall not be effective as to any Indemnitee, if
any, for 30 days (seven days or such shorter period as may be generally
available in case of any war risk and allied perils coverage) after written
notice is received by such Person from such insurers of such cancellation,
change or lapse; (D) provide that in respect of the interest of each Indemnitee
in such policies the insurance shall not be invalidated by any action or
inaction of Lessee and shall insure each Indemnitee, if any, regardless of any
breach or violation by any Indemnitee of any warranty, declaration or condition
contained in such policies, (E) provide that the insurers shall waive any rights
of subrogation against each Indemnitee; (F) provide that the insurers shall
waive any right to any set-off, recoupment or counterclaim or any other
deduction, by attachment or otherwise; (G) provide that all the provisions
thereof, except the agreed values and limits of the liability of the insurer
under such policy, shall operate in the same manner as if there were a separate
policy covering each insured; (H) provide that no Indemnitee shall be liable for
any insurance premium; (I) be effective with respect to both domestic and
international operation and (J) be primary and without right of contribution
from other insurance which may provide coverage to each Indemnitee.


         If Lessee shall fail to maintain or cause to be maintained insurance as
herein provided, Lessor may at its option (but shall not be obligated to)
provide such insurance and in such event, Lessee shall, upon demand, reimburse
Lessor for the cost thereof as Supplemental Rent. Nothing contained in this
Section 11 shall limit or prohibit Lessor from obtaining insurance for its own
account, and any proceeds payable thereunder shall be payable as provided in the
insurance policy relating thereto; provided however, that no such insurance may
be obtained which would limit or otherwise adversely affect the coverage of any
insurance maintained by Lessee with respect to the Aircraft.


                  11.2 GOVERNMENT INDEMNITY. In the case of a contract with the
Government in respect of the Aircraft, Airframe or an Engine, a valid agreement
by the Government to indemnify Lessee and each Indemnitee against the same risks
which are required hereunder to be insured against in an amount at least equal
to the amounts required hereunder from time to time, shall be considered
adequate insurance with respect to the Aircraft, Airframe and any Engine subject
to such contract to the extent of the risks and in the amounts that are the
subject of any


                                       32


such agreement to indemnify and to the extent such agreement to indemnify is an
obligation backed by the full faith and credit of the Government.


                  11.3 CERTIFICATES OF INSURANCE. Lessee agrees to furnish the
Lessor, each Head Lessor, Owner and their respective Lenders on the Delivery
Date and on or prior to the date of renewal of the insurance required hereunder
during the Term an insurance certificate and report signed by Lessee's regularly
retained insurance broker certifying that, in the opinion of such broker, the
policies specified in the certificates referred to in this Section are in a
form, cover the risks and are in the amounts determined in accordance with this
Section 11 and comply with the terms of this Section 11. Such insurance
certificate and report shall provide that (i) the broker will advise Lessor,
each Head Lessor, Owner and their respective Lenders, if any, in writing
promptly of any default in the payment of any premium and of any other act or
omission on the part of Lessee of which such broker has knowledge and which
might invalidate or render unenforceable in whole or in part any insurance on
the Aircraft and (ii) no insurance provided pursuant to this Section 11 shall
expire or terminate prior to thirty (30) days (or, with respect to war risk and
allied perils insurance, seven (7) days or such shorter period as may be
generally available) after Lessor, each Head Lessor, Owner and their respective
Lenders, if any, has received written notice thereof. Upon the transfer by
Lessor, any Head Lessor, Owner or Lender, if any, of its interests in the
Aircraft, Lessee will cooperate in obtaining new certificates naming the
transferee of such interest.


                  11.4 APPLICATION OF INSURANCE PROCEEDS. All insurance proceeds
received under policies required to be maintained by Lessee pursuant to Section
11.1(b) as a result of the occurrence of an Event of Loss with respect to the
Aircraft, Airframe or any Engine will be applied in accordance with Section
10.3(a) or 10.3(b), as the case may be. All insurance proceeds in respect of any
property damage loss not constituting an Event of Loss with respect to the
Airframe or an Engine will be applied in payment (or to reimburse Lessee) for
repairs or for replacement property in accordance with the terms of Section 8,
if not already paid for by Lessee, and any balance remaining after compliance
with such Sections with respect to such loss shall be paid to Lessee provided
that, prior to the repair of the Airframe or Engine, Lessor may, but shall have
no obligation to, disburse insurance proceeds held by it to Lessee. The
provisions of Section 10.5 shall apply to amounts referred to in this Section
11.4.


         Section 12. INSPECTION. At reasonable times during the Term of this
Sublease, when requested, Lessee shall provide to Lessor and each Head Lessor
and Owner such information concerning the location, condition, use and operation
of the Equipment as they may reasonably request. At all reasonable times and
upon reasonable notice (except no such notice shall be required if an Event of
Default exists), Lessor or its nominee may inspect the Aircraft and any Head
Lessor or Owner may inspect the item of Equipment in which such party has an
interest and the books and records of Lessee relative thereto. In addition,
Lessor or its nominee shall have the right to be present and observe the
Aircraft during any maintenance visit, provided that Lessee shall have no
obligation to notify Lessor of any such maintenance visit. Any inspection
permitted hereunder shall be conducted in a manner that does not unreasonably
interfere with Lessee's operation, use and maintenance of the Aircraft. Lessor
shall not have any duty to make any such inspection and shall neither incur any
liability or obligation by reason of not making any such inspection nor waive or
be deemed to waive any rights hereunder or under any other


                                       33


Operative Agreement. Lessor shall not have any obligation to third parties or to
any Person to ensure that Lessee maintains the Aircraft in an airworthy
condition or otherwise in accordance with the terms hereof.


         Section 13.1 ASSIGNMENT BY LESSEE. Except as expressly permitted in the
following sentence, Lessee will not assign any of its rights under this Sublease
without the prior written consent of Lessor and the Head Lessor and Owner of the
Airframe. On ten days' written notice to Lessor, Lessee may consolidate with or
merge into any other corporation provided that the following conditions are met:


        (a)   the corporation formed by such consolidation or into which Lessee
              is merged shall be a corporation organized under the laws of the
              United States of America or any State thereof or the District of
              Columbia, shall be a citizen of the United States within the
              meaning of the Act, shall be a United States certificated air
              carrier holding one or more certificates of public convenience
              and necessity and shall execute and deliver to Lessor, each Head
              Lessor, Owner and Lender an agreement containing an assumption by
              such successor corporation of the due and punctual performance of
              each covenant and condition contained in this Sublease and the
              other Operative Agreements,

        (b)   immediately after giving effect to such transaction, no Event of
              Default shall have occurred and be continuing and

        (c)   Lessee shall have delivered to Lessor an Officer's Certificate
              of Lessee stating that such transaction complies with the
              requirements of this Section 13.1.


         13.2. ASSIGNMENT BY LESSOR. Lessor shall not sell, assign, convey or
otherwise transfer its interest in the Operative Agreements (whether by sale,
merger or otherwise) except on the conditions set forth in this Section 13.2
without the prior written consent of Lessee. Lessor may transfer its right,
title and interest in the Operative Agreements to (1) the Head Lessor of the
Airframe or (2) the Owner of the Airframe. In addition, Lessor may consolidate
or merge with another corporation by complying with the notice requirements and
other conditions set forth in Section 13.1, MUTATIS MUTANDIS.


        Any fees, charges and expenses, including the reasonable legal fees,
charges and expenses, incurred by Lessor or Lessee in connection with the
transfer by Lessor of any interest in the Aircraft or the Operative Agreements
will be paid for by the Lessor making such transfer and in no case will the
Lessee be responsible for any such fees, charges or expenses. Without limiting
the generality of any of the foregoing, Lessor will reimburse Lessee for its
reasonable out-of-pocket costs in reviewing documents required by Lessor, Lender
or the transferee in connection with any such transfer by Lessor.


        Lessor also agrees to reimburse Lessee for up to ______ of its actual,
reasonable, out-of-pocket fees, charges and expenses, including the reasonable
legal fees, charges and expenses, incurred by Lessee in connection with the
transfer by Owner or Head Lessor of any interest in the Aircraft or the
Operative Agreements.

                                       34



        Notwithstanding anything herein to the contrary, Lessee shall not be
obligated to take any action in connection with any transfer, assignment, pledge
or other conveyance, for security or otherwise, by Lessor of its interest in any
of the Operative Agreements or any item of Equipment if such transfer,
assignment, pledge or other conveyance materially adversely affects the rights
or obligations of Lessee under the Operative Agreements or otherwise materially
adversely affects Lessee. The agreements, covenants, obligations and liabilities
contained in this Sublease including, but not limited to, all obligations to pay
Rent and indemnify each Indemnitee are made for the benefit of each Indemnitee
and their respective successors and assigns; provided, however, that no
transfer, assignment, pledge, or other conveyance shall increase the aggregate
financial exposure under the indemnity obligations of Lessee under this Sublease
as compared to what such obligations would have been had such transfer,
assignment, pledge or other conveyance not occurred.


        Lessee acknowledges that Head Lessors and Owners have the rights under
the relevant Head Lease and related agreements to transfer and finance their
interests in the Aircraft and the Head Lease subject to certain restrictions
contained therein. In the event of any such transfer or assignment by the Head
Lessor or Owner of the Airframe, Lessor shall use commercially reasonable
efforts to ensure the continued United States registration of the Aircraft under
the Act without limitation on use or operation and without disrupting Lessee's
continuous operation of the Aircraft.


         The terms and provisions of this Sublease shall be binding upon and
inure to the benefit of Lessor and Lessee and their respective permitted
successors and assigns.


         Section 14.  EVENTS OF DEFAULT.  Each of the following shall constitute
an "Event of Default":

                  (a) Lessee shall fail to make any payment of Basic Rent when
such payment shall have become due and fails to cure such non-payment within
five days after such payment shall have become due; or

                  (b) Lessee shall fail to make any payment of Supplemental Rent
or any payment due to Lessor under the MSA, in each case after such payment
shall have become due, and such payment shall be overdue for a period of 10 days
after such payment shall have become due; or

                  (c)      Lessee shall fail to carry and maintain insurance on
or with respect to the Aircraft in accordance with the provisions of Section 11;
or

                  (d) Lessee shall fail to perform or observe any other covenant
to be performed or observed by it hereunder or under any other Operative
Agreement and such failure shall continue unremedied for a period of 30 days
after written notice thereof by Lessor to Lessee unless Lessee shall be
diligently proceeding to correct such failure and such correction shall be
completed within 60 days of receipt of such notice; or

                                       35


                  (e) Any representation or warranty made by Lessee herein shall
prove to have been incorrect in any material respect at the time made, shall
remain materially incorrect as of the date in question and shall not have been
cured within 30 days after receipt by Lessee of written notice from Lessor; or

                  (f) Lessee shall commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself under
any bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it, or shall consent to any such relief or to the
appointment of or taking possession by any such official or agency in an
involuntary case or other proceeding commenced against it, or shall make a
general assignment for the benefit of creditors, or shall take any corporate
action to authorize any of the foregoing; or an involuntary case or other
proceeding shall be commenced against Lessee seeking liquidation, reorganization
or other relief with respect to it under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official or agency of it and
such involuntary case or other proceeding shall remain undismissed and unstayed
for a period of 60 days; or

                  (g) Failure to return Aircraft to Lessor on or before May 18,
2002 in compliance with the terms hereof; PROVIDED, HOWEVER, that failure to
return the Aircraft on the date set forth herein will not be an Event of Default
for five (5) days after such date if Lessee has ceased commercial operation of
the Aircraft and makes diligent effort to return the Aircraft; and failure to
return the Aircraft on the date set forth herein will not be an Event of Default
(without limitation as to time of delay) if such failure is a result of the
failure of Lessor to perform the MSA.


         Section 15.  REMEDIES.

                  15.1 DEFAULT; REMEDIES. Upon the occurrence of an Event of
Default and at any time thereafter so long as the same shall be continuing,
Lessor may, at its option, declare this Sublease to be in default, and may
exercise one or more of the following remedies 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:


                           (a)      Lessor may cause Lessee, upon written demand
by Lessor and at Lessee's expense, to return promptly, and Lessee shall return
promptly, all or any part of the Aircraft, Airframe or Engines as Lessor may so
demand to Lessee at such location on Lessee's route system selected by Lessor in
the manner and condition required by, and otherwise in accordance with all the
provisions of, Section 5 as if the Aircraft, Airframe or Engines were being
returned at the end of the Term; or Lessor, at its option, may enter upon any
premises where all or any part of the Aircraft, Airframe, Engines, or Part
thereof, is located or reasonably believed to be located and take immediate
possession of and remove the same without the necessity for first instituting
proceedings or by summary proceedings or other method under applicable law all
without liability accruing to Lessor for or by reason of such entering and
taking of possession (except liability resulting from the willful misconduct or
gross negligence of Lessor or its agents); or

                                       36


                           (b)      if requested to do so by the Head Lessor or
Owner, Lessor may sell all or any part of the Aircraft, Airframe or any Engine,
or Part thereof, at public or private sale, at such times and places, to such
Persons as Lessor may determine, or otherwise dispose of, hold, use, operate or
lease to others the Aircraft, Airframe or any Engine, or Part thereof, as
Lessor, in its sole discretion, may determine, all free and clear of any rights
of Lessee and without any duty to account to Lessee with respect to such action
or inaction or for any proceeds with respect thereto (except in connection with
the calculation of liquidated damages as provided below); or

                           (c)      Whether or not Lessor shall have exercised,
or shall thereafter at any time exercise, any of its rights under paragraph (a)
or (b) above, Lessor, by written notice to Lessee specifying a payment date not
earlier than fifteen days from the date of such notice, may cause Lessee to pay
to Lessor, and Lessee shall pay to Lessor, on the payment date specified in such
notice, as liquidated damages for loss of a bargain and not as a penalty (in
lieu of the Basic Rent for the Aircraft, Airframe, Engine or Part thereof due
for the periods commencing after the date specified for payment in such notice),
any unpaid Basic Rent due for periods prior to and including the period ending
with the Rent Payment Date immediately preceding the date specified in such
notice plus an amount equal to the excess, if any, of the present value of the
remaining payments of Basic Rent during the Term over the present value of the
fair market rental value of the Aircraft, Airframe, Engine or Part thereof, for
the remainder of such Term, using in each case a discount rate equal to the
yield to maturity of an actively traded marketable United States Treasury fixed
interest debt security with a maturity that is closest to the remaining term of
the Sublease, as published by the Federal Reserve Board in its Statistical
Release H.15(519) (or any successor publication), determined as of the date
specified for payment in such notice; or

                           (d)      Lessor may rescind this Sublease as to all
or any part of the Aircraft, Airframe and Engines, or Part thereof, or may
exercise any other right or remedy which may be available to it under the
Uniform Commercial Code whether or not in effect in the jurisdiction in which
enforcement is sought or other applicable law or proceed by appropriate court
action to enforce the terms hereof or to recover damages for the breach hereof.


         For the purpose of this Section 15, the "fair market rental value" of
the Aircraft shall be as specified in an appraisal by BK Associates or Aircraft
Information Services, Inc., as selected by Lessor or, if neither appraiser is
available, another nationally recognized independent aircraft appraiser chosen
by Lessor, who shall determine such value(s) on the assumption that the Aircraft
is in the condition required hereunder and located in Houston, Texas.


         In addition to the foregoing remedies, Lessee shall be liable for any
and all Supplemental Rent due hereunder before or after termination hereof,
except as otherwise expressly provided above, for all legal fees and other costs
and expenses of Lessor incurred by reason of the occurrence of an Event of
Default and the exercise of Lessor's remedies with respect thereto including all
costs and expenses incurred in connection with the return of the Airframe or any
Engine in accordance with the terms of Section 5 hereof or any appraisal of the
Aircraft. At any sale of the Airframe or any Engine, Lessor (or any Head Lessor)
may bid for and purchase such property.

                                       37



                  15.2 NO WAIVER, ETC. 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 express or implied waiver by Lessor of
any Event of Default shall in any way be, or be construed to be, a waiver of any
earlier or subsequent Event of Default.


         Section 16. NOTICES. All notices required under the terms and
provisions hereof shall be in writing and shall be given by certified mail,
overnight courier, telecopy, telex, teletype or any other customary means of
written communication, addressed:

                  If to Lessor, at 1600 Smith Street, 32nd Floor - HQSFN,
Houston, Texas 77002, Attention: Senior Vice President - Finance, telecopier
number 713-324-2447, or at such other address as Lessor shall from time to time
designate in writing;

                  If to Lessee, at Honolulu International Airport, 3375 Koapaka
Street, Suite 6350, Honolulu, Hawaii 96819, Attention: VP - Finance, telecopier
number 808-838-5353, with a copy to General Counsel, at the same address,
telecopier number 808-835-3690, or at such other address as Lessee shall from
time to time designate in writing;

                  The effective date of any such notice shall be (1) five
Business Days after such notice is placed in the mail, in the case of notices
given by certified mail, (2) the next Business Day, in the case of notices sent
by overnight courier or (3) the date such notice is telecopied, telexed or
teletyped, in the case of notices sent by telecopy, telex or teletype.


         Section 17.  LESSEE'S OBLIGATIONS; LESSOR'S BREACH.

                  17.1 LESSEE'S OBLIGATIONS. Except as specifically provided
herein, Lessee's obligation to pay all Rent payable hereunder shall be absolute
and unconditional and shall not be affected by any circumstance, including
without limitation: (a) any setoff, counterclaim, recoupment, defense or other
right which Lessee may have against Lessor or any other Person for any reason
whatsoever; (b) any defect in the title, airworthiness, condition, design,
operation or fitness for use of, or any damage to or loss or destruction of, the
Aircraft, Airframe or any Engine, or any interruption or cessation in the use or
possession thereof by Lessee for any reason whatsoever; (c) any insolvency,
bankruptcy, reorganization or similar proceedings by or against Lessee; (d) any
restriction, prevention or curtailment of or interference with any use of the
Aircraft or part thereof; (e) any invalidity or unenforceability or
disaffirmance of this Sublease or any provision hereof or any of the other
Operative Agreements or any provision thereof, in each case whether against or
by Lessee or otherwise; or (f) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing.


         If for any reason whatsoever this Sublease shall be terminated in whole
or in part by operation of law or otherwise (other than as a result of any act
or failure to act by the Lessor) except as specifically provided herein, if and
to the extent that the Lessee retains the use and


                                       38


possession of the Aircraft on substantially the same terms as those provided in
this Sublease, Lessee nonetheless agrees to pay to the Lessor an amount equal to
each Rent payment at the time such payment would have become due in accordance
with the terms hereof had this Sublease not been terminated in whole or in part.


                  17.2 LESSOR'S BREACH. Notwithstanding any provision of Section
17.1 to the contrary, (a) Lessee reserves such rights as it may have under
applicable law with respect to the breach by Lessor of the covenant set forth in
Section 21 hereof; (b) if Lessor becomes subject to a bankruptcy proceeding and
Lessor's trustee in bankruptcy rejects this Sublease, Lessee shall return the
Aircraft to Lessor in compliance with all the terms and provisions of this
Sublease which are applicable to the return of the Aircraft on the last day of
the Term and, upon such return and performance of such terms and conditions,
this Sublease and Lessee's obligation to pay any Rent hereunder shall terminate;
and (c) nothing contained in Sections 17.1 and 17.2(b) shall be construed as a
waiver of Lessee's right to seek, or its entitlement to, damages, specific
performance, separate recovery of any payment of Rent made by Lessee which is
not due and payable in accordance with the terms of this Sublease, other
remedies at law or equity and any combination thereof, as against Lessor or any
other Person as shall be liable therefor, on account of any failure of Lessor or
any other such Person to perform its obligations under this Sublease (including,
but not limited to, breach of Section 21 hereof) or on account of any act or
omission of Lessor or any other such Person or to enforce any judgment therefor.


        Section 18. CONFIDENTIALITY. Lessee and Lessor agree to keep this
Agreement, including Schedule 1 hereto, confidential and shall not disclose or
cause to be disclosed the same to any Person, except (i) to prospective
permitted transferees of any such party's interests or to any prospective Lender
or their respective counsel or other agents who agree to hold such information
confidential, (ii) to any such party's counsel or special counsel, insurance
brokers, auditors or other agents, Affiliates, advisors or investors who agree
to hold such information confidential, (iii) as may be required by any statute,
court or administrative order, ruling or regulation or applicable law, (iv) the
Head Lessors, Owners and Lenders and (v) such other Persons as are reasonably
deemed necessary by the disclosing party in order to protect the interests of
such party for the purpose of enforcing such documents by such party.


         Section 19.  [Reserved]

         Section 20. RIGHT TO PERFORM FOR LESSEE. If Lessee fails to make any
payment of Supplemental Rent required to be made by it hereunder or fails to
perform or comply with any of its agreements contained herein, Lessor may (but
shall not be obligated to) make such payment or perform or comply with such
agreement, and the amount of such payment and the reasonable cost of such
performance or compliance, together with interest thereon at the Overdue Rate,
shall be deemed Supplemental Rent, payable by Lessee upon demand.


         Section 21. QUIET ENJOYMENT. So long as no Event of Default shall have
occurred and be continuing, Lessor covenants that it shall not interfere, or
permit any duly authorized Person acting by, through or under Lessor, to
interfere with any right of Lessee peaceably and quietly without hindrance or
molestation to hold, possess and use, during the Term and in accordance with the
terms hereof, the Aircraft, Airframe and Engines.

                                       39



         Section 22. INVESTMENT OF FUNDS. Any amounts required to be paid to, or
retained by Lessor on behalf of, Lessee that are not then required to be paid to
Lessee pursuant to this Sublease shall, until paid to Lessee as provided in this
Sublease, be invested by Lessor as directed by Lessee and at the expense and
risk of Lessee in the following securities (which shall mature no later than 90
days of the date of purchase thereof): (a) direct obligations of the Government;
(b) obligations fully guaranteed by the Government; (c) open market commercial
paper issued by any corporation rated P-1 or P-2 by Moody's Investors Service
Inc. or A-1 or A-2 by Standard & Poor's Corporation; or (d) certificates of
deposit issued by, or bankers' acceptances of, or time deposits or a deposit
account with any bank, trust company or national banking association
incorporated or doing business under the laws of the United States of America or
any state thereof having a combined capital and surplus of at least _______.
There shall be promptly remitted to Lessee any gain (including interest
received) realized as the result of any such investment (net of any fees,
commissions, taxes and other expenses, if any, incurred in connection with such
investment) unless an Event of Default shall have occurred and be continuing.
Lessee will promptly pay to Lessor, on demand, the amount of any loss realized
as the result of any such investment (together with any fees, commissions and
other expenses (including, without limitation, any taxes), if any, incurred in
connection with such investment).


         Section 23.  ADDITIONAL COVENANTS OF LESSEE.

                  23.1 MAINTENANCE OF STATUS. To the extent provided thereby (or
to the fullest extent it may lawfully so agree, whether or not provided
thereby), Lessee hereby agrees that any right of Lessor to take possession of
such Aircraft or Engines in compliance with the provisions of this Sublease and
in accordance with Section 1110 of Title 11 of the United States Code or any
similar provision of any superseding statute, as amended from time to time,
shall not be affected by the provisions of Sections 362 or 363 or said Title, or
other analogous part of any superseding statute, as amended from time to time,
and accordingly, it is the intention of the parties hereto that this Sublease be
afforded the benefits of said Section 1110. Lessor and Lessee agree that this
Sublease shall be treated as a lease for federal income tax purposes.


                  23.2  [Reserved.]

                  23.3 FINANCIAL INFORMATION. Lessee agrees to furnish to Lessor
from time to time during the Term such non-confidential information relating to
its financial, operational or business affairs or condition as Lessor may
reasonably request.


         Section 24. MISCELLANEOUS. All representations, warranties and
indemnities of Lessee and Lessor provided for in this Sublease and in the other
Operative Agreements shall survive the execution and delivery of this Sublease.
Any provision of this Sublease 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 Sublease may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against which the enforcement of the change, waiver,
discharge or


                                       40


termination is sought. This Sublease shall constitute an agreement of lease, and
nothing herein shall be construed as conveying to Lessee any right, title or
interest in or to the Aircraft, Airframe or Engines except as a lessee only. The
section and paragraph headings in this Sublease, the table of contents and the
cover (other than the chattel paper language contained thereon) 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 Sublease. THIS
SUBLEASE, AND EACH SUBLEASE SUPPLEMENT AND AMENDMENT HERETO, SHALL IN ALL
RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK APPLICABLE TO CONTRACTS MADE IN SUCH STATE BY RESIDENTS THEREOF AND
TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE.


         Each party hereto hereby irrevocably agrees, accepts and submits to the
non-exclusive jurisdiction of the courts of the State of New York in the City
and County of New York and of the United States for the Southern District of New
York, in connection with any legal action, suit or proceeding with respect to
any matter relating to or arising out of or in connection with this Agreement or
any other Operative Agreement. Each party hereto hereby irrevocably waives any
objection that it may now or hereafter have to the laying of venue of any of the
aforesaid actions, suits or proceedings arising out of or in connection with
this Agreement or any other Operative Agreement brought in any of the aforesaid
courts, and hereby agrees not to plead or claim that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.
Each party waives its respective rights to a jury trial of any claim or cause of
action in any court in any jurisdiction based upon or arising out of or relating
to this Agreement. If any action arising out of or in connection with the
Operative Agreements is instituted in the State of Hawaii or Texas, the parties
agree that they will not object to the removal of such action to a court in the
State of New York by reason of forum non conveniens or for any other reason.


                  Any provision of this Sublease 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 or affecting the validity or enforceability of such
provision in any other jurisdiction.


                  This Sublease and each Sublease Supplement and amendment
hereto may be executed in several counterparts, each of which shall be deemed an
original, and all such counterparts shall constitute one and the same
instrument. This Sublease shall be a net lease and, except as specifically
provided herein, Lessee shall be responsible during the Term for all costs
incurred in the operation, use, maintenance and possession of the Aircraft by
Lessee. Each party hereto agrees to execute such further documents and make any
filings as may be reasonably necessary to protect the rights of the parties
hereunder.


                                       41



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



                                               HAWAIIAN AIRLINES, INC.


                                               By: ____________________________
                                                    Title:


                                               By: ____________________________
                                                    Title:


                                               CONTINENTAL AIRLINES, INC.


                                               By ____________________________
                                                    Title: Senior Vice President


                                       42





                                                                       EXHIBIT A
                                                           TO SUBLEASE AGREEMENT

                             SUBLEASE SUPPLEMENT NO.


         THIS SUBLEASE SUPPLEMENT NO.   , dated _______, 19   between HAWAIIAN
AIRLINES, INC., a Hawaii corporation ("Lessee"), and CONTINENTAL AIRLINES, INC.,
a Delaware corporation ("Lessor").

         Lessor and Lessee have heretofore entered into that certain Sublease
Agreement 084, dated as of December [__], 2000 (as at any time amended, modified
or supplemented, herein called the "Sublease" and the terms defined therein
being herein used with the same meanings), which Sublease provides in Section 2
for the execution of Sublease Supplements substantially in the form hereof for
the purpose of leasing a specific Aircraft under the Sublease as and when
delivered by Lessor to Lessee in accordance with the terms thereof. [The
Sublease relates, among other matters, to the Airframe and Engines described
below, and this Sublease Supplement is attached to a counterpart of the Sublease
for purposes of filing and recordation with the FAA pursuant to the Act.] [The
Sublease relates to the Airframe [and] [Engines] described below, and a
counterpart of the Sublease, attached to and made a part of Sublease Supplement
No. 1, dated ______, 2000, to the Sublease, has been recorded by the FAA on
_____, _______ as one document and assigned Conveyance No. __].

         NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, and pursuant to Section 2 of the Sublease, Lessor and
Lessee hereby agree as follows:


         1. Lessor hereby delivers and subleases to Lessee, and Lessee hereby
accepts and leases from Lessor, under the Sublease, as herein supplemented:


         The following described McDonnell Douglas Model DC-10-30 Aircraft (the
"Delivered Aircraft") which Delivered Aircraft as of the date hereof consists of
the following:

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

This Sublease Supplement has been executed in several counterparts. No security
interest in Lessor's right, title and interest in and to this Sublease
Supplement may be created through the transfer or possession of any counterpart
other than the original counterpart. [THIS IS NOT THE ORIGINAL COUNTERPART.]








         Airframe:  U.S. Registration Marks N35084; Manufacturer's Serial No.
46991; and

         Engines:  Three General Electric Model CF6-50C2 engines bearing Engine
Manufacturer's Serial Numbers as follows:
                           Position 1: ____
                           Position 2: ____
                           Position 3: ____

Each of the Engines described above has 750 or more rated takeoff horsepower or
the equivalent of such horsepower.

         2. The Delivery Date of the [Delivered Aircraft] [Engine] is the date
of this Sublease Supplement set forth in the opening paragraph hereof.


         3. Lessee hereby confirms to Lessor that Lessee has accepted the
[Delivered Aircraft] [Engine] for all purposes hereof and of the Sublease.


         4. THIS SUBLEASE SUPPLEMENT IS BEING DELIVERED IN THE STATE OF NEW YORK
AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE IN SUCH STATE BY
RESIDENTS THEREOF AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.






         IN WITNESS WHEREOF, Lessor and Lessee have caused this Sublease
Supplement to be duly executed and delivered as of the date and year first above
written.


                                               HAWAIIAN AIRLINES, INC.


                                               By: ___________________________
                                                     Title:


                                               By: ___________________________
                                                     Title:


                                               CONTINENTAL AIRLINES, INC.,


                                               By: ___________________________
                                                     Title:









                                                                      SCHEDULE 1



                             CERTAIN FINANCIAL TERMS




                 [Intentionally omitted from the version of this
             document filed with the FAA as containing commercially
                        sensitive financial information.]








                                                                      SCHEDULE 2



                                RETURN CONDITIONS




                 [Intentionally omitted from the version of this
             document filed with the FAA as containing commercially
                        sensitive financial information.]

EX-23.1

Exhibit 23(1)

                        CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in Registration Statements (Form
S-8 Nos. 033-064299, 333-09667, 333-09669, 333-09671, 333-09673, 333-26179, and
333-63575) of Hawaiian Airlines, Inc. our report dated March 16, 2001, with
respect to the financial statements and schedule of Hawaiian Airlines, Inc.
included in this Annual Report on Form 10-K for the year ended December 31,
2000.



/s/ Ernst & Young LLP


Honolulu, Hawaii
March 16, 2001

EX-23.2

Exhibit 23(2)

                              ACCOUNTANTS' CONSENT

The Board of Directors
Hawaiian Airlines, Inc.:


We consent to incorporation by reference in Registration Statement Nos.
033-64299, 333-09667, 333-09669, 333-09671, 333-09673, 333-26179, and 333-63575
on Form S-8 of Hawaiian Airlines, Inc. of our reports dated March 11, 1999,
relating to the statements of operations, shareholders' equity and comprehensive
income, and cash flows of Hawaiian Airlines, Inc. for the year ended December
31, 1998, and relating to the financial statement schedule of Hawaiian Airlines,
Inc. for the year ended December 31, 1998, which reports appear in the December
31, 2000 annual report on Form 10-K of Hawaiian Airlines, Inc.



/s/ KPMG LLP

Honolulu, Hawaii
March 30,2001

EX-24

Exhibit 24


                                POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Christine R.
Deister, his or her true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments to this
Form 10-K, and to file the same, with all exhibits thereto, and other documents
in connections therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that all attorney-in-fact and agent,
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Exchange Act 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated below.



SIGNATURE                                TITLE                              DATE


                                                                      
/s/  JOHN W. ADAMS                       Chairman of the                    April 2, 2001
- ------------------------------------     Board of Directors
John W. Adams

/s/  PAUL J. CASEY                       Vice Chairman  and                 April 2, 2001
- ------------------------------------     Chief Executive Officer
Paul J. Casey                            (Principal Executive Officer)

/s/  CHRISTINE R. DEISTER                Executive Vice President,          April 2, 2001
- ------------------------------------     Chief Financial Officer, and
Christine R. Deister                     Treasurer
                                         (Principal Financial and
                                         Accounting Officer)

/s/  TODD G. COLE                        Director                           April 2, 2001
- ------------------------------------
Todd G. Cole

/s/  ROBERT G. COO                       Director                           April 2, 2001
- ------------------------------------
Robert G. Coo

/s/  JOSEPH P. HOAR                      Director                           April 2, 2001
- ------------------------------------
Joseph P. Hoar

/s/  RENO F. MORELLA                     Director                           April 2, 2001
- ------------------------------------
Reno F. Morella








SIGNATURE                                TITLE                              DATE



                                                                      
/s/  ARTHUR J. PASMAS                    Director                           April 2, 2001
- ------------------------------------
Arthur J. Pasmas

/s/  SAMSON PO'OMAIHEALANI               Director                           April 2, 2001
- ------------------------------------
Samson Po'omaihealani

/s/  EDWARD Z. SAFADY                    Director                           April 2, 2001
- ------------------------------------
Edward Z. Safady

/s/  SHARON L. SOPER                     Director                           April 2, 2001
- ------------------------------------
Sharon L. Soper

/s/  THOMAS J. TRZANOWSKI                Director                           April 2, 2001
- ------------------------------------
Thomas J. Trzanowski