10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2005

OR

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

For the transition period from                to                

Commission file number 0-14719

SKYWEST, INC.

Incorporated under the laws of Utah	87-0292166
	(I.R.S. Employer ID No.)

444 South River Road
St. George, Utah 84790
(435) 634-3000

Indicate by a 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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes x  No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o  No x

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Class	Outstanding at November 7, 2005
Common stock, no par value	58,003,293

SKYWEST, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS

			Page No.
PART I	Financial Statements:
Item 1.	Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004	3
	Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2005 and 2004	5
	Condensed Consolidated Statements of Cash Flows for nine months ended September 30, 2005 and 2004	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	39
PART II	Other Information:
Item 1.	Legal Proceedings	40
Item 6.	Exhibits	40
	Signature	41

2

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

SKYWEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

ASSETS

	September 30, 2005				December 31, 2004
	(unaudited)
CURRENT ASSETS:
Cash and cash equivalents		$	110,595			$	113,020
Marketable securities		193,167				427,517
Restricted cash		114,823				9,160
Prepaid aircraft rents		144,435				61,550
Inventories		58,571				33,922
Receivables, net		40,601				27,964
Income tax receivable		—				8,999
Other current assets		73,235				30,205
Total current assets		735,427				712,337
PROPERTY AND EQUIPMENT:
Aircraft and rotable spares		2,726,650				1,095,363
Deposits on aircraft		62,851				66,346
Buildings and ground equipment		146,084				100,268
		2,935,585				1,261,977
Less-accumulated depreciation and amortization		(381,949		)		(329,430		)
Total property and equipment, net		2,553,636				932,547
OTHER ASSETS
Intantible assets, net		34,327				—
Other assets		52,816				17,403
Total other assets		87,143				17,403
Total assets		$	3,376,206			$	1,662,287

See notes to condensed consolidated financial statements.

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SKYWEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in thousands)

LIABILITIES AND STOCKHOLDERS’ EQUITY

	September 30,				December 31,
	2005				2004
	(unaudited)
CURRENT LIABILITIES:
Current maturities of long-term debt		$	255,653			$	32,585
Accounts payable		113,015				57,130
Contingent acquisition liabilities		95,000				—
Line of credit		60,000				—
Accrued salaries, wages and benefits		52,282				30,094
Accrued aircraft rents		21,561				30,320
Taxes other than income taxes		24,083				8,465
Other current liabilities		38,484				17,237
Income tax payable		13,167				—
Total current liabilities		673,245				175,831
OTHER LONG-TERM LIABILITIES		25,689				—
LONG-TERM LINE OF CREDIT		30,000				—
LONG-TERM DEBT, net of current maturities		1,524,126				463,233
DEFERRED INCOME TAXES PAYABLE		198,548				189,215
DEFERRED AIRCRAFT CREDITS		74,530				54,953
STOCKHOLDERS’ EQUITY:
Preferred stock, 5,000,000 shares authorized; none issued		—				—
Common stock, no par value, 120,000,000 shares Authorized; 64,658,622 and 64,442,958 shares issued, respectively		338,051				335,241
Retained earnings		545,725				477,424
Treasury stock, at cost, 6,794,056 shares		(32,551		)		(32,551		)
Accumulated other comprehensive loss		(1,157		)		(1,059		)
Total stockholders’ equity		850,068				779,055
Total liabilities and stockholders’ equity		$	3,376,206			$	1,662,287

See notes to condensed consolidated financial statements.

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SKYWEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars and Shares in Thousands, Except per Share Amounts)
(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
Operating revenues:
Passenger	$	490,191		$	303,802		$	1,203,991		$	816,677
Ground handling and other	7,158			4,463			17,693			12,679
	497,349			308,265			1,221,684			829,356
Operating expenses:
Flying operations	283,591			155,547			669,964			406,244
Customer service	65,626			45,941			177,387			129,922
Maintenance	41,306			32,453			107,686			81,365
Depreciation and amortization	27,596			19,221			70,238			57,448
General and administrative	22,583			16,011			58,497			42,997
Promotion and sales	653			1,150			2,874			3,422
	441,355			270,323			1,086,646			721,398
Operating income	55,994			37,942			135,038			107,958
Other income (expense):
Interest income	3,822			2,512			10,165			6,825
Interest expense	(11,472		)	(4,951		)	(25,510		)	(13,340		)
Loss on sale of marketable securities	(585		)	(38		)	(585		)	(271		)
	(8,235)			(2,477		)	(15,930		)	(6,786		)
Income before income taxes	47,759			35,465			119,108			101,172
Provision for income taxes	17,699			14,186			45,525			40,469
Net income	$	30,060		$	21,279		$	73,583		$	60,703
Basic earnings per share	$	0.52		$	0.37		$	1.27		$	1.05
Diluted earnings per share	$	0.51		$	0.37		$	1.26		$	1.04
Weighted average common shares:
Basic	57,846			57,909			57,729			57,991
Diluted	59,016			58,206			58,512			58,478
Dividends declared per share	$	0.03		$	0.03		$	0.09		$	0.09

See notes to condensed consolidated financial statements.

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SKYWEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)

	Nine Months Ended September 30,
	2005			2004
NET CASH PROVIDED BY OPERATING ACTIVITIES	$	147,254		$	129,143
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities	(361,404		)	(306,931		)
Sales of marketable securities	595,656			221,249
Purchase of ASA, net of cash acquired	(376,912		)	—
Acquisition of property and equipment:
Aircraft and rotable spare parts	(186,305		)	(73,739		)
Deposits on aircraft	(56,998		)	(21,112		)
Buildings and ground equipment	(7,556		)	(16,909		)
Increase in other assets	(4,560		)	(2,261		)
NET CASH USED IN INVESTING ACTIVITIES	$	(398,079	)	$	(199,703	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt	140,980			34,450
Proceeds from sales of aircraft	13,126			—
Return of deposits on aircraft and rotable spare parts	32,258			—
Proceeds from the issuance of line of credit	90,000			—
Principal payments on long-term debt	(25,455		)	(20,443		)
Purchase of treasury stock	—			(11,387		)
Net proceeds from issuance of common stock	2,767			4,589
Payment of cash dividends	(5,276		)	(4,650		)
NET CASH PROVIDED BY FINANCING ACTIVITIES	248,400			2,559
Decrease in cash and cash equivalents	(2,425		)	(68,001		)
Cash and cash equivalents at beginning of period	113,020			112,407
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	110,595		$	44,406
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of capitalized amounts	$	23,728		$	14,121
Income taxes	$	15,437		$	3,703
NON-CASH INVESTING AND FINANCING ACTIVITIES
Debt transferred to operating lease	$	55,375		$	—
Deposits applied to delivered aircraft	22,043			3,088
Deposits applied to leased aircraft	$	24,192		$	—

See notes to condensed consolidated financial statements.

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SKYWEST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note A—Condensed Consolidated Financial Statements

The condensed consolidated financial statements of SkyWest, Inc. (the Company or “SkyWest”) and its wholly-owned subsidiaries, SkyWest Airlines, Inc. (“SkyWest Airlines”) and Atlantic Southeast Airlines, Inc. (“ASA”) included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations for the interim periods presented. All adjustments are of a normal recurring nature, unless otherwise disclosed. The Company suggests that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 and the Company’s Current Report on Form 8-K dated September 7, 2005. The results of operations for the three and nine months ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

Note B—Acquisition of ASA

On September 7, 2005, the Company completed its acquisition of all of the issued and outstanding capital stock of ASA. ASA is a regional airline with primary hub operations in Atlanta, Salt Lake City and Cincinnati. The condensed consolidated statements of income reported herein contain 23 days of operations relating to ASA from September 8, 2005 to September 30, 2005.

Pursuant to the terms of the Stock Purchase Agreement entered into between the Company, Delta Air Lines, Inc. (“Delta”) and ASA Holdings, Inc. (“ASA Holdings”), the Company paid $425 million in cash for ASA, plus $6.6 million of transaction fees. Additionally, as part of the purchase, the company assumed approximately $1,249 million in long-term debt which combined with the amounts paid at closing, resulted in an aggregate purchase price of approximately $1,681 million. The purchase price of ASA has been adjusted to reflect certain post-closing adjustments related to ASA’s working capital as of September 7, 2005. Of the total purchase price, $95 million is reflected as “restricted cash” on the Company’s condensed consolidated balance sheet at September 30, 2005. Subsequent to September 30, 2005, the Company paid to Delta $120 million, of which $30 million related to deposits on aircraft, in cash upon Delta’s satisfaction of the conditions set forth in an escrow agreement executed in connection with the ASA acquisition.

Under the terms of the Stock Purchase Agreement, Delta and ASA Holdings have agreed to indemnify the Company, and the Company has agreed to indemnify Delta and ASA Holdings from damages suffered due to breaches of representations, warranties or covenants made in the Stock Purchase Agreement. Recoveries under the indemnification provisions of the Purchase Agreement are subject to certain minimum losses per event, and an aggregate minimum for all losses. Recoveries are also subject to an aggregate cap on all losses.

In connection with the acquisition of ASA, SkyWest Airlines and Delta entered into an Amended and Restated Delta Connection Agreement and ASA and Delta entered into a Second Amended and

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Restated Delta Connection Agreement (collectively, the "Delta Connection Agreements"), whereby SkyWest Airlines and ASA agreed to provide regional airline service in the Delta flight system.  Among other provisions, the Delta Connection Agreements provide for the transfer of certain ownership and lease rights among SkyWest Airlines, ASA, Delta and Comair Inc., a wholly-owned subsidiary of Delta ("Comair").  Prior to September 30, 2005, SkyWest Airlines, ASA, Delta and/or Comair, as applicable, have terminated two master sublease agreements with respect to ten Canadair CRJ200 Regional Jets ("CRJ200s") and transferred to Delta ten CRJ200s financed in part by an affiliate of Bombardier, and ASA and Delta entered into a sublease agreement whereby ASA will sublease the ten CRJ200s from Delta.

The acquisition value of ASA was accounted for using the purchase method of accounting. Accordingly, the aggregate purchase price was assigned to the assets acquired and liabilities assumed based on fair market values at the respective purchase date. The following table reflects the allocation of the aggregate purchase price of the acquisition (including the attribution of ASA liabilities to the purchase price, since those liabilities remained the obligation of ASA post-closing) to the aggregate assets acquired and liabilities assumed (in thousands):

Current assets, net	$	135,756
Property, plant and equipment	1,564,622
Intangible assets, net	34,327
Other non-current assets	31,649
Current liabilities	(307,345		)
Long-term liabilities	(1,027,446		)
Total consideration	$	431,563
Less cash acquired	(54,651		)
Net cash paid	$	376,912

The Company is currently in the process of completing the final purchase price allocation based on the results of a valuation performed by a third party valuation advisor. Accordingly, the purchase price allocation presented herein, is preliminary and is expected to be finalized by December 31, 2005. Any adjustments made to the preliminary valuation and allocation will be disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. The preliminary intangible assets value of $34.3 million represents the value assigned to the Delta Connection Agreement between ASA and Delta, which was signed in conjunction with the acquisition of ASA and is based on the preliminary valuation performed by the third-party valuation advisor and will be amortized over the 15-year life of the contract.

The following table illustrates the pro forma effects of the acquisition of ASA and sets forth the unaudited pro forma combined revenues, net income and earnings per share for the three and nine months ended September 30, 2005 and 2004 (in thousands, except per share amounts):

	Three months ended September 30,				Nine months ended September 30,
	2005		2004		2005		2004
Revenue	$	733,907	$	540,167	$	2,024,004	$	1,478,443
Net Income	$	39,466	$	25,645	$	100,770	$	74,358
Basic earnings per share	$	0.68	$	0.44	$	1.75	$	1.28
Diluted earnings per share	$	0.67	$	0.44	$	1.72	$	1.27

Note C—Stock Options

The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock-based compensation plans. Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, requires pro forma information regarding

8

net income and net income per share as if the Company had accounted for its stock options under the fair value method of the statement. The fair value of stock options and shares of common stock purchased under the Company’s employee stock option plan and stock purchase plan has been estimated as of the grant date using the Black-Scholes option pricing model with the following assumptions used for grants issued during the quarters ended September 30, 2005 and 2004: a risk-free interest rate of 3.87% for 2005 and 2.75% for 2004, a volatility factor of the expected common stock price of 0.391 for 2005 and 0.422 for 2004, a weighted average expected life of six years for the stock options granted in February 2005 and a weighted average expected life of four years for all previously granted options presented and an expected annual dividend rate of 0.70% for 2005 and 0.63% for 2004. For purposes of the pro forma disclosures, the estimated fair value of the stock options and employee stock purchases is amortized over the vesting period of the respective stock options and employee stock purchases.

The following table contains the pro forma disclosures and the related impact on net income and net income per share (in thousands, except per share information) required to be disclosed pursuant to SFAS No. 123:

	Three months ended September 30,				Nine months ended September 30,
	2005		2004		2005		2004
Net income:
As reported	$	30,060	$	21,279	$	73,583	$	60,703
Pro forma options expensed (net of taxes)	1,085		1,736		4,249		5,132
Pro forma income	$	28,975	$	19,543	$	69,334	$	55,571
Net income per common share:
Basic as reported	$	0.52	$	0.37	$	1.27	$	1.05
Basic pro forma	$	0.50	$	0.34	$	1.20	$	0.96
Diluted as reported	$	0.51	$	0.37	$	1.26	$	1.04
Diluted pro forma	$	0.49	$	0.34	$	1.18	$	0.95

Note D—Passenger and Ground Handling Revenue

Passenger and ground handling revenues are recognized when service is provided. Under the Company’s contract and pro-rate flying agreements with Delta and United Airlines, Inc. (“United”), as well as the Company’s prior arrangement with Continental Airlines, Inc. (“Continental”), revenue is considered earned when the flight is completed.

On September 7, 2005, the Company completed its acquisition of all of the issued and outstanding capital stock of ASA from ASA Holdings, Inc. a subsidiary of Delta. ASA is a regional airline with primary hub operations in Atlanta, Salt Lake City and Cincinnati. In connection with the acquisition of ASA, SkyWest Airlines and ASA entered into Delta Connection Agreements and they became effective September 8, 2005. On September 15, 2005, Delta filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. With the approval of the U.S. Bankruptcy Court charged with administration of Delta’s reorganization proceedings, Delta assumed the Delta Connection Agreements on October 6, 2005.

Each of the Delta Connection Agreements provides for a fifteen-year term, subject to early termination by Delta or SkyWest Airlines or ASA, as applicable, upon the occurrence of certain events. Delta’s termination rights include cross-termination rights between the two Delta Connection Agreements, the right to terminate each of the Delta Connection Agreements upon the occurrence of certain force majeure events, including certain labor-related events, that prevent SkyWest Airlines or ASA from performance for certain periods, and (iii) the right to terminate each of the ASA Delta Connection Agreements if SkyWest Airlines or ASA fails to maintain competitive base rate costs, subject to certain adjustment rights. In addition to the termination rights, Delta has the right to extend the term of the Delta

9

Connection Agreements upon the occurrence of certain events or at the expiration of the initial term. SkyWest Airlines and ASA have the right to terminate their respective Delta Connection Agreements upon the occurrence of certain breaches by Delta, including the failure to cure payment defaults. SkyWest Airlines and ASA also have cross-termination rights between the two Delta Connection Agreements.

Under the terms of the SkyWest Airlines Delta Connection Agreement, Delta agrees to compensate SkyWest Airlines for its direct costs associated with operating the Delta Connection flights, plus a payment based on block hours flown. Many of the terms of the SkyWest Airlines Delta Connection Agreement remained substantially unchanged compared to the prior agreement. However, among other changes, the SkyWest Airlines Delta Connection Agreement established a multi-year rate reset provision. Under the terms of the ASA Delta Connection Agreement, Delta agrees to compensate ASA for its direct costs associated with operating the Delta Connection flights, plus, if ASA completes a certain minimum percentage of its Delta Connection flights, an additional percentage of such costs. Additionally, ASA’s Delta Connection Agreement provides for the payment of incentive compensation upon satisfaction of certain performance goals. Under the ASA Delta Connection Agreement, excess margins over certain percentages must be returned or shared with Delta, depending on various conditions. The parties to the Delta Connection Agreements make customary representations, warranties and covenants, and the agreements contain other provisions typical of agreements of this kind, including with respect to various operational, marketing and administrative matters.

The SkyWest Airlines and ASA Delta Connection Agreements also provide a weekly payment for an amount per aircraft designed to reimburse the Company for certain aircraft ownership costs. In accordance with Emerging Issues Task Force No. 01-08, “Determining Whether an Arrangement Contains a Lease” (“EITF 01-08”), the Company has concluded that a component of its revenue under the Delta Connection Agreements is rental income, inasmuch as the Delta Connection Agreements identify the “right of use” of a specific type and number of aircraft over a stated period of time. The amounts received by the Company which were deemed to be rental income under the Delta Connection Agreement for the quarters ended September 30, 2005 and 2004 were $32.5 million and $18.1 million, respectively. The amounts received by the Company which were deemed to be rental income under the Delta Connection Agreements for the nine months ended September 30, 2005 and 2004 were $70.2 million and $54.4 million, respectively. These amounts were recorded in passenger revenue on the Company’s condensed consolidated statements of income.

Effective July 31, 2003, SkyWest Airlines entered into the United Express Agreement, which sets forth the principal terms and conditions governing the Company’s United Express operations. The United Express Agreement has received all necessary approvals from the U.S. Bankruptcy Court, creditors’ committee operating on behalf of United under bankruptcy protection and United’s pilot union. Under the terms of the United Express Agreement, SkyWest Airlines is compensated primarily on a fee-per-completed-block hour and departure basis and is reimbursed for fuel and other costs. Additionally, SkyWest Airlines is eligible for incentive compensation upon the achievement of certain performance criteria.

The United Express Agreement also provides a monthly reimbursement for an amount per aircraft designed to reimburse the Company for certain aircraft ownership costs. In accordance with EITF 01-08, the Company has concluded that a component of its revenue under the United Express Agreement is rental income, inasmuch as the United Express Agreement identifies the “right of use” of a specific type and number of aircraft over a stated period of time. The amounts deemed to be rental income under the United Express Agreement for the quarters ended September 30, 2005 and 2004 were $43.5 million and $30.0 million, respectively. The amounts deemed to be rental income under the United Express Agreement for the nine months ended September 30, 2005 and 2004 were $122.7 million and $82.2 million, respectively. These amounts were recorded in passenger revenue on the Company’s consolidated statements of income. The United Express Agreement contains certain provisions pursuant to which the

10

parties could terminate the agreement, subject to certain rights of the other party, if certain performance criteria are not maintained.

In April 2003, SkyWest signed an agreement with Continental to supply Continental with regional airline feed into Continental’s Houston hub beginning on July 1, 2003. In January 2005, the Company and Continental announced their mutual decision to end the Company’s operations as a Continental Connection carrier. As of July 1, 2005, SkyWest completed the phase-out process with Continental. The decision was reached in part due to Continental’s desire for a different aircraft type due to certain operational constraints and in part due to the SkyWest’s inability to achieve certain internal financial objectives. This flying consisted of approximately 1.5% of the SkyWest’s Company’s annual “available seat mile,” or “ASM” production for 2004.

The Company’s revenues could be impacted by a number of factors, including changes to its code-share agreements with Delta and United, contract modifications resulting from contract re-negotiations and the Company’s ability to earn incentive payments contemplated under its code-share agreements.

Note E—Income Tax

The Company recognizes a liability or asset for the deferred tax consequences of all temporary differences between the tax basis of assets and liabilities and their reported amounts in the condensed consolidated financial statements that are reasonably anticipated to result in taxable or deductible amounts in future years when the reported amounts of the assets and liabilities are recovered or settled. The Company recorded income tax expense in calendar year 2004 using a 40% effective tax rate. Due to the change in flying mix from state to state, the Company decreased its effective tax rate to 39% for the three and nine months ended September 30, 2005.

Note F—Net Income Per Common Share

Basic net income per common share (“Basic EPS”) excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share (“Diluted EPS”) reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted into common stock. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an antidilutive effect on net income per common share. During the quarters ended September 30, 2005 and 2004, 1,963,000 and 3,848,000 options were excluded from the computation of Diluted EPS, respectively, as these securities would have been antidilutive. During the nine months ended September 30, 2005 and 2004, 3,171,000 and 3,857,000 options were excluded from the computation of Diluted EPS respectively, since the inclusion of such securities would have had an antidulitive effect. The calculation of the weighted average number of common shares outstanding for Basic EPS and Diluted EPS for the periods indicated was (in thousands, except per share data):

	Three months ended September 30,				Nine months ended September 30,
	2005		2004		2005		2004
Numerator
Net Income	$	30,060	$	21,279	$	73,583	$	60,703
Denominator
Weighted average number of common shares outstanding	57,846		57,909		57,729		57,991
Effect of outstanding stock options	1,170		297		783		487
Weighted average number of shares for Diluted net income per common share	59,016		58,206		58,512		58,478
Basic earnings per share	$	0.52	$	0.37	$	1.27	$	1.05
Diluted earnings per share	$	0.51	$	0.37	$	1.26	$	1.04

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Note G—Comprehensive Income

The Company reports comprehensive income in accordance with SFAS No. 130, Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive income and its components in financial statements. Comprehensive income includes charges and credits to stockholders’ equity that are not the result of transactions with shareholders. The Company’s comprehensive income consisted of net income plus changes in unrealized appreciation (depreciation) on marketable securities, net of tax, for the periods indicated (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2005		2004		2005			2004
Net Income	$	30,060	$	21,279	$	73,583		$	60,703
Unrealized appreciation (depreciation) on marketable securities, net of tax	113		1,077		(98		)	(318		)
Comprehensive income	$	30,173	$	22,356	$	73,485		$	60,385

Note H—Long-term Debt

Long-term debt consisted of the following as of the dates indicated (in thousands):

	September 30, 2005				December 31, 2004
Notes payable to banks, due in semi-annual installments interest based on LIBOR plus .6% to 3.50%, interest rates ranging from 4.16% to 6.23% through 2012 to 2020, secured by aircraft		$	682,191			$	207,530
Notes payable to a financing company, due in semi-annual installments interest based on LIBOR plus .3% to 1.55%, interest rates ranging from 3.51% to 7.01% through 2006 to 2021, secured by aircraft		647,810				—
Notes payable to banks, due in semi-annual installments plus interest at 6.06% to 7.18% through 2021, secured by aircraft		301,677				170,716
Notes payable to a financing company, due in semi-annual installments plus interest at 5.78% to 6.23% through 2019, secured by aircraft		93,327				—
Notes payable to banks, due in monthly installments plus interest of 6.05% to 7.38% through 2020, secured by aircraft		32,659				36,867
Notes payable to banks, due in semi-annual installments plus interest at 3.72% to 3.86%, net of the benefits of interest rate subsidies through the Brazilian Export financing program, through 2011, secured by aircraft		14,441				15,897
Notes payable to bank, due in monthly installments interest based on LIBOR through 2012, interest rate at 7.9% secured by building		7,525				7,865
Other notes payable, secured by aircraft		149				750
Notes payable to banks, due in quarterly installments interest based on LIBOR plus 0.75% through 2019, secured by aircraft		—				56,193
Total debt		$	1,779,779			$	495,818
Less current maturities		(255,653		)		(32,585		)
Total long-term debt		$	1,524,126			$	463,233

At September 30, 2005, the three-month and six-month LIBOR rates were 4.07% and 4.23%, respectively.  At December 31, 2004, the three-month and six-month LIBOR rates were 2.56% and 2.78%, respectively.

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The aggregate amounts of principal maturities of long-term debt as follows (in thousands):

Quarter ending September 30,
2006	255,653
2007	170,162
2008	101,475
2009	105,642
2010	109,982
Thereafter	1,036,865
	$	1,779,779

The Company’s total long-term debt at September 30, 2005 was $1,780.0 million, of which $1,772.5 million related to the acquisition of aircraft and $7.5 million related to the construction of the Company’s corporate office building. The average effective rate on the debt related to the aircraft of $1,772.5 million was approximately 5.6% at September 30, 2005.

During the quarter ended September 30, 2005, SkyWest Airlines entered into two separate borrowing arrangements. SkyWest Airlines increased an existing $10.0 million line-of-credit facility, with a bank, to $40.0 million. SkyWest Airlines borrowed $30.0 million under the facility. This facility expires on January 31, 2007. Additionally, SkyWest Airlines entered into another borrowing facility with a financing company and borrowed $60.0 million. This facility, which is guaranteed by the Company, expires on March 21, 2006. The amounts borrowed under both arrangements were utilized for general corporate purposes.

During the three months ended September 30, 2005, the Company took delivery of five new 70-seat Canadair Regional Jet aircraft (“CRJ700s”) and financed the acquisitions using long-term leveraged leases. Additionally, during the quarter, ASA took delivery of two new 50-seat Canadair Regional Jet aircraft (“CRJ200s”) and financed the acquisitions using long-term debt arrangements. The Company’s long-term debt increased to approximately $1,780 million as of September 30, 2005, compared to $463.2 million at December 31, 2004, largely as a result of the assumption of approximately $1.0 billion of long-term debt related to the ASA acquisition and normal aircraft acquisitions. The Company has significant long-term lease obligations that are recorded as operating leases and are not reflected as liabilities on the Company’s condensed consolidated balance sheets. At a 7.0% discount factor, the present value of these lease obligations was approximately $2 billion as of September 30, 2005.

Note I—Commitments and Contingencies

The Company leases 222 aircraft, as well as airport facilities, office space, and various other property and equipment under non-cancelable operating leases which are generally on a long-term net rent basis where the Company pays taxes, maintenance, insurance and certain other operating expenses applicable to the leased property. Management expects that, in the normal course of business, leases that expire will be renewed or replaced by other leases. During the three months ended September 30, 2005, the Company took delivery on seven CRJ700s. The following table summarizes future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of September  30, 2005 (in thousands):

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September through December 2005	$	73,927
2006	297,810
2007	276,009
2008	255,955
2009	279,788
2010	273,205
Thereafter	1,727,835
	$	3,184,529

On September 30, 2005, the Company had commitments of approximately $1.1 billion to purchase 37 CRJ700s and six CRJ200s, together with the related flight equipment. The Company currently anticipates that it will take delivery of these aircraft between October 2005 and March 2007. The Company has also obtained options to acquire another 80 CRJ700s that can be delivered in either 70 or 90-seat configurations. The Company presently anticipates that delivery dates for these aircraft could start in January 2007 and continue through April 2010; however, actual delivery dates remain subject to final determination as agreed upon by the Company and its code share partners.

During the quarter ended September 30, 2005, SkyWest Airlines entered into long-term permanent leveraged lease facilities for ten previously delivered CRJ200 regional jet aircraft and 27 previously delivered CRJ700 regional jet aircraft with two different parties. All of these aircraft deliveries were previously financed under interim facility arrangements with various parties.

In January 2003, the FASB issued Interpretation No. 46, or (FIN 46), Consolidation of Variable Interest Entities, which requires the consolidation of variable interest entities. The majority of the Company’s leased aircraft are owned and leased through trusts whose sole purpose is to purchase, finance and lease these aircraft to the Company; therefore, they meet the criteria of a variable interest entity. However, since these are single owner trusts in which the Company does not participate, the Company is not at risk for losses and is not considered the primary beneficiary. As a result, based on the current rules, the Company is not required to consolidate any of these trusts or any other entities in applying FIN 46. Management believes that the Company’s maximum exposure under these leases does not exceed the aggregate amount of the remaining lease payments.

Note J—Legal Matters

The Company is subject to certain legal actions which it considers routine to its business activities. As of September 30, 2005, management believes, after consultation with legal counsel, that the ultimate outcome of such legal matters will not have a material adverse effect on the Company’s financial position, liquidity or results of operations. As of September 30, 2005, the status of the most significant of these matters was as follows:

Michaelena Fitz-Gerald, Romead Neilson, et al., v. SkyWest Airlines, Inc.

In July 2003, two former flight attendants SkyWest Airlines filed a class-action lawsuit in the Superior Court of Santa Barbara, California, alleging failure to pay minimum wage and overtime, and grant meal and rest breaks as required by state law, as well as violations of Section 203 of the California Labor Code and Section 17000 of the Business and California Professions Code. On September 1, 2005, the Superior Court announced that it would grant summary judgment in favor of SkyWest Airlines and has since dismissed the case. The plaintiffs have the ability to appeal the dismissal. Because the amount of a potential loss, if any, resulting from the outcome of this case is neither probable nor reasonably estimable, no amounts related to such have been recorded in the Company’s condensed consolidated financial statements

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Securities and Exchange Commission

Effective January 1, 2002, the Company changed its method of accounting for CRJ200 engine overhaul expenses. In connection with the change in accounting method, the Company restated its financial statements for the year ended December 31, 2001 and the first and second quarters of the year ended December 31, 2002. The restated financial information, together with a discussion of the change in accounting method, was presented in Amendment No. 1 on our Form 10-K/A for the year ended December 31, 2001 and Amendments No. 1 on the Company’s Annual Report on Forms 10-Q/A for the quarters ended March 31, 2002 and June 30, 2002. The staff of the SEC is currently conducting an investigation of the facts pertaining to the change in our accounting method and other changes presented in the restatement of our financial statements. We do not believe that any of the matters under investigation constitute a violation of law. In June 2005, after extensive discussions with the SEC staff, we presented to the SEC an offer to enter into a cease and desist order pursuant to which we would agree not to violate federal securities laws in the future. The SEC is currently evaluating our proposal; however, there can be no assurance that our offer will be accepted. We continue to cooperate with the SEC in an effort to resolve the investigation.

Note K—Accounting for Stock-Based Compensation

As contemplated by SFAS Statement 123, Accounting for Stock-Based Compensation, the Company currently accounts for share-based payments to employees using the intrinsic value method set forth in Opinion 25, Accounting for Stock Issued to Employees and, as such, the Company does not recognize compensation cost for employee stock options. Accordingly, the adoption of the fair value method set forth in Statement 123(R) is likely to have a significant impact on the Company’s results of operations, although it is not anticipated to have a significant impact on the Company’s overall financial position. The impact of adoption of Statement 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had the Company adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income and earnings per share in Note C to the Company’s condensed consolidated financial statements. Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption.

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

The following discussion and analysis presents factors that had a material effect on the results of operations of SkyWest, Inc. (“we” or “us”) during the nine months ended September 30, 2005 and 2004. Also discussed is our financial position as of the end of those periods. You should read this discussion in conjunction with our consolidated financial statements, including the notes thereto, appearing elsewhere in this prospectus or incorporated herein by reference. This discussion and analysis contains forward-looking statements. Please refer to the sections of this report entitled “Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors” for discussion of the uncertainties, risks and assumptions associated with these statements.

Overview

Through our wholly-owned subsidiaries, SkyWest Airlines, Inc. (“SkyWest Airlines”) and Atlantic Southeast Airlines, Inc. (“ASA”), we operate the largest regional airline in the United States. As of September 30, 2005, SkyWest Airlines and ASA offered scheduled passenger and air freight service with more than 2,400 total daily departures to 212 different destinations in the United States, Canada, Mexico and the Caribbean. Additionally, we provide ground handling services for approximately ten other airlines throughout our system. As of September 30, 2005, our fleet consisted of tenCRJ100s (all assigned to Delta), 219 CRJ200s (65 assigned to United, 150 assigned to Delta, and four assigned to SkyWest Airlines), 72 CRJ700s (37 assigned to United and 35 assigned to Delta), 63 Embraer Brasilia EMB-120 turboprops (“Brasilia Turboprops”) (50 assigned to United and 13 assigned to Delta), and 12 Avions de Transport 72-210 (“ATR-72 turboprops”) (all assigned to Delta). For the month ended September 30, 2005, approximately 59.3% of SkyWest Inc.’s capacity was operated under the Delta code and approximately 40.7% was operated under the United code. All of ASA’s capacity during September 2005 was operated under the Delta code.

SkyWest Airlines has been a partner with Delta in Salt Lake City and United in Los Angeles since 1987 and 1997, respectively. In 1998, SkyWest Airlines expanded its relationship with United to provide service in Portland, Seattle/Tacoma, San Francisco and additional Los Angeles markets. In 2001, SkyWest Airlines expanded its operations to serve as the Delta Connection in Dallas/Fort Worth. However, effective January 31, 2005, SkyWest Airlines re-deployed all its Delta Connection flights to Salt Lake City as a result of Delta’s decision to “de-hub” its Dallas/Fort Worth operations. In 2004, SkyWest Airlines expanded its United Express operations to provide service in Chicago. As of September 30, 2005, SkyWest Airlines operated as a Delta Connection carrier in Salt Lake City, and a United Express carrier in Los Angeles, San Francisco, Denver, Chicago and the Pacific Northwest, operating more than 1,500 total daily flights. SkyWest Airlines believes its success in attracting multiple contractual relationships with major airline partners is attributable to its delivery of high-quality customer service with an all cabin-class fleet at a competitive cost structure. In April 2003, SkyWest Airlines signed an agreement with Continental to supply Continental with regional airline feed into Continental’s Houston hub beginning on July 1, 2003. The Continental flying represented only approximately 1.5% of our 2004 ASM production and generated less than 1.0% of our 2004 operating income. In January 2005, we announced the mutual decision with Continental to end our operations as a Continental Connection carrier and we completed the phase-out process on July 1, 2005.

ASA has been a code-share partner with Delta in Atlanta since 1984. ASA expanded its operations as a Delta Connection carrier to also include Cincinnati/Northern Kentucky and Salt Lake City in September 2002 and April 2003, respectively. ASA operates more than 900 daily flights, all in the Delta Connection system.

Historically, multiple contractual relationships have enabled us to reduce reliance on any single major airline code and to enhance and stabilize operating results through a mix of our controlled or “pro-rate” flying and contract flying. On contract routes, the major airline partner controls scheduling, ticketing,

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pricing and seat inventories and we are compensated by the major airline partner at contracted rates based on the completed block hours, flight departures and other operating measures. On pro-rate flights, we control scheduling, ticketing, pricing and seat inventories and receive a pro-rated portion of passenger fares. Since August 1, 2003, substantially all of our flights have been contract flights. For the quarter ended September 30, 2005, essentially all of our Brasilia turboprops flown for Delta were flown under pro-rate arrangements while approximately 91% of our Brasilia turboprops flown in the United system were flown under contractual arrangements, with the remaining nine percent flown under pro-rate arrangements.

In September 2005, Delta filed for reorganization under Chapter 11 of the United States Bankruptcy Code. Prior to the date of Delta’s bankruptcy filing, each of SkyWest Airlines and ASA entered into an amended Delta Connection Agreement which provides for a 15-year term, subject to certain termination and extension rights. Delta received all necessary approvals from the U.S. Bankruptcy Court and the Delta Connection Agreements were assumed by Delta on October 6, 2005. Accordingly, $90 million of the $95 million held in escrow as of September 30, 2005 was subsequently paid to Delta. Under the terms of its Delta Connection Agreement, SkyWest Airlines is compensated primarily on a fee-per-completed-block hour and departure basis, is reimbursed for fuel and other direct costs, and is paid a margin based on completed block hours. Under its Delta Connection Agreement, ASA is compensated primarily on a fee-per-completed-block-hour basis, is directly reimbursed for fuel and other costs, and is paid a margin based on performance incentives. Notwithstanding the assumption by Delta of the Delta Connection Agreements, Delta’s bankruptcy filing could still lead to many other unforeseen expenses, risks and uncertainties for SkyWest Airlines, ASA or both.

In December 2002, United filed for reorganization under Chapter 11 of the United States Bankruptcy Code. During September 2003, we entered into a new United Express Agreement, which sets forth the principal terms and conditions governing our United Express operations. The United Express Agreement received all necessary approvals from the U.S. Bankruptcy Court, the creditors’ committee operating on behalf of United under bankruptcy protection and United’s pilot union. Under the terms of the United Express Agreement, we are compensated primarily on a fee-per-completed-block hour and departure basis, plus a margin based on performance incentives, and are reimbursed for fuel and other costs. Notwithstanding the assumption by United of the United Express Agreement, United’s bankruptcy filing could still lead to many other unforeseen expenses, risks and uncertainties.

Although both Delta and United have reported that they intend to emerge from their ongoing Chapter 11 bankruptcies, either or both could still file for liquidation under the bankruptcy code, or liquidate some or all of their assets through one or more transactions with third parties. Such events, individually or singly, could jeopardize our Delta Connection and United Express operations, leave us unable to efficiently utilize the additional aircraft which we are currently obligated to purchase, or result in other outcomes which could have a material adverse effect on our operations and financial condition.

On February 4, 2005, we announced that SkyWest Airlines had been selected by United to operate 20 new CRJ700s in its United Express operations, and that SkyWest Airlines had placed a firm order for these CRJ700s with Bombardier. Deliveries of these aircraft began in the third quarter of 2005 and we expect these deliveries to be completed by the first quarter of 2006. Our total firm aircraft orders, as of September 30, 2005, consisted of orders for 37 CRJ700s and 6 CRJ200s with gross committed expenditures for these aircraft and related equipment, including amounts for contractual price escalations estimated to be approximately $1.1 billion through April 2007. Additionally, our agreement with Bombardier includes options for another 80 aircraft that can be delivered in either 70 or 90-seat configurations. We presently anticipate that delivery dates for these aircraft could start in January 2007 and continue through April 2010; however, actual delivery dates remain subject to final determination as agreed upon by us and our code-share partners.

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Cautionary Statement Concerning Forward-Looking Statements

Certain of the statements contained in this registration statement should be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “could,” “should,” “hope,” “likely,” and “continue” and similar terms used in connection with statements regarding our outlook, the revenue environment, our contract relationships, and our expected financial performance. These statements include, but are not limited to, statements about the benefits of our acquisition of ASA, including our future financial and operating results, our plans for SkyWest Airlines and ASA, our objectives, expectations and intentions and other statements that are not historical facts. You should also keep in mind that all forward-looking statements are based on our existing beliefs about present and future events outside of our control and on assumptions that may prove to be incorrect. If one or more risks identified in this report, or any applicable filings materializes, or any other underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected, or intended. These risks and uncertainties include, but are not limited to, those described below under the heading “Risk Factors” and the following:

·our ability to achieve anticipated potential benefits with respect to our acquisition of ASA;

·our ability to obtain and maintain financing necessary for operations and other purposes;

·our ability to maintain adequate liquidity;

·the impact of high fuel prices on the airline industry;

·the impact of global instability, including the continued impact of the United States military presence in foreign countries, the September 11, 2001 terrorist attacks and the potential impact of future hostilities, terrorist attacks or other global events;

·our ability to attract and retain code-share partners;

·changes in our code-share relationships;

·the cyclical nature of the airline industry;

·competitive practices in the airline industry, including significant fare-restructuring activities, capacity reductions and bankruptcy and other airline restructurings by major and regional carriers, including Delta and United;

·global and national economic conditions;

·labor costs;

·security-related and insurance costs;

·weather conditions;

·government legislation and regulation;

·unfavorable resolution of negotiations with municipalities for the leasing of facilities;

·relations with ASA’s unionized employees and the impact and outcome of labor negotiations;

·unionization efforts among SkyWest Airlines’ employees; and

·other risks and uncertainties listed from time to time in our reports filed with the SEC.

There may be other factors not identified above of which we are not currently aware that may affect matters discussed in the forward-looking statements, and may also cause actual results to differ materially from those discussed. We assume no obligation to publicly update any forward-looking statement to reflect

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actual results, changes in assumptions or changes in other factors affecting these statements other than as required by law.

Risk Factors

Before you invest in our common stock, you should be aware that such investment involves a high degree of risk, including the risks described below. You should consider carefully these risk factors, together with all of the other information included in this prospectus, before you decide to purchase any shares of our common stock. Additional risks and uncertainties not presently known to us or that we currently do not deem material may also impair our business operations. If any of the risks we describe below occur, or if any unforeseen risk develops, our operating results may suffer, our financial condition may deteriorate, the trading price of our common stock may decline and you may lose all or part of your investment.

Risks Related to Our Operations

We may be negatively impacted by the troubled financial condition, bankruptcy proceedings and restructurings of Delta and United.

Substantially all of our revenues are attributable to our code-share agreements with Delta and United, both of which are currently reorganizing under Chapter 11 of the U.S. Bankruptcy Code. The U.S. Bankruptcy Courts charged with administration of the Delta and United bankruptcy cases have entered final orders approving the assumption of our code-share agreements. Notwithstanding those approvals, both bankruptcy cases present considerable continuing risks and uncertainties for our code-share agreements and, consequently, for our operations.

Although Delta and United have reported that they intend to reorganize and emerge from Chapter 11, there is no assurance that either of their reorganizations will succeed or that Delta and United ultimately will remain going concerns. Likewise, even though Delta and United have assumed our code-share agreements with court approval, there is no assurance that these agreements will survive the Chapter 11 cases. A Bankruptcy Court could still approve the termination of our code-share agreements under certain circumstances. For example, the Delta and/or United reorganization could be converted to liquidations, or Delta and/or United could liquidate some or all of their assets through one or more transactions with one or more third parties with Bankruptcy Court approval. In addition, Delta and/or United may not be able to develop, prosecute, confirm and consummate successful plans of reorganization that provide for continued performance of their obligations under the code-share agreements.

Other aspects of the Delta and United Chapter 11 cases pose additional risks to our code-share agreements. Delta and/or United may not be able to obtain Bankruptcy Court approval of various motions necessary for them to administer their respective bankruptcy cases. As a consequence, they may not be able to maintain normal commercial terms with vendors and service providers, including other code-share partners, that are critical to their operations. They also may be unable to reach satisfactory resolutions of disputes arising out of collective bargaining agreements. In addition, they may not be able to obtain sufficient financing to fund their businesses while they reorganize. These and other factors not identified here of which we are not aware could delay the resolution of the Delta and United Chapter 11 cases significantly and could threaten the ability of Delta and United to emerge from bankruptcy.

In light of the importance of the code-share agreements with Delta and United to our business, the termination of these agreements or the failure of either Delta or United to emerge from bankruptcy could jeopardize our operations. Such events could leave us unable to operate much of our current aircraft fleet and the additional aircraft we are obligated to purchase. As a result, they could have a material adverse effect on our operations and financial condition.

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Even if Delta and United successfully emerge from bankruptcy, their respective financial positions will continue to pose risks for our operations. Serial bankruptcies are not unprecedented in the commercial airline industry, and Delta and/or United could file for bankruptcy again after emergence from their present Chapter 11 cases, in which case our code-share agreements could be subject to termination under the Bankruptcy Code. Regardless of whether subsequent bankruptcy filings prove to be necessary, Delta and United have required, and will likely continue to require, our participation in efforts to reduce costs and improve their respective financial positions. These efforts could result in lower utilization rates of our aircraft, lower departure rates on the contract flying portion of our business, and more volatile operating margins. We believe that any of these developments could have a negative effect on many aspects of our operations and financial performance.

We are highly dependent on Delta and United.

The current terms of the SkyWest Airlines and ASA Delta Connection Agreements are subject to certain early termination provisions. Delta’s termination rights include cross-termination rights (meaning that a breach by SkyWest Airlines or ASA of its Delta Connection Agreement could, under certain circumstances, permit Delta to terminate both Delta Connection Agreements), the right to terminate each of the agreements upon the occurrence of certain force majeure events (including certain labor-related events) that prevent SkyWest Airlines or ASA from performance for certain periods and the right to terminate each of the agreements if SkyWest Airlines or ASA, as applicable, fails to maintain competitive base rate costs, subject to certain rights of SkyWest Airlines to take corrective action to reimburse Delta for lost revenues. The current term of our United Express Agreement is subject to certain early termination provisions and subsequent renewals. United may terminate the United Express Agreement due to an uncured breach by SkyWest Airlines of certain operational and performance provisions, including measures and standards related to flight completions, baggage handling and on-time arrivals.

If any of our code-share agreements are terminated pursuant to the terms of those agreements, due to the ultimate resolution of the bankruptcy proceedings of Delta and United, or otherwise, we would be significantly impacted and likely would not have an immediate source of revenue or earnings to offset such loss. A termination of any of these agreements would have a material adverse effect on our financial condition, operating revenues and net income unless we are able to enter into satisfactory substitute arrangements for the utilization of these aircraft by other code-share partners, or, alternatively, obtain the airport facilities and gates and make the other arrangements necessary to fly as an independent airline. We may not be able to enter into substitute code-share arrangements, and any such arrangements we might secure may not be as favorable to us as our current agreements. Operating our airline independent from major partners would be a significant departure from our business plan, would likely be very difficult and may require significant time and resources, which may not be available to us at that point.

We currently use Delta’s and United’s systems, facilities and services to support a significant portion of our operations, including airport and terminal facilities and operations, information technology support, ticketing and reservations, scheduling, dispatching, fuel purchasing and ground handling services. If Delta or United were to cease any of these operations or no longer provide these services to us, due to termination of one of our code-share agreements, a strike by Delta or United personnel or for any other reason, we may not be able to replace these services on terms and conditions as favorable as those we currently receive, or at all. Since our revenues and operating profits are dependent on our level of flight operations, we could then be forced to significantly reduce our operations. Furthermore, upon certain terminations of our code-share agreements, Delta and United could require us to sell or assign to them facilities and inventories, including maintenance facilities, we use in connection with the code-share services we provide. As a result, in order to offer airline service after termination of any of our code-share agreements, we may have to replace these airport facilities, assets and services. We may be unable to arrange such replacements on satisfactory terms, or at all.

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We may not achieve the potential benefits of the ASA acquisition.

Our achievement of the potential benefits of the ASA acquisition will depend, in substantial part, on our ability to successfully implement our business strategy, including improving the utilization of equipment and facilities, increasing employee productivity and allocating overhead and administrative expenses over a larger platform. We will be unable to achieve the potential benefits of the ASA acquisition unless we are able to efficiently integrate the SkyWest Airlines and ASA operating platforms in a timely manner. The integration of SkyWest Airlines and ASA may be costly, complex and time-consuming, and the managements of SkyWest Airlines and ASA will have to devote substantial effort to such integration. If we are not able to successfully achieve these objectives, the potential benefits of the ASA acquisition may not be realized fully or at all, or it may take longer to realize than expected. In addition, assumptions underlying estimates of expected cost savings and expected revenues may be inaccurate, or general industry and business conditions may deteriorate. Our combined operations with ASA may experience increased competition that limits our ability to expand our business. We cannot assure you that the ASA acquisition will result in combined results of operations and financial condition consistent with our expectations or superior to what we and ASA could have achieved independently. Nor do we represent to you that any estimates or projections we have developed or presented in connection with the ASA acquisition can or will be achieved.

The amounts we receive under our code-share agreements may be less than the actual amounts of the corresponding costs we incur.

Under our code-share agreements with Delta and United, we are compensated for certain costs we incur in providing services. With respect to costs that are defined as “pass-through” costs, our code-share partner is obligated to pay to us the actual amount of the cost (and, with respect to the ASA Delta Connection Agreement, a pre-determined rate of return based upon the actual cost we incur). With respect to other costs, our code-share partner is obligated to pay to us amounts based, in part, on pre-determined rates for certain costs. During the nine months ended September 30, 2005, approximately 57% of our costs were pass-through costs and 43% of our costs were reimbursable at pre-determined rates. These pre-determined rates may not be based on the actual expenses we incur in delivering the associated services. If we incur expenses that are greater than the pre-determined reimbursement amounts payable by our code-share partners, our financial results will be negatively affected.

We have a significant amount of contractual obligations.

As of September 30, 2005, we had a total of approximately $1.8 billion in total long-term debt obligations. Substantially all of this long-term debt was incurred in connection with the acquisition of aircraft, engines and related spare parts. We also have significant long-term lease obligations primarily relating to our aircraft fleet. These leases are classified as operating leases and therefore are not reflected as liabilities in our condensed consolidated balance sheets. At September 30, 2005, we had 222 aircraft under lease, with remaining terms ranging from one to 20 years. Future minimum lease payments due under all long-term operating leases were approximately $3.2 billion at September 30, 2005. At a 7% discount factor, the present value of these lease obligations was equal to approximately $2.0 billion at September 30, 2005. As of September 30, 2005, we had commitments of approximately $1.1 billion to purchase 37 CRJ700s and six CRJ200s, together with related flight equipment. We continued taking delivery of these aircraft in October 2005 and expect to complete these deliveries in January 2006. Our high level of fixed obligations could impact our ability to obtain additional financing to support additional expansion plans or divert cash flows from operations and expansion plans to service the fixed obligations.

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There are risks associated with our regional jet strategy, including potential oversupply and possible passenger dissatisfaction.

Our selection of Canadair Regional Jets as the primary aircraft for our existing operations and projected growth involves risks, including the possibility that there may be an oversupply of regional jets available for sale in the foreseeable future, due, in part, to the financial difficulties of regional and major airlines, including Delta, United, Northwest, Comair, Mesaba, and FLYi. A large supply of regional jets may allow other carriers, or even new carriers, to acquire aircraft for unusually low acquisition costs, allowing them to compete more effectively in the industry, which may ultimately harm our operations and financial performance.

Our regional jet strategy also presents the risk that passengers may find the Canadair Regional Jets to be less attractive than other aircraft, including other regional jets. Recently, several other models of regional jets have been introduced by manufacturers other than Bombardier. If passengers develop a preference for other regional jet models, our results of operation and financial results could be negatively impacted.

We may be limited from expanding our flying within the Delta and United flight systems, and there are constraints on our ability to provide airline services to airlines other than Delta and United.

Additional growth opportunities within the Delta and United flight systems are limited by various factors. Except as currently contemplated by our existing code-share agreements, we cannot assure that Delta or United will contract with us to fly any additional aircraft. We may not receive additional growth opportunities, or may agree to modifications to our code-share agreements that reduce certain benefits to us in order to obtain additional aircraft, or for other reasons. Furthermore, the troubled financial condition, bankruptcies and restructurings of Delta and United may reduce the growth of regional flying within their flight systems. Given the troubled nature of the airline industry, we believe that some of our competitors may be more inclined to accept reduced margins and less favorable contract terms in order to secure new or additional code-share operations. Even if we are offered growth opportunities by our major partners, those opportunities may involve economic terms or financing commitments that are unacceptable to us. Any one or more of these factors may reduce or eliminate our ability to expand our flight operations with our existing code-share partners. Additionally, even if Delta and/or United choose to expand our fleet on terms acceptable to us, they may be allowed at any time to subsequently reduce the number of aircraft covered by our code-share agreements. We also cannot assure you that we will be able to obtain the additional ground and maintenance facilities, including gates, and support equipment, to expand our operations. The failure to obtain these facilities and equipment would likely impede our efforts to implement our business strategy and could materially adversely affect our operating results and our financial condition.

Delta and/or United may be restricted in increasing their business with us, due to “scope” clauses in the current collective bargaining agreements with their pilots that restrict the number and size of regional jets that may be operated in their flight systems not flown by their pilots. Delta’s scope limitations restrict its partners from operating aircraft with over 70 seats even if those aircraft are operated for an airline other than Delta. We cannot assure that these scope clauses will not become more restrictive in the future. Any additional limit on the number of regional jets we can fly for our code-share partners could have a material adverse effect on our expansion plans and the price of our common stock.

Our business models depends on major airlines, including Delta and United, electing to contract with us instead of operating their own regional jets. Some major airlines, including Delta, American, US Airways and JetBlue, own their own regional airlines or operate their own regional jets instead of entering into contracts with regional carriers. We have no guarantee that in the future our code-share partners will choose to enter into contracts with us instead of operating their own regional jets. Our partners are not

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prohibited from doing so under our code-share agreements. A decision by Delta or United to phase out code-share relationships and instead acquire and operate their own regional jets could have a material adverse effect on our financial condition, results of operations or the price of our common stock.

Additionally, our code-share agreements limit our ability to provide airline services to other airlines in certain major airport hubs of each of Delta and United. Under SkyWest Airlines’ Delta Connection Agreement, our growth is contractually restricted in Atlanta, Cincinnati, Orlando and Salt Lake City. Under ASA’s Delta Connection Agreement, our growth is restricted in Atlanta, Cincinnati, New York (John F. Kennedy International Airport), Orlando and Salt Lake City. Under SkyWest Airlines’ United Express Agreement, growth is restricted in Chicago (O’Hare International Airport), Denver, Los Angeles, San Francisco, Seattle/Tacoma and Washington D.C. (Dulles International Airport).

Increased labor costs, strikes, labor disputes and increased unionization of our workforces may adversely affect our ability to conduct our business.

Our business is labor intensive, requiring large numbers of pilots, flight attendants, mechanics and other personnel. Labor costs constitute a significant percentage of our total operating costs. For example, during the nine months ended September 30, 2005, our labor costs constituted approximately 24.7% of our total operating costs. Increases in our unionized labor costs could result in a material reduction in our earnings and affect our revenue under our code-share agreements. Any new collective bargaining agreements entered into by other regional carriers may also result in higher industry wages and increased pressure on us to increase the wages and benefits of our employees. Future agreements with unionized and non-unionized employees may be on terms that are not as attractive as our current agreements or comparable to agreements entered into by our competitors.

SkyWest Airlines’ employees are not currently represented by any union; however, collective bargaining group organization efforts among those employees occur from time to time. We recognize that such efforts will likely continue in the future and may ultimately result in some or all of SkyWest Airlines’ employees being represented by one or more unions. Moreover, one or more unions representing ASA employees may seek a single carrier determination by the National Mediation Board, which could require SkyWest Airlines to recognize such union or unions as the certified bargaining representative of SkyWest Airlines’ employees. One or more unions representing ASA employees may also assert that SkyWest Airlines’ employees should be subject to ASA collective bargaining agreements. If SkyWest Airlines’ employees were to unionize or be deemed to be represented by one or more unions, negotiations with unions representing SkyWest Airlines’ employees could divert management attention and disrupt operations, which may result in increased operating expenses and lower net income. Moreover, we cannot predict the outcome of any future negotiations relating to union representation or collective bargaining agreements. Agreements reached in collective bargaining may increase operating expenses and lower operating results and net income. If unionizing efforts among SkyWest Airlines’ employees are successful, we may be subjected to risks of work interruption or stoppage and/or incur additional administrative expenses associated with union representation.

ASA’s pilots, flight attendants and flight controllers are represented by unions, including the following unions: The Air Line Pilots Association, International, the Association of Flight Attendants—CNA and the Professional Airline Flight Control Association. ASA’s pilots and flight attendants are currently working under open labor contracts, and ASA has been in negotiations with respect to such contracts since 2004. Negotiations with unions representing SkyWest Airlines’ employees could divert management attention and disrupt operations, which may result in increased operating expenses and lower net income. Moreover, we cannot predict the outcome of any future negotiations relating to union representation or collective bargaining agreements.

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If we are unable to reach labor agreements with any current or future unionized work groups, we may be subject to work interruptions or stoppages, which may adversely affect our ability to conduct our operations and may even allow Delta or United to terminate their respective code-share agreements.

We may be unable to obtain all of the aircraft, engines, parts or related maintenance and support services we require, which could have a material adverse impact on our business.

We rely on a limited number of aircraft types, and are dependent on Bombardier as the sole manufacturer of our regional jets. For the month ended September 30, 2005, 64.8% of our available seat miles were flown using CRJ200s, 26.6% of our available seat miles were flown using CRJ700s, 8.0% of our available seat miles were flown using Brasilia turboprops and 0.6% of our available seat miles were flown using ATR-72 turboprops. Additionally, as of September 30, 2005, we had firm agreements to acquire 37 CRJ700s, six CRJ200s, and had obtained options to acquire another 80 CRJ700s that can be delivered in either 70 or 90-seat configurations. Delivery dates for these aircraft remain subject to final determination as agreed upon by us and our major partners.

Any significant disruption or delay in the expected delivery schedule of our fleet would adversely affect our business strategy and overall operations and could have a material adverse impact on our operating results or our financial condition. Certain of Bombardier’s aerospace workers are represented by unions and have participated in at least one strike in recent history. Any future prolonged strike at Bombardier or delay in Bombardier’s production schedule as a result of labor matters could disrupt the delivery of regional jets to us, which could adversely affect our planned fleet growth. We are also dependent on General Electric as the manufacturer of our aircraft engines. General Electric also provides parts, repair and overhaul services, and other types of support services on our engines. Our operations could be materially and adversely affected by the failure or inability of Bombardier or General Electric to provide sufficient parts or related maintenance and support services to us on a timely or economical basis, or the interruption of our flight operations as a result of unscheduled or unanticipated maintenance requirements for our aircraft or engines. In addition, the issuance of Federal Aviation Administration directives restricting or prohibiting the use of Bombardier aircraft types we operate would have a material adverse effect on our business and operations.

Maintenance costs will likely increase as the age of our regional jet fleet increases.

Because the average age of our CRJ700s and CRJ200s is approximately 1.3 and 3.9 years, respectively, our regional jet fleet requires less maintenance now than it will in the future. We have incurred relatively low maintenance expenses on our regional jet fleet because most of the parts on our regional jet aircraft are under multi-year warranties and a limited number of heavy airframe checks and engine overhauls have occurred. Our maintenance costs will increase significantly, both on an absolute basis and as a percentage of our operating expenses, as our fleet ages and these warranties expire. Under our United Express Agreement, specific amounts are included in the rates for future maintenance on CRJ200 engines used in our United Express operations. The actual cost of maintenance on CRJ200 engines may vary from the estimated rates.

If we incur problems with any of our third-party service providers, our operations could be adversely affected.

Our reliance upon others to provide essential services on behalf of our operations may limit our ability to control the efficiency and timeliness of contract services. We have entered into agreements with contractors to provide various facilities and services required for our operations, including fuel supply and delivery, aircraft maintenance, services and ground facilities, and expect to enter into additional similar agreements in the future. These agreements are subject to termination after notice. Any material problems

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with the efficiency and timeliness of our automated or contract services could have a material adverse effect on our business, financial condition and results of operations.

Interruptions or disruptions in service at one of our hub airports, due to adverse weather or for any other reason, could have a material adverse impact on our operations.

We expect that we will operate primarily through hubs in Atlanta, Los Angeles, San Francisco, Salt Lake City, Chicago, Denver, Cincinnati/Northern Kentucky and the Pacific Northwest. Nearly all of our flights will either originate or fly into one of these hubs. Our revenues depend primarily on our completion of flights and secondarily on service factors such as timeliness of departure and arrival. Any interruptions or disruptions could, therefore, severely and adversely affect us. Extreme weather can cause flight disruptions, and during periods of storms or adverse weather, fog, low temperatures, etc., our flights may be canceled or significantly delayed. Hurricanes Katrina and Rita, in particular, caused severe disruption to air travel in the affected areas and adversely affected airlines operating in the region, including ASA. We operate a significant number of flights to and from airports with particular weather difficulties, including Atlanta, Salt Lake City, Chicago and Denver. A significant interruption or disruption in service at one of our hubs, due to adverse weather or otherwise, could result in the cancellation or delay of a significant portion of our flights and, as a result, could have a severe impact on our business, operations and financial performance.

Fluctuations in interest rates could adversely affect our liquidity, operating expenses and results.

A substantial portion of our indebtedness bears interest at fluctuating interest rates. These are primarily based on the London interbank offered rate for deposits of U.S. dollars, or LIBOR. LIBOR tends to fluctuate based on general economic conditions, general interest rates, federal reserve rates and the supply of and demand for credit in the London interbank market. We have not hedged our interest rate exposure and, accordingly, our interest expense for any particular period may fluctuate based on LIBOR and other variable interest rates. To the extent these interest rates increase, our interest expense will increase, in which event, we may have difficulty making interest payments and funding our other fixed costs and our available cash flow for general corporate requirements may be adversely affected.

Our business could be harmed if we lose the services of our key personnel.

Our business depends upon the efforts of our president and chief executive officer, Jerry C. Atkin, and our other key management and operating personnel. We may have difficulty replacing management or other key personnel who leave and, therefore, the loss of the services of any of these individuals could harm our business. We do not maintain key-man insurance on any of our executives.

The Securities and Exchange Commission staff is investigating our accounting treatment of certain maintenance costs.

Effective January 1, 2002, we changed our method of accounting for certain engine overhaul expenses. In connection with this change, we restated our financial statements for the year ended December 31, 2001 and the first and second quarters of the year ended December 31, 2002. The staff of the SEC has been investigating the facts pertaining to this change in accounting method and the related restatements. We have cooperated with this investigation, and have offered to enter into a cease and desist order pursuant to which we would agree not to violate federal securities laws in the future. The SEC is currently reviewing our offer. If our offer is not accepted, we may be required to devote additional time and resources in responding to the investigation, and we could experience other adverse consequences.

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Risks Related to the Airline Industry

We may be materially affected by the uncertainty of the airline industry.

The airline industry has experienced tremendous challenges in recent years and will likely remain volatile for the foreseeable future. Among other factors, the financial challenges faced by major carriers, including Delta, United and Northwest, the slowing U.S. economy and increased hostilities in Iraq, the Middle East and other regions have significantly affected, and are likely to continue to affect, the U.S. airline industry. These events have resulted in declines and shifts in passenger demand, increased insurance costs, increased government regulations and tightened credit markets, all of which have affected, and will continue to affect, the operations and financial condition of participants in the industry, including us, major carriers (including our major partners), competitors and aircraft manufacturers. These industry developments raise substantial risks and uncertainties which will affect us, major carriers (including our major partners), competitors and aircraft manufacturers in ways that we are unable to currently predict.

The airline industry is highly competitive and has undergone a period of consolidation and transition leaving fewer potential code-share partners.

The airline industry is highly competitive. We not only compete with other regional airlines, some of which are owned by or operated as code-share partners of major airlines, but we also face competition from low cost carriers and major airlines on many of our routes. Low cost carriers such as Southwest Airlines, JetBlue, US Airways, and AirTran Airways, among others, operate at many of our hubs, resulting in significant price competition. Additionally, a large number of other carriers operate at our hubs, creating intense competition. Certain of our competitors are larger and have significantly greater financial and other resources than we do. Moreover, federal deregulation of the industry allows competitors to rapidly enter our markets and to quickly discount and restructure fares. The airline industry is particularly susceptible to price discounting because airlines incur only nominal costs to provide service to passengers occupying otherwise unsold seats. Increased fare competition could adversely affect our operations and the price of our common stock. The airline industry has undergone substantial consolidation, and it may in the future undergo additional consolidation. Recent examples include the merger between America West Airlines and US Airways in September 2005, and American Airlines’ acquisition of the majority of Trans World Airlines’ assets in 2001. Other developments include domestic and international code-share alliances between major carriers, such as the “SkyTeam Alliance,” that includes Delta, Continental and Northwest, among others. Any additional consolidation or significant alliance activity within the airline industry could limit the number of potential partners with whom we could enter into code-share relationships and materially adversely affect our relationship with our code-share partners.

Terrorist activities or warnings have dramatically impacted the airline industry, and will likely continue to do so.

The terrorist attacks of September 11, 2001 and their aftermath have negatively impacted the airline industry in general, including our operations. The primary effects experienced by the airline industry include a substantial loss of passenger traffic and revenue. Although, to some degree, airline passenger traffic and revenue have recovered since the September 11^th attacks, additional terrorist attacks could have a similar or even more pronounced effect. Even if additional terrorist attacks are not launched against the airline industry, there will be lasting consequences of the attacks, including increased security and insurance costs, increased concerns about future terrorist attacks, increased government regulation and airport delays due to heightened security. Additional terrorist attacks and the fear of such attacks could negatively impact the airline industry, and result in further decreased passenger traffic and yields, increased flight delays or cancellations associated with new government mandates, as well as increased security, fuel and other costs. We cannot provide any assurance that these events will not harm the airline industry generally or our operations or financial condition in particular.

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Rapidly increasing fuel costs have adversely affected, and will likely continue to adversely affect, the operations and financial performance of the airline industry.

The price of aircraft fuel is unpredictable and has increased significantly in recent periods. Higher fuel prices may lead to higher airfares, which would tend to decrease the passenger load of our code-share partners. In the long run, such decrease will have an adverse effect on the number of flights such partner will ask us to provide and the revenues associated with such flights. Additionally, fuel shortages have been threatened. The future cost and availability of fuel to us cannot be predicted, and substantial fuel cost increases or the unavailability of adequate supplies of fuel may have a material adverse effect on our results of operations. During periods of increasing fuel costs, our operating margins have been, and will likely continue to be, adversely affected.

We are subject to significant governmental regulation.

All interstate air carriers, including SkyWest Airlines and ASA, are subject to regulation by the DOT, the FAA and other governmental agencies. Regulations promulgated by the DOT primarily relate to economic aspects of air service. The FAA requires operating, air worthiness and other certificates; approval of personnel who may engage in flight, maintenance or operation activities; record keeping procedures in accordance with FAA requirements; and FAA approval of flight training and retraining programs. We cannot predict whether we will be able to comply with all present and future laws, rules, regulations and certification requirements or that the cost of continued compliance will not have a material adverse effect on our operations. We incur substantial costs in maintaining our current certifications and otherwise complying with the laws, rules and regulations to which we are subject. A decision by the FAA to ground, or require time-consuming inspections of or maintenance on, all or any of our aircraft for any reason may have a material adverse effect on our operations. In addition to state and federal regulation, airports and municipalities enact rules and regulations that affect our operations. From time to time, various airports throughout the country have considered limiting the use of smaller aircraft, such as our aircraft, at such airports. The imposition of any limits on the use of our aircraft at any airport at which we operate could have a material adverse effect on our operations.

The occurrence of an aviation accident would negatively impact our operations and financial condition.

An accident or incident involving one of our aircraft could involve significant potential claims of injured passengers and others, as well as repair or replacement of a damaged aircraft and its consequential temporary or permanent loss from service. In the event of an accident, our liability insurance may not be adequate to offset our exposure to potential claims and we may be forced to bear substantial losses from the accident. Substantial claims resulting from an accident in excess of our related insurance coverage would harm our operational and financial results. Moreover, any aircraft accident or incident, even if fully insured, could cause a public perception that our operations are less safe or reliable than other airlines.

Risks Related to Our Common Stock

We can issue additional shares without shareholder approval.

Our Restated Articles of Incorporation, as amended (the “Restated Articles”), authorize the issuance of up to 120,000,000 shares of common stock, all of which may be issued without any action or approval by our shareholders. We currently have 58,003,293 shares outstanding. In addition, we have a stock option plan under which 286,925 shares are reserved for issuance, and an employee stock purchase plan under which 287,025 shares are reserved for issuance, both of which may dilute the ownership interests of our shareholders. The issuance of any additional shares of common stock would further dilute the percentage ownership of existing shareholders. Our Restated Articles also authorize the issuance of up to 5,000,000 shares of preferred stock. Our board of directors has the authority to issue preferred stock with

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the rights and preferences, and at the price, which it determines. Any shares of preferred stock issued would likely be senior to shares of our common stock in various regards, including dividends, payments upon liquidation and voting. The value of our common stock could be negatively affected by the issuance of any shares of preferred stock.

Distribution of dividends may decrease or cease.

Historically, we have paid dividends in varying amounts on our common stock. The future payment and amount of cash dividends will depend upon our financial condition and results of operations, loan covenants and other factors deemed relevant by our board of directors. There can be no assurance that we will continue our practice of paying dividends on our common stock or that we will have the financial resources to pay such dividends.

Provisions of our charter documents and code-share agreements may affect the ability or desire of others to gain control of our company.

Our ability to issue preferred and common shares without shareholder approval may have the effect of delaying or preventing a change in control and may adversely affect the voting and other rights of the holders of our common stock, even in circumstances where such a change in control would be viewed as desirable by most investors. The provisions of the Utah Control Shares Acquisition Act may also discourage the acquisition of a significant interest in or control of our company. Additionally, our code-share agreements contain termination and extension trigger provisions related to change in control type transactions that may have the effect of deterring a change in control of our company.

Critical Accounting Policies

Our significant accounting policies are more fully described in Note 1 to our consolidated financial statements for the year ended December 31, 2004, which are presented in our Annual Report on Form 10-K filed with the SEC on March 10, 2005. Critical accounting policies are those policies that are most important to the preparation of our condensed consolidated financial statements and require management’s subjective and complex judgments due to the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies relate to revenue recognition, aircraft maintenance, aircraft leases and impairment of long-lived assets as discussed below. The application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results will differ, and could differ materially from such estimates.

Revenue Recognition

Passenger and ground handling revenues are recognized when service is provided. Under our contract and pro-rate flying agreements with our code-share partners, revenue is considered earned when the flight is completed. In the event that our contractual rates have not been finalized at quarterly or annual financial statement dates, we record revenues based on a prior period’s approved rates, adjusted to reflect management’s current estimate of the results of the then-current contract negotiations. Our agreements with our code-share partners contain certain provisions pursuant to which the parties could terminate the respective agreements, subject to certain rights of the other party, if certain performance criteria are not maintained. Our revenues could be impacted by a number of factors, including changes to the code-share agreements, contract modifications resulting from contract renegotiations and our ability to earn incentive payments contemplated under applicable agreements.

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Maintenance

We use the direct-expense method of accounting for our regional jet aircraft engine overhaul costs. Under this method, the maintenance liability is not recorded until the maintenance services are performed, thus substantially reducing significant estimates and judgments inherent under the accrual method. We use the “deferral method” of accounting for our Brasilia turboprops engine overhauls, which provides for engine overhaul costs to be capitalized and depreciated over the estimated useful life of the engine. For leased aircraft, we are subject to lease return provisions that require a minimum portion of the “life” of an overhaul be remaining on the engine at the lease return date. With respect to engine overhauls related to leased Brasilia turboprops to be returned, we adjust the estimated useful lives of the final engine overhauls based on the respective lease return dates. A third-party vendor provides our long-term engine services covering the scheduled and unscheduled repairs for engines on our CRJ700s. Under the terms of the agreement, we pay a set dollar amount per engine hour flown on a monthly basis and the third party vendor assumes the obligation to repair the engines at no additional cost to us, subject to certain specified exclusions. During the nine months ended September 30, 2005, we recorded expenses of approximately $8.1 million under the agreement.

Aircraft Leases

The majority of SkyWest Airline’s aircraft are leased from third parties, while ASA’s aircraft are primarily debt-financed on a long-term basis. In order to determine the proper classification of our leased aircraft as either operating leases or capital leases, we must make certain estimates at the inception of the lease relating to the economic useful life and the fair value of an asset as well as select an appropriate discount rate to be used in discounting future lease payments. These estimates are utilized by management in making computations as required by existing accounting standards that determine whether the lease is classified as an operating lease or a capital lease. All of our aircraft leases have been classified as operating leases, which results in rental payments being charged to expense over the terms of the related leases. Additionally, operating leases are not reflected in our condensed consolidated balance sheet and accordingly, neither a lease asset nor an obligation for future lease payments is reflected in our condensed consolidated balance sheet. The aircraft which we own or which are debt-financed appear on our consolidated balance sheets as assets, along with accompanying liabilities, as applicable.

Impairment of Long-Lived and Intangible Assets

As of September 30, 2005, we had approximately $2.6 billion of property and equipment and related assets. Additionally, as of September 30, 2005, we had approximately $34.3 million in intangible assets. In accounting for these long-lived and intangible assets, we make estimates about the expected useful lives of the assets, the expected residual values of certain of these assets, and the potential for impairment based on the fair value of the assets and the cash flows they generate. Factors indicating potential impairment include, but are not limited to, significant decreases in the market value of the long-lived assets, a significant change in the condition of the long-lived assets and operating cash flow losses associated with the use of the long-lived assets. On a periodic basis, we evaluate whether the book value of our aircraft is impaired in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Based on the results of the evaluations, our management concluded no impairment was necessary as of September 30, 2005. However, there is inherent risk in estimating the future cash flows used in the impairment test. If cash flows do not materialize as estimated, there is a risk the impairment charges recognized to date may be inaccurate, or further impairment charges may be necessary in the future.

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Results of Operations

Operating Statistics for Three Months Ended September 30, 2005.The following table sets forth our major operational statistics and the percentage-of-change for the quarters identified below.

	Three months ended September 30,
	2005		2004		% Change
Passengers carried	5,119,212		3,769,737			35.8	%
Revenue passenger miles (000)	2,457,634		1,561,048			57.4	%
Available seat miles (000)	3,234,835		2,032,212			59.2	%
Passenger load factor	76.0	%	76.8	%		(0.8	)pts
Passenger breakeven load factor	69.2	%	68.6	%		0.6	pts
Revenue per available seat mile	15.4	¢	15.2	¢		1.3	%
Cost per available seat mile	14.0	¢	13.4	¢		4.5	%
Fuel cost per available seat mile	5.0	¢	3.5	¢		42.9	%
Average passenger trip length (miles)	480		414			15.9	%

Our total ASMs generated during the quarter ended September 30, 2005 increased 59.2% from the quarter ended September 30, 2004. The increase in ASMs was primarily a result of our acquisition of ASA and the resulting increase in our aircraft fleet to 376 as of September 30, 2005, from 202 aircraft as of September 30, 2004, and the increase in seat capacity and stage lengths flown by our CRJ700s.

Net Income.Net income increased to $30.1 million, or $0.51 per diluted share, for the three months ended September 30, 2005, compared to $21.3 million, or $0.37 per diluted share, for the three months ended September 30, 2004. Factors relating to the change in net income are discussed below.

Total Operating Revenue.Total operating revenues for the three months ended September 30, 2005 increased 61.4% compared to the three months ended September 30, 2005. The increase was primarily due to the acquisition of ASA on September 7, 2005 as total operating revenues include revenues from an additional 151 aircraft operated by ASA for the last 23 days of the quarter.

Passenger revenue.   Passenger revenues, which represented 98.6% of consolidated operating revenues for the three months ended September 30, 2005, increased 61.4% to $490.2 million for the three months ended September 30, 2005, from $303.8 million, or 98.6% of consolidated operating revenues, for the three months ended September 30, 2004. Passenger revenues, excluding fuel reimbursements from code-share partners, increased 42.1% for the three months ended September 30, 2004. The increase in passenger revenues excluding fuel was primarily due to a 59.2% increase in ASMs, principally as a result of the increase in our operating aircraft due to the acquisition of ASA on September 7, 2005. However, this increase was partially offset by the economic efficiencies of flying new, incremental regional jet aircraft, since these efficiencies are passed on to our code-sharing partners through the rates contemplated by their respective contracts. Twelve CRJ700s and 12 CRJ200s were placed into service under our United Express operations during the year ended December 31, 2004. Revenue per ASM increased 1.3% to 15.4¢, from 15.2¢ for the three months ended September 30, 2004, primarily due to an increase in fuel reimbursements from our code-share partners. Passenger revenues include an amount designed to reimburse us for aircraft ownership costs. The amount deemed to be rental income for the three months ended September 30, 2005 was $76.0 million.

Passenger Load Factor.Passenger load factor decreased to 76.0% for the three months ended September 30, 2005, from 76.8% for the three months ended September 30, 2004. The decrease in load factor was due primarily to the increase in capacity of our CRJ700 aircraft flying in newly developed markets.

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Total Airline Expenses Excluding Fuel.   Total airline expenses for the three months ended September 30, 2005, excluding fuel charges (which are substantially reimbursable by our code-share partners), increased approximately 43.6% from the three months ended September 30, 2004. The increase was primarily a result of a 59.2% increase in ASMs (which resulted principally from the expansion of our regional jet fleet from 2004, in connection with our acquisition of ASA. Total operating expenses for the three months ended September 30, 2005 increased at a lower rate than ASM growth, primarily due to the increased operating efficiencies obtained from the new regional jets that were added to our fleet during the year and from increased stage lengths flown by the new regional jets.

Operating and Interest Expenses.Operating and interest expenses increased 64.5% to $452.8 million for the three months ended September 30, 2005, compared to $275.3 million for the three months ended September 30, 2004. The increase in total operating and interest expenses was due principally to the growth in our regional jet fleet, including our acquisition of ASA, from 2004. As a percentage of consolidated operating revenues, total operating and interest expenses increased to 91.0% for the three months ended September 30, 2005, from 89.3% for the three months ended September 30, 2004. The increase in operating and interest expenses as a percentage of consolidated operating revenues was primarily due to significant increases in fuel costs year-over-year. Operating revenues increased 61.4% for the three months ended September 30, 2005, compared to the three months ended September 30, 2004, while total operating and interest expenses increased 64.5% over the same period. The increase in total operating revenues was primarily due to the growth in our regional jet fleet from 2004. Airline operating and interest expenses, excluding fuel charges, per ASM decreased 10.0% to 9.0¢ for the three months ended September 30, 2005, from 10.0¢ for the three months ended September 30, 2004. The primary reason for the decrease was the increased capacity of our regional jet aircraft and the increase in stage lengths flown by our regional jet aircraft.

The following tables set forth information regarding our operating expense components and interest expense for the three-month periods ended September 30, 2005 and 2004. Operating and interest expenses are expressed as a percentage of operating revenues. Individual expense components are also expressed as cents per ASM.

	Three months ended September 30,
	2005								2004
	Amount			Percentage of Revenue			Cents per ASM		Amount			Percentage of Revenue			Cents Per ASM
	(in thousands)								(in thousands)
Salaries, wages and employee benefits		$	106,008		21.3	%		3.3		$	74,403		24.1	%		3.7
Aircraft costs		81,236			16.3	%		2.5		57,681			18.7	%		2.8
Maintenance		27,485			5.5	%		0.8		23,210			7.5	%		1.1
Fuel		160,479			32.3	%		5.0		71,756			23.3	%		3.5
Other airline expenses		66,146			13.3	%		2.0		43,273			14.0	%		2.1
Interest		11,472			2.3	%		0.4		4,951			1.6	%		0.2
Total airline expenses		$	452,826					14.0		$	275,274					13.4

The cost per ASM of salaries, wages and employee benefits decreased to 3.3¢ for the three months ended September 30, 2005, from 3.7¢ for the three months ended September 30, 2004. The decrease in cost per ASM of salaries, wages and employee benefits was primarily due to the acquisition of ASA on September 7, 2005 as the number of CRJ700s and CRJ200s we operate increased by 35 and 104 aircraft, respectively. The decrease in cost per ASM was also partially due to the 15.9% increase in stage lengths flown by these regional jets. The average number of full-time equivalent employees increased 49.6% to 9,570 for the three months ended September 30, 2005 from 6,397 for the three months ended

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September 30, 2004. The increase in number of employees was primarily due to the acquisition of ASA on September 7, 2005.

The cost per ASM for aircraft costs, including aircraft rent and depreciation, decreased to 2.5¢ for the three months ended September 30, 2005, from 2.8¢ for the three months ended September 30, 2004. The decrease in cost per ASM was primarily due to operating 14 incremental CRJ200s and 32 incremental CRJ700s period-over-period, which have a lower operating cost per ASM than the Company’s existing turboprop aircraft.

The cost per ASM for maintenance expense decreased to 0.8¢ for the three months ended September 30, 2005, from 1.1¢ for the three months ended September 30, 2004. The decrease in cost per ASM for maintenance expense was primarily due to the timing of certain maintenance events and the relatively low age of a large portion of our regional jet fleet (the average age of our CRJ700s and CRJ200s is 1.3 and 3.9 years, respectively), which results in lower initial maintenance expenses. Under our United Express Agreement, specific amounts are included in the rates and charges for mature maintenance on regional jet engines that we record as revenue. However, consistent with the direct expense maintenance policy, we record maintenance expense on our CRJ200 engines as it is incurred. As a result, during the nine months ended September 30, 2005, we collected and recorded as revenue $6.7 million (pretax) under the United Express Agreement, with no corresponding offset for CRJ200 engine maintenance overhauls since none were incurred. Because the “Maintenance” caption in the table set forth above does not include salaries, wages and employee benefits associated with our maintenance operations (those costs are stated separately in the table), the Maintenance caption in the above table differs from the Maintenance caption in our condensed consolidated statements of income.

The cost per ASM for fuel increased to 5.0¢ for the three months ended September 30, 2005, from 3.5¢ for the three months ended September 30, 2004. This increase was primarily due to the average price of fuel increasing 44.4% to $2.21 per gallon during the three months ended September 30, 2005, from $1.53 per gallon for the three months ended September 30, 2004.

The cost per ASM for other expenses, primarily consisting of landing fees, station rentals, computer reservation system fees and hull and liability insurance, decreased to 2.0¢ for the three months ended September 30, 2005, from 2.1¢ for the three months ended September 30, 2004. The decrease was primarily due to the 59.2% increase in ASMs produced by the new incremental regional jet aircraft that have been added to our fleet during the past twelve months, including the acquisition of ASA on September 7, 2005.

Interest expense increased to approximately $11.5 million during the three months ended September 30, 2005, from approximately $5.0 million during the three ended September 30, 2004. The increase in interest expense was primarily due to the acquisition of ASA and its related aircraft debt.

The Emergency War Time Supplemental Appropriations Act of 2003 became effective on May 15, 2003, and we received approximately $6.5 million under the act. This legislation provides for compensation to domestic airlines based on their proportional share of passenger security and infrastructure security fees paid, as well as reimbursement for installing fortified flight deck doors. This legislation also provides for the suspension of passenger and infrastructure fees from June 1, 2003 through October 31, 2003 and an extension of war risk liability and hull insurance coverage through December 31, 2004. Pursuant to the Consolidated Appropriations Act of 2005, Congress further extended the government’s mandate to provide war-risk insurance through December 31, 2005. We are unable to predict whether the government will extend this insurance coverage past December 31, 2005. Under terms of our contracts with our code-share partners, however, such insurance expense is a “pass-through” cost and is not anticipated to have a material impact on our ongoing operations or future financial results.

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Operating Statistics for Nine Months Ended September 30, 2005.The following table sets forth our major operational statistics and the percentage-of-change for the nine months ended identified below.

	Nine months ended September 30,
	2005		2004		% Change
Passengers carried	12,988,939		9,811,577			32.4	%
Revenue passenger miles (000)	6,000,078		4,013,486			49.5	%
Available seat miles (000)	8,001,001		5,453,588			46.7	%
Passenger load factor	75.0	%	73.6	%		1.4	pts
Passenger breakeven load factor	68.3	%	65.2	%		3.1	pts
Revenue per available seat mile	15.3	¢	15.2	¢		0.6	%
Cost per available seat mile	13.9	¢	13.4	¢		3.7	%
Fuel cost per available seat mile	4.3	¢	3.1	¢		38.7	%
Average passenger trip length (miles)	462		409			13.0	%

Our total ASMs generated during the nine months September 30, 2005 increased 46.7% from the nine months September 30, 2004. The increase in ASMs was primarily a result of the increase in our aircraft fleet, including our acquisition of ASA, to 376 as of September 30, 2005, from 202 aircraft as of September 30, 2004, and the increase in seat capacity and stage lengths flown by our CRJ700s.

Net Income.Net income increased to $73.6 million, or $1.26 per diluted share, for the nine months ended September 30, 2005, compared to $60.7 million, or $1.04 per diluted share, for the nine months ended September 30, 2004. Factors relating to the change in net income are discussed below.

Total Operating Revenue.Total operating revenues for the nine months ended September 30, 2005 increased 47.3% compared to the nine months ended September 30, 2005. The increase was primarily due to the acquisition of ASA on September 7, 2005 as total operating revenues include revenues from an additional 151 aircraft operated by ASA for the last 23 days of the quarter.

Passenger revenue.   Passenger revenues, which represented 98.6% of consolidated operating revenues for the nine months ended September 30, 2005, increased 47.4% to $1.2 billion for the nine months ended September 30, 2005, from $816.7 million, or 98.5% of consolidated operating revenues, for the nine months ended September 30, 2004. Passenger revenues, excluding fuel reimbursements from code-share partners, increased 32.6% for the nine months ended September 30, 2004. The increase in passenger revenues excluding fuel was primarily due to a 46.7% increase in ASMs, principally as a result of the increase in our operating aircraft due to the acquisition of ASA on September 7, 2005. However, this increase was partially offset by the economic efficiencies of flying new, incremental regional jet aircraft, since these efficiencies are passed on to our code-share partners through the rates contemplated by their respective contracts. We placed 12 CRJ700s and 12 CRJ200s into service under our United Express operations during the nine months ended September 30, 2004. Revenue per ASM increased 0.6% to 15.3¢, from 15.2¢ for the nine months ended September 30, 2004, primarily due to an increase in fuel reimbursements from code-share partners. Passenger revenues include an amount designed to reimburse us for aircraft ownership costs. The amount deemed to be rental income for the nine months ended September 30, 2005 was $193.0 million.

Passenger Load Factor.Passenger load factor increased to 75.0% for the nine months ended September 30, 2005, from 73.6% for the nine months ended September 30, 2004. The increase in load factor was due primarily to the further development of our relationships with Delta and United whereby we supplement mainline service in previously established and developed markets. Additionally, we are experiencing higher passenger acceptance of our regional jet aircraft.

Total Airline Expenses Excluding Fuel.   Total airline expenses for the nine months ended September 30, 2005, excluding fuel charges (which are substantially reimbursable by our code-share

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partners), increased approximately 35.6% from the nine months ended September 30, 2004. The increase was primarily a result of a 46.7% increase in ASMs (which resulted principally from the expansion of our regional jet fleet from 2004, in connection with our acquisition of ASA). Total operating expenses for the nine months ended September 30, 2005 increased at a lower rate than ASM growth, primarily due to the increased operating efficiencies obtained from the new regional jets that were added to our fleet during the year and from increased stage lengths flown by the new regional jets.

Operating and Interest Expenses.Operating and interest expenses increased 51.4% to $1.11 billion for the nine months ended September 30, 2005, compared to $734.7 million for the nine months ended September 30, 2004. The increase in total operating and interest expenses was due principally to the growth in our regional jet fleet from 2004. As a percentage of consolidated operating revenues, total operating and interest expenses increased to 91.0% for the nine months ended September 30, 2005, from 88.6% for the nine months ended September 30, 2004. The increase in operating and interest expenses as a percentage of consolidated operating revenues was primarily due to significant increases in fuel costs year-over-year. Operating revenues increased 47.3% for the nine months ended September 30, 2005, compared to the nine months ended September 30, 2004, while total operating and interest expenses increased 51.4% over the same period. The increase in total operating revenues was primarily due to the growth in our regional jet fleet from 2004 (including our acquisition of ASA). Airline operating and interest expenses, excluding fuel charges, per ASM decreased 7.7% to 9.6¢ for the nine months ended September 30, 2005, from 10.4¢ for the nine months ended September 30, 2004. The primary reason for the decrease was the increased capacity of our regional jet aircraft and the increase in stage lengths flown by our regional jet aircraft.

The following tables set forth information regarding our operating expense components and interest expense for the nine-month periods ended September 30, 2005 and 2004. Operating and interest expenses are expressed as a percentage of operating revenues. Individual expense components are also expressed as cents per ASM.

	Nine months ended September 30,
	2005								2004
	Amount			Percentage of Revenue			Cents per ASM		Amount			Percentage of Revenue			Cents Per ASM
	(in thousands)								(in thousands)
Salaries, wages and employee benefits		$	275,170		22.5	%		3.4		$	206,668		24.9	%		3.8
Aircraft costs		214,790			17.6	%		2.7		163,232			19.7	%		3.0
Maintenance		73,204			6.0	%		0.9		55,112			6.6	%		1.0
Fuel		347,536			28.4	%		4.3		170,884			20.6	%		3.1
Other airline expenses		175,946			14.4	%		2.2		125,502			15.1	%		2.3
Interest		25,510			2.1	%		0.3		13,340			1.6	%		0.2
Total airline expenses		$	1,112,156					13.8		$	734,738					13.4

The cost per ASM of salaries, wages and employee benefits decreased to 3.4¢ for the nine months ended September 30, 2005, from 3.8¢ for the nine months ended September 30, 2004. The decrease in cost per ASM of salaries, wages and employee benefits was primarily due to the acquisition of ASA on September 7, 2005, as the number of CRJ700s and CRJ200s we operate increased by 35 and 104 aircraft, respectively. The decrease in cost per ASM was also partially due to the 13.0% increase in stage lengths flown by these regional jets. The average number of full-time equivalent employees increased 33.3% to 8,051for the nine months ended September 30, 2005 from 6,042 for the nine months ended September 30, 2004. The increase in number of employees was due, in large part, to the addition of personnel required for the additional regional jet flying and ground handling operations within our United Express operations.

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The cost per ASM for aircraft costs, including aircraft rent and depreciation, decreased to 2.7¢ for the nine months ended September 30, 2005, from 3.0¢ for the nine months ended September 30, 2004. The decrease in cost per ASM was primarily due to the operation of 14 incremental CRJ200s and 32 incremental CRJ700s period-over-period, which have a lower operating cost per ASM than our existing turboprop fleet.

The cost per ASM for maintenance expense decreased to 0.9¢ for the nine months ended September 30, 2005, from 1.0¢ for the nine months ended September 30, 2004. The decrease in cost per ASM for maintenance expense was primarily due to the timing of certain maintenance events and the relatively low age of a large portion of our regional jet fleet (the average age of our CRJ700s and CRJ200s is eight months and three years seven months, respectively), which results in lower initial maintenance expenses. Under our United Express Agreement, specific amounts are included in the rates and charges for mature maintenance on regional jet engines that we record as revenue. However, consistent with the direct expense maintenance policy, we record maintenance expense on our CRJ200 engines as it is incurred. As a result, during the nine months ended September 30, 2005 we collected and recorded as revenue $19.8 million (pretax) under the United Express Agreement, with no corresponding offset for CRJ200 engine maintenance overhauls since none were incurred. Because the “Maintenance” caption in the table set forth above does not include salaries, wages and employee benefits associated with our maintenance operations (those costs are stated separately in the table), the Maintenance caption in the above table differs from the Maintenance caption in our condensed consolidated statements of income.

The cost per ASM for fuel increased to 4.3¢ for the nine months ended September 30, 2005, from 3.1¢ for the nine months ended September 30, 2004. This increase was primarily due to the average price of fuel increasing 41.9% to $1.93 per gallon during the nine months ended September 30, 2005, from $1.36 per gallon for the nine months ended September 30, 2004.

The cost per ASM for other expenses, primarily consisting of landing fees, station rentals, computer reservation system fees and hull and liability insurance, decreased to 2.2¢ for the nine months ended September 30, 2005, from 2.3¢ for the nine months ended September 30, 2004. The decrease was primarily due to the 46.7% increase in ASMs produced by the new incremental regional jet aircraft that have been added to our fleet during the past twelve months and the acquisition of ASA on September 7, 2005.

Interest expense increased to approximately $25.5 million during the nine months ended September 30, 2005, from approximately $13.3 million during the nine months ended September 30, 2004. The increase in interest expense was primarily due to the acquisition of ASA and its related aircraft debt.

The Emergency War Time Supplemental Appropriations Act of 2003 became effective on May 15, 2003, and we received approximately $6.5 million under the act. This legislation provides for compensation to domestic airlines based on their proportional share of passenger security and infrastructure security fees paid, as well as reimbursement for installing fortified flight deck doors. This legislation also provides for the suspension of passenger and infrastructure fees from June 1, 2003 through October 31, 2003 and an extension of war risk liability and hull insurance coverage through December 31, 2004. Pursuant to the Consolidated Appropriations Act of 2005, Congress further extended the government’s mandate to provide war-risk insurance through December 31, 2005. We are unable to predict whether the government will extend this insurance coverage past December 31, 2005. Under terms of our contracts with our code-share partners, however, such insurance expense is a “pass-through” cost and is not anticipated to have a material impact on our ongoing operations or future financial results.

Liquidity and Capital Resources

We had working capital of $62.2 million and a current ratio of 1.1:1 at September 30, 2005, compared to working capital of $536.5 million and a current ratio of 4.1:1 at December 31, 2004 with the decrease principally caused by the use of cash to fund the acquisition of ASA. The principal sources of cash during

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the nine months ended September 30, 2005 were $234.2 million in net proceeds from the sale and purchase of marketable securities, $147.3 million provided by operating activities, $141.0 million of proceeds from the issuance of long-term debt, $90.0 million of proceeds from draws under new and existing lines of credit, $32.3 million of proceeds from returns on aircraft deposits, $13.1 million from proceeds from sale of aircraft, and $2.8 million from the sale of common stock in connection with the exercise of stock options under our stock option and employee stock purchase plans. During the nine months ended September 30, 2005, we paid net cash of $376.9 million as the purchase price of ASA and deposited $90 million into escrow, which deposit was subsequently released to Delta pursuant to the terms of an escrow agreement executed at the time of the consummation of the ASA acquisition. We invested $186.3 million in flight equipment, $57.0 million in deposits for aircraft, $7.6 million in buildings and ground equipment and $4.6 million in other assets. We made principal payments on long-term debt of $25.5 million and paid $5.2 million in cash dividends. These factors resulted in a $2.4 million decrease in cash and cash equivalents during the three months ended September 30, 2005.

Our position in marketable securities, consisting primarily of bonds, bond funds and commercial paper, decreased to $193.2 million at September 30, 2005, compared to $427.5 million at December 31, 2004. The decrease in marketable securities was due primarily to the $425.0 million in purchase price, $6.6 million in transaction fees, and $50 million in returns of aircraft deposits we paid to Delta in connection with our acquisition of ASA on September 7, 2005. At September 30, 2005, our total capital mix was 35.5% equity and 64.5% debt, compared to 62.7% equity and 37.3% debt at December 31, 2004. The change in the total capital mix during nine months ended September 30, 2005 was primarily due to our acquisition of ASA, and the interim debt financing of our new CRJ700s delivered during the nine months ended September 30, 2005. We expended approximately $52.9 million for aircraft-related capital expenditures during the nine months ended September 30, 2005. These expenditures consisted primarily of $14.2 million for rotable spares, $22.4 million for engine overhauls, $8.7 million for aircraft improvements, and $7.6 million for buildings, ground equipment and other assets.

Our total long-term debt at September 30, 2005 was $1,780.0 million, of which $1,772.5 million related to the acquisition of regional jet aircraft and $7.5 million related to the acquisition of our corporate office building in St. George, Utah. The average effective rate on the debt related to the regional jets was approximately 5.6% at September 30, 2005. As part of our leverage lease agreements, we typically indemnify the equity/owner participant against liabilities that may arise due to changes in benefits from tax ownership of the respective leased aircraft.

During the quarter ended September 30, 2005, SkyWest Airlines entered into two separate borrowing arrangements, both of which we have guaranteed. SkyWest Airlines increased an existing $10.0 million line-of-credit facility, with a bank, to $40.0 million. Concurrent with closing the ASA acquisition, SkyWest Airlines borrowed $30.0 million under the facility. The facility, which bears interest at a rate equal to prime less 0.25%, expires on January 31, 2007. Additionally, SkyWest Airlines entered into another borrowing facility with a financing company and borrowed $60.0 million. The facility expires on March 21, 2006. The amounts borrowed under both arrangements were utilized for general corporate purposes. Additionally, we had $60.0 million of letters of credit outstanding with another bank as of September 30, 2005. We believe that in the absence of unusual circumstances, the working capital available to us will be sufficient to meet our present financial requirements, including expansion, capital expenditures, lease payments and debt service obligations for at least the next 12 months. On September 30, 2005, we classified $114.8 million as restricted cash on our condensed consolidated balance sheets of which $90 million related to the acquisition of ASA and $24.8 million related to our workers compensation policies. On September 30, 2004, we classified $9.2 million as restricted cash as required by our workers compensation policy.

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Significant Commitments and Obligations

The following table summarizes our commitments and obligations stated in calendar years except as noted for each of the next five years and thereafter (in thousands):

	Total		Sept-Dec 2005		2006		2007		2008		2009		2010		Thereafter
Firm aircraft purchase commitments	$	1,051,000	$	100,000	$	751,000	$	200,000	$	—	$	—	$	—	$	—
Operating lease payments for aircraft and facility obligations	3,184,529		73,927		297,810		276,009		255,955		279,788		273,205		1,727,835
Principal maturities on long-term debt	1,779,779		26,007		330,526		98,754		102,696		106,925		111,332		1,003,539
Total commitments and obligations	$	6,015,308	$	199,934	$	1,379,336	$	574,763	$	358,651	$	386,713	$	384,537	$	2,731,374

On September 30, 2005, we had commitments of approximately $1.1 billion to purchase 37 CRJ700s and 6 CRJ200s, together with related flight equipment. We currently anticipate that we will complete the delivery of these aircraft in March 2007. We have also obtained options to acquire another 80 CRJ700s that can be delivered in either 70 or 90-seat configurations. We presently anticipate that delivery dates for these aircraft could start in January 2007 and continue through April 2010; however, actual delivery dates remain subject to final determination as agreed upon by us and our code-share partners.

SkyWest Airlines has not historically funded a substantial portion of its aircraft acquisitions with working capital. Rather, it has generally funded its aircraft acquisitions through a combination of operating leases and debt financing. At the time of each aircraft acquisition, we evaluate the financing alternatives available, and select one or more of these methods to fund the acquisition. Subsequent to this initial acquisition of an aircraft, we may also refinance the aircraft or convert one form of financing to another (e.g., replacing debt financing with leveraged lease financing). ASA has generally funded its aircraft acquisitions by issuing long-term debt secured by the aircraft.

At present, we intend to satisfy our 2005 and 2006 firm aircraft purchase commitments, as well as our acquisition of any additional aircraft, through a combination of operating leases and debt financing, consistent with our historical practices. Based on current market conditions and discussions with prospective leasing organizations and financial institutions, we currently believe that we will be able to obtain financing for the committed acquisitions, as well as additional aircraft, without materially reducing the amount of working capital available for our operating activities.

We also have significant long-term lease obligations primarily relating to our aircraft fleet. These leases are classified as operating leases and therefore are not reflected as liabilities in our condensed consolidated balance sheets. At September 30, 2005, we had 222 aircraft under lease with remaining terms ranging from one to 20 years. Future minimum lease payments due under all long-term operating leases were approximately $3.2 billion at September 30, 2005. At a 7% discount factor, the present value of these lease obligations was equal to approximately $2.0 billion at September 30, 2005. As part of our leveraged lease agreements, we typically agree to indemnify the equity/owner participant against liabilities that may arise due to changes in benefits from tax ownership of the respective leased aircraft.

Our total long-term debt at September 30, 2005 was $1,780 million, of which $1,772.5 million related to the acquisition of aircraft and $7.5 million related to our corporate office building. During the nine months ended September 30, 2005, we acquired seven new CRJ700s from proceeds from the issuance of long-term debt of $140.9 million. The average effective rate on the debt related to the aircraft was approximately 5.6% at September 30, 2005.

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Seasonality

As is common in the airline industry, our pro-rate operations are favorably affected by increased travel, historically occurring in the summer months, and are unfavorably affected by decreased business travel during the months from November through January and by inclement weather which occasionally results in cancelled flights, principally during the winter months. During the first quarter of 2005, we experienced significant weather-related cancellations, primarily in January, of 1,325 flights which were approximately 3.1% of total scheduled departures. Based on historical averages for weather-related cancellations of 0.5%, it is estimated that we experienced approximately 1,100 more cancellations than normal during January 2005. The cancellations contributed to an increase in certain cost components, while we were unable to record the revenue for the cancelled flights.

Accounting for Stock-Based Compensation

As contemplated by SFAS Statement 123, Accounting for Stock-Based Compensation, the Company currently accounts for share-based payments to employees using the intrinsic value method set forth in Opinion 25, Accounting for Stock Issued to Employees and, as such, the Company does not recognize compensation cost for employee stock options. Accordingly, the adoption of the fair value method set forth in Statement 123(R) is likely to have a significant impact on the Company’s results of operations, although it is not anticipated to have a significant impact on the Company’s overall financial position. The impact of adoption of Statement 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had the Company adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income and earnings per share in Note C to the Company’s condensed consolidated financial statements. Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

We have been and are subject to market risks, including commodity price risk (such as, to a limited extent, aircraft fuel prices) and interest rate risk.

Aircraft Fuel

In the past, we have not experienced difficulties with fuel availability and currently expect to be able to obtain fuel at prevailing prices in quantities sufficient to meet its future needs. Pursuant to our contract flying arrangements, United bears the economic risk of fuel price fluctuations on our United Express flights. On our Delta Connection regional jet flights, Delta bears the economic risk of fuel price fluctuations. On the majority of our Delta Connection routes flown with Brasilia turboprops, we will bear the economic risk of fuel fluctuations. At present, we believe that our results from operations will not be materially and adversely affected by fuel price volatility.

Interest Rates

Our earnings are affected by changes in interest rates due to the amounts of variable rate long-term debt and the amount of cash and securities held. The interest rates applicable to variable rate notes may rise and increase the amount of interest expense. We would also receive higher amounts of interest income on cash and securities held at the time; however, the market value of our available-for-sale securities would likely decline. At September 30, 2005, we had variable rate notes representing 75.0% of our total long-term debt compared to 73.1% of our long-term debt at December 31, 2004. For illustrative purposes only, we

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have estimated the impact of market risk using a hypothetical increase in interest rates of one percentage point for both variable rate long-term debt and cash and securities. Based on this hypothetical assumption, we would have incurred an additional $1,922,000 in interest expense and received $1,220,000 in additional interest income for the nine months ended September 30, 2005. We would have incurred an additional $3,391,000 in interest expense and received $3,965,000 in additional interest income for the nine months ended September 30, 2005

We have an interest rate swap agreement designed to manage our interest rate exposure on the debt instrument related to our headquarters. Our policies do not permit management to enter into derivative instruments for any purpose other than cash flow hedging purposes. Accordingly, we do not speculate using derivative instruments. We assess interest rate cash flow risk by identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The fair values of our derivative instruments are recognized as other current liabilities in our accompanying balance sheet. In accordance with the provisions of SFAS No. 133, we decreased liabilities by $201,620 at September 30, 2005. We decreased interest expense by $201,620 during the nine months ended September 30, 2005 in accordance with the interest rate swap agreement.

Item 4.Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2005. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to our company required to be included in our reports filed or submitted under the Exchange Act. There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced above.

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PART II. OTHER INFORMATION

Item 1.Legal Proceedings

We are subject to certain legal actions which we consider routine to our business activities. As of September 30, 2005, our management believed, after consultation with legal counsel, that the ultimate outcome of such legal matters will not have a material adverse effect on our financial position, liquidity or results of operations. The most significant of these matters is as follows:

Michaelena Fitz-Gerald, Romead Neilson, et al., v. SkyWest Airlines, Inc.

In July 2003, two former flight attendants SkyWest Airlines filed a class-action lawsuit in the Superior Court of Santa Barbara, California, alleging failure to pay minimum wage and overtime, and grant meal and rest breaks as required by state law, as well as violations of Section 203 of the California Labor Code and Section 17000 of the Business and California Professions Code. On September 1, 2005, the Superior Court announced that it would grant summary judgment in favor of SkyWest Airlines and has since dismissed the case. The plaintiffs have the ability to appeal the dismissal. Because the amount of a potential loss, if any, resulting from the outcome of this case is neither probable nor reasonably estimable, no amounts related to such have been recorded in the Company’s condensed consolidated financial statements

Securities and Exchange Commission

Effective January 1, 2002, we changed our method of accounting for CRJ200 engine overhaul expenses. In connection with the change in accounting method, we restated our financial statements for the year ended December 31, 2001 and the first and second quarters of the year ended December 31, 2002. The restated financial information, together with a discussion of the change in accounting method, was presented in Amendment No. 1 to our Form 10-K/A for the year ended December 31, 2001 and Amendments No. 1 on our Forms 10-Q/A for the quarters ended March 31, 2002 and June 30, 2002. The staff of the SEC is currently conducting an investigation of the facts pertaining to the change in our accounting method and other changes presented in the restatement of our financial statements. We do not believe that any of the matters under investigation constitute a violation of law. In June 2005, after extensive discussions with the SEC staff, we presented to the SEC an offer to enter into a cease and desist order pursuant to which we would agree not to violate federal securities laws in the future. The SEC is currently evaluating our proposal; however, there can be no assurance that our offer will be accepted. We continue to cooperate with the SEC in an effort to resolve the investigation.

Item 6.Exhibits

(a)   Exhibits

10.1	Loan Agreement (CIT Loan) dated as of September 21, 2005 among SkyWest Airlines, Inc., SkyWest, Inc., and C.I.T. Leasing Corporation
10.2	Aircraft Mortgage and Security Agreement dated as of September 21, 2005 between SkyWest Airlines, Inc. and C.I.T. Leasing Corporation
10.3	Mortgage Supplement No. 1 (CIT Loan) dated as of September 21, 2005 by SkyWest Airlines, Inc.
10.4	Note (CIT Loan) dated September 21, 2005 by SkyWest Airlines, Inc.
10.5	Guaranty (CIT Loan) dated September 21, 2005 between SkyWest, Inc. and C.I.T. Leasing Corporation
31.1	Certification of Chief Executive Officer
31.2	Certification of Chief Financial Officer
32.1	Certification of Chief Executive Officer
32.2	Certification of Chief Financial Officer

(b)   Reports on Form 8-K

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SKYWEST, INC. AND SUBSIDIARIES

SIGNATURE

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, to be signed on its behalf by the undersigned, thereunto duly authorized, on November 9, 2005.

SKYWEST, INC.
By	/s/ BRADFORD R. RICH
	Bradford R. Rich
	Executive Vice President,
	Chief Financial Officer and Treasurer

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EX-10.1

Exhibit 10.1

LOAN AGREEMENT

(CIT Loan)

Dated as of September 21, 2005

Among

SKYWEST AIRLINES, INC.,

Borrower,

SKYWEST, INC.,

Guarantor, and

C.I.T. LEASING CORPORATION

Lender, and

C.I.T. LEASING CORPORATION,

as Security Trustee

Four Bombardier Regional Jet Model CL-600-2B19 Aircraft

U.S. Registration Numbers: N698BR, N699BR, N709BR and N710BR

Corresponding Manufacturer’s Serial Numbers:  7799, 7801, 7850, 7852

TABLE OF CONTENTS

SECTION 1.	Certain Definitions; Participation in Borrower’s Cost of the Aircraft
SECTION 2.	Borrower’s Notice of Delivery Date; Closing
SECTION 4.	Conditions
SECTION 5.	Guarantor’s Representations, Warranties and Covenants
SECTION 6.	Borrower’s Representations, Warranties and Indemnities
SECTION 7.	Representations, Warranties and Covenants
SECTION 8.	Certain Covenants of Borrower
SECTION 9.	Notices; Consent to Jurisdiction
SECTION 10.	Miscellaneous
SECTION 11.	Transaction Costs

i

LOAN AGREEMENT

(CIT Loan)

THIS LOAN AGREEMENT (CIT Loan), dated as of September 21, 2005 (this “Agreement”), is among (i) SkyWest Airlines, Inc., a Utah corporation (“Borrower”), (ii) SkyWest, Inc., a Utah corporation (“Guarantor”), (iii) C.I.T. Leasing Corporation, a Delaware corporation in its capacity as Lender (the “Lender”), and (iv) C.I.T. Leasing Corporation, a Delaware corporation in its capacity as security trustee (“Security Trustee”).

W I T N E S S E T H :

WHEREAS, Borrower desires to enter into a credit facility with Lender and to pledge as security therefor certain Bombardier Regional Jet Model CL-600-2B19 aircraft, four of which are the subject of this Agreement;

WHEREAS, concurrently with the execution and delivery of this Agreement, Borrower and Security Trustee are entering into that certain Aircraft Mortgage and Security Agreement dated as of the date first set forth above (the “Mortgage”), pursuant to which Borrower issues to Lender one or more Notes as evidence of Borrower’s indebtedness to Lender, and Borrower shall execute and deliver an initial Mortgage Supplement dated the Closing Date covering each Aircraft, supplementing the Mortgage;

WHEREAS, concurrently with the execution and delivery of this Agreement, Guarantor is issuing that certain Guaranty dated as of the date first set forth above, pursuant to which Guarantor will guarantee the obligations of Borrower under the Operative Documents;

NOW, THEREFORE, in consideration of the mutual agreements herein contained, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1.Commitment to Advance, and to Borrow.

(a)The following terms shall have the following meanings for all purposes of this Agreement:

(i)unless otherwise expressly indicated, all references herein to Sections or other subdivisions refer to the corresponding sections and other subdivisions of this Agreement;

(ii)the terms “hereof,” “herein,” “hereby,” “hereto,” “hereunder,” “hereinafter” and “herewith” refer to this Agreement; and

(iii)the terms defined on Schedule II attached hereto shall have the respective meanings set forth on Schedule II attached hereto.

(iv)all terms used herein and not otherwise defined shall have the respective meanings set forth in Appendix A to the Mortgage.

Each of the Schedules and Exhibits hereto are hereby incorporated herein by this reference.

(b)Subject to the terms and conditions of this Agreement, Lender agrees to make the Loan to Borrower on a date to be designated pursuant to Section 2 hereof, which loan is to be evidenced

by one or more Notes in an aggregate original amount equal to $60,000,000 and is to be secured by the Mortgage.

SECTION 2.Borrower’s Notice of Closing Date; Closing.

(a)Borrower agrees to give Lender and Security Trustee at one Business Day’s written notice of the Closing Date, which date shall be a date not later than September 30, 2005 and which notice shall confirm the Loan.  The making of the Loan by the Lender in the manner required by this Section 2 shall constitute a waiver of such notices.

(b)Subject to the terms and conditions of this Agreement, Lender will make available the Loan by appropriate transfer of immediately available funds at or before 2:00 p.m., New York City time, on the Scheduled Closing Date (as defined in paragraph (d) below), to the account of Borrower specified on Schedule I hereto or as otherwise agreed to by the parties

(c)Subject to the terms and conditions of this Agreement, simultaneously with funding of the Loan on the Closing Date pursuant to this Section 2, Borrower shall execute and deliver to Lender a Note payable to Lender or its nominee in the principal amount of the Loan.

(d)If for any reason the consummation of the transactions contemplated hereby (the “Closing”) is not consummated on or before September 26, 2005 (such date being herein called the “Scheduled Closing Date”) the Lender may, by telephonic notice given by 5:00 P.M., New York City time, on the Scheduled Closing Date, to Borrower and Security Trustee, designate a delayed date for such closing (the “Delayed Closing Date”), not later than September 30, 2005.

(e)The Closing shall take place commencing at 12:00 noon New York City time, on the Closing Date, at the offices of Parr Waddoups Brown Gee & Loveless, 185 South State Street, Suite 1300, Salt Lake City, Utah 84111, or at such other time and place as the parties hereto shall specify, but in no event later than September 30, 2005.

SECTION 3.[intentionally omitted]

SECTION 4.Conditions.

(a)Conditions Precedent to Making the Loan.  It is agreed that the obligation of Lender to make available the Loan is subject to the satisfaction prior to or on the Closing Date of the following conditions precedent, provided that it shall not be a condition precedent to the obligations of Lender that any document be produced or action taken that is to be produced or taken by Lender or by a Person within Lender’s control; and provided, further, that paragraph (ix)(1) (insofar as it relates to Lender) below shall not be a condition precedent to the obligation of Lender:

(i)Lender shall have received due notice pursuant to Section 2 hereof (or shall have waived such notice either in writing or as provided in Section 2).

(ii)No change shall have occurred after the date of the execution and delivery of this Agreement in applicable law or regulations thereunder or interpretations thereof by appropriate regulatory authorities that, in the opinion of Lender, would make it a violation of law or regulations for (x) Borrower, Guarantor, Security Trustee or Lender to execute, deliver and perform the Operative Documents to which any of them is a party or (y) Lender to make the Loan available.

(iii)[intentionally omitted]

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(iv)Each of the Operative Documents shall have been duly authorized, executed and delivered by the respective party or parties thereto, shall each be satisfactory in form and substance to Lender and shall be in full force and effect and executed counterparts shall have been delivered to Borrower, Guarantor, Security Trustee and Lender, and their respective counsel, provided that the Lender shall receive an executed original of the Note.

(v)A Uniform Commercial Code financing statement naming Borrower as debtor and the Security Trustee as secured party in respect of the security interests created by or pursuant to the Mortgage shall have been executed and delivered by Borrower, and such financing statement shall have been duly filed in Utah, and any additional Uniform Commercial Code financing statements deemed necessary or advisable by Lender shall have been executed and delivered by Borrower and duly filed.

(vi)Lender and Security Trustee shall have received the following, in each case in form and substance satisfactory to it:

(1)a copy of the Articles of Incorporation of each of Borrower and Guarantor, certified by the Director of the Division of Corporations and Commercial Code (or comparable governmental authority) of the State of Utah, and a copy of the Bylaws and resolutions of the board of directors of each of Borrower and Guarantor, in each case certified by the Secretary or an Assistant Secretary of Borrower and Guarantor, respectively, duly authorizing the execution, delivery and performance by Borrower and Guarantor, as the case may be, of each of the Operative Documents to which Borrower or Guarantor, respectively, is a party, and an incumbency certificate as to the Person or Persons authorized to execute and deliver such documents on its behalf and including specimens of the signatures of such Person or Persons;

(2)[intentionally omitted] and

(3)such other documents and evidence with respect to Borrower or Guarantor as Lender or its special counsel may reasonably request in order to establish the authority of such parties to consummate the transactions contemplated by this Agreement and the taking of all corporate proceedings in connection therewith.

(vii)All appropriate action required to have been taken prior to the Closing Date by the FAA, or any governmental or political agency, subdivision or instrumentality of the United States or Canada in connection with the transactions contemplated by this Agreement shall have been taken, and all orders, permits, waivers, authorizations, exemptions and approvals of such entities required to be in effect on the Closing Date in connection with the transactions contemplated by this Agreement shall have been issued, and all such orders, permits, waivers, authorizations, exemptions and approvals shall be in full force and effect on the Closing Date.

(viii)On the Closing Date, the following statements shall be true, and Lender shall have received evidence satisfactory to it to the effect that:

(1)Borrower has good and marketable title to the Aircraft free and clear of Liens other than the mortgage and security interest created by the Mortgage and other Permitted Liens described in Section 4.01(a)(ii) and (iii) of the Mortgage;

(2)the Aircraft is duly registered with the FAA in the name of the Borrower;

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(3)Borrower has authority to operate such Aircraft;

(4)the Mortgage and the Mortgage Supplement have been duly filed with the FAA for recordation;

(5)Security Trustee on behalf of Lender is entitled to the protection of Section 1110 of the Bankruptcy Code in connection with its right to take possession of the Aircraft in the event of a case under Chapter 11 of the Bankruptcy Code in which Borrower is a debtor; and

(6)the Aircraft has an FAA airworthiness certificate.

(ix)On the Closing Date:

(1)the representations and warranties of Borrower, Guarantor, Security Trustee and Lender contained herein and in the other Operative Documents to which Borrower, Guarantor, Security Trustee or Lender, as the case may be, is a party shall be true and accurate as though made on and as of such date except to the extent that such representations and warranties relate solely to a date other than the Closing Date (in which case such representations and warranties shall have been true and accurate on and as of such date), and Lender shall have received a certificate of a Responsible Officer of each of Borrower and Guarantor to such effect; and

(2)no event shall have occurred and be continuing, or is reasonably likely to result from the consummation of the transactions contemplated by the Operative Documents, which constitutes a Default or an Event of Default; and

(3)there will have been no material adverse change in Borrower’s or Guarantor’s, business, assets, operations or financial condition since June 30, 2005 (it being understood that a termination of the codesharing agreement with either United Air Lines or Delta Air Lines would constitute a material adverse change but that the filing for bankruptcy protection by Delta Air Lines would not constitute a material adverse change).

(x)Lender shall have received an opinion addressed to Lender and Security Trustee from Parr Waddoups Brown Gee & Loveless, special Utah counsel for Borrower and Guarantor, substantially in the form of Exhibit A-1 hereto.

(xi)[intentionally omitted]

(xii)Lender shall have received an opinion addressed to Lender, Borrower and Guarantor, from Daugherty, Fowler, Peregrin & Haught, FAA counsel to Borrower, substantially in the form of Exhibit A-2 hereto.

(xiii)[intentionally omitted]

(xiv)Lender and Security Trustee shall have received a certificate signed by a Responsible Officer of Borrower, dated the Closing Date, addressed to Lender and Security Trustee certifying (to the knowledge of Borrower and, with respect to any item not relating directly to Borrower

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or Guarantor, without any investigation by Borrower whatsoever) as to the fulfillment of all conditions in this Section 4(a).

(xv)Lender shall have received an independent insurance broker’s report, and certificates of insurance, in form and substance reasonably satisfactory to Lender, as to the due compliance with the terms of Section 4.01(e) of the Mortgage relating to insurance with respect to the Aircraft.

(xvi)On the Closing Date no Event of Loss (or event which with the passage of time is reasonably likely to become an Event of Loss) with respect to the Airframe or any Engine shall have occurred.

(xvii)No action or proceeding shall have been instituted nor shall governmental action be threatened before any court or Governmental Authority, nor shall any order, judgment or decree have been issued or proposed to be issued by any court or Governmental Authority at the time of the Closing Date to set aside, restrain, enjoin or prevent the completion and consummation of this Agreement or the transactions contemplated hereby.

(xviii)All proceedings taken in connection with the transactions contemplated hereby and the other Operative Documents and all documents and papers relating thereto shall be satisfactory to Lender and its counsel, and Lender and its counsel shall have received copies of such documents and papers as Lender or its counsel may reasonably request in connection therewith or as a basis for such counsel’s closing opinion, all in form and substance satisfactory to Lender and its counsel.

(b)Conditions Precedent to the Obligations of Borrower and Guarantor.  It is agreed that the obligations of (1) Borrower to enter into the Operative Documents to which it is to be a party and (2) Guarantor to enter into the Guaranty and the other Operative Documents to which it is to be a party, are all subject to the fulfillment to the satisfaction of Borrower and Guarantor prior to or on the Closing Date of the following conditions precedent:

(i)The conditions specified in Section 4(a)(ii), 4(a)(vii), 4(a)(ix)(1) and 4(a)(xvii) hereof shall have been satisfied, unless such nonsatisfaction is the result of action or inaction by Borrower or Guarantor, as the case may be.

(ii)Those documents described in Section 4(a)(iv) shall have been duly authorized, executed and delivered by the respective party or parties thereto (other than Borrower and Guarantor) in the manner specified in such section, shall each be satisfactory in form and substance to Borrower and Guarantor, shall be in full force and effect on the Closing Date, and an executed counterpart of each thereof (other than the Note) shall have been delivered to Borrower and Guarantor or their counsel.

(iii)Borrower and Guarantor shall have received the documents described in Section 4(a)(vi)(2), each certified as provided therein, in form and substance satisfactory to Borrower and Guarantor, together with such other documents and evidence with respect to Lender and Security Trustee as Borrower, Guarantor or their counsel may reasonably request in order to establish the consummation of the transactions contemplated by this Agreement, the taking of all corporate or other similar proceedings in connection therewith and compliance with the conditions herein set forth.

(iv)The representations and warranties of Security Trustee and Lender contained in Section 7 hereof shall be true and accurate as of the Closing Date as though made on and as of such date except to the extent that such representations and warranties relate solely to an earlier date (in

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which event such representations and warranties shall have been true and accurate on and as of such earlier date).

(v)Borrower and Guarantor shall have received the opinions described in 4(a)(xii), in each case addressed to Borrower and Guarantor, and dated the Closing Date.

(vi)No change shall have occurred after the date of the execution and delivery of this Agreement in applicable law, regulations thereunder or interpretations thereof by appropriate regulatory authorities, or any other matter that, in the opinion of Borrower or Guarantor, would make it a violation of law or regulations for Borrower or Guarantor to enter into any transaction contemplated by the Operative Documents.

(vii)[intentionally omitted]

(viii)[intentionally omitted]

(c)Direction by each of the parties hereto to FAA counsel to file the documents referred to in Section 4(a)(viii)(4) hereof shall constitute, as to such party, confirmation by such party that the conditions to closing applicable to such party have been satisfied or waived to its satisfaction.

SECTION 4.[intentionally omitted]

SECTION 5.Guarantor’s Representations, Warranties and Covenants.  Guarantor represents, warrants and covenants to Security Trustee and Lender that as of the Closing Date:

(a)Guarantor is a corporation duly organized and validly existing in good standing pursuant to the laws of the State of Utah; is duly qualified to do business as a foreign corporation in each jurisdiction in which its operations or the nature of its business requires such qualification, except where the failure to be so qualified would not have a material adverse effect on its ability to perform its obligations hereunder and under the Guaranty; has the corporate power and authority to carry on its business as presently conducted and to enter into and perform its obligations hereunder and under the Guaranty; and its Internal Revenue Service employer identification number is correctly set forth on Schedule I hereto;

(b)the execution, delivery and performance by Guarantor of this Agreement and the Guaranty have been duly authorized by all necessary corporate action on the part of Guarantor, do not require any stockholder approval, or approval or consent of any trustee or holders of any indebtedness or obligations of Guarantor, and do not contravene the provisions of, or constitute a default under or results in the creation of any Lien (other than Permitted Liens) upon the property of Guarantor under, its Articles of Incorporation or Bylaws, any law, rule, regulation, judgment or court order binding on the Guarantor or any of its properties, or any indenture, mortgage, contract or other agreement to which Guarantor is a party or by which it or any of its properties may be bound or affected;

(c)the execution and delivery by Guarantor of this Agreement and the Guaranty and the performance by Guarantor of its obligations thereunder do not require the consent or approval or authorization of, the giving of notice to, or the registration with, or the taking of any other action under any applicable law or regulation in respect of any Governmental Authority;

(d)each of this Agreement and the Guaranty has been duly authorized, executed and delivered by Guarantor and constitutes legal, valid and binding obligations of Guarantor enforceable against Guarantor in accordance with the terms thereof, except as such enforceability may be limited by

6

applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws of general application relating to creditors’ rights generally and by general equitable principles (regardless of whether the issue of enforceability is considered in a proceeding in equity or at law);

(e)except with respect to matters described in “Part II OTHER INFORMATION Item 1:  Legal Proceedings” of Guarantor’s Form 10-Q filed for the period ending June 30, 2005 and, except for any bankruptcy proceedings relating to Delta that involve Lessee’s codeshare agreement with Delta, there are no pending or, to the knowledge of Guarantor, threatened actions or proceedings before any court or administrative agency to which Guarantor or its Affiliates is a party which individually (or in the aggregate in the case of any group of related lawsuits) are reasonably likely to have a material adverse effect on the Guarantor’s financial condition or the ability of Guarantor to perform its obligations hereunder or under the Guaranty;

(f)true and correct copies of the financial statements of Guarantor as of December 31, 2004, March 31, 2005 and June 30, 2005 have been delivered to Lender and such financial statements have been, in the case of the December 31, 2004 financial statements, audited by independent certified public accountants and have, in each case, been prepared in accordance with generally accepted accounting principles consistently applied with financial statements of prior years, are correct and complete and fairly present the financial condition and operating results of Guarantor as of such date (subject, in the case of the March 31, 2005 and June 30, 2005 financial statements, to normal year-end audit adjustments) and since December 31, 2004, March 31, 2005 and June 30, 2005 respectively, there has been no material adverse change in such condition or operations, except for such matters timely disclosed in any subsequent quarterly report on Form 10-Q or interim report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) prior to the Closing Date and furnished to Lender;

(g)Guarantor will furnish to Lender:

(i)within 60 days after the end of each of the first three quarterly periods of each fiscal year of Guarantor, Guarantor’s quarterly report on Form 10-Q (or such other form as may be required by the SEC) for such quarter as filed with the SEC or, if Guarantor is not subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, copies (each of which shall be prepared in accordance with generally accepted accounting principles) of (A) a consolidated balance sheet of Guarantor as of the end of such quarter, setting forth in comparative form the amount for the end of the corresponding period of the preceding fiscal year, and (B) consolidated statements of income, stockholders’ equity and cash flows of Guarantor for such quarterly period, setting forth in comparative form the amount for the corresponding period of the preceding fiscal year;

(ii)within 120 days after the end of each fiscal year of Guarantor, Guarantor’s annual report on Form 10-K (or such other form containing the same information as may be required by the SEC) for such year as filed with the SEC, or if Guarantor is not subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, duplicate copies (each of which shall be prepared in accordance with generally accepted accounting principles) of (A) a consolidated balance sheet of Guarantor as of the end of such year, and (B) consolidated statements of income, stockholders’ equity and cash flows of Guarantor for such year, setting forth in each case in comparative form the figures for the previous fiscal year and in all cases accompanied by a favorable auditor’s report of a firm of independent certified public accountants of recognized national standing;

(iii)promptly upon their becoming available, one copy of each proxy statement sent by Guarantor to its shareholders generally, and of each regular or periodic report and of any prospectus (in the form in which it becomes effective) filed by Guarantor with the SEC or any successor agency; and

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(iv)such other further public information concerning the Guarantor’s or Borrower’s financial condition, operations or business as Lender reasonably requests; and

(h)intentionally omitted;

(i)Guarantor covenants that it will not consolidate with or merge with or into any other corporation or other Person or convey, transfer or lease all or substantially all of its assets as an entirety (whether in one transaction or a series of related transactions) to any Person unless:

(i)the corporation or other Person formed by such consolidation or with or into which Guarantor is merged or the Person which acquires by conveyance, transfer or lease all or substantially all of the assets of Guarantor as an entirety (the “Successor”) shall, after giving effect to such merger, consolidation, conveyance, transfer or lease, have a Tangible Net Worth at least equal to the lesser of (1) Guarantor’s Tangible Net Worth immediately prior to such consolidation, merger, conveyance, transfer or lease and (2) the greater of (x) Guarantor’s Tangible Net Worth as of June 30, 2005 and (y) 60% of Guarantor’s Tangible Net Worth immediately prior to such consolidation, merger, conveyance, transfer or lease;

(ii)the Successor executes and delivers to Lender and Security Trustee a duly authorized, valid, binding and enforceable agreement in form and substance reasonably satisfactory to Security Trustee and Lender containing an assumption by such Person of the obligations of Guarantor under the Guaranty and the other Operative Documents to which Guarantor is a party;

(iii)immediately after giving effect to such transaction, no Default or Event of Default has occurred or is continuing; and

(iv)Guarantor shall (1) at least 30 days prior to such consolidation, merger, conveyance, transfer or lease, give written notice of such transaction to Lender and (2) have delivered to Lender (A) a certificate signed by a Responsible Officer of Guarantor stating that such consolidation, merger, conveyance, transfer or lease and the assumption agreement mentioned in clause (ii) above comply with the terms set forth herein and that all conditions precedent herein provided for relating to such transaction have been complied with and (B) an opinion of counsel (such counsel selected by Guarantor and reasonably acceptable to Lender) reasonably satisfactory to Lender that the assumption agreement mentioned in clause (ii) above is, subject to reasonable assumptions, qualifications and exceptions, the duly authorized, valid and binding agreement of Successor enforceable against Successor in accordance with the terms thereof.

Upon any consolidation or merger, or any conveyance, transfer or lease of all or substantially all of the assets of Guarantor as an entirety in accordance with this Section 5(i), Successor shall succeed to, and be substituted for, and may exercise every right and power of, Guarantor under this Agreement and the other Operative Documents to which it is a party with the same effect as if such Successor had been named as Guarantor herein.  No such consolidation, merger, conveyance, transfer or lease of all or substantially all of the assets of Guarantor as an entirety shall have the effect of releasing Guarantor or any Person which shall theretofore have become a Successor in the manner prescribed in this Section 5(i) from its liability in respect of any Operative Document to which it is a party.  Guarantor or Borrower shall pay all reasonable costs and expenses, including reasonable attorney’s fees of Security Trustee and Lender in connection with verification of the foregoing conditions. For avoidance of doubt, matters involving the consolidation or merger, or any conveyance, transfer or lease of all or substantially all of the assets of Borrower are governed solely by Section 7(e) hereof.

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SECTION 6.Borrower’s Representations, Warranties and Indemnities.

(a)In General.  Borrower represents and warrants as of the Closing Date and covenants to Lender that:

(i)Borrower is a corporation duly organized and validly existing in good standing pursuant to the laws of the State of Utah; is duly qualified to do business as a foreign corporation in good standing in all jurisdictions in which its operations or the nature of its business require such qualification; is a Citizen of the United States and a Certificated Air Carrier; holds all licenses, certificates, permits and franchises from the appropriate agencies of the United States of America and/or all other Governmental Authorities having jurisdiction necessary to authorize Borrower to engage in air transport and to carry on scheduled passenger service as presently conducted and each such license, certificate, permit and franchise is in full force and effect; is a registered organization (as such term is defined in Article 9a of the Utah Uniform Commercial Code—Secured Transactions) organized under the laws of the State of Utah and the full and correct legal name, type of organization, organizational number, jurisdiction of organization, and mailing address of the Borrower as of the Closing Date are correctly set forth in Schedule I hereof; covenants and agrees that it will not change such status or its name without 30 days’ prior written notice to Security Trustee; and further covenants and agrees to provide for the filing of such amended or new Uniform Commercial Code financing statements in the appropriate filing or recording office as may be necessary to protect the perfection and/or priority of the interest intended to be covered hereunder and under the Mortgage; has the corporate power and authority to carry-on its business as presently conducted and to enter into and perform its obligations under the Borrower Documents; and its Internal Revenue Service employer identification number is correctly set forth on Schedule I hereto;

(ii)the execution, delivery and performance by Borrower of the Borrower Documents will, on the Closing Date, have been duly authorized by all necessary corporate action on the part of Borrower, do not require any stockholder approval, or approval or consent of any trustee or holders of any indebtedness or obligations of Borrower except such as have been duly obtained or by the Closing Date will have been duly obtained, and (assuming the correctness of the representations, warranties and covenants of Lender in Section 7 hereof including, but not limited to, representations relating to ERISA and the Securities Act) none of such Borrower Documents contravenes any law, judgment, government rule, regulation or order binding on Borrower or the Articles of Incorporation or Bylaws of Borrower or contravenes the provisions of, or constitutes a default under, or results in the creation of any Lien (other than the mortgage and security interest created by the Mortgage) upon the property of Borrower under its Articles of Incorporation or Bylaws or any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, credit agreement, contract or other agreement or instrument to which Borrower is a party or by which it or any of its properties may be bound or affected;

(iii)neither the execution and delivery by Borrower of the Borrower Documents nor the performance by Borrower of its obligations thereunder require the consent, approval or authorization of, the giving of notice to, or the registration with, or the taking of any other action under any applicable law or regulation in respect of any Governmental Authority, except for (A) the orders, permits, waivers, exemptions, authorizations, requirements, regulations and approvals of the regulatory authorities having jurisdiction over the operation of the Aircraft by Borrower, which orders, permits, waivers, exemptions, authorizations and approvals have been duly obtained or will on or prior to the Closing Date be duly obtained, and will on the Closing Date be in full force and effect, (B) any normal periodic and other reporting requirements under the applicable rules and regulations of the FAA to the extent required to be given or obtained only after the Closing Date and (C) to the extent not covered above in this paragraph (iii), those filings described in Section 6(a)(vi) below;

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(iv)the Borrower Documents have been duly executed and delivered by Borrower and each constitutes legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with the terms thereof, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws of general application relating to creditors’ rights generally and by general equitable principles (regardless of whether the issue of enforceability is considered in a proceeding in equity or at law);

(v)except with respect to matters described in “Part II OTHER INFORMATION Item 1:  Legal Proceedings” of Guarantor’s Form 10-Q filed for the period ending June 30, 2005 and, except for any bankruptcy proceedings relating to Delta that involve Lessee’s codeshare agreement with Delta, there is no pending or threatened action or proceeding to which Borrower or any of its Affiliates is a party before any court or administrative agency which individually (or in the aggregate in the case of any group of related lawsuits) is reasonably likely to have a material adverse effect on the financial condition of Borrower or the ability of Borrower to perform its obligations under the Borrower Documents;

(vi)except for (A) the filing for recording pursuant to the Transportation Code of the Mortgage Supplement and the Mortgage, and (B) the filing of financing statements (and continuation statements at periodic intervals) with respect to the security and other interests created by such documents under Article 9a of the Uniform Commercial Code—Secured Transactions of the State of Utah and such other states as may be specified in the opinion furnished pursuant to Section 4(a)(x) hereof, no further action, including any filing or recording of any document (including any financing statement in respect thereof under Article 9 of the Uniform Commercial Code—Secured Transactions of any applicable jurisdiction), is necessary or advisable in order to establish and perfect Security Trustee’s security interest in the Mortgage Estate as against Borrower and any third parties in any applicable jurisdictions in the United States;

(vii)there has not occurred any event that constitutes a Default or an Event of Default that is presently continuing nor any default under the Purchase Agreement which is continuing;

(viii)Borrower has good and marketable title to the Aircraft free and clear of Liens other than the mortgage and security interest created by the Mortgage and other Permitted Liens described in Section 4.01(a)(ii) and (iii) of the Mortgage not of record;

(ix)[intentionally omitted];

(x)none of the written statements about Borrower or Guarantor furnished to Lender by or on behalf of Borrower or any Person authorized or employed by Borrower as agent, broker, dealer or otherwise in connection with the negotiation of the transactions contemplated by this Agreement, contained, as of the date thereof, any untrue statement of a material fact about Borrower or Guarantor or omitted, as of the date thereof, a material fact about Borrower or Guarantor necessary to make the statements about Borrower or Guarantor contained therein or herein not misleading and there is no fact that Borrower has not disclosed to Lender in writing which materially and adversely affects or, so far as Borrower can reasonably foresee, will materially and adversely affect the Aircraft, the business, profits or condition (financial or otherwise) of Borrower or will impair the ability of Borrower to perform its obligations under Borrower Documents;

(xi)Borrower and its Affiliates have filed or caused to be filed all federal, state, and material local and non-U.S. tax returns that are required to be filed and have paid or caused to be paid all taxes shown to be due on such returns or on any assessment received by Borrower or its

10

Affiliates, expect any that are being contested diligently and in good faith by appropriate proceedings and for which adequate provision for payment has been made;

(xii)the Aircraft is fully equipped to operate in commercial service and does not require any additions or improvements for its intended use by Borrower;

(xiii)no Person acting on behalf of Borrower is or will be entitled to any broker’s fee, commission or finder’s fee in connection with the transactions contemplated by the Operative Documents;

(xiv)no Event of Loss has occurred with respect to the Aircraft, and no circumstance, condition, act or event has occurred to the knowledge of Borrower that, with the giving of notice or lapse of time will give rise to or constitute an Event of Loss with respect to the Aircraft or any Engine;

(xv)all sales or use Taxes then due and for which Borrower is responsible pursuant to Section 6(b) hereof shall have been paid, other than such Taxes that are being contested by Borrower in good faith and by appropriate proceedings (and for which Borrower) shall have established adequate reserves) so long as such proceedings do not involve any reasonable likelihood of the sale, forfeiture or loss of the Aircraft; and

(xvi)Security Trustee on behalf of Lender is entitled to the protection of Section 1110 of the Bankruptcy Code in connection with it rights to take possession of the Aircraft in the event of a case under Chapter 11 of the Bankruptcy Code in which Borrower is a debtor.

(b)General Tax Indemnity.

(i)Indemnity.  Borrower shall pay, and on written demand shall indemnify and hold harmless on an After-Tax Basis each Indemnitee from and against, any and all Taxes imposed against any Indemnitee, Borrower or any Affiliate of Borrower, the Aircraft, Airframe, or any Engine or any Part thereof or interest therein, or any lessee or user or Person in possession thereof, or Affiliate of any lessee, user or Person in possession thereof, by the United States or any state or local government or other taxing authority thereof or any territory or possession thereof, or by any foreign government or any international taxing authority or any political subdivision or taxing authority of any of the foregoing upon or with respect to (A) the Aircraft, Airframe, any Engine or any Part or any interest therein; (B) the acquisition, manufacture, purchase, mortgaging, financing, refinancing, ownership, delivery, nondelivery, redelivery, transport, location, lease, sublease, hire, assignment, alteration, improvement, possession, registration, deregistration, transfer of registration, presence, use, replacement, substitution, pooling, operation, insurance, installation, modification, rebuilding, overhaul, condition, storage, maintenance, repair, sale, return, abandonment, preparation, transfer of title, conditional sale, acceptance, importation, exportation, rejection or other disposition of the Aircraft, Airframe, any Engine, any Part or any interest in any of the foregoing; (C) the rentals, receipts, income or earnings arising from the purchase, financing, ownership, delivery, redelivery, leasing, subleasing, possession, use, operation, return, storage, transfer of title, sale or other disposition of the Aircraft, Airframe, any Engine, any Part, or any interest in any of the foregoing; (D) the Notes, their issuance, acquisition, transfer, refinancing, or the payment of any amounts thereon; (E) the execution, delivery, performance or enforcement of any of the Operative Documents or any future amendment, supplement, waiver or consent thereto, or any of the transactions contemplated thereby, any proceeds or payments or amounts payable under any thereof, or the issuance, acquisition or subsequent transfer thereof; (F) the property or the income or other proceeds with respect to any of the property held in the Mortgage Estate; (G) the payment of the purchase price pursuant to the Loan

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Agreement and the Purchase Agreement; or (H) otherwise with respect to or in connection with the transactions contemplated by the Operative Documents.

(ii)Exclusions from General Tax Indemnity.  The provisions of Section 6(b)(i) shall not apply to, and Borrower shall have no obligation to pay, or to indemnify or hold harmless a particular Indemnitee with respect to:

(1)Taxes imposed on an Indemnitee by withholding or otherwise, based on, or measured by the income (including gross income), earnings, receipts, capital, franchises, excess profits or conduct of business of such Indemnitee, including, without limitation, income Taxes, U.S. Withholding Taxes, capital gains Taxes, minimum and alternative minimum Taxes, accumulated earnings Taxes, personal holding company Taxes and branch profits and branch interest Taxes (other than sales, rental, use, value added, property, ad valorem, license, excise, general services, stamp, documentary or similar Taxes) imposed by the United States, any state or local government, or any foreign government; provided, however, that:

(A)In the case of any Taxes imposed by a Governmental Authority other than the United States, the exclusions set forth in this clause (1) shall apply only if and to the extent that: (I) such Taxes are imposed as a result of the Indemnitee’s situs of organization, residence, citizenship, place of business, presence or activities in the jurisdiction imposing the Tax, and (II) the Indemnitee’s situs, residence, citizenship, place of business, presence or activity in the taxing jurisdiction is not solely attributable to (x) the operation, use, presence, or registration of the Aircraft, Airframe or any Engine or Part or any other aircraft, airframe, engine or part owned or leased by Borrower, in such jurisdiction, (y) the presence of Borrower or any lessee or any Affiliate of any thereof, or Borrower or any lessee or any Affiliate thereof making payments (or having been deemed to have made payments) from or performing any other actions expressly permitted or required under the Operative Documents, or the application of the proceeds of the Notes, in such jurisdiction, or (z) the Indemnitee’s participation in the transactions contemplated hereby.

(B)In the case of U.S. Withholding Taxes on an Indemnitee, the exclusion contained in this clause (1) shall not apply if and to the extent that such Taxes result from a Change in Tax Law issued, enacted or adopted after the Closing Date; and

(C)The exclusions set forth in this clause (1) shall not apply to amounts necessary to make any payment on an After-Tax Basis.

(2)[Taxes attributable to any period following the payment in full of all of Borrower’s obligations under the Mortgage and all other amounts then payable under the other Operative Documents; provided, however, that the exclusions set forth in this subparagraph (2) shall not apply to Taxes relating to payments made by Borrower to or for the benefit of any Indemnitee under the Operative Documents following such events];

(3)[intentionally omitted];

(4)Taxes imposed on an Indemnitee that arise out of or are caused by (A) the breach of any express representation, warranty or covenant of such Indemnitee (unless attributable to the breach of any representation, warranty or covenant set forth in the Operative

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Documents by a party thereto other than such Indemnitee if such breach is not caused by such Indemnitee), (B) in the case of Security Trustee, any act or omission of the Security Trustee where such act or omission is not permitted by the Operative Documents, or (C) the gross negligence or willful misconduct of such Indemnitee (unless such gross negligence or willful misconduct is imputed to such Indemnitee by reason of the acts or omissions of Borrower);

(5)Taxes that become payable as a result of a transfer by an Indemnitee of all or a portion of its interest in any Operative Documents other than in connection with (A) a Specified Default or an Event of Default, (B) an Event of Loss, or (C) a transfer by the Lender pursuant to a request by Borrower;

(6)Taxes imposed against a transferee of an Indemnitee to the extent of the excess of such Taxes over the amount of such Taxes that would have been imposed on the original Lender or Security Trustee, as applicable, had that original Indemnitee not made a transfer (including for this purpose the booking of a Note by a Lender in a jurisdiction other than of its original Lending Office); provided, however, that this clause (6) shall not apply to:  (A) the extent necessary to make any payment on an After-Tax Basis, (B) a transfer not excluded by Section 6(b)(ii)(5) hereof, or (C) Taxes imposed on a Note Holder which is a transferee of the Lender (including a Lending Office of a particular Lender that is a transferee of its respective original Lending Office) if that transferee is domiciled in the United States, Belgium, France, Germany, Ireland, the Netherlands or the United Kingdom;

(7)Taxes imposed on Security Trustee with respect to any fees received for services rendered by it in its capacity as Security Trustee under the Mortgage;

(8)[intentionally omitted];

(9)Taxes imposed on an Indemnitee resulting from or attributable to any amendment, supplement, waiver, consent or modification to any Operative Document, the Notes, or any other documents contemplated hereby or thereby, which have not been approved in writing by Borrower, unless (A) made while a Specified Default or an Event of Default is continuing or (B) expressly required pursuant to the terms of the Operative Documents;

(10)[intentionally omitted];

(11)Taxes imposed on an Indemnitee to the extent resulting from a failure of such Indemnitee to provide any certificate, documentation, or other evidence requested by Borrower and required under applicable law as a condition to the allowance of a reduction in such Tax, which in such Indemnitee’s good faith judgment it is eligible to provide; but only if such Indemnitee was legally eligible to provide such certificate, documentation or other evidence without adverse consequence to it or its Affiliate, and, in the case of certificates, documentation or other evidence requiring disclosure of knowledge of factual information (such as the location of the Aircraft) that is not readily ascertainable by the Indemnitee, only if Borrower provides such information to the Indemnitee in a timely written manner and at Borrower’s cost; or

(12)Taxes imposed on an Indemnitee to the extent resulting the failure by such Indemnitee’s or its Affiliates to file any return or report which it is legally required to file unless such failure results from Borrower’s breach of its obligations under Section 6(b)(v) below.

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(iii)Calculation of General Tax Indemnity Payments.

(A) Any payment that Borrower shall be required to make to or for the account of any Indemnitee with respect to any Tax that is subject to indemnification under this Section 6(b) shall be made on an After-Tax Basis.

(B)If by reason of any Tax payment made by or on behalf of Borrower to or for the account of an Indemnitee pursuant to this Section 6(b), such Indemnitee subsequently actually realizes Tax Savings against Taxes not indemnified against hereunder and not previously taken into account in computing such payment, such Indemnitee shall promptly pay to Borrower an amount equal to the sum of (I) the actual net reduction in Taxes, if any, actually realized by such Indemnitee which is attributable to such Tax Savings and (II) the actual reduction in any Taxes not indemnified against hereunder and realized by such Indemnitee as the result of any payment made by such Indemnitee pursuant to this sentence; provided that such Indemnitee shall not be obligated to pay any such amount to the extent that such amount would exceed (x) the aggregate amount of all prior payments by Borrower to such Indemnitee under this Section 6(b) (including the payment of any amount necessary for such payments to be on an After-Tax Basis) less (y) the aggregate amount of all prior payments by such Indemnitee to Borrower pursuant to this Section 6(b); provided, further, that any amount not paid to Borrower pursuant to the foregoing limitation shall be carried forward to reduce pro tanto any future payments that Borrower may be required to make to such Indemnitee pursuant to this Section 6(b).

(C)Any Taxes that are imposed on an Indemnitee as a result of the disallowance or reduction of any Tax Savings paid to Borrower pursuant to this Section 6(b)(iii) shall be treated as a Tax for which Borrower is obligated to indemnify such Indemnitee without regard to the exclusions set forth in Section 6(b)(ii) (other than subparagraphs (4), (11) and (12) thereof).

(D)In determining the order in which any Indemnitee utilizes any foreign Taxes as a credit against such Indemnitee’s United States income Taxes, such Indemnitee may use any reasonable, non-discriminatory method with respect to the use of any foreign Taxes as a credit against such Indemnitee’s United States income Taxes.

(iv)Contests.

(A) If a written claim shall be made against and received by any Indemnitee for any Tax for which Borrower is obligated to indemnify pursuant to this Section 6(b), such Indemnitee shall notify Borrower in writing of such claim within 30 days after its receipt, and shall provide Borrower such information regarding such claim as Borrower may reasonably request; provided, however, that the failure to provide such notice shall not release Borrower from any of its obligations to indemnify under Section 6 hereof unless, and only to the extent that, such failure effectively precludes Borrower’s contest rights.  To the extent permitted under applicable law, such Indemnitee will not make any payments with respect to such claim for at least 30 days after giving notice of such claim to Borrower.

(B)If requested by Borrower in writing within 30 days after its receipt of such notice or such shorter period as may be required by applicable law, such Indemnitee shall, at the expense of Borrower and subject to subparagraph (C) below, contest the validity, applicability or amount of such Taxes by, in the case of an

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Indemnitee-Controlled Contest, in such Indemnitee’s sole discretion or, in the case of a Borrower-Controlled Contest, in Borrower’s sole discretion, (1) resisting payment thereof if practicable, (2) not paying such Tax except under protest, (3) if protest is necessary and proper, and if payment of such Tax is made, using reasonable efforts to obtain a refund thereof, in appropriate administrative and judicial proceedings, and (4) in the case of an Indemnitee-Controlled Contest, considering in good faith any other reasonable action as Borrower may reasonably request.  Each Indemnitee shall consult in good faith with Borrower and Borrower’s counsel, and Borrower shall consult in good faith with such Indemnitee and its counsel in the case of a Borrower-Controlled Contest. concerning the forum in which the contest is most likely to be favorably resolved and whether such contest shall be by (x) resisting payment of such Tax, (y) paying such Tax under protest or (z) paying such Tax and seeking a refund or other repayment thereof.

(C)In no event shall an Indemnitee be required, or Borrower permitted, to contest the imposition of any Tax for which Borrower is obligated pursuant to this Section 6(b) unless (1) Borrower shall have agreed to pay and shall promptly be paying on request all reasonable costs and expenses that such Indemnitee incurs in contesting such claim or arising out of or relating to such contest (including legal fees, accounting fees, and disbursements, including those on appeal, if any); (2) such contest is not reasonably likely to result in a material danger of the sale, seizure, forfeiture or loss of the Aircraft, or the creation of any Lien thereon other than Liens for Taxes (i) either not yet due or being contested in good faith by appropriate proceedings and (ii) for which such reserves, if any, as are required to be provided under generally accepted accounting principles have been provided by Borrower, and there is no risk of criminal penalties; (3) if such contest shall be conducted in a manner requiring the payment of the claim, Borrower shall have advanced sufficient funds, on an interest-free basis, to make the payment required, and shall have agreed to indemnify the Indemnitee against any additional net after-Tax cost to such Indemnitee of such advance; (4) if requested by the Indemnitee in writing, such Indemnitee shall have received an opinion of independent Tax counsel selected by Borrower and reasonably acceptable to such Indemnitee and furnished at Borrower’s sole expense to the effect that a Realistic Possibility of Success exists for contesting such claim (or, in the case of an appeal of an adverse judicial determination, a written opinion from such independent Tax counsel to the effect that it is more likely than not that such adverse judicial determination will be reversed or substantially modified); (5) Borrower shall have delivered to such Indemnitee a written acknowledgment of Borrower’s obligation to indemnify such Indemnitee to the extent that the contest is not successful; provided, however, that Borrower will not be bound by its acknowledgment of liability if the contest is resolved on a clear and unambiguous basis showing no such liability under this Section 6(b) with respect to such Tax; (6) if a Specified Default or Event of Default shall have occurred and be continuing, Borrower shall have provided security for its obligation hereunder satisfactory to the Indemnitee by placing in escrow sufficient funds to cover any such contested Tax and the reasonably expected expenses of such contest on an After-Tax Basis, or otherwise providing satisfactory provisions for payment of such amounts determined by the Indemnitee in its sole discretion; (7) the aggregate amount of all indemnity payments that Borrower may be required to make to such Indemnitee with respect to such claim (or similar or related claims) is at least $60,000; and (8) the claim is not for a Tax the imposition of which has been previously contested by, or at the request of, Borrower hereunder, and such previous contest (including all allowable appeals) was decided adversely to Borrower, unless Borrower

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has delivered an opinion of independent Tax counsel selected by Borrower and reasonably acceptable to the Indemnitee to the effect that, on the basis of (i) a change in applicable law, or (ii) a difference in the underlying facts, there is currently a Realistic Possibility of Success for contesting such claim.

(D)If any Indemnitee shall obtain a refund of all or any part of any Tax paid by Borrower, such Indemnitee shall pay Borrower, but not before Borrower shall have made all payments theretofore due to such Indemnitee pursuant to this Section 6(b) and any other payments theretofore due such Indemnitee under any of the Operative Documents, an amount equal to the amount of such refund (net of any Taxes imposed thereon), including interest received and attributable thereto (net of any Taxes imposed thereon) plus, if Borrower has paid an amount pursuant to the first sentence of Section 6(b)(iii)(A), any net Tax benefit (or minus any net Tax detriment) realized by such Indemnitee as a result of any refund received, and payment made, by such Indemnitee pursuant to this sentence; provided that the Indemnitee shall not be obligated to pay an amount under the preceding sentence to the extent that such amount would exceed the amount of such Taxes paid, reimbursed or advanced by Borrower to such Indemnitee (other than the cost of the contest thereof); provided, further, that any amount not paid to Borrower pursuant to the foregoing limitation shall be carried forward to reduce pro tanto any future payments that Borrower may be required to make to such Indemnitee pursuant to this Section 6(b).  If any Indemnitee shall have paid Borrower any refund of all or part of any Tax paid by Borrower and it is subsequently determined that such Indemnitee was not entitled to the refund, such determination shall be treated as the imposition of a Tax for which Borrower is obligated to indemnify such Indemnitee pursuant to the provisions of this Section 6(b) without regard to the exclusions set forth in Section 6(b)(ii) (other than subparagraphs (4), (11) and (12) thereof).  Provided no Specified Default or Event of Default has occurred and is continuing, an Indemnitee shall not settle any such claim or contest pursuant to this provision without the written consent of Borrower, which consent shall not be unreasonably withheld, conditioned or delayed; provided, that an Indemnitee may settle at any time without the consent of Borrower if the Indemnitee waives (by written notice to Borrower) the payment by Borrower of an indemnity in respect of such issue and any related issue the contest of which is effectively foreclosed by the settlement of such issue, including any payment arising from such issue in subsequent years or which by reason of the fact that such issue is of a continuing nature, and promptly pays to Borrower any Tax previously paid or any interest-free loan advanced by Borrower (other than expenses of such contests) with respect to such issue.

(E)Nothing contained in this Section 6(b)(iv) shall require any Indemnitee to contest, or permit Borrower to contest in the name of such Indemnitee, a claim that such Indemnitee would otherwise be required to contest pursuant to this Section 6(b)(iv) if such Indemnitee shall waive payment by Borrower of any amount that might otherwise be payable by Borrower under this Section 6(b) in connection with such claim (other than the costs of contest previously incurred), nor shall any Indemnitee be required to pursue any appeal to the United States Supreme Court.

(v)Reports.  Borrower will provide such information as may reasonably be requested by an Indemnitee to enable an Indemnitee to fulfill its Tax filing, audit, contest, or other information reporting requirements with respect to the transactions contemplated by the Operative Documents.  If any report, return or statement is required to be filed with respect to any Tax that is subject to indemnification under this Section 6(b), Borrower shall notify such Indemnitee of such requirement

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and, to the extent legally permitted to do so, Borrower shall timely file the same (except for any such report, return or statement that the Indemnitee has notified Borrower that the Indemnitee intends to file, or for income Tax returns or any other return, report or statement which the Indemnitee is required by law to file in its own name).  Borrower shall have no obligation under the preceding sentence if such Indemnitee, after receipt of Borrower’s timely written request, shall have failed to furnish Borrower with such information as is within such Indemnitee’s control, not otherwise available to Borrower and is reasonably necessary to file such returns.  Borrower shall either file such report, return or statement required to be filed by it pursuant to the second preceding sentence and send a copy of such report, return or statement to the Indemnitee, or, where Borrower is not so permitted to file such report, return or statement, it shall notify the Indemnitee of such requirement and prepare and deliver, subject to the immediately preceding sentence, such report, return or statement to the Indemnitee in a manner satisfactory to such Indemnitee within a reasonable time prior to the time such report, return or statement is to be filed.

(vi)Payment.  Except as provided in Section 6(b)(iv) regarding Borrower’s right to contest certain claims for Taxes, Borrower shall pay any Tax for which it is liable pursuant to this Section 6(b) directly to the appropriate taxing authority or, upon demand of an Indemnitee, to such Indemnitee within twenty (20) Business Days of such demand, but in no event more than five (5) Business Days prior to the date such Tax is due, in immediately available funds.  Any such demand for payment from an Indemnitee shall specify in reasonable detail the amount of the payment and the facts upon which the right to payment is based (all in accordance with Section 6(b)) and shall be verified in accordance with the procedures set forth in clause (xi) below.  Each Indemnitee shall promptly forward to Borrower any notice, bill or advice in the nature of a notice or bill received by it concerning any Tax subject to indemnification hereunder.  As soon as practicable after each payment by Borrower of any Tax, Borrower shall furnish the appropriate Indemnitee the original or a certified copy of a receipt for Borrower’s payment of such Tax or such other evidence of payment of such Tax as is reasonably acceptable to such Indemnitee.

(vii)Definition of Indemnitee.  For purposes of this Section 6(b), the term Indemnitee shall also include any consolidated or combined group of which such Indemnitee, its member or a partner of its member, is or becomes a member if such group is treated as a single taxpayer for purposes of any Tax.

(viii)Application of Payments During Existence of a Specified Default or Event of Default.  Notwithstanding the foregoing, any amount payable to Borrower pursuant to the terms of this Section 6(b) shall not be paid to Borrower if at the time such payment is to be made a Specified Default or an Event of Default shall have occurred and be continuing.  At such time as there shall not be continuing any such Specified Default or Event of Default, such amount shall be paid to Borrower (without interest) to the extent not applied against Borrower’s obligations hereunder or under any of the other Operative Documents.

(ix)Forms.  Each Indemnitee agrees to furnish from time to time to Borrower, or to such other person as Borrower may designate, at Borrower’s written request or pursuant to the terms of the Operative Documents, such duly executed and properly completed forms as may be necessary or appropriate in order to claim any reduction of, or exemption from, any Tax which Borrower may be required to indemnify against hereunder, unless such Indemnitee reasonably determines, pursuant to an opinion of counsel selected by such Indemnitee and reasonably satisfactory to Borrower, which opinion is to be provided at Borrower’s sole cost and expense, that it is not entitled to claim such reduction or exemption or unless such Indemnitee determines in good-faith that it will incur a material adverse financial consequence for which Borrower has not indemnified it in a manner reasonably satisfactory to such Indemnitee.  The mere act of filing completed forms (including Tax returns) shall not be deemed to have a material adverse effect.

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(x)Reimbursements by Indemnitees Generally.  If, for any reason, Borrower makes any payment that Borrower is required by applicable law or by the Operative Documents to make for or with respect to any Taxes imposed on any Indemnitee in respect of the transactions contemplated by the Operative Documents or on the Aircraft, the Airframe, the Engines, or any Part thereof, and such Taxes are not the responsibility of Borrower pursuant to the terms of this Section 6(b), then such Indemnitee shall pay to Borrower within twenty (20) Business Days of Borrower’s written demand therefor an amount which equals the amount paid by Borrower with respect to such Taxes.

(xi)Verification.  At Borrower’s request, the amount of any indemnity payment by Borrower pursuant to this Section 6(b), or any payment by an Indemnitee to Borrower pursuant to this Section 6(b), shall be verified by an accounting firm to be jointly selected by Borrower and the Indemnitee.  Each Indemnitee and Borrower hereby agree to provide such accounting firm with all information and materials as shall be reasonably necessary or desirable in connection herewith (provided that such accounting firm shall agree in writing to keep confidential any information relating to any Indemnitee and shall promptly return such information and materials).  Such accounting firm shall be requested to make its determination within 30 days.  If such accounting firm shall determine that such computations are incorrect, then such firm shall determine what it believes to be the correct computations.  The computations of the accounting firm shall be final, binding and conclusive upon Borrower and the Indemnitee.  All fees and expenses payable pursuant to this Section shall be borne by Borrower unless the verification results in a reduction of the amount payable by Borrower (or an increase in the amount payable by the Indemnitee to Borrower) of more than ten percent (10%), in which case such expense shall be borne by the Indemnitee.  Notwithstanding anything to the contrary that may be contained herein, Borrower agrees that it will have no right to inspect the Tax returns, books or records of an Indemnitee for any purpose.

(xii)Mitigation.  Each Indemnitee agrees to take reasonable action at the expense of Borrower to mitigate the Taxes for which indemnification is sought pursuant to this Section 6(b).  Nothing herein shall require an Indemnitee to take any action requiring knowledge of factual information (such as location of the Aircraft) that is not known to or readily ascertainable by the Indemnitee unless such information is provided to the Indemnitee by the Borrower at Borrower’s cost or to require Indemnitee to take any action which is likely to have a material adverse effect on Indemnitee or any of its Affiliates. For purposes hereof, the mere act of filing a Tax return shall not be deemed to have a material adverse effect.

(xiii)Non-Parties.

(A)If an Indemnitee is not a party to this Agreement, Borrower may require such Indemnitee to agree in writing, in a form reasonably satisfactory to Borrower, to the terms of Section 6(b) and Section 6(c) hereof prior to making any payment to such Indemnitee under Section 6 of this Agreement.

(B)In addition to the terms and conditions set forth in Section 6(b) and Section 6(c) hereof regarding indemnification applicable to any Indemnitee, a Person that is an Indemnitee because such Person is an Affiliate, corporate successor, permitted assign, director, officer, employee, servant, or agent of Lender or Security Trustee, as the case may be, shall not be indemnified pursuant to Section 6(b) or Section 6(c) hereof if the Person from which such Indemnitee’s right of indemnification derives would not be entitled to indemnification pursuant to the terms of Section 6(b) or Section 6(c) if such Person sought indemnification directly from Borrower with respect to such matter.

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(xiv)Withholding.  Borrower agrees, to the extent required by applicable law, to withhold from each payment due hereunder or under any Note withholding Taxes at the appropriate rate, and, on a timely basis, and to deposit such amounts with an authorized depository and make such reports, filings and other reports in connection therewith, and in the manner, required under applicable law.  In respect of U.S. Withholding Taxes, Borrower shall promptly furnish to each Note Holder (but in no event later than the date 30 days after the due date thereof) an Internal Revenue Service Form 1042S (or similar forms as at any relevant time in effect), if applicable, indicating payment in full of any U.S. Withholding Taxes withheld from any payments by Borrower to such persons together with all such other information and documents reasonably requested by the Note Holder and necessary or appropriate to enable each Note Holder to substantiate a claim for credit or deduction with respect thereto for income Tax purposes of the country where each Note Holder is located.  For the avoidance of doubt, Borrower shall, to the extent provided in Section 6(b), indemnify each Indemnitee on an After-Tax Basis in respect of any withholding Taxes such that, after making all required deductions (including deductions applicable to additional sums payable under this Section 6), the Indemnitee shall receive no less than the sum it would have received had no such deductions been made.

(c)General Indemnity.

(i)Borrower hereby agrees to indemnify on an After-Tax Basis each Indemnitee against, and agrees to protect, save and hold harmless each Indemnitee from (whether or not the transactions contemplated herein or in any of the other Operative Documents are consummated), any and all Expenses imposed on, incurred by or asserted against any Indemnitee, in any way relating to or arising out of or which would not have occurred but for (A) the Operative Documents (including the enforcement thereof) and the consummation of the transactions contemplated thereby or any Default or Event of Default thereunder; (B) the manufacture, design, purchase, resale, acceptance or rejection of the Airframe or any Engine or Parts; (C) the Aircraft (or any portion thereof) or any engine installed on the Airframe or any airframe on which an Engine is installed whether or not arising out of the manufacture, design, installation, purchase, registration, re-registration, refinancing, financing, mortgage, ownership, delivery, re-delivery, nondelivery, lease, sublease, possession, use or non-use, storage, operation, maintenance, modification, alteration, condition, replacement, repair, substitution, sale, return or other disposition of the Aircraft (or any portion thereof) including, without limitation, latent or other defects, whether or not discoverable, strict tort liability and any claim for patent, trademark or copyright infringement; (D) the offer, sale or delivery of the Notes on or prior to the Closing Date or (E) any violation of law relating to the Aircraft or the transactions contemplated herein, including any Federal or state securities laws, ERISA, or Federal or state environmental laws.  Notwithstanding the preceding sentence, the foregoing agreement to indemnify, protect, save and hold harmless each any particular Indemnitee under this Section 6(c) shall not extend to any Expense incurred by such Indemnitee to the extent resulting from or arising out of or which would not have occurred but for one or more of the following: (1) any express representation or warranty by such Indemnitee in the Operative Documents being incorrect in any material respect; or (2) the failure by such Indemnitee to perform or observe in any material respect any express agreement, covenant or condition in any of the Operative Documents, unless such failure by such Indemnitee results from any failure by Borrower to observe in any material respect any covenant, agreement or condition in any Operative Document; or (3) the willful misconduct or the gross negligence of such Indemnitee (other than gross negligence imputed to such Indemnitee solely by reason of its interest in the Aircraft or being party to the Operative Documents); or (4) in the case of any Lender, a disposition (voluntary or involuntary) of all or any part of its interest in any Note (other than as contemplated by the Mortgage or as directed by Borrower) or in the case of any other Indemnitee, a disposition by such Indemnitee of all or any part of such Indemnitee’s interest in any of the Operative Documents, other than, in each case, during the continuance of a Specified Default or an Event of Default; or (5) any Tax, or any loss of Tax benefits or increase in Tax liability under any Tax law, whether or not Borrower is required to indemnify for such Tax pursuant to Section 6(b) hereof (it being

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understood that Section 6(b) hereof exclusively provides for Borrower’s liability with respect to Taxes); provided, however, that this clause (5) shall not apply to Taxes taken into consideration in making any payment under the Operative Documents on an After-Tax Basis; or (6) in the case of Security Trustee, a failure on the part of Security Trustee to distribute in accordance with the Mortgage any amounts received and distributable by it thereunder; or (7) other than during the continuation of a Specified Default or an Event of Default, the authorization or giving or withholding of any future amendments, supplements, waivers or consents with respect to any of the Operative Documents which amendments, supplements, waivers or consents (A) do not require or receive the approval of Borrower or (B) are not occasioned by a specific requirement of the Operative Documents; or (8) the offer, sale or delivery of a Note by such Indemnitee in violation of the Securities Act or a violation by such Indemnitee of any other applicable law or regulation relating to any transfer of a Note; or (9) except to the extent fairly attributable to acts or events occurring prior thereto, acts or events which occur after the payment in full of all of Borrower’s obligations under the Operative Documents; or (10) in the case of Security Trustee, any compensation as provided in Section 6.07 of the Mortgage.

(ii)If, by reason of any Expense payment made to or for the account of an Indemnitee by Borrower pursuant to this Section 6(c), such Indemnitee subsequently realizes a Tax Savings not previously taken into account in computing such payment, such Indemnitee shall promptly pay to Borrower, but not before Borrower shall have made all payments then due and owing to such Indemnitee under the Operative Documents, an amount equal to the sum of (I) the actual reduction in Taxes, if any, realized by such Indemnitee which is attributable to such Tax Savings and (II) the actual reduction in Taxes realized by such Indemnitee as a result of any payment made by such Indemnitee pursuant to this sentence; provided that such Indemnitee shall not be obligated to pay any such amount if a Specified Default or an Event of Default shall be continuing or to the extent that such amount would exceed (i) the aggregate amount of all prior payments by Borrower to such Indemnitee under this Section 6(c) in respect of such Expense (including any amount necessary for such payments to be on an After-Tax Basis) less (ii) the aggregate amount of all prior payments by such Indemnitee to Borrower pursuant to this Section 6(c) in respect of such Expense; provided, however, that any amount not paid to Borrower pursuant to the foregoing limitation shall be carried forward to reduce pro tanto any future payments that Borrower may be required to make to such Indemnitee pursuant to this Section 6(c); provided further, that any amount not paid as a result of the occurrence of a Specified Default or an Event of Default and not otherwise applied as provided in this subparagraph (ii) shall be paid to Borrower at such time as there shall not be continuing any such Specified Default or Event of Default.

(iii)Any Taxes that are imposed on an Indemnitee as a result of the disallowance or reduction of any Tax Savings paid to Borrower pursuant to this Section 6(c) shall be treated as a Tax for which Borrower is obligated to indemnify such Indemnitee pursuant to the provisions of Section 6(b) without regard to the exclusions set forth in Section 6(b)(ii) (other than subparagraphs (4), (11) and (12) thereof).

(iv)If a claim is made against an Indemnitee involving one or more Expenses and such Indemnitee has notice thereof, such Indemnitee shall promptly after receiving such notice give notice of such claim to Borrower; provided that the failure to provide such notice shall not release Borrower from any of its obligations to indemnify hereunder, unless and only to the extent such failure materially and adversely affects Borrower or any of its Affiliates; and no payment by Borrower to an Indemnitee pursuant to this Section 6(c) shall be deemed to constitute a waiver or release of any right or remedy which Borrower may have against such Indemnitee for any actual damages as a result of the failure by such Indemnitee to give Borrower such notice.  Borrower shall be entitled, at its sole cost and expense (and acting through counsel reasonably acceptable to the respective Indemnitee) (A) (so long as Borrower has agreed in a writing reasonably acceptable to such Indemnitee that Borrower is liable to such Indemnitee for such Expense) in any judicial or administrative proceeding that involves solely a claim for

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one or more Expenses, to assume responsibility for and control thereof, (B) (so long as Borrower has agreed in a writing reasonably acceptable to such Indemnitee that Borrower is liable to such Indemnitee for such Expense) in any judicial or administrative proceeding involving a claim for one or more Expenses and other claims related or unrelated to the transactions contemplated by the Operative Documents, to assume responsibility for and control of such claim for Expenses to the extent that the same may be and is severed from such other claims (and such Indemnitee shall use its commercially reasonable efforts to obtain such severance), and (C) in any other case, to be consulted by such Indemnitee with respect to judicial or administrative proceedings subject to the control of such Indemnitee and to be allowed, at Borrower’s sole expense, to participate therein.  Notwithstanding any of the foregoing to the contrary, Borrower shall not be entitled to assume responsibility for and control of, or participate in or be consulted with respect to any such judicial or administrative proceedings if (i) any Specified Default or Event of Default shall have occurred and be continuing, (ii) such proceedings will involve a material risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Lien) on, the Aircraft, the Mortgage Estate or any part thereof unless in such an event Borrower shall have posted a bond or other security reasonably satisfactory to the relevant Indemnitees in respect to such risk or (iii) such proceedings could in the reasonable opinion of such Indemnitee involve the imposition of criminal liability on an Indemnitee or if such control or participation will in the reasonable opinion of such Indemnitee be inappropriate under applicable standards of professional conduct due to actual or potential conflicting interests between them. An Indemnitee may participate at its own expense and with its own counsel in any judicial proceeding controlled by Borrower pursuant to the preceding provisions.

(v)The applicable Indemnitee shall supply Borrower with such information reasonably requested by Borrower as is necessary or advisable for Borrower to control or participate in any proceeding to the extent permitted by this Section 6(c).  Such Indemnitee shall not (unless such Indemnitee waives its right to be indemnified with respect to such Expense under this Section 6(c)) enter into a settlement or other compromise with respect to any Expense without the prior written consent of Borrower (except during the continuance of a Specified Default or an Event of Default when such consent shall not be required if such Indemnitee has given Borrower at least 15 days prior written notice of the nature and scope of the proposed settlement or compromise), which consent shall not be unreasonably withheld, conditioned or delayed.

(vi)Borrower shall supply the applicable Indemnitee and its advisors with such information reasonably requested by such Indemnitee as is necessary or advisable for such Indemnitee to control or participate in any proceeding to the extent permitted by this Section 6(c).

(vii)Upon payment of any Expense pursuant to this Section 6(c), Borrower, without any further action, shall, so long as no Specified Default or Event of Default shall be continuing, be subrogated to any claims the applicable Indemnitee may have relating thereto (other than claims under insurance policies not maintained by Borrower); provided, that in the event Borrower shall not be subrogated to any claim as a result of the occurrence of a Specified Default or an Event of Default, Borrower shall be subrogated to such claim at such time as there shall not be continuing any such Specified Default or Event of Default.  Such Indemnitee agrees to give, at Borrower’s expense, such further assurances or agreements and to cooperate, at Borrower’s expense, with Borrower to permit Borrower to pursue such claims, if any, to the extent reasonably requested by Borrower.

(viii)If Borrower shall have paid an amount to an Indemnitee pursuant to this Section 6(c), and such Indemnitee subsequently shall be reimbursed in respect of such indemnified amount from any other Person (other than in respect of insurance carried for its own account), such Indemnitee shall promptly pay Borrower, but not before Borrower shall have made all payments then due to such Indemnitee pursuant to this Section 6(c) and all other payments then due under the Operative Documents, an amount equal to the sum of (I) the amount of such reimbursement, including interest

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received attributable thereto, net of Taxes required to be paid by such Indemnitee as a result of any refund received and (II) any Tax Savings realized by such Indemnitee as a result of any payment by such Indemnitee made pursuant to this sentence; provided that such Indemnitee shall not be obligated to pay any such amount if a Specified Default or an Event of Default shall be continuing or to the extent that such amount would exceed (i) the aggregate amount of all prior payments by Borrower to such Indemnitee under this Section 6(c) in respect of such reimbursement (including any amount necessary for such payments to be on an After-Tax Basis) less (ii) the aggregate amount of all prior payments by such Indemnitee to Borrower pursuant to this Section 6(c) in respect of such reimbursement; provided, however, that any amount not paid to Borrower pursuant to the foregoing limitation shall be carried forward to reduce pro tanto any future payments that Borrower may be required to make to such Indemnitee pursuant to this Section 6(c); provided further, that any amount not paid as a result of the occurrence of a Specified Default or an Event of Default and not otherwise applied as provided in this subparagraph (viii) shall be paid to Borrower at such time as there shall not be continuing any such Specified Default or Event of Default.

(ix)Borrower agrees to pay each Expense within five Business Days of demand thereof; provided, that such amount shall not be due in the event such Indemnitee has failed to provide reasonably adequate information to Borrower regarding such demand; and, provided, further that Borrower shall be entitled to contest such Expense as provided for in this Section 6(c).  In the event Borrower contests such Expense, such Expense shall be payable at the time such Expense is due as set forth herein.

(x)Borrower’s obligations set forth in this Section 6(c) shall not apply with respect to any Expense or other amount that constitutes an Increased Cost for which the Indemnitee or its Affiliate is entitled to reimbursement under Section 2.13 of the Mortgage.

(d)Past Due Amounts.  To the extent permitted by applicable law, interest at the Past Due Rate shall be paid, on demand, on any amount or indemnity not paid when due pursuant to this Section 6 until the same shall be paid.  Such interest shall be paid in the same manner as the unpaid amount in respect of which such interest is due.

SECTION 7.Representations, Warranties and Covenants.

(a)Security Trustee, in its individual capacity, covenants and agrees that it shall not cause or permit to exist any Lien, arising as a result of (i) claims against Security Trustee not related to its interest in the Aircraft or the administration of the Mortgage Estate pursuant to the Mortgage, (ii) any act of Security Trustee, or failure of Security Trustee to take any action to the extent such act or failure arises from or constitutes gross negligence or willful misconduct, (iii) claims against Security Trustee relating to Taxes or Expenses that are excluded from indemnification pursuant to Section 6 hereof, or (iv) claims against Security Trustee arising out of the transfer by Security Trustee of all or any portion of its interest in the Aircraft, the Mortgage Estate or the Operative Documents other than pursuant to the terms of the Operative Documents.

(b)Lender represents, warrants and covenants that (A) the Note to be issued to it pursuant to the Mortgage is being acquired by it either (x) for investment, and not with a view to any distribution of any thereof, subject, nevertheless that the disposition of the Note shall at all times be within the control of the Lender or (y) in the ordinary course of its commercial lending business, (B) it will not offer or sell any Note in violation of the Securities Act, (C) it will not transfer any Note to any Person unless such Person, in a writing delivered to Borrower makes the representation set forth in Section 7(b) hereof or such other representation that is sufficient for Borrower to reasonably determine, without independent due diligence, that such transfer of Note will not cause Borrower or such Person to

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engage in a prohibited transaction under Section 406 of ERISA or Section 4975 of the Code, and (D) it will not transfer any or all of its Notes to any Person that is not a financial institution.  Unless Default or an Event of Default has occurred and is continuing or the transfer is at the request of Borrower, Lender shall be responsible for all costs of Borrower and Guarantor in connection with any transfer of all or any its Notes, including reasonable attorney fees incurred in connection therewith.

(c)Security Trustee represents and warrants, in its individual capacity, to Borrower, Guarantor, and Lender as follows:

(i)[intentionally omitted];

(ii)it has the corporate power and authority to enter into and perform its obligations under the Mortgage and this Agreement and to authenticate the Notes to be delivered on the Closing Date;

(iii)the Operative Documents to which Security Trustee is a party, and the authentication of the Notes to be delivered on the Closing Date, have been duly authorized by all necessary corporate action on its part, and neither the execution and delivery thereof nor its performance of or compliance with any of the terms and provision thereof will contravene or result in any breach of, or constitute any default under its certificate of incorporation or bylaws or the provisions of any indenture, mortgage, contract or other agreement to which it is a party or by which it or its properties may be bound or affected;

(iv)there are no pending or, to the knowledge of Security Trustee, threatened actions or proceedings against Security Trustee before any court or administrative agency which, if determined adversely to Security Trustee, would materially adversely affect the ability of Security Trustee to perform its obligations under the Operative Documents to which it is a party;

(v)no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority is required for the due execution, delivery or performance by Security Trustee of the Operative Documents to which it is a party; and

(vi)each of the Operative Documents to which Security Trustee is a party has been duly executed and delivered by it and, assuming that each such agreement is the legal, valid and binding obligation of each other party thereto, is the legal, valid and binding obligation of Security Trustee, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to creditors’ rights generally and by general equitable principles (regardless of whether the issue of enforceability is considered in a proceeding in equity or at law).

(d)Lender represents and warrants that it is not acquiring its interest in the Mortgage Estate, any Note or any interests represented thereby with the assets of any “employee benefit plan” as defined in Section 3(3) of ERISA or any “plan” within the meaning of Section 4975(e)(1) of the Code.  Borrower represents and warrants that none of (A) the execution and delivery of the Operative Documents, and (B) the consummation of the transactions contemplated by the Operative Documents will involve any prohibited transaction within the meaning of Section 406(a) of ERISA or Section 4975(c)(1)(A) through (D) of the Code (such representation being made in reliance upon and subject to the accuracy of the representations contained in the preceding sentence).

(e)Borrower agrees that it will not consolidate with or merge with or into any other corporation or other Person or convey, transfer or lease all or substantially all of its assets as an entirety

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(whether in one transaction or a series of related transactions) to any Person (“Borrower Successor”) unless:

(i)the Person is a Citizen of the United States (as defined in in Section 40102(a)(15) of the Transportation Code) and is a Certificated Air Carrier, and Security Trustee on behalf of Lender is entitled to the protection of Section 1110 of the Bankruptcy Code in connection with its respective rights to take possession of the Aircraft in the event of a case under Chapter 11 of the Bankruptcy Code in which such Person is a debtor;

(ii)the Person executes and delivers to Lender a duly authorized, valid, binding and enforceable agreement in form and substance reasonably satisfactory to Lender containing an assumption by such Person of the due and punctual payment of the amounts due and to become due under the Notes and the due and punctual performance and observance of each covenant and condition of the Operative Documents to be performed or observed by Borrower;

(iii)immediately after giving effect to such transaction, no Default or Event of Default has occurred or is continuing and Borrower shall have made all filings necessary to preserve and protect the rights of Security Trustee and Lender under the Operative Documents;

(iv)Guarantor shall execute and deliver to Lender a written consent to such transaction and a written confirmation that the Guaranty and its obligations thereunder remain in full force and effect;

(v)Borrower has (A) at least 30 days prior to such consolidation, merger, conveyance, transfer or lease, given written notice of such transaction to Lender and (B) delivered to Lender (x) a certificate signed by a Responsible Officer of Borrower stating that such consolidation, merger, conveyance, transfer or lease and the assumption agreement mentioned in clause (iii) above comply with this Section 7(e) and that all conditions precedent herein provided for relating to such transaction have been complied with and (y) an opinion of counsel (such counsel selected by Borrower and reasonably acceptable to Lender) reasonably satisfactory to Lender that the assumption agreement mentioned in clause (iii) above is, subject to reasonable assumptions, qualifications and exceptions, the duly authorized, valid and binding agreement of the Borrower Successor enforceable against the Borrower Successor in accordance with the terms thereof.

Upon any consolidation or merger, or any conveyance, transfer or lease of all or substantially all of the assets of Borrower as an entirety in accordance with the terms set forth in this Section 7(e), the Borrower Successor shall succeed to, and be substituted for, and may exercise every right and power of, Borrower under the Operative Documents to which it is a party with the same effect as if such Borrower Successor had been named as Borrower herein.  No such consolidation, merger, conveyance, transfer or lease of all or substantially all of the assets of Borrower as an entirety shall have the effect of releasing Borrower or any successor corporation or Person which shall theretofore have become such in the manner set forth herein from its liability in respect of any Operative Document to which it is a party.

(f)Borrower, at its expense, will take or cause to be taken such action with respect to the recording, filing, re-recording and re-filing of the FAA Bill of Sale, the Mortgage, the Mortgage Supplement, and any financing statements or other instruments as are necessary to maintain, so long as the Mortgage is in effect, the perfection of any security interest that may be claimed to have been created by the Mortgage, or to otherwise accomplish the purposes of this Agreement and the other Operative Documents, or will furnish to Lender timely notice of the necessity of such action, together with such instruments, in execution form, and such other information as may be required to enable it to take such action.

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(g)Each party (and its respective agents, successors or assigns) to this Agreement as to itself hereby, severally, agrees (as to itself) that it will not, through its own actions or inactions, interfere in Borrower’s quiet enjoyment of the Aircraft unless an Event of Default shall have occurred and be continuing.

(h)Lender hereby agrees that if indemnification is sought pursuant to Section 6(b)(i) hereof with respect to U.S. Withholding Taxes, Lender shall consult in good faith with Borrower and shall use its reasonable efforts to avoid or mitigate the imposition of U.S. Withholding Taxes, including, without limitation, by assigning at the direction of Borrower the rights and obligations of Lender to another office, branch, subsidiary or Affiliate of Lender or by restructuring the Notes.  Borrower shall be responsible for all actual costs and expenses (including attorneys’ fees) associated with any such mitigation or restructuring unless the imposition of such U.S. Withholding Tax is the result of the breach of any representation or obligation of Lender set forth in the Operative Documents.

(i)Lender further agrees that if pursuant to the Operative Documents the Notes are to be prepaid in whole or in part or otherwise satisfied prior to their Final Maturity Date, the Lender shall provide the Borrower any information reasonably requested by either party for purposes of determining the amount to be paid in connection with such payment.

(j)[intentionally omitted]

(k)Borrower hereby represents and warrants that (i) it has furnished to Security Trustee and Lender a true and complete copy of the Purchase Agreement as provided to Borrower upon Borrower’s acquisition of the Aircraft, and (ii) Borrower shall not enter into any change order or other amendment, modification or supplement of the Warranties without the prior written consent of Lender (which shall not be unreasonably withheld, conditioned or delayed, but which may be withheld if such change order, modification or supplement would result in any rescission, cancellation or termination of the Aircraft Warranties as to the Aircraft or the Engine Warranties as to any Engine, or would otherwise adversely affect Security Trustee’s or Lender’s rights in the Aircraft or any Engine).

(l)Upon the receipt of any notice of illegality or Increased Cost pursuant to Section 2.15 of the Mortgage, Lender and Borrower shall consult in good faith and Lender and Borrower shall use its reasonable efforts to avoid the illegality or to avoid or mitigate the amount of any Increased Cost, including, without limitation, by assigning the rights and obligations of Lender hereunder to another office, branch, subsidiary or Affiliate of Lender or by selling or transferring the rights, interests and obligations of Lender hereunder or under any other Operative Document to another bank, financial or lending institution, subject to the terms hereof, that would not be subject to any such illegality or Increased Cost, as the case may be, provided that Lender shall not be required to take any such action to avoid such illegality or to avoid or mitigate such Increased Cost hereunder if such action would result in any economic, legal or regulatory disadvantage, or any adverse Tax consequence to Lender (other than (i) economic disadvantage for which Borrower agrees to indemnify Lender, or (ii) adverse Tax consequences for which Borrower agrees to indemnify Lender on an After-Tax Basis and in a manner reasonably acceptable to Lender).

(m)Lender shall, within seven (7) days of the Closing Date, deliver to Borrower a an Internal Revenue Service Form W-9 fully completed and executed by Lender.

SECTION 8.Certain Covenants of Borrower.  Borrower covenants and agrees with Lender and Security Trustee as follows:

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(a)Borrower will, at its cost and expense, cause to be done, executed, acknowledged and delivered all and every such further acts, conveyances and assurances as Lender shall reasonably require for accomplishing the purposes of this Agreement and the other Operative Documents and to establish, protect and preserve the rights, title and interest of the Security Trustee and the Lender in the and to the Aircraft and under the Operative Documents; provided that any instrument or other document so executed by Borrower will not expand any obligations or limit any rights of Borrower in respect of the transactions contemplated by any of the Operative Documents.

(b)Borrower, at its expense, will cause the Mortgage, all Mortgage Supplements and all amendments to the Mortgage, to be promptly filed and recorded, or filed for recording, to the extent required under the Transportation Code or required under any other applicable law.  Borrower agrees to furnish Lender with copies of the foregoing documents with recording data as promptly as practicable following the issuance of same by the FAA.

(c)Promptly upon the recording of the Mortgage and the Mortgage Supplement covering the Aircraft pursuant to the Transportation Code, Borrower will cause Lytle Soulé & Curlee, special FAA counsel in Oklahoma City, Oklahoma, to deliver to Lender, Security Trustee, Borrower and Guarantor an opinion as to the due and valid registration of the Aircraft in the name of Borrower, the due recording of the FAA Bill of Sale, the Mortgage and the Mortgage Supplement and the lack of filing of any intervening documents with respect to the Aircraft.

(d)With respect to the insurance required to be maintained in accordance with the provisions of Section 4.01(e) of the Mortgage, Borrower will (1) promptly provide Security Trustee and Lender notice of any lapse, cancellation or material change in such insurance adversely affecting any such Person, (2) cause the Insurance Broker to advise Security Trustee and Lender in writing of any default in the payment of any premium and of any other act or omission on the part of Borrower of which the Insurance Broker has actual knowledge and which might invalidate or render unenforceable, in whole or in part, any insurance on the Aircraft as required by the terms of the Mortgage and to advise such Persons in writing at least 30 days (7 days, or such other period as then generally available in the industry in the case of any war risk or allied perils coverage) prior to the cancellation (but not scheduled expiration) or material adverse change of any insurance maintained pursuant to Section 4.01(e) of the Mortgage, and (3) provide the Insurance Broker with updated address information for Security Trustee and Lender as such addresses are changed in accordance with Section 11 hereof.

(e)Subject to Section 7(g) hereof, if Borrower fails to perform or comply with any of its agreements contained in the Mortgage, whether or not such failure shall constitute an Event of Default, Security Trustee or Lender may (but shall not be obligated to) perform or comply with such agreement, and the reasonable costs and expenses of Security Trustee or Lender incurred in connection with such performance of or compliance with such agreement, together with interest (to the extent permitted by applicable law) at the Past Due Rate from the date of Borrower’s receipt of notice (with supporting documentation) of the making of such payment or the incurring of such costs and expenses by Security Trustee or Lender to the date of payment of such amount by Borrower, shall be payable by the Borrower upon demand.  No such payment or performance by Security Trustee or Lender shall be deemed to waive any Default or Event of Default or relieve the Borrower of its obligations under the Mortgage.

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SECTION 9.Notices; Consent to Jurisdiction.

(a)All notices, demands, instructions and other communications required or permitted to be given to or made upon any party hereto shall be in writing and shall be personally delivered or sent by registered or certified mail, postage prepaid, or by facsimile device, or by overnight service or prepaid courier service, and shall be deemed to be given for purposes of this Agreement on the day that such writing is delivered or if given by certified mail, three Business Days after being deposited in the mails, in accordance with the provisions of this Section 9(a).  Unless otherwise specified in a notice sent or delivered in accordance with the foregoing provisions of this Section 9(a), notices, demands, instructions and other communications in writing shall be given to or made upon the respective parties hereto at their respective addresses (or to their respective facsimile numbers) as follows:  (i) if to Borrower, Guarantor, Security Trustee or Lender, to the respective addresses set forth on Schedule I hereto or to such other address or facsimile number as directed by such party by notice; or (ii) if to any subsequent Lender, addressed to the address set forth in the register maintained pursuant to the Mortgage.

(b)Each of Borrower, Guarantor, Security Trustee and Lender (each a “Party” and, collectively, “Parties”) irrevocably agrees that any legal suit, action or proceeding brought by any other Party or any Indemnitee that is not a Party, that arises out of or relates to the Operative Documents or any of the transactions contemplated hereby or thereby or any document referred to herein or therein, may be instituted in the Supreme Court of the State of New York or the United States District Court for the Southern District of New York and each Party hereby submits to the nonexclusive jurisdiction of such courts, acknowledges its competence and irrevocably agrees to be bound by a final judgment of such court.  Each such Person irrevocably waives, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.  Each of the Parties hereby generally consents to service of process to the respective addresses set forth in this Section 9 in the manner specified herein.  Nothing in this paragraph shall affect the right of any party hereto or their successors or assigns to bring any action or proceeding against any other party hereto or their property in the courts of other jurisdictions.

SECTION 10.Miscellaneous.

(a)Consents.  Lender covenants and agrees that it shall not unreasonably withhold, delay or condition its consent to any consent requested of Security Trustee under the terms hereof or of the Mortgage, which by its terms is not to be unreasonably withheld by Security Trustee.

(b)Survival.  The representations, warranties, indemnities and agreements of Borrower, Security Trustee, Lender and Guarantor provided for in this Agreement, and, except as expressly provided in the Operative Documents, Borrower’s, Guarantor’s, Security Trustee’s and Lender’s obligations under any and all of the Operative Documents, shall survive the making available of the Loan by the Lender, the delivery of the Aircraft or the transfer by Lender of an interest in any Note or the Mortgage Estate and the expiration or other termination of this Agreement or any other Operative Document.  Without limiting the generality of the foregoing, the indemnity obligations of Borrower pursuant to Section 6 hereof shall survive the expiration or termination of the Term.

(c)Counterparts; Governing Law.  This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument.  Neither this Agreement nor any of the terms hereof may be terminated, amended, supplemented, waived or modified, except by an instrument in writing signed by the party against which the enforcement of the termination, amendment,

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supplement, waiver or modification is sought; and no such termination, amendment, supplement, waiver or modification shall be effective unless a signed copy thereof shall have been delivered to Borrower, Guarantor, Security Trustee and Lender.  THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

(d)Inurement.  The terms of this Agreement shall be binding upon, and inure to the benefit of, Borrower, Guarantor, Security Trustee and Lender and their respective successors and permitted assigns including each Note Holder.

(e)Currency.  This Agreement is entered into in connection with an international financing transaction in which the specification of Dollars and payment at the designated place of payment is of the essence, and Dollars shall be the currency of account in all events.  The payment obligations hereunder and under the other Operative Documents shall not be discharged by an amount paid in another currency or in another place, whether pursuant to a judgment or otherwise, to the extent that the amount so paid on conversion to Dollars and transferred to the designated place of payment under normal banking procedures does not yield the amount of Dollars due hereunder.  If for the purpose of obtaining judgment in any court it is necessary to convert a sum due hereunder in Dollars into another currency (the “Second Currency”), the rate of exchange which shall be applied shall be that at which, in accordance with normal banking procedures, the payee could purchase Dollars with the Second Currency at a major bank located in the City of New York on the Business Day on which such payment is received.  The obligation of the payor in respect of any such sum due from it to a payee hereunder shall, notwithstanding the rate of exchange actually applied in rendering such judgment, be discharged only to the extent that on the Business Day of receipt by such payee of any sum adjudged to be due hereunder in the Second Currency such payee may, in accordance with normal banking procedures, purchase and transfer in the City of New York Dollars with the amount of the Second Currency so adjudged to be due.  Each party hereto hereby agrees, as a separate obligation and notwithstanding any such judgment, to indemnify such payee against, and to pay such payee on demand, Dollars, in the amount equal to any difference between the sum originally due to such payee in Dollars and the amount of Dollars so purchased and transferred.

(f)Entire Agreement.  This Agreement, together with the other Operative Documents, constitutes the entire agreement among the parties hereto and supersedes all prior agreements and understandings of the parties with respect to the subject matter hereof and thereof.

(g)Confidentiality.  Each of Lender, Borrower and Guarantor hereby covenants and agrees to maintain the confidential nature of (i) the terms and conditions of the Operative Documents and any other information disclosed to such party in connection with the execution and delivery of the Operative Documents and not to disclose the same (except for portions thereof which are filed with the FAA or are otherwise part of the public domain) by any means or for any purpose and (ii) any other information disclosed to such party after the date hereof pursuant to the terms of the Operative Documents which is identified by the Person supplying the same as being confidential at the time the same is delivered to such party, except (in the case of each of the preceding clauses (i) and (ii)) except as follows: (1) to its accountants, attorneys and other professional advisors, (2) to its directors, officers, employees, its Affiliates and their directors, officers and employees, and to each other party to the Operative Documents, (3) as required by force of law or by judicial or administrative process, (4) to a potential assignee or transferee of the Aircraft and/or the Engine or to a potential transferee of all or any of the Notes, in which event such Party shall use its reasonable best efforts to assure that such potential assignee or transferee agrees to be bound by the same covenant and agreement, (5) as expressly contemplated under the Operative Documents, or (6) to any Governmental Authority, or (7) as may be necessary in the opinion of Lender in connection with the exercise of remedies under the Operative

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Documents, provided that in case of a disclosure referred to in Clause (3) above, the party requiring disclosure shall use its commercially reasonable efforts to limit the extent of such disclosure to the extent permitted by law. Notwithstanding anything to the contrary, each party (and each employee, representative, or other agent of any party) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated by the Operative Documents and all materials of any kind (including opinions and other tax analyses) that are provided to the party relating to such tax treatment and tax structure.  However, any information relating to the tax treatment or tax structure shall remain subject to the confidentiality provisions hereof (and the foregoing sentence shall not apply) to the extent reasonably necessary to enable the parties hereto and their respective Affiliates to comply with applicable securities laws.  This paragraph is intended to cause the transactions contemplated by the Operative Documents to be treated as not having been offered under conditions of confidentiality for purposes of Section 1.6011-4 (or successor provision) of the Treasury Regulations promulgated under Code Section 6011 and shall be construed in a manner consistent with such purpose. Nothwithstanding anything to the contrary in this paragraph, Lender authorizes Guarantor to file copies of the Operative Documents with the SEC to the extent Guarantor determines that such filing is required under governing laws and rules.

(h)Waiver Of Jury Trial.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

SECTION 11.Transaction Costs.

(a)The following costs and expenses are herein and in the other Operative Documents referred to as “Transaction Costs”:  all of the costs and expenses incurred by Borrower, Guarantor, Lender and Security Trustee in connection with the execution and delivery of this Agreement, the Mortgage and the other Operative Documents, and the execution and delivery of the Notes to Lender, including, without limitation,

(i)the reasonable fees, expenses and disbursements of (1) Winston & Strawn, LLP, special counsel for Lender and Security Trustee, (2) Daugherty, Fowler, Peregrin & Haught, FAA counsel in Oklahoma City, and (3) Parr Waddoups Brown Gee & Loveless, special Utah counsel to Borrower and Guarantor, in each case only with respect to the reasonable fees, expenses and disbursement in connection with the Operative Documents;

(ii)all out-of-pocket expenses in connection with the transactions contemplated by the Operative Documents, including, without limitation, printing and duplication expenses and any recording and filing fees;

(iii)the Upfront Fee;

(iv)any other amounts approved by Borrower.

(b)Borrower agrees to pay, promptly upon receipt and reasonable approval by Borrower of invoices for Transaction Costs, all such invoices of Transaction Costs.

[Remainder of Page Intentionally Left Blank – Signature Page Follows]

29

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

SKYWEST AIRLINES, INC.,
Borrower
By:	/s/ Michael J. Kraupp
Name:		Michael J. Kraupp
Title:		Vice President Finance and Assistant Treasurer
SKYWEST, INC.,
Guarantor
By:	/s/ Michael J. Kraupp
Name:		Michael J. Kraupp
Title:		Vice President Finance and Assistant Treasurer
C.I.T. LEASING CORPORATION,
Lender
By:		/s/ Glen T. Dimpfel
Name:		Glen T. Dimpfel
Title:		Vice President
C.I.T. LEASING CORPORATION,
Security Trustee
By:		/s/ Glen T. Dimpfel
Name:		Glen T. Dimpfel
Title:		Vice President

Signature Page to Loan Agreement

SCHEDULE I

Name, Addresses and Accounts

Borrower:

SkyWest Airlines, Inc., a Utah corporation

444 South River Road

St. George, Utah  84790

Attn: Chief Financial Officer

Telephone:  (435) 634-3200

Facsimile:  (435) 634-3205

Organizational Number:  UT 9107640142

Internal Revenue Service Employer ID No.:  87-0426325

Guarantor:

SkyWest Inc.

444 South River Road

St. George, Utah 84790

Attn: Chief Financial Officer

Telephone:  (435) 634-3200

Facsimile:  (435) 634-3205

Internal Revenue Service Employer ID No.: 87-0292166

Payments to Borrower or Guarantor should be by wire transfer to:

Zions First National Bank

One South Main

Salt Lake City, Utah  84111

ABA No. 124-000-054

Account No. 34-12884-3

Ref: SkyWest (CIT Loan)

Lender:

C.I.T. Leasing Corporation

c/o The CIT Group, Inc.

1211 Avenue of the Americas, 21st Floor

New York, New York 10036

Attention:  Legal Department

Telephone:  (212) 536-9488

Facsimile:  (212) 536-1388

with a copy to:

CIT Capital Finance

207 Queen’s Quay West, Suite 700

Toronto, Ontario M5J 1A7 Canada

Attention:  Glen Dimpfel

Telephone:  (416) 507-5159

Facsimile:  (416) 507-5559

I-1

Payments to Lender should be by FedWire to:

Bank:	JPMorgan Chase Bank
Address:	New York, NY
ABA #	021-000-021
Beneficiary:	The CIT Group/Equipment Financing, Inc.
Account #	116-003855
Reference:	Skywest Facility

I-2

SCHEDULE II

Certain Financial and Other Terms

1.The Applicable Margin is 2.50% per annum.

2.The Final Maturity Date is March 21, 2006.

3.The Assumed Debt Rate is 6.3118% per annum.

4.“Loan” means the loan made by Lender to Borrower pursuant to Section 2.01 of the Mortgage in an amount equal to $60,000,000.

5.Acquisition Date means December 3, 2004.

6.The Upfront Fee is $390,000, which is .65% of the amount of the Loan.

EX-10.2

Exhibit 10.2

AIRCRAFT MORTGAGE AND SECURITY AGREEMENT

Dated as of September 21, 2005

between

SKYWEST AIRLINES, INC.,

as Borrower

and

C.I.T. LEASING CORPORATION,

Security Trustee

Four Bombardier Regional Jet Model CL-600-2B19 Aircraft

U.S. Registration Numbers: N698BR, N699BR, N709BR and N710BR

Corresponding Manufacturer’s Serial Numbers:  7799, 7801, 7850, 7852

TABLE OF CONTENTS

AIRCRAFT MORTGAGE AND SECURITY AGREEMENT

THIS AIRCRAFT MORTGAGE AND SECURITY AGREEMENT (this “Agreement” or this “Mortgage”), dated as of September        , 2005, between SkyWest Airlines, Inc., a Utah corporation (“Borrower”), and C.I.T. Leasing Corporation, in its individual capacity only as expressly provided herein and otherwise as Security Trustee (the “Security Trustee”).

W I T N E S S E T H :

WHEREAS, all capitalized terms used herein shall have the respective meanings set forth or referred to in Article I hereof;

WHEREAS, Borrower desires by this Mortgage, among other things, (i) to provide for the issuance by Borrower to Lender of Notes evidencing the Loan for the Aircraft as provided in the Loan Agreement, and (ii) to provide for the assignment, mortgage and pledge by Borrower to Security Trustee, as part of the Mortgage Estate hereunder, among other things, of certain of Borrower’s right, title and interest in and to the Aircraft and the Borrower Documents and the payments and other amounts received thereunder or in respect thereof in accordance with the terms hereof, as security for, among other things, Borrower’s obligations to the Note Holders, and for the benefit and security of the Note Holders;

WHEREAS, all things have been done to make the Notes, when executed by Borrower and authenticated, issued and delivered hereunder, the valid obligations of Borrower; and

WHEREAS, all things necessary to make this Mortgage the valid, binding and legal obligation of Borrower, for the uses and purposes herein set forth and in accordance with its terms, have been done and performed and have happened.

GRANTING CLAUSE

NOW, THEREFORE, THIS AIRCRAFT MORTGAGE AND SECURITY AGREEMENT WITNESSETH, that, to secure the prompt payment when due of the principal of and the Breakage Amount (if any) and interest on, and all other amounts due with respect to, all Notes from time to time outstanding hereunder and the performance and observance by Borrower of all the agreements, covenants and provisions for the benefit of the Note Holders herein and in the Loan Agreement and the Notes contained, and the prompt payment and performance of any and all obligations from time to time owing hereunder and under the Loan Agreement and the other Operative Documents by Borrower to the Note Holders (collectively referred to herein as, the “Secured Obligations”), and for the uses and purposes and subject to the terms and provisions hereof, and in consideration of the premises and of the covenants herein contained, and of the acceptance of the Notes by the Note Holders, and of the sum of $1 and other valuable consideration paid to Borrower by Security Trustee at or before the delivery hereof, the receipt whereof is hereby acknowledged, Borrower has granted, bargained, sold, assigned, transferred, conveyed, mortgaged, pledged and confirmed, and does hereby grant, bargain, sell, assign, transfer, convey, mortgage, pledge and confirm, unto Security Trustee and its successors and assigns, for the security and benefit of the Note Holders, as aforesaid, a security interest in and mortgage Lien upon, all right, title and interest of Borrower in, to and under the following described property, rights and privileges and subject to the rights of Borrower set forth herein (which collectively, including all property hereafter specifically subjected to the Lien of this Mortgage by a Mortgage Supplement or any other mortgage supplemental hereto, shall constitute the “Mortgage Estate”), to wit:

1.the Aircraft (including the Airframe and the Engines) and all replacements thereof and substitutions therefor to which Borrower shall from time to time acquire title as

provided herein, all as more particularly described in the Mortgage Supplement executed and delivered with respect to the Aircraft or any such replacements or substitutions therefor, as provided in this Mortgage, and all records, logs and other documents at any time maintained with respect to the foregoing property;

2.the Warranties;

3.all tolls, rents, issues, profits, revenues and other income of the property subjected or required to be subjected to the Lien of this Mortgage;

4.all insurance and requisition proceeds and all other payments of any kind with respect to the Aircraft, including but not limited to the insurance required under Section 4.01(e) hereof;

5.all monies and securities deposited or required to be deposited with Security Trustee pursuant to any term of this Mortgage or required to be held by Security Trustee hereunder; and

6.all proceeds of the foregoing.

All property referred to in this Granting Clause, whenever acquired by Borrower, shall secure all Secured Obligations.  Any and all properties referred to in this Granting Clause which are hereafter acquired by Borrower, shall, without further conveyance, assignment or act by Borrower or Security Trustee thereby become and be subject to the security interest hereby granted as fully and completely as though specifically described herein.

HABENDUM CLAUSE

TO HAVE AND TO HOLD all and singular the aforesaid property unto Security Trustee, its successors and assigns, in trust for the benefit and security of the Note Holders, and for the uses and purposes and subject to the terms and provisions set forth in this Mortgage.

It is expressly agreed that anything herein contained to the contrary notwithstanding, Borrower shall remain liable under the Borrower Documents to perform all of the obligations assumed by it thereunder, all in accordance with and pursuant to the terms and provisions thereof, and Security Trustee and the Note Holders shall have no obligation or liability under any thereof by reason of or arising out of the assignment hereunder, nor shall the Security Trustee or Note Holders be required or obligated in any manner to perform or fulfill any obligations of Borrower under or pursuant to any of the Borrower Documents, except as therein or herein expressly provided, to make any payment, or to make any inquiry as to the nature or sufficiency of any payment received by it, or present or file any claim, or take any action to collect or enforce the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times.

Borrower hereby constitutes Security Trustee the true and lawful attorney of Borrower, irrevocably, with full power (in the name of Borrower or otherwise) to ask, require, demand, receive, compound and give acquittance for any and all monies and claims for monies (in each case including insurance and requisition proceeds) due and to become due under or arising out of the Borrower Documents and all other property which now or hereafter constitutes part of the Mortgage Estate, to endorse any checks or other instruments or orders in connection therewith and to file any claims or to take any action or to institute any proceedings which Security Trustee may deem to be necessary or advisable in the premises.  Borrower agrees that promptly on receipt thereof, it will transfer to Security Trustee any

and all monies from time to time received by it constituting part of the Mortgage Estate, for distribution by Security Trustee pursuant to this Mortgage.

Borrower does hereby warrant and represent that (except as permitted herein) it has not assigned or pledged any of its right, title, and interest hereby assigned to anyone other than Security Trustee.

Borrower does hereby ratify and confirm the Borrower Documents and does hereby agree that (except as permitted herein) it will not take or omit to take any action, the taking or omission of which would result in an alteration or impairment of any of the Borrower Documents or of any of the rights created by any thereof or the assignment hereunder.

Borrower agrees that at any time and from time to time, upon the written request of Security Trustee, Borrower will promptly and duly execute and deliver any and all such further instruments and documents as Security Trustee may deem desirable in obtaining the full benefits of this assignment and of the rights and powers herein granted.

IT IS HEREBY COVENANTED AND AGREED by and between the parties hereto as follows:

ARTICLE I

DEFINITIONS

For all purposes of this Mortgage, terms defined in the heading and recitals of this Mortgage are used as so defined and capitalized terms used herein shall have the respective meanings set forth in Appendix A hereto for all purposes of this Mortgage (such definitions to be equally applicable to both the singular and plural forms of the terms defined).  Any agreement referred to below shall mean such agreement as amended, supplemented and modified from time to time in accordance with the applicable provisions thereof and of the other Operative Documents.  Unless otherwise specified, Section and Article references are to Sections and Articles of this Mortgage.  Appendix A and each of Exhibits A through F attached hereto are hereby incorporated herein by this reference.

ARTICLE II

THE NOTES

SECTION 2.01.  Notes.  The Notes and Security Trustee’s form of certificate of authentication to appear on the Notes shall each be substantially in the form set forth on Exhibit B.  On the Closing Date, Borrower shall issue a Note to Lender in an aggregate original principal amount in Dollars equal to the Loan.  Such Note shall be subject to the terms and conditions set forth in this Article II.

SECTION 2.02.  Terms of Notes.

(a)Interest Rate.  The Notes shall bear interest at the Floating Rate.

(b)[intentionally omitted]

(c)Floating Rate Loan.  The following terms shall apply to a Floating Rate Loan:

(i)Each Note shall bear interest on the unpaid principal amount thereof from time to time outstanding from and including the date thereof until such principal amount is paid in full at the Floating Rate applicable to each Interest Period in effect with respect thereto.  Such interest on the Note shall accrue with respect to each Interest Period at the Applicable Rate in effect for such Interest Period and shall be due and payable in arrears on each Payment Date noted in Annex A to each Note.

The Floating Rate in respect of each Interest Period shall be determined by the Security Trustee by reference to the definition of Floating Rate.  Security Trustee shall provide written notice to the Borrower of the amount of interest due on each Payment Date no fewer than five (5) business days prior to that Payment Date (and if such notice is not timely received, Borrower shall be deemed to have paid the amount of interest due for the applicable Interest Period if it, at its election, (i) pays an amount equal to the interest payment for the prior Interest Period, or (ii) pays an amount equal to the interest due for the applicable Interest Period as reasonably calculated by Borrower in good faith).  Notwithstanding the foregoing, the final payment on the Notes shall be an amount sufficient to discharge in full the unpaid principal amount, all accrued and unpaid interest and all other amounts due and owing to all Note Holders under the Operative Documents.

(ii)[intentionally omitted]

(iii)Interest shall be calculated on the basis of a year of 360 days and the actual number of days elapsed.

(d)Each Note shall bear interest at the Past Due Rate on any principal thereof and interest and other amounts due thereunder, hereunder and under the other Operative Documents, not paid when due (whether at stated maturity, by acceleration or otherwise), for any period during which the same shall be overdue, payable on demand by the Note Holder given through Security Trustee.  Interest on past-due amounts shall be calculated on the basis of a year of 360 days and the actual days elapsed.  In the event the principal of or interest on a Note or other amount payable thereunder or hereunder is not paid in full when due (whether at stated maturity, by acceleration or otherwise), the period applicable to the Past Due Rate shall be either (i) a period commencing on the due date of such principal, interest or other amount and ending on the next succeeding Business Day and thereafter each period commencing on the last day of the preceding period and ending on the next succeeding Business Day, or (ii) such other period or periods (not greater than six months) as the Security Trustee may, at any time and from time to time during the period the same remains past-due, select in its sole discretion for the purpose of determining the Past Due Rate therefor.

(e)The Notes shall be executed on behalf of Borrower by one of its authorized officers.  Notes bearing the signatures of individuals who were at any time the proper officers of Borrower shall bind Borrower, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Notes or did not hold such offices at the respective dates of such Notes.  No Notes shall be issued hereunder except those provided for in Section 2.01 and any Notes issued in exchange or replacement therefor pursuant to the terms of this Mortgage.  Each Note issued under Section 2.01, Section 2.07 or Section 2.08 shall be dated the Closing Date.  No Note shall be secured by or entitled to any benefit under this Mortgage or be valid or obligatory for any purpose, unless there appears on such Note a certificate of authentication in the form provided for herein executed by Security Trustee by the manual signature of one of its authorized officers and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder.

SECTION 2.03.  [intentionally omitted]

SECTION 2.04.  Method of Payment.  Principal and interest and other amounts due hereunder or under the Notes or in respect hereof or thereof shall be payable in Dollars in immediately available funds prior to 11:15 A.M., New York City time, on the due date thereof, to Security Trustee at such account or accounts at such financial institution or institutions as the Note Holders shall have designated to Security Trustee in writing, in immediately available funds for distribution to the relevant Note Holders, such payment to be made, in the case of any such designated account in New York City, New York, prior to

2:00 P.M., New York City time, on the due date thereof.  If Security Trustee, through negligence or willful misconduct, shall fail to make any such payment as provided in the preceding sentence after its receipt of funds at the place and prior to the time specified above, Security Trustee, in its individual capacity and not as trustee, agrees to compensate the Note Holders for loss of use of funds in a commercially reasonable manner, and Borrower shall have no liability for and the Mortgage Estate shall not secure any such loss or any overdue interest on the Notes in connection with any such failure of Security Trustee to timely distribute funds. All such payments by Borrower and Security Trustee shall be made free and clear of and without reduction for account of all wire and other like charges.  Prior to the due presentment for registration of transfer of any Note, Borrower and Security Trustee may deem and treat the Person in whose name any Note is registered on the Note Register as the absolute owner of such Note for the purpose of receiving payment of all amounts payable with respect to such Note and for all other purposes whether or not such Note shall be overdue, and neither Borrower nor Security Trustee shall be affected by any notice to the contrary.  If any sum payable under the Notes or under this Mortgage falls due on a day which is not a Business Day, then such sum shall be payable on the next succeeding Business Day together with interest thereon at the Applicable Rate from and including the scheduled due date to but excluding such next succeeding Business Day; provided, that if such succeeding Business Day falls into the next calendar month, such payment shall be made on the preceding Business Day.

SECTION 2.05.  Application of Payments.  Each payment of principal and interest or other amounts due in respect of each Note shall, except as otherwise expressly provided herein, be applied, first, to the payment of any amount (other than the principal of or the Breakage Amount, if any, or interest on such Note) due in respect of such Note, second, to the payment of the Breakage Amount, if any, and interest on such Note (as well as any interest on overdue principal and, to the extent permitted by law, interest and other amounts payable thereunder) due thereunder, third, to the payment of the principal of such Note then due and fourth, the balance, if any, remaining thereafter, to the payment of the principal of such Note remaining unpaid (provided that such Note shall not be subject to prepayment or purchase without the consent of the affected Note Holder except as permitted by Sections 2.10 and 2.11).

SECTION 2.06.  Termination of Interest in Mortgage Estate.  A Note Holder shall not, as such, have any further interest in, or other right with respect to, the Mortgage Estate when and if the principal amount of and the Breakage Amount, if any, and interest on and other amounts due under all Notes held by such Note Holder and all other sums due to such Note Holder hereunder and under the other Operative Documents shall have been paid in full.

SECTION 2.07.  Registration, Transfer and Exchange of Notes.  Security Trustee agrees with Borrower that Security Trustee shall keep a register (herein sometimes referred to as the “Note Register”) in which provisions shall be made for the registration of Notes and the registration of transfers of Notes.  The Note Register shall be kept at the offices of Security Trustee or at the office of any successor Security Trustee, and Security Trustee is hereby appointed “Note Registrar” for the purpose of registering Notes and transfers of Notes as herein provided.  Upon surrender for registration of transfer of any Note at the offices, Borrower shall execute, and Security Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of a like aggregate principal amount.  At the option of the Note Holder, its Notes may be exchanged for other Notes of any authorized denominations, of a like aggregate principal amount, upon surrender of the Notes to be exchanged at the offices.  Each new Note issued upon transfer or exchange shall be in a principal amount of at least $1,000,000 (except as may be necessary to evidence the entire outstanding principal amount of a Note) and dated the Closing Date.  Whenever any Notes are so surrendered for exchange, Borrower shall execute, and Security Trustee shall authenticate and deliver, the Notes which the Note Holder making the exchange is entitled to receive.  All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of Borrower evidencing the same respective obligations, and entitled to the same security and

benefits under this Mortgage, as the Notes surrendered upon such registration of transfer or exchange.  Every Note presented or surrendered for registration of transfer or exchange, shall (if so required by Security Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to Security Trustee duly executed by the Note Holder thereof or his attorney duly authorized in writing, and Security Trustee may require evidence satisfactory to it as to the compliance of any such transfer with the Securities Act.  Security Trustee shall make a notation on each new Note or Notes of the amount of all payments of principal previously made on the old Note or Notes with respect to which such new Note is issued and the date to which interest accrued on such old Note or Notes has been paid.  Security Trustee shall not be required to register the transfer of or exchange any surrendered Notes as above provided during the ten calendar day period preceding the due date of any payment on such Notes.

Borrower and Security Trustee shall treat the Person in whose name each Note is registered on the Note Register as the Note Holder with respect thereto for all purposes hereof until due presentment for registration of transfer as provided in this Section 2.07.  Security Trustee shall give Borrower and each Note Holder prompt notice of such transfer of a Note under this Section 2.07.  Each Note Holder, by its acceptance of a Note, agrees that any transfer of any Note acquired by it hereunder shall not be effected unless the transferee shall have delivered to Borrower and Security Trustee (1) a written representation as to the matters specified in Section 7(b) and 7(d) of the Loan Agreement and, notwithstanding the above, such transferee by its acceptance of a Note shall be deemed to have made such a representation and (2) an agreement to be bound by and comply with the provisions of the Loan Agreement and this Mortgage binding on a “Lender” or “Note Holder” and, notwithstanding the above, such transferee by its acceptance of a Note shall be deemed to have made such agreement.

SECTION 2.08.  Mutilated, Destroyed, Lost or Stolen Notes.  If any Note shall become mutilated, destroyed, lost or stolen, Borrower shall, upon the written request of the affected Note Holder, execute, and Security Trustee shall authenticate and deliver in replacement thereof, a new Note in the same principal amount, dated the date of such Note and designated as issued under this Mortgage.  If the Note being replaced has become mutilated, such Note shall be surrendered to Security Trustee and a photocopy thereof shall be furnished to Borrower by Security Trustee.  If the Note being replaced has been destroyed, lost or stolen, the affected Note Holder shall furnish to Borrower and Security Trustee such security or indemnity as may be reasonably required by them to hold Borrower and Security Trustee harmless and evidence satisfactory to Borrower and Security Trustee of the destruction, loss or theft of such Note and of the ownership thereof; provided, however, that if the affected Note Holder is an original party to the Loan Agreement or an Affiliate thereof, the written notice of such destruction, loss or theft and such ownership and the written undertaking of such Note Holder delivered to Borrower and Security Trustee to hold harmless Borrower and Security Trustee in respect of the execution, authentication and delivery of such new Note shall be sufficient evidence, security and indemnity.  No transfer of a Note shall be effective unless recorded in the Note Register.

SECTION 2.09.  Payment of Expenses on Transfer.  Upon the issuance of a new Note or new Notes pursuant to Section 2.07 or 2.08, Borrower and/or Security Trustee may require from the party requesting such new Note or Notes payment of a sum sufficient to reimburse Borrower and/or Security Trustee for, or to provide funds for, the payment of any Tax or other governmental charge in connection therewith or any charges and expenses connected with such Tax or other governmental charge paid or payable by Borrower or Security Trustee.

SECTION 2.10.  Prepayment.

(a)At any time following the Closing Date, Borrower may, upon no less than 15 days’ prior notice to Security Trustee, prepay the Notes then outstanding at the principal amount thereof, together with accrued interest thereon to the date of prepayment plus the Breakage Amount, if any, and all

other amounts due to Note Holders hereunder, thereunder and under the other Operative Documents (including the reasonable fees, costs and expenses of Lender and Security Trustee).

(b)The Notes shall be prepaid in full, together with accrued interest thereon to the date of prepayment plus the Breakage Amount, if any, and all other amounts due thereunder and hereunder and under the other Operative Documents (including the reasonable fees, costs and expenses of Lender and Security Trustee) to the Note Holders upon the occurrence of an Event of Loss with respect to the Airframe (unless pursuant to Sections 4.01(d) and 5.06 hereof, a Replacement Airframe, together with the same number of Replacement Engines as the Engines, if any, subject to such Event of Loss, shall have been substituted for the Airframe and the Engines subject to such Event of Loss), on the earlier of the date of Borrower’s payment with respect to such Event of Loss in Section 4.01(d) hereof and the last day permitted for such payment under said Section 4.01(d).  Any prepayment pursuant to this Section 2.10(b) shall require at least three Business Days prior written notice from Borrower to each Note Holder.

SECTION 2.11.  Provisions Relating to Prepayment.  (a) Borrower shall have no right to prepay the principal amount of the Notes except as permitted by Section 2.10.  On the date of prepayment, the principal amount of the Notes so to be prepaid, plus accrued interest thereon to the date of prepayment, together with the Breakage Amount, if any, shall become due and payable on the prepayment date.

(b)On the date fixed for prepayment under Section 2.10, immediately available funds in Dollars shall be deposited by Borrower in the account of Security Trustee at the place and by the time and otherwise in the manner provided in Section 2.04, in an amount equal to the principal amount of Notes to be prepaid together with accrued and unpaid interest thereon to the date fixed for such prepayment, the Breakage Amount, if any, and all other amounts due to Note Holders hereunder, thereunder and under the other Operative Documents.

(c)[intentionally omitted]

SECTION 2.12.  Notes in Respect of Replacement Aircraft.  Upon the execution and delivery of a Mortgage Supplement covering a Replacement Airframe and/or Replacement Engine, as provided in Section 5.06, each Note shall be deemed to have been issued in connection with such Replacement Airframe and/or Replacement Engine and each Note issued thereafter upon a transfer or exchange of, or as a replacement for, a Note, shall be designated as having been issued in connection with such Replacement Airframe and/or Replacement Engine, but without any other change therein except as provided for in this Article II.

SECTION 2.13.  Increased Regulatory Costs; Illegality.

(a)If the enactment, adoption or promulgation, after the Closing Date, of any applicable law or regulation or any change, after the Closing Date, in any applicable law, rule, regulation, guidance or ruling or any exceptions thereto (or any applicable published change, after the Closing Date, in the interpretation thereof (whether or not having the force of law) or any compliance by such Lender with any request from such authority (provided that the observance thereof is in accordance with the reasonable practice of lenders in the country concerned)) of general applicability by any governmental, fiscal, monetary or other authority charged with the administration or application thereof (in each of the foregoing cases which is binding upon such Lender, in any applicable jurisdiction for purposes of funding or maintaining any Note or the participation by such Lender in the transactions contemplated hereby and by the other Operative Documents), (1) shall make it unlawful for such Lender to fund or maintain its Note or (2) shall:

(i)impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding any such requirement with respect to which such Lender is entitled to compensation during the relevant interest period and excluding any regulatory change the effect of which is the implementation of the Basle Accord as in effect on the date hereof) against deposits with, or credit extended by, such Lender by reason of the funding or maintaining of its Note;

(ii)impose, modify or deem applicable a capital adequacy requirement which such Lender can establish has the effect of increasing the amount of capital required to be maintained by such Lender, but only to the extent that such increase is directly attributable and allocable to such Lender’s obligations to fund and maintain its Note; or

(iii)impose, modify or deem applicable any Tax (not excluded from indemnification under Section 6(b) of the Loan Agreement), or other governmental, monetary or other charge or other condition which in each case is in the nature of such reserve, special deposit or similar requirement;

and the result of any of the foregoing clauses (i), (ii) and (iii) shall be to increase in the aggregate and by a material amount the costs to such Lender, but only to the extent that such increase is directly attributable and allocable to funding and maintaining the Note (any such reserve, special deposit, similar requirement, Tax or other governmental, monetary or other charge or condition or capital adequacy cost being hereinafter collectively referred to as an “Increased Cost”) then the Lender shall promptly provide Security Trustee and Borrower with written notice of such event giving rise to such illegality or Increased Cost; provided, that in assessing the effect of such enactment, adoption, change or condition and determining such Increased Cost, such Lender shall evaluate and apply the requirements in respect of its Note hereunder in a manner which is no less favorable to Security Trustee and Borrower than, and shall not discriminate in such evaluation and application in relation to, and with respect to clauses (i) and (ii) above, the other deposits with or credit extended by the Lender involving other Persons, and with respect to clause (ii) above, comparable funding obligations held by the Lender of the same type and category involving other Persons. Such notice shall be accompanied by an officer’s certificate describing in reasonable detail (A) the events giving rise to such illegality or Increased Cost, (B) the basis for determining and allocating such Increased Cost with respect to the Note and a statement to the effect that the determination for such Increased Cost in connection with its obligations under its Note has been made in a manner that does not discriminate against Security Trustee or Borrower, and (C) a good faith estimate of the amount expected to be incurred by the Lender (such estimate to set out in reasonable detail the basis on which it has been prepared).

Within thirty (30) days of the receipt of any invoice for Increased Cost incurred following (or accompanying such notice), Borrower shall remit the amount of such Increased Cost to such Lender.

Notwithstanding any of the provisions hereof, such Lender shall not be entitled to serve notice to cause a payment of Increased Cost if (I) the Lender (or any office, branch or Affiliate thereof) incurred the relevant Increased Cost as a result of the Lender’s (or any office, branch or Affiliate thereof) having acted in a manner contrary to, or failed to act in a manner required by, the applicable laws, rules, regulations, rulings or exceptions thereto or interpretations thereof or (II) the relevant Increased Cost was imposed with respect to the period prior to receipt by Borrower of the notice with respect thereto pursuant to the first paragraph of this Section 2.13.

(b)Borrower shall not be required to make payments under this Section 2.13 to any Lender if (i) a claim hereunder arises through circumstances peculiar to such Lender and which do not affect commercial lenders in the same jurisdiction generally, (ii) such Lender is not also seeking indemnification against similar increased costs, to the extent it is entitled to do so, in transactions with substantial borrowers (it being agreed that an officer’s certificate to the contrary from any such Lender shall constitute conclusive evidence of such fact) or (iii) the claim arises out of a voluntary relocation by such Lender of its lending office.

ARTICLE III

RECEIPT, DISTRIBUTION AND APPLICATION OF

INCOME FROM THE MORTGAGE ESTATE

SECTION 3.01.  Principal and Interest Distribution.  (a) Except as otherwise provided in Section 3.03, any payment of principal and interest payable on any Payment Date or on overdue payments of principal and interest shall be promptly distributed to pay in full the principal and interest and other amounts (as well as any interest on overdue principal and, to the extent permitted by law, on interest and other amounts) then due on or in respect of the Notes to the Note Holders thereof ratably, without priority of any one Note over any other Note, in the proportion that the amount of such payment or payments then due under each Note bears to the aggregate amount of the payments then due under all Notes.

(b)Application of Other Amounts Held by Security Trustee.  Except as otherwise provided in Section 3.03, if for any reason there shall not have been distributed on any Payment Date the full amount then distributable pursuant Section 3.01(a), Security Trustee shall, if so requested in writing by a Majority in Interest of Note Holders, distribute other payments of the character referred to in Sections 4.01(d)(vi) and 4.01(e)(ix) then held by it or thereafter received by it, to all Note Holders to the extent necessary to enable Security Trustee to make all the distributions then due pursuant to Section 3.01(a).

SECTION 3.02.  Prepayment, Event of Loss and Replacement, Insurance Proceeds.

(a)Prepayment.  Any payment received by Security Trustee as the result of a payment or prepayment described in Section 2.10, shall be applied to prepayment of the Notes and to all other amounts payable thereunder or hereunder or under the other Operative Documents as provided in Section 2.10 by applying such funds in the following order of priority:  first, so much of such payment as shall be necessary to reimburse Security Trustee for any costs or expenses reasonably incurred in connection with such prepayment shall be paid to Security Trustee, and second, so much of such payment as shall be necessary to pay all amounts then due to the Note Holders pursuant to said Section 2.10 shall be distributed to such Note Holders, ratably, without priority of any one Note Holder over any other such Note Holder.

(b)Insurance Proceeds upon Event of Loss.  With respect to any payment of insurance proceeds received by Security Trustee as a result of the occurrence of an Event of Loss with respect to the Airframe or any Engine, any such insurance proceeds so received shall be held by the Security Trustee as security for the obligations of Borrower under the Operative Documents and invested in accordance with the terms of Section 3.07, provided that, subject to Section 4.01(e)(ix), such proceeds shall be released to Borrower upon Borrower’s written request upon the replacement of such damaged Airframe or Engine as provided in Sections 4.01(d) and 5.06 hereof.  In the event the Airframe or any Engine is replaced in accordance with Sections 4.01(d) and 5.06 hereof, provided that Borrower shall have fully performed or, concurrently therewith, will fully perform the terms of Sections 4.01(d) and 5.06

hereof, Borrower may elect by written notice to Security Trustee to apply such insurance proceeds directly to the acquisition of the Replacement Airframe or Replacement Engine, as the case may be.

(c)Insurance Proceeds other than upon Event of Loss.  With respect to any payment of insurance proceeds otherwise than in respect of an Event of Loss, any insurance proceeds so received by Security Trustee shall be held by Security Trustee as security for the obligations of Borrower under the Operative Documents and invested in accordance with the terms of Section 3.07, provided that, subject to Section 4.01(e)(ix), such proceeds shall be released to Borrower upon receipt by Security Trustee of evidence reasonably satisfactory to the Security Trustee of the repair of such damage to the Airframe or Engine or as otherwise provided in Section 4.01(e) hereof; provided, further, that upon receipt from Borrower of evidence reasonably satisfactory to Security Trustee that the damage giving rise to such payment shall be repaired, Borrower may elect by written notice to Security Trustee to apply such insurance proceeds to the repair of the Aircraft, Airframe or the Engine.

(d)Proceeds from Government or Other Party.  Any amounts received by Security Trustee directly or indirectly from any Governmental Authority or other party (other than an insurer) pursuant to any provisions of Section 4.01(d)(iii) shall be held by the Security Trustee, as security for the obligations of Borrower under the Operative Documents and shall be invested in accordance with the terms of Section 3.07 and at such time as the conditions for payment to Borrower specified in said Section 4.01(d)(iii) shall be fulfilled, such amount, and the proceeds of any investments thereof, shall, to the extent not applied to such obligations of Borrower, be paid pursuant to instruction to Borrower to the extent provided in this Mortgage.

SECTION 3.03.  Payment After Event of Default, etc.  Notwithstanding Section 3.02 and except as otherwise provided in Section 3.05(ii), all payments received and amounts held or realized by Security Trustee after an Event of Default shall have occurred and so long as such an Event of Default shall be continuing and Security Trustee shall have foreclosed or enforced the Lien of this Mortgage or after the Notes shall have become due and payable as provided in Section 4.03, together with all payments or amounts then held by Security Trustee as part of the Mortgage Estate, shall be promptly distributed by Security Trustee in the following order of priority:

First, so much of such payments or amounts as shall be required to reimburse Security Trustee for any tax, fees, expense, charge or other loss incurred by Security Trustee (to the extent reimbursable pursuant to the terms of this Mortgage not previously reimbursed) (including, without limitation, the expenses of any sale, taking or other proceeding, reasonable attorneys’ fees and expenses, court costs, and any other expenditures incurred or expenditures or advances made by Security Trustee in the protection, exercise or enforcement of any right, power or remedy or any damages sustained by Security Trustee, liquidated or otherwise, upon such Event of Default) shall be applied by Security Trustee in reimbursement of such expenses;

Second, so much of such payments or amounts remaining as shall be required to reimburse the Note Holders in full for payments made pursuant to Section 5.03 (to the extent not previously reimbursed) shall be distributed to such Note Holders, and if the aggregate amount remaining shall be insufficient to reimburse all such payments in full, it shall be distributed ratably, without priority of any Note over any other, in the proportion that the aggregate amount of the unreimbursed payments made by each such Note Holder pursuant to Section 5.03 bears to the aggregate amount of the unreimbursed payments made by all Note Holders pursuant to Section 5.03;

Third, so much of such payments or amounts remaining as shall be required to pay in full to the Note Holders the Breakage Amount, if any, and all other amounts payable pursuant to the indemnification provisions of Section 6 of the Loan Agreement or pursuant to any other provision of any

Operative Document and secured hereunder (other than amounts payable pursuant to clause “second”, “fourth”, or “fifth” of this Section 3.03) to Note Holders and remaining unpaid shall be distributed to such Note Holders, and if the aggregate amount remaining shall be insufficient to pay all such amounts in full, it shall be distributed ratably, without priority of any Note over any other, in the proportion that the aggregate amount due each Note Holder under this clause “third” bears to the aggregate amount due all Note Holders under this clause “third”;

Fourth, so much of such payments or amounts remaining as shall be required to pay in full the aggregate amount of all accrued but unpaid interest to the date of distribution on the Notes shall be distributed to the Note Holders, and if the aggregate amount remaining shall be insufficient to pay all such amounts in full, it shall be distributed ratably, without priority of any one Note over any other, in the proportion that the aggregate amount of all accrued but unpaid interest to the date of distribution on each Note bears to the aggregate amount of all accrued but unpaid interest to the date of distribution on all Notes;

Fifth, so much of such payments or amounts remaining as shall be required to pay in full the aggregate unpaid principal amount of all Notes shall be distributed to the Note Holders, and if the aggregate amount remaining shall be insufficient to pay all such amounts in full, it shall be distributed ratably, without priority of any one Note over any other, in the proportion that the aggregate unpaid principal amount of each Note bears to the aggregate unpaid principal amount of all Notes;

Sixth, the balance, if any, of such payments or amounts remaining thereafter shall be distributed to Borrower.

SECTION 3.04.  Certain Payments.  (a) Except as otherwise provided in this Mortgage, any payments received by Security Trustee for which provision as to the application thereof is made in the Operative Documents shall be applied forthwith to the purpose for which such payment was made in accordance with the terms thereof.

(b)Except as otherwise provided in Sections 3.01(b) or 3.03, Security Trustee will distribute, promptly upon receipt, any indemnity payment or payment of damages received by it from Borrower in respect of Security Trustee in its individual capacity or any Note Holder pursuant to Section 6 of the Loan Agreement, directly to the Person entitled thereto.

SECTION 3.05.  Other Payments.  Any payments received by Security Trustee whose purpose or intended payee is not identified shall be held by Security Trustee pending identification of the intended purpose of such payment, and thereafter, if no provision as to the application thereof is made in this Mortgage, shall be distributed by Security Trustee (i) to the extent received or realized at any time prior to the payment in full of all obligations to the Note Holders secured by the Lien of this Mortgage, in the order of priority specified in Section 3.03, and (ii) to the extent received or realized at any time after payment in full of all obligations to the Note Holders secured by the Lien of this Mortgage, in the following order of priority:  first, in the manner provided in the clause “first” of Section 3.03 and second, in the manner provided in clause “seventh” of Section 3.03.

SECTION 3.06.  Payments to Borrower.  Any amounts distributed hereunder by Security Trustee to Borrower shall be paid to Borrower by wire transfer of funds of the type received by Security Trustee at the address and account set forth in Schedule I to the Loan Agreement or at such other office and to such other account or accounts of such entity or entities as shall be designated by notice from Borrower to Security Trustee from time to time.

SECTION 3.07.  Investment of Amounts Held by Security Trustee.  Any amounts held by Security Trustee pursuant to Section 3.02 or pursuant to any provision of any other Operative Document providing for amounts to be held by Security Trustee shall be invested by Security Trustee from time to time in Permitted Investments as directed in writing by Borrower.  Unless otherwise expressly provided in this Mortgage, any income realized as a result of any such investment, net of Security Trustee’s reasonable fees and expenses in making such investment, shall be held and applied by Security Trustee in the same manner as the principal amount of such investment is to be applied and any losses, net of earnings and such reasonable fees and expenses, shall be charged against the principal amount invested.  Security Trustee shall not be liable for any loss resulting from any investment required to be made by it under this Mortgage other than by reason of its willful misconduct or gross negligence or any negligence in the handling or application of funds, and any such investment may be sold (without regard to its maturity) by Security Trustee without instructions whenever Security Trustee reasonably believes such sale is necessary to make a distribution required by this Mortgage.

ARTICLE IV

COVENANTS; EVENTS OF DEFAULT;

REMEDIES OF SECURITY TRUSTEE

SECTION 4.01.  Covenants of Borrower.  So long as the Lien of the Mortgage has not been discharged and terminated pursuant to the terms hereof, Borrower hereby covenants and agrees as follows:

(a)Liens.  Except as expressly permitted hereby, Borrower will not directly or indirectly create, incur, assume or suffer to exist any Lien on or with respect to the Aircraft, Airframe or Engines, title thereto or any interest therein or in this Mortgage, except (i) the Lien of this Mortgage, (ii) Liens for Taxes of Borrower either not yet due or being contested in good faith by appropriate proceedings so long as such proceedings do not involved any material risk of the sale, forfeiture or loss of the Airframe or any Engine or any interest therein, (iii) materialmen’s, mechanics’, workmen’s, repairmen’s, employees’, or other like Liens arising in the ordinary course of Borrower’s business securing obligations that are not overdue or are being contested in good faith by appropriate proceedings so long as such proceedings do not involve any material risk of the sale, forfeiture or loss of the Airframe or any Engine or any interest therein, (iv) Liens arising out of any judgment or award against Borrower with respect to which at the time an appeal or proceeding for review is being prosecuted in good faith by appropriate proceedings diligently conducted and with respect to which there shall have been secured and continuing a stay of execution pending such appeal or proceeding for review, so long as such proceedings do not involve any material risk of the sale, forfeiture or loss of the Airframe or any Engine or any interest therein and (v) any other Lien with respect to which Borrower shall have provided a bond or other security in an amount and under terms reasonably satisfactory to Security Trustee.  Borrower will promptly, at its own expense, take (or cause to be taken) such actions as may be necessary duly to discharge any such Lien not permitted above if the same shall arise at any time.

(b)Registration, Maintenance and Operation; Possession; Insignia.

(i)Registration and Maintenance.  Borrower, at its own cost and expense, shall:  (1) cause the Aircraft to be and to remain duly registered with the FAA in the name of Borrower under the Transportation Code; (2) maintain, inspect, test, service, repair, and overhaul (or cause to be maintained, inspected, tested, serviced, repaired, and overhauled) the Aircraft (and any engine that is not an Engine but that is installed on the Aircraft) (A) so as to keep the Aircraft in as good condition and appearance as when originally delivered to Borrower by the Manufacturer on the Acquisition Date, ordinary wear and tear excepted, in good operating condition and in compliance at all times with

Borrower’s FAA-approved maintenance program for the Aircraft, as well as in compliance with Manufacturer’s or Engine Manufacturer’s mandatory service bulletins and so as to maintain in full force and effect any warranties of the Manufacturer or the Engine Manufacturer and to keep the Aircraft in such condition as may be necessary to enable all certificates, licenses, permits and authorizations required for the use and operation of the Aircraft and each Engine and Part, including the airworthiness certification for the Aircraft to be maintained in good standing at all times (other than during temporary periods of storage, maintenance, or modification in accordance with applicable regulations or when the FAA or other aviation authority having jurisdiction over the Aircraft grounds Bombardier Regional Jet Aircraft Model CL-600-2B19 aircraft) under (x) the Transportation Code, or (y) the applicable laws of any other jurisdiction in which the Aircraft may then be registered from time to time;  provided, however, that Borrower may, in good faith, contest the validity or application of any law, rule, regulation, order or bulletin in any reasonable manner that does not materially adversely affect the respective interest of Security Trustee or Lender in or to such Airframe or Engines or any Operative Document and such contest or failure to comply will not result in any material risk of loss, sale, forfeiture or damage to the Aircraft or any risk of civil or criminal liability to Security Trustee or Lender; (B) in substantially the same manner as Borrower maintains, inspects, tests, services, repairs or overhauls similar aircraft operated by Borrower in similar circumstances and without in any way discriminating against the Aircraft; (C) so as to comply with any requirements under policies of insurance required to be maintained hereunder; or (D) or such other manner as shall be approved by Security Trustee whether by reason of its mortgaged status or otherwise; (3) promptly furnish or cause to be furnished to Security Trustee such information as may be required to enable Security Trustee to file any reports required to be filed by Security Trustee with any Governmental Authority because of such person’s interest in the Aircraft; and (4) maintain or cause to be maintained, in English, all records, logs and other materials required to be maintained in respect of the Aircraft by the FAA or the applicable regulatory agency or body of any other jurisdiction in which the Aircraft may then be registered.

(ii)Operation.  Borrower will not maintain, use, locate, service, repair, overhaul or operate the Aircraft in violation of any law or any rule, regulation, treaty, order or certificate of any Governmental Authority (domestic or foreign) having jurisdiction, or in violation of any airworthiness certificate, license or registration relating to the Aircraft issued by any such authority or for a purpose for which it is not designed or in violation of any requirements of insurance pursuant to Section 4.01(e) or in violation of any requirements as may be necessary to keep any unexpired warranties of Manufacturer or Engine Manufacturer in full force and effect.  If such law, rule, regulation, treaty, order or certificate requires alteration of the Aircraft, Borrower will conform thereto or obtain conformance therewith at no expense to Security Trustee or Lender.  Notwithstanding the foregoing, after Borrower shall have provided Security Trustee with a certificate of a Responsible Officer stating all relevant facts with respect thereto, (except for any mandatory grounding of the Aircraft by an aviation authority having appropriate jurisdiction) Borrower may contest in good faith the validity or application of any such law, rule, regulation, treaty, order, certificate, license, registration or violation in any reasonable manner that does not adversely affect Lender’s or Security Trustee’s respective interests in or to the Aircraft or any Operative Document and such contest or non-compliance will not result in any material risk of loss, forfeiture or damage to the Aircraft or any risk of unindemnified civil or criminal liability to Security Trustee or Lender.  In addition, Borrower shall comply with the provisions of this Article 4 notwithstanding such contest.  If the indemnities or insurance specified in Section 4.01(e) hereof, have not been obtained, Borrower will not operate, use or locate the Aircraft in or to any area excluded from coverage by any insurance required to be maintained by the terms of Section 4.01(e) hereof, unless such operation results from a hijacking, medical emergency, equipment malfunction, weather conditions, navigational error, or other extraordinary events beyond the control of Borrower, so long as Borrower diligently and in good faith proceeds to remove the Aircraft from such area.   Unless the Aircraft has been requisitioned for use by the United States Government pursuant to Section 4.01(d)(iv) hereof and indemnification or insurance has been provided in accordance with Section 4.01(e) hereof, the Aircraft

may not be operated, used or located in any declared war zone or in any area that is an area of recognized hostilities (except to leave any such zone or area), unless such operation results from a hijacking, medical emergency, equipment malfunction, weather conditions, navigational error, or other extraordinary events beyond the control of Borrower, so long as Borrower diligently and in good faith proceeds to remove the Aircraft from such area.

(iii)Registration.  Borrower, at its own cost and expense, shall cause the Aircraft to be duly registered as a United States aircraft under the Transportation Code in the name of Borrower as the owner thereof, and shall not take any action or fail to perform any act that would cause such registration not to remain effective during the Term.

(iv)Possession.  Borrower will not, without the prior written consent of Lender, lease or otherwise in any manner deliver, transfer or relinquish possession of the Airframe or any Engine or install or permit any Engine to be installed on any airframe other than the Airframe, provided that so long as no Specified Default or Event of Default shall have occurred and be continuing at the time of such lease, delivery, transfer or relinquishment of possession or installation, Borrower may, without the prior written consent of Lender or Security Trustee:

(1)subject the Engines or engines then installed on the Airframe to normal interchange agreements or any Engine to normal pooling or similar arrangements, in each case customary in the airline industry and entered into by Borrower in the ordinary course of its business with any Certified Air Carrier, Engine Manufacturer, Manufacturer or an authorized service center of either Manufacturer or Engine Manufacturer, in each case, not then insolvent or subject to any bankruptcy, reorganization or similar proceeding;

(2)deliver possession of the Airframe or any Engine to the manufacturer thereof or to any other qualified institution for testing, service, repair, maintenance or overhaul work on the Airframe or Engine or any Part of any thereof or for alterations or modifications in or additions to such Airframe or Engine to the extent required or permitted by the terms of this Mortgage;

(3)install an Engine on an airframe owned by Borrower which airframe is free and clear of all Liens, except:  (A) Permitted Liens and those that apply only to engines (other than Engines), appliances, parts, instruments, appurtenances, accessories, furnishings and other equipment (other than Parts) installed on such airframe (but not to the airframe as an entirety) that do not contemplate, permit or require the transfer of title to such airframe or engine installed thereon, and (B) the rights of third parties under interchange agreements that would be permitted under Section 4.01(b)(iv)(1);

(4)install an Engine on an airframe leased to Borrower or purchased by Borrower subject to a conditional sale or other security agreement, provided that (A) such airframe is free and clear of all Liens, except:  (1) the respective rights of the parties to the lease or conditional sale or other security agreement covering such airframe, or their assignees, and (2) Liens of the type permitted by Section 4.01(b)(iv)(3) and (B) such lease, conditional sale or other security agreement effectively provides that such Engine shall not become subject to the lien of such lease, conditional sale or other security agreement, notwithstanding the installation thereof on such airframe; and

(5)for a period not to extend beyond the end of the Term, subject the Airframe or any Engine to: (1) the U.S. Civil Reserve Air Fleet Program, (2) contracts with the U.S. government or any agency thereof the obligations of which are supported by the full faith

and credit of the U.S. government or (3) any wet lease or similar arrangement under which Borrower maintains operational control of the Aircraft.

(6)[intentionally omitted]

(v)Insignia.  On or prior to the Closing Date, or as soon thereafter as practicable, Borrower agrees to affix and maintain (or cause to be affixed and maintained) in the cockpit of the Airframe adjacent to the registration certificate therein and on each Engine a plainly visible and fireproof nameplate having dimensions of not less than 10 cm x 7 cm and bearing the inscription:

“Subject to a security interest in favor of C.I.T. Leasing Corporation, as Security Trustee”

(such nameplate to be replaced, if necessary, with a nameplate reflecting the name of any successor Security Trustee, in each case as permitted under the Operative Documents).

Except as above provided, Borrower will not allow the name of any Person to be placed on the Airframe or on any Engine as a designation that might be interpreted as a claim of ownership, provided that nothing herein contained shall prohibit Borrower from placing its customary colors, name and insignia on the Airframe or any Engine.

(vi)Holding Out.  Borrower agrees that it will not at any time represent or hold out Lender or Security Trustee or any Affiliate of any of them (and will use its best efforts to ensure that none of Lender and Security Trustee or any Affiliate of any of them is not at any time represented or held out) as being in any way connected or associated with any operation of the Airframe, any Engine or any Part or any other operations or carriage undertaken by Borrower.

(vii)No Pledging of Credit.  Borrower is not authorized to, and agrees that it will not purport to, pledge the credit of Lender or Security Trustee for any maintenance, service, repairs, or overhauls of, modifications to, or changes or alterations in, the Airframe, any Engine, or any Part, or for any other purpose whatsoever.

(c)Replacement and Pooling of Parts; Alterations, Modifications and Additions.

(i)Replacement of Parts.  Borrower, at its own cost and expense, will promptly replace or cause to be replaced all Parts that may from time to time become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or permanently rendered unfit for use for any reason whatsoever, except as otherwise provided in Section 4.01(c)(iii) hereof.  All replacement parts shall be owned by Borrower free and clear of all Liens (except Permitted Liens, pooling arrangements permitted by Section 4.01(c)(ii) hereof and replacement Parts temporarily installed on an emergency basis which are replaced as promptly as practicable thereafter in accordance with the terms of this Section 4.01(c)) and shall be in as good operating condition as, and shall have a value, economic useful life and utility equal to or greater than, the Parts replaced, assuming such replaced Parts were in the condition and repair required to be maintained by the terms hereof.  All Parts (other than Obsolete Parts) at any time removed from the Airframe shall remain subject to the Lien of the Mortgage, no matter where located, until such time as such Parts shall be replaced by parts that meet the requirements for replacement parts specified above.  Immediately upon any replacement part becoming incorporated or installed in or attached to the Airframe or any Engine, without further act (subject only to Permitted Liens and any pooling arrangement permitted by Section 4.01(c)(ii) hereof and except replacement parts temporarily installed on an emergency basis which are replaced as promptly as practicable thereafter in accordance with the terms of this Section 4.01(c)), (i) such part shall become subject to the Lien of the Mortgage and

shall be deemed a Part for all purposes hereof to the same extent as each Part originally incorporated or installed in or attached to the Airframe or such Engine and (ii) the replaced Part shall no longer be subject to the Lien of the Mortgage and shall no longer be deemed a Part hereunder.

(ii)Pooling of Parts.  Any Part removed from the Airframe or any Engine as provided in Section 4.01(c)(i) hereof may be subjected by Borrower to a pooling arrangement of the type permitted by Section 4.01(b)(iv)(1) hereof, provided that the part replacing such removed Part shall be incorporated or installed in or attached to such Airframe or Engine in accordance with Section 4.01(c)(i) hereof as promptly as practicable after the removal of such removed Part.  In addition, any replacement part may be owned by any third party subject to such a pooling arrangement, provided that Borrower, at its expense, as promptly thereafter as practicable, shall either (1) cause such replacement part to become the property of Borrower, free and clear of all Liens other than Permitted Liens or (2) replace such replacement part with a further replacement part owned by Borrower, free and clear of all Liens other than Permitted Liens.

(iii)Alterations, Modifications and Additions.  Borrower, at its expense, will make (or cause to be made) such alterations and modifications in and additions to the Airframe and Engines as may be required to be made during the Term to comply with all applicable laws and to meet the applicable standards of any airworthiness directives or any other standard of the FAA (or any applicable regulatory agency or body of any other jurisdiction in which the Aircraft may then be registered) and any mandatory service bulletins of Manufacturer or Engine Manufacturer (such laws, rules, regulations, FAA or other applicable regulatory agency requirements and any mandatory bulletins, collectively “Airworthiness Requirements”); provided, however, that, Borrower may, in good faith, contest the validity or application of any Airworthiness Requirement in any reasonable manner that does not adversely affect the respective interest of Security Trustee or Lender in or to such Airframe or Engines or any Operative Document and such contest or failure to comply will not result in any material risk of loss, sale, forfeiture or damage to the Aircraft or any risk of unindemnified civil or criminal liability to Lender.  Borrower shall pay all costs of each Airworthiness Requirement.

In addition, Borrower, at its expense, may from time to time make such alterations and modifications or improvements to the Airframe or any Engine as Borrower may deem desirable in the proper conduct of its business, including removal of Parts that Borrower deems to be obsolete or no longer suitable or appropriate for use on the Airframe or such Engine (“Obsolete Parts”), provided that no such alteration, improvement modification, removal or addition (1) impairs the condition or airworthiness of the Airframe or such Engine, or diminishes the value, utility or remaining useful life of the Airframe or such Engine below the value, utility or remaining useful life thereof immediately prior to such alteration, modification, removal or addition, assuming the Airframe or such Engine was then in the condition required to be maintained by the terms contained herein, except that the value (but not the utility, condition, airworthiness or remaining useful life) of the Airframe or any Engine may be reduced by the value of Obsolete Parts that shall have been removed so long as the aggregate original cost of all Obsolete Parts, which shall have been removed and not replaced shall not exceed $300,000, and provided that, to the extent required by applicable law or for the safe operation of the Aircraft or performance of the function of the Part removed, replacements therefor are installed on the Aircraft or (2) involves structural alterations to the Aircraft that would require material realteration to restore the Aircraft to its original passenger configuration or be inconsistent with the use of the Aircraft as an aircraft in passenger configuration, provided, that any alteration of the Aircraft from passenger configuration to non-passenger configuration shall require the prior written consent of the Security Trustee and Lender.  All parts incorporated or installed in or attached or added to the Airframe or an Engine as the result of such alteration, modification or addition shall, without further act, become subject to the Lien of the Mortgage.  The foregoing provisions of this second paragraph of subparagraph (iii) shall not apply to Nonproprietary Parts, which Borrower may add to, or, so long as no Event of Default has occurred and is continuing and

the Security Trustee has not commenced the exercise of remedies pursuant to the terms set forth in this Mortgage, remove from, the Aircraft in its sole and absolute discretion.  In the event Borrower removes any Nonproprietary Part in accordance with the immediately preceding sentence, such Nonproprietary Part shall not be deemed a Part for any purposes herein or in the other Operative Documents.

(iv)No Liability for Alteration, Modification or Addition; Grounding.  In no event shall Security Trustee or Lender bear any liability or cost whatsoever for (v) any alteration or modification or, or addition to, the Airframe or any Engine, (w) any grounding of the Aircraft, (x) suspension of certification of the Aircraft, (y) loss of revenue suffered by Borrower for any reason whatsoever, or (z) the cost of Nonproprietary Parts.

(v)Substitution of Engine.  So long as no Event of Default exists and Borrower does not discriminate in its selection of an engine to install on the Airframe based on its mortgaged status, Borrower may at any time during the Term in its sole discretion substitute any Engine for an Acceptable Alternate Engine.  Upon such substitution, Borrower shall comply with the terms of Section 4.01(d)(ii) hereof to the same extent as if an Event of Loss had occurred with respect to such Engine.

(d) Loss, Destruction, Requisition, etc

(i)Event of Loss with Respect to the Aircraft.  Upon the occurrence of an Event of Loss with respect to the Airframe or the Airframe and one or more Engines, Borrower shall (1) forthwith (and, in any event, within ten days of such occurrence) give Security Trustee notice of such Event of Loss and (2) within 60 days after such occurrence, give Security Trustee written notice of its election to perform one of the following options (it being understood that failure to give such notice shall be deemed an election of the option set forth in clause (I) below).  Borrower shall:

(I)to the extent not paid to Security Trustee as insurance proceeds, pay or cause to be paid to Security Trustee not later than the earlier of (i) 180 days after the occurrence of such Event of Loss, (ii) 5 Business Days following the payment of insurance proceeds with respect to such Event of Loss, or (iii) the Final Maturity Date, the then outstanding principal amount of the Notes, together with accrued interest thereon to the date of such payment, plus the Breakage Amount and all other amounts due to Note Holders and the Security Trustee under the Operative Documents; or

(II)provided that no Specified Default or Event of Default shall have occurred and be continuing, no later than 180 days following such Event of Loss substitute an aircraft or an airframe or an airframe and one or more engines, as the case may be.

At such time as Security Trustee shall have received the amounts specified in (I) above, the Lien of the Mortgage shall be terminated pursuant to, and in accordance with, Section 9.01 hereof.

If Borrower elects to substitute an aircraft (or an airframe or an airframe and one or more engines, as the case may be), then Borrower shall, at its expense, obtain good and marketable title to another aircraft (or an airframe or an airframe and one or more engines that, together with the Engines or Engine constituting a part of the Aircraft but not installed thereon at the time of such Event of Loss, constitute the Aircraft) free and clear of all Liens (other than the Lien of this Mortgage) and having at least the value, utility and remaining economic useful life (as confirmed by an independent appraiser selected by Security Trustee and reasonably acceptable to Borrower) and being in as good condition as the Aircraft subject to such Event of Loss, in each case assuming that the Aircraft had been maintained in accordance with the terms hereof, provided that any aircraft, airframe or engine so substituted hereunder shall be of the same or improved make and model as the Aircraft, and in the case of an Engine, shall be an Acceptable

Alternate Engine; and prior to or at the time of any such substitution Borrower, at its own expense, shall (1) cause such replacement aircraft, airframe or engine to become subject to the Lien of this Mortgage; (2) cause a Mortgage Supplement to be filed for recording pursuant to the Transportation Code or the applicable laws, rules and regulations of any other jurisdiction in which the Airframe may then be registered and cause a financing statement or statement or other requisite documents of a similar nature to be filed in such place or places as necessary in order to perfect the security interests herein created; (3) furnish Security Trustee with such evidence of Borrower’s title to such replacement aircraft and of compliance with the insurance provisions of Section 4.01(e) hereof with respect to such substituted property as Security Trustee may reasonably request and that the substituted property has been entered into Borrower’s FAA-approved maintenance program; and (4) provide an opinion of counsel, which counsel shall be reasonably acceptable to Security Trustee, to the effect that Borrower holds title to such replacement aircraft free and clear of all Liens (except the Lien of this Mortgage) and Security Trustee shall be entitled to the benefits and protection of Section 1110 of the Bankruptcy Code with respect to the aircraft substituted hereunder to at least the same extent as the original Airframe and Engine or Engines, as the case may be, and otherwise comply with the provisions and satisfy the conditions set forth in Section 5.06 hereof.  For all purposes hereof, the property substituted shall after such transfer be deemed part of the property leased hereunder and shall be deemed an “Aircraft,” “Airframe” or “Engine,” as the case may be.  No such substitution shall result in the reduction of any amounts due under the Notes.  Borrower agrees to pay all reasonable out-of-pocket costs and expenses (including without limitation, reasonable counsel fees and disbursements and any costs incurred in connection with Section 5.06 hereof) of Security Trustee and Lender in connection with the foregoing replacement.

(ii)Event of Loss with Respect to an Engine.  Upon the occurrence of an Event of Loss with respect to an Engine under circumstances where an Event of Loss has not occurred with respect to the Airframe, Borrower shall promptly (and in any event, within ten days after such occurrence) give Security Trustee written notice thereof and shall, within 90 days after the occurrence of such Event of Loss, obtain good and marketable title to an Acceptable Alternate Engine free and clear of all Liens (other than the Lien of this Mortgage).  Borrower, at its expense, will (1) cause a Mortgage Supplement to be filed for recording pursuant to the Transportation Code or the applicable laws, rules and regulations of any other jurisdiction in which the Airframe may then be registered and cause a financing statement or statement or other requisite documents of a similar nature to be filed in such place or places as necessary in order to perfect the security interests herein created, (2) furnish Security Trustee with such evidence of Borrower’s title to such Acceptable Alternate Engine and of compliance with the insurance provisions of Section 4.01(e) hereof with respect to such Acceptable Alternate Engine as Security Trustee may reasonably request, (3) furnish Security Trustee with an opinion of Borrower’s counsel to the effect that title to such Acceptable Alternate Engine is free and clear of all Liens (except the Lien of this Mortgage), and (4) otherwise comply with the provisions and satisfy the conditions set forth in Section 5.06 of this Mortgage.  For all purposes hereof, each such Acceptable Alternate Engine shall, after such conveyance, be deemed an “Engine.”  No such substitution shall result in the reduction of any amounts due under the Notes.  Borrower agrees to pay all reasonable out-of-pocket costs and expenses (including without limitation, reasonable counsel fees and disbursements) of Security Trustee and Lender in connection with the foregoing replacement.

(iii)Application of Payments from Governmental Authorities for Requisition of Title, etc.  Any payments (other than insurance proceeds the application of which is provided for in Section 4.01(e) hereof) received at any time by Borrower from any Governmental Authority or other person with respect to an Event of Loss resulting from the theft, disappearance, destruction, condemnation, confiscation or seizure of, or requisition of title to or use of, the Airframe or any Engine, will be applied as follows:

(1)if payments are received with respect to the Airframe (or the Airframe and any Engine or engines then installed thereon):  (A) unless the same are replaced pursuant to Section 4.01(d)(i)(II) hereof, so much of such payments as the then outstanding principal amount of the Loan, together with accrued interest thereon to the date of such payment, plus all other amounts due to Note Holders under the Operative Documents shall be applied in reduction of Borrower’s obligation to pay such sums pursuant to Section 4.01(d)(i) hereof if not already paid by Borrower, or, if already paid by Borrower, shall be applied to reimburse Borrower for its payment of such sums, and following the foregoing application, the balance, if any, of such payments shall be distributed to Borrower; or (B) if such property is, or is to be, replaced pursuant to Section 4.01(d)(i)(II) hereof, such payments shall be paid over to the Security Trustee, and the Security Trustee shall pay such amounts to Borrower, provided that Borrower shall have fully performed or, concurrently therewith, will fully perform the terms of the last paragraph of Section 4.01(d)(i) hereof with respect to the Event of Loss for which such payments are made; and

(2)if such payments are received with respect to an Engine under circumstances contemplated by Section 4.01(d)(ii) hereof, so much of such payments remaining shall be paid over to Security Trustee, and the Security Trustee shall pay such amounts to Borrower, provided that Borrower shall have fully performed, or concurrently therewith will perform, the terms of Section 4.01(d)(ii) hereof with respect to the Event of Loss for which such payments are made.

(iv)Requisition for Use of the Aircraft by the United States Government or Government of Registry of the Aircraft; Other Government Payments.  In the event of the requisition for use of the Airframe and the Engines or engines installed on the Airframe during the Term not constituting an Event of Loss by the United States government or any other Governmental Authority, Borrower shall promptly notify Security Trustee of such requisition, and all of Borrower’s rights and obligations as set forth in the Operative Documents with respect to the Aircraft shall continue to the same extent as if such requisition had not occurred.  Except as set forth in Section 4.01(d)(iii) with respect to certain payments upon the occurrence of an Event of Loss, all payments received by Borrower from the United States government or any other Governmental Authority for the use of such Airframe and Engines or engines, or any other payment by a governmental entity or Person shall be paid over to, or retained by, Borrower.

(v)Requisition for Use of an Engine by the United States Government or any other Governmental Authority.  In the event of the requisition for use of an Engine by the United States government or any other Governmental Authority (other than in the circumstances contemplated by Section 4.01(d)(iii) or Section 4.01(d)(iv) hereof), Borrower shall replace such Engine hereunder with an Acceptable Alternate Engine and Borrower shall comply with the terms of Section 4.01(d)(ii) hereof to the same extent as if an Event of Loss had occurred with respect to such Engine.  Upon compliance with Section 4.01(d)(ii) hereof, any payments received by Borrower from such Governmental Authority with respect to such requisition shall be retained by Borrower.

(vi)Application of Payments During Existence of a Specified Default or an Event of Default.  Any amount referred to in this Section 4.01(d) that is payable to or retainable by Borrower shall not be paid to or retained by Borrower if at the time of such payment or retention a Specified Default or an Event of Default shall have occurred and be continuing, but shall be held by or paid over to Security Trustee as security for the obligations of Borrower under this Mortgage and, if an Event of Default shall have occurred and be continuing, applied against Borrower’s obligations hereunder as and when due.  At such time as there shall not be continuing any such Specified Default or Event of Default, such amount shall be paid to Borrower to the extent not previously applied in accordance with the preceding sentence.

(e)Insurance.

(i)Public Liability, Property Damage Liability, and War Risk Insurance.  Except as provided in Section 4.01(e)(iv), and subject to the provisions of Section 4.01(e)(vi), Borrower will carry or cause to be carried, at its expense, with insurers of recognized reputation and responsibility, comprehensive airline liability and products liability insurance (including, without limitation, contractual, bodily injury, passenger and property damage liability) insurance (exclusive of manufacturer’s product liability insurance) with respect to the Aircraft, in an amount not less than the amount set forth in Exhibit F hereto.  In addition, Borrower shall at all times maintain war risk (aviation liability) insurance of the scope substantially similar to the coverage provided by AVN 52D (or its equivalent) (but excluding the limitation of liability set forth therein) as specified below, in an amount (taking into consideration any insurance or indemnification provided by the United States government or any agency or instrumentality thereof the obligations of which are supported by the full faith and credit of the United States government in accordance with Section 4.01(e)(viii) hereof) not less than the amount set forth on Exhibit F hereto.  Further, all insurance described in this Section 4.01(e)(i) shall be at least of a scope and coverage (except as to dollar requirements) as is customarily carried by United States based regional air carriers engaged in the same or similar business, similarly situated with the Borrower and operating similar aircraft and engines; excluding, however, for purposes of the foregoing, regional carriers owned by, controlled by, or otherwise covered under, a major carriers insurance policy unless Borrower also has insurance coverage under a major carriers insurance policy.  For the avoidance of doubt, AVN 52D provides insurance against the following risks (collectively, “War Risks”): (1) war, invasion, acts of foreign enemies (whether war be declared or not), civil war, rebellion, revolution, insurrection, martial law, military or usurped power, or attempts at usurpation of power, (2) strikes, riots, civil commotions or labor disturbances, (3) any act of one or more persons, whether or not agents of a sovereign power, for political or terrorist purposes and whether or not the loss or damage resulting therefrom is accidental or intentional, (4) any malicious act or act of sabotage, (5) confiscation, nationalization, seizure, restraint, detention, appropriation, requisition for title or use by or under the order of any government (whether civil, military or de facto) or public or local authority, and (6) hi-jacking or any unlawful seizure or wrongful exercise of control of the aircraft or crew in flight (including any attempt at such seizure or control) made by any person or persons on board the aircraft acting without the consent of the insured.

(ii)Insurance Against Loss or Damage to the Aircraft.  Except as provided in Section 4.01(e)(iv), and subject to the provisions of Section 4.01(e)(vi), Borrower shall maintain or cause to be maintained in effect, at its expense, with insurers of recognized reputation and responsibility, all-risk ground, taxiing and flight aircraft hull insurance covering the Aircraft (including Engines and Parts temporarily removed from the Aircraft), and fire and explosion coverage, ingestion and lightning and electrical damage, and extended coverage and all-risk property damage insurance, including fire and transit, covering Engines and Parts while removed from the Aircraft and not replaced by similar components (or while removed from the Aircraft and not destined to be reattached to the Aircraft) insured on a replacement cost clause; provided that such insurance shall at all times while the Aircraft is subject to this Mortgage be for an amount on an agreed value basis not less than 110% of the then outstanding principal amount of the Notes, together with accrued interest thereon(the “Insured Amount”).  Further, Borrower shall at all times maintain or cause to be maintained war risk (aircraft hulls) and governmental confiscation insurance (other than by the government of registry of the Aircraft) per the terms of AVN48B writeback except (b) or its equivalent providing insurance against the following risks: (1) strikes, riots, civil commotions or labor disturbances, (2) any malicious act or act of sabotage and (3) hi-jacking or any unlawful seizure or wrongful exercise of control of the aircraft or crew in flight (including any attempt at such seizure or control) made by any person or persons on board the aircraft acting without the consent of the insured.  Such insurance described in the immediately preceding sentence shall be in an amount (taking into consideration any insurance or indemnification provided by the United States

government or any agency or instrumentality thereof the obligations of which are supported by the full faith and credit of the United States government in accordance with Section 4.01(e)(viii) hereof) not less than the Insured Amount.  All insurance described in this Section 4.01(e)(ii) shall be at least of a scope and coverage (except as to dollar requirements) as is customarily carried by United States based regional air carriers engaged in the same or similar business, similarly situated with the Borrower and operating similar aircraft and engines; excluding, however, for purposes of the foregoing, regional carriers owned by, controlled by, or otherwise covered under, a major carriers insurance policy unless Borrower also has insurance coverage under a major carriers insurance policy.

(iii)Application of Insurance Proceeds.  Except during a period when a Specified Default or Event of Default has occurred and is continuing, all losses will be adjusted by Borrower with the insurers.  It is agreed that all insurance payments received as the result of the occurrence of an Event of Loss will be applied as follows:

(1)If such payments are received with respect to the Airframe (or the Airframe and the Engines installed thereon), (A) unless such property is replaced pursuant to Section 4.01(d)(i)(II) hereof, such payments as shall not exceed the then outstanding principal amount of the Note, together with accrued interest thereon to the date of such payment, plus all other amounts due to Note Holders under the Operative Documents shall be applied in reduction of Borrower’s obligation to pay such amounts and the other amounts payable under Section 4.01(d)(i), if not already paid by Borrower, or, if already paid by Borrower, shall be applied to reimburse Borrower for its payment of such amounts, and the balance, if any, of such payments remaining thereafter will be paid over to, or retained by Borrower, or (B) if such property is, or is to be, replaced pursuant to Section 4.01(d)(i)(II) hereof, such payments shall be paid over to Security Trustee, and the Security Trustee shall pay such amounts to Borrower, provided that Borrower shall have fully performed or, concurrently therewith, will fully perform the terms of Section 4.01(d)(i)(II) hereof with respect to the Event of Loss for which such payments are made.

(2)If such payments are received with respect to an Engine under the circumstances contemplated by Section 4.01(d)(ii) hereof, such payments shall be paid over to Security Trustee, and the Security Trustee shall pay such amounts to Borrower, provided that Borrower shall have fully performed or, concurrently therewith, will fully perform the terms of Section 4.01(d)(ii) hereof with respect to the Event of Loss for which such payments are made.

(3)The insurance payments for any property damage loss to the Airframe or any Engine not constituting an Event of Loss with respect thereto shall be paid over to, or retained by, Borrower if $2,500,000 or less; otherwise, to Security Trustee.

(iv)Aircraft Not In Operation.  During any period that the Airframe or an Engine while temporarily removed from the Aircraft and not replaced by similar components, as the case may be, is grounded and not in operation, Borrower may, so long as Borrower takes reasonable measures to protect the Airframe and the Engines, carry or cause to be carried as to such non-operating property, in lieu of the insurance required by Sections 4.01(e)(i) and (e)(ii) above, and subject to the provisions of Section 4.01(e)(vi), insurance otherwise conforming with the provisions of Sections 4.01(e)(i) and (e)(ii), except that the amounts of coverage, the scope of the risks and the type of insurance shall be consistent with industry practice for similarly situated United States air carriers in respect of the same or similar aircraft which are similarly grounded and not in operation, provided that the amount of coverage, the scope of risks and type of insurance shall be at least as favorable as from time to time applicable to aircraft owned or leased by Borrower of the same type as the Aircraft similarly grounded and not in operation; provided that subject to the provisions of Section 4.01(e)(vi), Borrower shall maintain

insurance against risk of loss or damage to the Aircraft in an amount at least equal to the Insured Amount during such period that the Aircraft is on the ground and not in operation.

(v)Reports, etc.  Borrower will furnish, or cause to be furnished, to Security Trustee and Lender on or before the Closing Date and during each calendar year thereafter on or before the anniversary of the Closing Date a certificate of insurance and broker’s letter of undertaking, signed by an independent firm of insurance brokers reasonably acceptable to Security Trustee (the “Insurance Brokers”), describing in reasonable detail the hull and liability insurance (and property insurance for detached Engines and Parts) then carried and maintained with respect to the Aircraft and stating the opinion of such firm that such insurance complies with the terms hereof and that premiums have been paid.  Borrower will cause such Insurance Brokers to agree to advise promptly Security Trustee and Lender in writing if the Insurance Brokers cease to be the insurance brokers to Borrower, or of the occurrence of any default in the payment of any premium and of any other act or omission on the part of Borrower of which it has actual knowledge and that might invalidate or render unenforceable, in whole or in part, any insurance on the Aircraft as required by the terms hereof and to advise such Persons in writing at least 30 days prior to the cancellation (but not scheduled expiration) or material change or lapse of any insurance required to be maintained pursuant to this Section 4.01(e).  In addition, Borrower will also cause such Insurance Brokers to deliver to Security Trustee, on or prior to the date of expiration of any insurance policy referenced in a previously delivered certificate of insurance, a new certificate of insurance, substantially in the same form as delivered by Borrower to such parties on the Closing Date except for changes in the report or the coverage consistent with the terms hereof.  If Borrower fails to maintain or cause to be maintained insurance as herein provided, Security Trustee or any Note Holder may at its sole option, but without any obligation to do so, provide such insurance and, in such event, Borrower shall, upon demand, reimburse Security Trustee, for the cost thereof to Security Trustee; provided, however, that no exercise by Security Trustee of said option shall affect the provisions of this Mortgage, including the provisions that failure by Borrower to maintain insurance prescribed hereunder shall constitute an Event of Default.

(vi)Self-Insurance.  Subject to the terms set forth in Exhibit E hereto, Borrower may self-insure the risks required to be insured against pursuant to this Section 4.01(e).

(vii)Additional Insurance.  Borrower may at its own expense carry insurance with respect to its interest in the Aircraft in amounts in excess of that required to be maintained by this Section 4.01(e).  Security Trustee or Lender or any Affiliate thereof may carry for its or their own account at its or their sole cost and expense insurance with respect to its interest in the Aircraft, and such insurance does not adversely affect or materially impair Borrower from carrying the insurance required by this Section 4.01(e) or adversely affect such insurance or the cost thereof (it being understood that all salvage rights to the Airframe and Engines shall remain with Borrower’s insurers).

(viii)Indemnification by Government in Lieu of Insurance.  Notwithstanding any provisions of this Section 4.01(e) requiring insurance, Security Trustee agrees to accept, in lieu of insurance against any risk with respect to the Aircraft, indemnification from, or insurance provided by, the United States government or any agency or instrumentality thereof the obligations of which are supported by the full faith and credit of the United States government, against such risk in an amount that, when added to the amount of insurance against such risk maintained by Borrower shall be at least equal to the amount of insurance against such risk otherwise required by this Section 4.01(e) (taking into account self-insurance permitted by Section 4.01(e)(vi) hereof).  Any such indemnification or insurance provided by the United States government or any agency or instrumentality thereof shall provide substantially similar protection as the insurance required by this Section 4.01(e).  Borrower shall furnish, in advance of attachment of such indemnity or insurance, a certificate of a Responsible Officer of Borrower confirming

in reasonable detail the amount and scope of such indemnification or insurance and that such indemnification or insurance complies with the preceding sentence.

(ix)Application of Payments During Existence of a Specified Default or an Event of Default.  Any amount referred to in this Section 4.01(e) that is payable to or retainable by Borrower shall not be paid to or retained by Borrower if at the time of such payment or retention a Specified Default or an Event of Default shall have occurred and be continuing, but shall be held by or paid over to Security Trustee as security for the obligations of Borrower under this Mortgage and, if an Event of Default shall have occurred and be continuing, applied against Borrower’s obligations hereunder as and when due.  At such time as there shall not be continuing any such Specified Default or Event of Default, such amount shall be paid to Borrower to the extent not previously applied in accordance with the preceding sentence.

(x)Terms of Insurance Policies.  Each policy carried in accordance with Sections 4.01(e)(i) and (e)(ii) hereof covering the Aircraft, and any policies taken out in substitution or replacement for any such policies, (A) shall in the case of liability insurance carried pursuant to Section 4.01(e)(i), including all war risk insurance as required by such section, name the Additional Insureds as additional insureds, and in the case of insurance carried pursuant to Sections 4.01(e)(i) and (e)(ii), name the Loss Payee as first loss payee (but without imposing on any such party liability to pay premiums, calls or other charges with respect to such insurance), (B) shall provide that if the insurers cancel such insurance for any reason whatever, or if the same is allowed to lapse for non-payment of premium or if any material change is made in the insurance that adversely affects the interest of any Additional Insured under this Agreement, such lapse, cancellation or change shall not be effective as to any Additional Insured for 30 days (seven days in the case of war risk and allied perils coverage) after receipt by the Insurance Broker of written notice by such insurers of such lapse, cancellation or change, (C) shall provide that the Additional Insureds shall have no liability for premiums, commissions, calls, assessments, warranties or representations to underwriters, or advances with respect to such policies, (D) shall provide that such insurance is primary without right of contribution, (E) shall provide that in respect of the respective interest of each Additional Insured under this Agreement in such policies the insurance shall not be invalidated by any action or inaction of Borrower or any other Person and shall insure the respective interests of the Additional Insureds, as they appear under this Agreement, regardless of any breach or violation of any representation, warranty, declaration or condition contained in such policies by Borrower or, in the case of an Additional Insured, the breach or violation by any other Additional Insured, (F) shall expressly provide that all of the provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured, (G) shall provide that the Additional Insured shall have no responsibility for premium and the insurers shall waive any right of set-off or counterclaim against the Additional Insureds except in respect of outstanding premium in respect of the Aircraft and shall waive any rights of subrogation against the Additional Insureds, (H) shall provide that (1) in the event of a loss involving the Aircraft, Airframe, or an Engine for which proceeds are in excess of $2,500,000, the proceeds in respect of such loss up to the amount of the then outstanding principal amount of the Notes plus all other amounts due to the Note Holders under the Operative Documents, together with accrued interest thereon shall be payable, to Security Trustee as loss payee; provided, that the application of such insurance proceeds shall be as provided in Section 4.01(e)(iii), with any amounts paid and held by Security Trustee for any period being subject to Section 3.07 hereof; provided, further, that in the case of any payment to Security Trustee otherwise than in respect of an Event of Loss, Security Trustee shall, upon receipt of evidence reasonably satisfactory to it that the damage giving rise to such payment has been repaired, pay the amount of such payment, and any interest or income earned thereon in accordance with Section 3.07 hereof, to Borrower or its order (provided, that Borrower may elect by written notice to Security Trustee to apply such insurance proceeds directly to the repair of the relevant Airframe or Engine, as the case may be), and (2) the entire amount of any such loss for which proceeds are $2,500,000 or less or the amount of any proceeds of any such loss in excess of the

then outstanding principal amount of the Notes, together with accrued interest thereon plus all other amounts due to the Note Holders under the Operative Documents shall be paid to Borrower or its order unless a Specified Default or an Event of Default shall have occurred and be continuing and the insurers have been notified thereof by Security Trustee, (I) shall specifically exclude coverage for any Additional Insured or Loss Payee with respect to any claim arising out of the legal liability of such Person as manufacturer, repairer, supplier or servicing agent of the Aircraft and shall not operate to prejudice the rights of recourse of the underwriters of such insurance against any such Additional Insured or Loss Payee where such rights of recourse would have existed had such exclusion not been effected under such policies, (J) shall be payable in Dollars, and (K) in the event the hull “all risks” and hull war risks policies are placed separately, shall contain AVS103 (or its equivalent) (being the current London market endorsement for such).

Notwithstanding the foregoing, in the event the insurance acquired by Borrower is subject to the AVN 67B endorsement, to the extent the terms of such endorsement conflict with the foregoing, the terms of AVN 67B shall apply.

(f)Inspection.  At all reasonable times prior to the termination of this Mortgage pursuant to Section 9.01 (but with respect to each Person, so long as no Default relating to the maintenance of the Aircraft or Event of Default shall have occurred and be continuing, no more than once in any twelve month period for such Person), the Lender may conduct an inspection of the Aircraft and any Engine and the books and records of Borrower relative thereto and to this Mortgage.  Such inspection of the Aircraft shall be limited to a visual, walk-around inspection which may include boarding the Aircraft, but shall not include opening any panels or bays (although those otherwise open may be inspected), and, so long as no Event of Default shall have occurred and be continuing, shall be conducted so as not to interfere with Borrower’s business or operation and maintenance of the Aircraft; provided, that the foregoing limitation regarding the opening of any panels or bays shall not apply with respect to Lender if an Event of Default has occurred and is continuing.  Upon the written request of Security Trustee, Borrower will use reasonable efforts to, but shall not be obligated to, give such Person notice of the next scheduled “C” check or other heavy maintenance visit with respect to the Aircraft or any Engine and afford such Person an opportunity to be present at the same (in exercise of its annual inspection right) without interfering in any material respect with the maintenance, operations or business of Borrower.  Borrower shall furnish Security Trustee or any Note Holder such additional information concerning the location, condition, use and operation of the Aircraft (including information normally maintained by Borrower regarding flight hours and cycles) as Security Trustee or any Note Holder may reasonably request, including the location of the Aircraft and the times and places of scheduled heavy maintenance.  Neither Security Trustee nor any Note Holder shall have any duty to make any such inspection and shall not incur any liability or obligation by reason of not making any such inspection.  Except for any inspection in connection with an existing Event of Default, Security Trustee or such Note Holder shall be responsible for costs incurred with respect to any inspection of the Aircraft.

SECTION 4.02.  Event of Default.  “Event of Default” means the occurrence of any of the following events (whatever the reason for such Event of Default and whether such event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administration or governmental body):

(a)the failure of Borrower to pay to Security Trustee when due any payment of principal of, or interest on, any Note and such failure shall have continued unremedied for 5 Business Days, or the failure of Borrower to pay to Security Trustee or any other intended recipient when due any other amount due and payable hereunder, or under any Note or the Loan Agreement, and such failure shall have continued unremedied for 10 Business Days after written notice of such failure to Borrower; or

(b)Borrower shall fail to carry and maintain on or with respect to the Aircraft (or cause to be carried and maintained) insurance required to be maintained in accordance with the provisions of Section 4.01(e) hereof; or

(c)Borrower or Guarantor shall have failed to perform or observe (or caused to be performed and observed) in any material respect any other covenant or agreement to be performed or observed by it under any Operative Document, and such failure shall continue unremedied for a period of 30 days after written notice thereof by Security Trustee or any Note Holder; provided, however, that if Borrower shall have undertaken to cure any such failure relating to maintenance, service, repair, overhaul or modifications, and notwithstanding the reasonable diligence of Borrower in attempting to cure such failure, such failure is not cured within such 30 day period but is curable with future due diligence, there shall exist no Event of Default under this Section 4.02(c) so long as Borrower is proceeding with due diligence to cure such failure and shall in fact cure such failure within 150 days following such notice; or

(d)any representation or warranty made by Borrower herein or in any other Operative Document or any document or certificate furnished by Borrower or Guarantor in connection herewith or therewith or pursuant hereto or thereto shall prove to have been incorrect in any material respect at the time made, and shall continue uncured (together with any adverse consequence thereof) for a period of 30 days after the receipt by Borrower of a written notice from Security Trustee or any Note Holder advising Borrower of the existence of such incorrectness;

(e)Borrower shall not be a Certificated Air Carrier;

(f)Guarantor shall fail to observe any covenant regarding the transfer or assignment of the Guaranty contained in Section 5(i) of the Loan Agreement and such failure shall continue uncured for a period of 15 days after written notice from Security Trustee or any Note Holder, or the Guaranty shall be repudiated by Guarantor or shall otherwise cease to be in full force and effect; or

(g)the commencement of an involuntary case or other proceeding in respect of Borrower or Guarantor in an involuntary case under the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law in the United States or seeking the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of Borrower or Guarantor or for all or substantially all of its property, or seeking the winding-up or liquidation of its affairs and the continuation of any such case or other proceeding undismissed or unstayed for a period of 60 consecutive days or an order for relief under Chapter 11 of the Bankruptcy Code with respect to Borrower or Guarantor as debtor or any other order, judgment or decree shall be entered in any proceeding by any court of competent jurisdiction appointing, without the consent of Borrower, a receiver, trustee or liquidator of Borrower or Guarantor, or for all or substantially all of its property, or sequestering of all or substantially all of the property of Borrower or Guarantor and any such order, judgment, decree, appointment or sequestration shall be final or shall remain in force undismissed, unstayed or unvacated for a period of 60 consecutive days after the date of entry thereof; or

(g)the commencement by Borrower or Guarantor of a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy, insolvency or other similar law in the United States, or the consent by Borrower or Guarantor to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of Borrower or Guarantor or for all or substantially all of its property, or the making by Borrower or Guarantor of any assignment for the benefit of creditors or Borrower or Guarantor shall take any corporate action to authorize any of the foregoing; or

(h)one or more final judgment(s) is/are rendered by one or more court(s) of competent jurisdiction against Borrower or Guarantor for a total of more than $20 million (of if greater 20% of Borrower’s Tangible Net Worth as of the date of Borrower’s then most recent quarterly or annual financial statements), excluding any amount insured by a solvent insurer who has admitted coverage for the underlying claim(s), and such judgment(s) is/are not stayed or discharged, or fully bonded again, within 30 days of the date of entry.

SECTION 4.03.  Remedies.  If an Event of Default shall have occurred and be continuing, Security Trustee may, consistent with applicable laws, do any of the following:

(a)Security Trustee may, at the direction of a Majority in Interest of Note Holders, by notice in writing to the Borrower, declare the entire unpaid balance of the Notes to be immediately due and payable (or, if an Event of Default of the type described in Section 4.02(f) or (g) shall have occurred and be continuing, the Notes shall automatically be immediately due and payable); and thereupon all such unpaid balance, together with all accrued interest thereon and Breakage Amount, if any, together with all other amounts due hereunder and under the Notes and the Operative Documents shall be and become immediately due and payable without presentment, demand, protest or notice, all of which are hereby waived;

(b)Upon the written demand of Security Trustee and at the Borrower’s expense, the Borrower shall promptly deliver possession of the Airframe or any Engine and/or the records, logs and other documents at any time maintained and retained with respect thereto as Security Trustee may so demand to Security Trustee or its order in the manner and condition required by, and otherwise in accordance with all the provisions of, this Mortgage, or Security Trustee at its option may enter upon the premises where all or any part of the Airframe or any Engine is located and take immediate possession of and remove the same by summary proceedings or otherwise (and at Security Trustee’s option, store the same at the Borrower’s premises until disposal thereof by Security Trustee), all without liability accruing to Security Trustee (other than that caused by Security Trustee’s willful misconduct or gross negligence) for or by reason of such entry or taking of possession or removing whether for the restoration of damage to property caused by such action or otherwise.  The Borrower shall, at the request of Security Trustee, promptly execute and deliver to Security Trustee such instruments or other documents as Security Trustee may deem necessary or advisable to enable Security Trustee or an agent or representative designated by Security Trustee, at such time or times and place or places as Security Trustee may specify, to obtain possession of all or any part of the Mortgage Estate the possession of which Security Trustee shall at the time be entitled to hereunder;

(c)To the extent applicable, Security Trustee shall have the rights and remedies of a secured party under the Uniform Commercial Code as enacted in any jurisdiction in which any of the Mortgage Estate may be located and, in any case, Security Trustee may immediately, directly or by such agent as it may appoint, without demand of performance and (to the extent permitted by applicable laws) without notice of intention to sell or of time or place of sale or of redemption or other notice or demand whatsoever to the Borrower, all of which are hereby expressly waived and without advertisement, sell at public or private sale or otherwise realize upon the whole, or from time to time any part, of the Mortgage Estate. If notice of any sale or other disposition is required by law to be given, the Borrower hereby agrees that a notice sent at least fifteen (15) days before the time of any intended public sale, or of the time after which any private sale or other disposition of the Mortgage Estate is to be made, shall be reasonable notice of such sale or other disposition;

(d)Security Trustee may, either after entry or without entry, proceed by suit or suits at law or in equity to foreclose this Mortgage and to sell at public or private sale in connection therewith all or, from time to time, any part of the Mortgage Estate;

(e)Security Trustee may hold, use, operate, lease to others or keep idle the Aircraft, Airframe or any Engines as Security Trustee in its sole discretion may determine, all free and clear of any rights of the Borrower, and without any duty to account to the Borrower with respect to such action or inaction or for any proceeds with respect thereto;

(f)Security Trustee may commence legal proceedings for the appointment of a receiver or receivers (to which Security Trustee shall be entitled as a matter of right) to take possession of the Mortgage Estate pending the sale thereof pursuant either to the power of sale given in this Section 4.03 or to a judgment, order or decree made in any judicial proceeding for the foreclosure or involving the enforcement of this Mortgage;

(g)Security Trustee may either directly or by such agent as it may appoint or by means of a receiver appointed by a court therefor, enter upon the premises of the Borrower, and any other premises where any of the Mortgage Estate may be located, exclude the Borrower and all other Persons therefrom and take immediate possession of the Mortgage Estate, using all necessary force to do so;

(h)[intentionally omitted]

(i)Upon every taking of possession pursuant to this Section 4.03, Security Trustee may, from time to time, make all such expenditures for maintenance, insurance, repairs, replacements, alterations, additions and improvements to and of the Mortgage Estate as Security Trustee may deem proper.  In each such case, Security Trustee shall have the right to hold, use, operate, store, lease, control or manage the Mortgage Estate, and to exercise all rights and powers of Borrower relating to the Mortgage Estate as Security Trustee shall deem appropriate, including the right to enter into any and all such agreements with respect to the use, operation, storage, leasing, control or management of any of the Mortgage Estate.  The Borrower shall promptly, upon demand therefor, reimburse the Security Trustee for the amount of any expenditures, plus interest at the Past Due Rate, made pursuant to this Section 4.03(i);

(j)Security Trustee may (A) assert all claims for damages in respect of the Aircraft or any Engine, arising as a result of any default by the Engine Manufacturer or the Manufacturer in respect of the Warranties, and (B) exercise any and all rights of Borrower to compel performance of the terms of the Engine Warranties or the Aircraft Warranties, as the case may be; or

(k)Security Trustee shall have, and may exercise, in addition to the aforesaid rights and remedies, all other rights and remedies available hereunder, at law or in equity, or by statute, each of which may be exercised singly or concurrently with any one or more other rights or remedies.

SECTION 4.04.  Remedies Cumulative.  Each and every right, power and remedy given to Security Trustee specifically or otherwise in this Mortgage shall be cumulative and shall be in addition to every other right, power and remedy herein specifically given or now or hereafter existing at law, in equity or by statute, and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and as often and in such order as may be deemed expedient by Security Trustee, and the exercise or the beginning of the exercise of any power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any other right, power or remedy.  No delay or omission by Security Trustee in the exercise of any right, remedy or power

or in the pursuit of any remedy shall impair any such right, power or remedy or be construed to be a waiver of any default on the part of Borrower or to be an acquiescence therein.

SECTION 4.05.  Discontinuance of Proceedings.  In case Security Trustee shall have instituted any proceeding to enforce any right, power or remedy under this Mortgage by foreclosure, entry or otherwise, and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to Security Trustee, then and in every such case, Security Trustee and Borrower shall, subject to any determination in such proceedings, be restored to their former positions and rights hereunder with respect to the Mortgage Estate, and all rights, remedies and powers of Security Trustee shall continue as if no such proceedings had been instituted.

SECTION 4.06.  Waiver of Past Defaults.  Upon written instructions from a Majority in Interest of Note Holders, Security Trustee shall waive any past Default or Event of Default hereunder and its consequences and, upon any such waiver, such Default or Event of Default shall cease to exist and any Default or Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Mortgage, but no such waiver shall extend to any subsequent or other Default Event of Default or impair any right consequent thereon; provided, however, that in the absence of written instructions from all Note Holders, Security Trustee shall not waive any Default or Event of Default (i) in the payment of the principal of, or interest on, or other amounts due under, any Note then outstanding, or (ii) in respect of a covenant or provision hereof which, under the proviso to the first sentence of Section 8.01 or under the last sentence of Section 8.01, cannot be waived without the consent of each Note Holder.

SECTION 4.07.  Engine Warranties and Aircraft Warranties.  Effective at any time after an Event of Default has occurred, and for so long as such Event of Default is continuing and thereafter until the Engine Manufacturer or the Manufacturer, as the case may be, shall have received notice from Security Trustee that all Events of Default have been cured or waived (which Security Trustee hereby agrees promptly to give upon such cure or waiver), Borrower does hereby constitute Security Trustee, its corporate successors and permitted assigns, Borrower’s true and lawful attorney, irrevocably, with full power (in the name of Borrower or otherwise) to ask, require, demand, receive, compromise and give acquittance for any and all monies and claims for monies due and to become due under, or arising out of, the Engine Warranties in respect of any Engine or the Aircraft Warranties in respect of the Aircraft, for such period as Security Trustee may exercise rights with respect thereto under this Mortgage, to endorse any checks or other instruments or orders in connection therewith and to file any claims or take any action or institute (or, if previously commenced, assume control of) any proceedings and to obtain any recovery in connection therewith that Security Trustee may reasonably deem to be necessary or advisable with respect to such monies and claims for monies.  Security Trustee confirms expressly for the benefit of the Engine Manufacturer and the Manufacturer that, in exercising any rights in and to the Warranties as granted herein, or in making any claim with respect thereto, the applicable terms and conditions of the Warranties shall apply to, and be binding upon, Security Trustee to the same extent as Borrower.  For purposes of Section 4.03, the Engine Manufacturer shall not be deemed to have knowledge of and need not recognize the occurrence, the continuance or the discontinuance of any Event of Default, unless and until the Engine Manufacturer shall have received from Security Trustee written notice thereof addressed to the Engine Manufacturer’s Manager of Contracts, G.E. Aircraft Engines, 1000 Western Avenue, Lynn, Massachusetts, 01910; and the Manufacturer shall not be deemed to have knowledge of and need not recognize the occurrence, the continuance or the discontinuance of any Event of Default, unless and until the Manufacturer shall have received from Security Trustee written notice thereof addressed to the Manufacturer, Attention: Director, Contracts Regional Jet, Bombardier, Inc. Bombardier Regional Aircraft Division, 123 Garratt Boulevard, Downsview, Ontario, Canada M3K 1Y5.  So long as the Engine Manufacturer and the Manufacturer act in good faith in accordance with this Mortgage, the Engine Manufacturer and the Manufacturer may rely conclusively on any notice of the occurrence and

continuance of an Event of Default given by Security Trustee hereunder without inquiring as to the accuracy of, or the entitlement of Security Trustee to give, such notice.

ARTICLE V

DUTIES OF SECURITY TRUSTEE

SECTION 5.01.  Notices.  (a) Notice of Event of Default.  If Security Trustee shall have knowledge of a Default or of an Event of Default arising from a failure to pay any amount of principal and interest due and owing, Security Trustee shall forthwith give telephone notice thereof to Borrower and the Note Holders (promptly confirmed by facsimile to such Persons not later than one Business Day thereafter).  Subject to Sections 4.06 and 5.03, Security Trustee shall take such action, or refrain from taking such action, with respect to any such Event of Default (including with respect to the exercise of any rights or remedies hereunder) as Security Trustee shall be instructed in writing by the Majority in Interest of Note Holders.  Subject to the provisions of Section 5.03, if Security Trustee shall not have received instructions as above provided within 20 calendar days after notice of such Event of Default to the Note Holders, Security Trustee may, subject to instructions thereafter received pursuant to the preceding provisions of this Section 5.01, take such action, or refrain from taking such action, but shall be under no duty to take or refrain from taking any action, with respect to any such Event of Default as it shall be directed by the Majority in Interest of Note Holders.  In the event Security Trustee shall at any time commence to foreclose or otherwise enforce the Lien of this Mortgage, Security Trustee shall forthwith notify the Note Holders and Borrower.  For all purposes of this Mortgage, in the absence of actual knowledge on the part of an officer in its offices, in the case of Security Trustee, Security Trustee shall not be deemed to have knowledge of any Default or any Event of Default (except, upon the failure of Borrower to make scheduled payments of principal and interest on the Payment Date, which failure shall constitute knowledge of a Default) unless notified in writing by Borrower or one or more Note Holders.  This Section 5.01, however, is subject to the condition that, if at any time after the principal of the Notes shall have become due and payable pursuant to Section 4.03 and before any judgment or decree for the payment of the money so due, or any thereof, shall be entered, all overdue payments of interest upon the Notes and all other amounts payable under the Notes (except the principal of the Notes which by such declaration shall have become payable) shall have been duly paid, and every other Default and Event of Default with respect to any covenant or provision of this Mortgage shall have been cured, then and in every such case a Majority in Interest of Note Holders may (but shall not be obligated to), by written instrument filed with Security Trustee, rescind and annul such acceleration and its consequences; but no such rescission or annulment shall extend to or affect any subsequent Default or Event of Default or impair any right consequent thereon.

(b)Other Notices.  Security Trustee will furnish to each Note Holder promptly upon receipt thereof, duplicates or copies of all reports, notices, requests, demands, certificates, financial statements and other instruments furnished to Security Trustee under any Operative Document to the extent the same shall not have been otherwise directly distributed to the Note Holders pursuant to the express provision of any other Operative Document.

SECTION 5.02.  Action Upon Instructions.  Subject to the terms of Sections 5.01 and 5.03, upon the written instructions at any time and from time to time of a Majority in Interest of Note Holders, Security Trustee shall take such of the following actions as may be specified in such instructions:  (i) exercise such election or option, or make such decision or determination, or give such notice, consent, waiver or approval or exercise such right, remedy or power or take such other action hereunder or under any other Operative Document or in respect of any part or all of the Mortgage Estate as shall be specified in such instructions; (ii) take such action with respect to, or to preserve or protect, the Mortgage Estate (including the discharge of Liens) as shall be specified in such instructions and as are consistent with this Mortgage; and (iii) take such other action in respect of the subject matter of this Mortgage pursuant to the

terms hereof.  Security Trustee will execute and Borrower will file or cause to be filed such continuation statements with respect to financing statements relating to the security interest created hereunder in the Mortgage Estate as may be specified from time to time in written instructions of a Majority in Interest of Note Holders (which instructions may, by their terms, be operative only at a future date and which shall be accompanied by the execution form of such continuation statement so to be filed).

SECTION 5.03.  Indemnification.  Security Trustee shall not be required to take any action or refrain from taking any action hereunder (other than under the first sentence of Section 5.01) unless Security Trustee shall have been indemnified by the Note Holders against any liability, cost or expense (including counsel fees) which may be incurred in connection therewith.  Security Trustee shall not be under any obligation to take any action under this Mortgage and nothing in this Mortgage contained shall require Security Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.  Security Trustee shall not be required to take any action hereunder (other than under the first sentence of Section 5.01), nor shall any other provision of this Mortgage be deemed to impose a duty on Security Trustee to take any action, if Security Trustee shall have been advised by counsel that such action is contrary to the terms hereof or is otherwise contrary to law.

SECTION 5.04  No Duties Except as Specified in Mortgage or Instructions.  Security Trustee shall not have any duty or obligation to use, operate, store, lease, control, manage, sell, dispose of or otherwise deal with the Aircraft or any other part of the Mortgage Estate, or to otherwise take or refrain from taking any action under, or in connection with, this Mortgage or any part of the Mortgage Estate, except as expressly provided by the terms of this Mortgage or as expressly provided in written instructions from Note Holders as provided in this Mortgage; and no implied duties or obligations shall be read into this Mortgage against Security Trustee.  Security Trustee agrees that it will, in its individual capacity and at its own cost and expense (but without any right of indemnity in respect of any such cost or expense) promptly take such action as may be necessary to duly discharge all Liens on any part of the Mortgage Estate which result from claims against it in its individual capacity (i) resulting from any breach of any representation, warranty or covenant made by Security Trustee in its individual capacity contained in the Operative Documents or (ii) not related to the mortgaging to it of the Aircraft or the administration of the Mortgage Estate or any other transaction contemplated by or pursuant to the Loan Agreement or any document included in the Mortgage Estate.

SECTION 5.05.  No Action Except Under Operative Documents or Instructions.  Borrower and Security Trustee agree that they will not use, operate, store, lease, control, manage, sell, dispose of or otherwise deal with the Aircraft or any other part of the Mortgage Estate except (i) in accordance with the terms of the Operative Documents, or (ii) in accordance with the powers granted or reserved to, or the authority conferred upon, Borrower and Security Trustee pursuant to this Mortgage and in accordance with the express terms hereof.

SECTION 5.06.  Replacement Airframes and Replacement Engines.  At any time and from time to time, any Airframe or Engine which has been (or is to be treated as if the same had been) subject to an Event of Loss and may be replaced under Section 4.01(d)(i) or (d)(ii) hereof by a Replacement Airframe or Replacement Engine, as the case may be, shall be replaced in accordance with the provisions of this Section 5.06 and Section 4.01(d), and Borrower shall, from time to time, direct Security Trustee to execute and deliver to or as directed in writing by Borrower an appropriate instrument releasing such Airframe and/or Engine, as appropriate, from the Lien of this Mortgage and Security Trustee shall execute and deliver such instrument as aforesaid, but only upon receipt by or deposit with Security Trustee of the following:

(a)A written request from Borrower, requesting such release and specifically describing the Airframe and/or Engine(s) so to be released.

(b)A certificate signed by a Responsible Officer of Borrower stating the following:

(1)With respect to the replacement of any Airframe:

(i)a description of the Airframe subject to replacement, which shall be identified by manufacturer, model, FAA registration number and manufacturer’s serial number;

(ii)a description of the Replacement Airframe (including the manufacturer, model, FAA registration number and manufacturer’s serial number) to be received as consideration for the Airframe to be released;

(iii)that on the date of the Mortgage Supplement relating to the Replacement Airframe Borrower will be the legal owner of such Replacement Airframe free and clear of all Liens (except the Lien of this Mortgage), and that such Replacement Airframe has been or, substantially concurrently with such replacement, is in the process of being duly registered in the name of Borrower under Chapter 441 of the Transportation Code (or under the appropriate foreign aviation authority) and that an airworthiness certificate has been duly issued under Chapter 447 of the Transportation Code (or under the appropriate foreign aviation authority) with respect to such Replacement Airframe, and that such registration and certificate is in full force and effect, and that Borrower will have the full right and authority to use such Replacement Airframe;

(iv)that the insurance required by Section 4.01(e) hereof is in full force and effect with respect to such Replacement Airframe and all premiums then due thereon have been paid in full;

(v)that no Specified Default or Event of Default has occurred and is continuing or would result from the making and granting of the request for release and the addition of such Replacement Airframe;

(vi)that the release of the Airframe so to be released will not impair the security of the Mortgage or be in contravention of any of the provisions hereof; and

(vii)that each of the conditions specified in Section 4.01(d)(i) hereof with respect to such Replacement Airframe have been satisfied.

(2)With respect to the replacement of any Engine:

(i)a description of the Engine subject to replacement which shall be identified by manufacturer’s name and serial number;

(ii)a description of the Replacement Engine (including the manufacturer’s name and serial number) to be received as consideration for the Engine to be released;

(iii)that on the date of the Mortgage Supplement relating to the Replacement Engine Borrower will be the legal owner of such Replacement Engine free and clear of all Liens except the Lien of this Mortgage;

(iv)that no Event of Default has occurred and is continuing or would result from the making and granting of the request for release and the addition of such Replacement Engine;

(v)that the release of the Engine so to be released will not impair the security of the Mortgage or be in contravention of any of the provisions hereof; and

(vi)that each of the conditions specified in Section 4.01(d)(ii) hereof with respect to such Replacement Engine have been satisfied.

(c)The appropriate instruments (i) assigning to Security Trustee the benefit of all manufacturer’s and vendor’s warranties, if any, generally available with respect to such Replacement Airframe or Replacement Engine; and (ii) a Mortgage Supplement subjecting such Replacement Airframe or Replacement Engine to the Lien of this Mortgage.

(d)With respect to (i) a Replacement Airframe, a certificate from a firm of nationally recognized independent aircraft appraisers selected by the Security Trustee and satisfactory to a Majority in Interest of Note Holders confirming the value, condition, utility, airworthiness and remaining economic useful life as required by Section 4.01(d) hereof, or (ii) a Replacement Engine, other than a General Electric Model CF34-3B1, a certificate from a firm of nationally recognized independent aircraft appraisers selected by the Security Trustee and satisfactory to a Majority in Interest of Note Holders or a qualified engineer (which engineer may be an employee of Borrower reasonably satisfactory to a Majority in Interest of Note Holders) confirming the value, condition, utility, airworthiness and remaining economic useful life as required for an Acceptable Alternate Engine.

(e)The opinion of counsel to Borrower, reasonably satisfactory to Security Trustee, stating that:

(1)the certificates, opinions and other instruments and/or property which have been or are therewith delivered to and deposited with Security Trustee conform to the requirements of this Mortgage and, upon the basis of such application, the property so sold or disposed of may be lawfully released from the Lien of this Mortgage and, to its knowledge, all conditions precedent herein provided for relating to such release have been complied with; and

(2)the Replacement Airframe or Replacement Engine has been validly subjected to the Lien of this Mortgage, the instruments subjecting such Replacement Airframe or Replacement Engine to the Lien of this Mortgage have been duly filed for recordation pursuant to the Act, and no further action, filing or recording of any document is necessary or advisable in order to establish and perfect the title of Borrower to and the Lien of this Mortgage on such Replacement Aircraft or Replacement Engine and, as to any such Replacement Airframe and associated Replacement Engines, that Borrower and Security Trustee shall be entitled to the benefits of Section 1110 of Bankruptcy Code with respect thereto to the same extent as immediately prior to such replacement.

(f)Borrower shall pay all reasonable costs associated with the matters set forth in this Section 5.06.

SECTION 5.07.  Mortgage Supplements for Replacements.  In the event of a Replacement Airframe or Replacement Engine being substituted as contemplated by Sections 4.01(d)(i) or (d)(ii) hereof, Security Trustee agrees for the benefit of the Note Holders, subject to fulfillment of the conditions precedent and compliance by Borrower with its obligations set forth in Sections 4.01(d)(i) or (d)(ii) hereof, to execute and deliver a Mortgage Supplement with respect thereto as contemplated by Section 5.06(c), and provided no Default or Event of Default shall have occurred and be continuing, to execute and deliver to Borrower an appropriate instrument releasing the Airframe or Engine being replaced from the Lien of the Mortgage.

SECTION 5.08.  Effect of Replacement.  In the event of the substitution of a Replacement Airframe or Replacement Engine as contemplated herein, all provisions of this Mortgage relating to the Airframe or Engine or Engines being replaced shall be applicable to such Replacement Airframe or Replacement Engine or Replacement Engines with the same force and effect as if such Replacement Airframe or Replacement Engine or Replacement Engines were the same airframe or engine or engines, as the case may be, as the Airframe or Engine or Engines being replaced but for the Event of Loss with respect to the Airframe or Engine or Engines being replaced.

ARTICLE VI

SECURITY TRUSTEE

SECTION 6.01.  Acceptance of Trusts and Duties.  Security Trustee accepts the duties hereby created and applicable to it and agrees to perform the same but only upon the terms of this Mortgage and agrees to receive and disburse all monies constituting part of the Mortgage Estate in accordance with the terms hereof.  Security Trustee, in its individual capacity, shall not be answerable or accountable under any circumstances, except (a) for its own willful misconduct or gross negligence, (b) as provided in Section 2.04 or the last sentence of Section 5.04, (c) negligence in the handling or distribution of funds and (d) for liabilities that may result from the inaccuracy or nonperformance of any representation or warranty or covenant of Security Trustee made in its individual capacity in the Loan Agreement or this Mortgage.

SECTION 6.02.  Absence of Duties.  Except in accordance with written instructions furnished pursuant to Section 5.01 or 5.02, and except as provided in, and without limiting the generality of, Sections 5.03 and 5.04, Security Trustee shall have no duty (i) to see to any registration of the Aircraft or any recording or filing of this Mortgage or any other document, financing statement, Tax filing or other filing, or to see to the maintenance of any such registration, recording or filing, (ii) to see to any insurance, whether or not Borrower shall be in default with respect thereto, (iii) to see to the payment or discharge of any Lien of any kind against any part of the Mortgage Estate, (iv) to confirm, verify or inquire into the failure to receive any financial statements of Borrower, (v) to inspect the Aircraft at any time or ascertain or inquire as to the performance or observance of any of Borrower’s covenants hereunder with respect to the Aircraft, or (vi) to otherwise deal with the Aircraft or the Mortgage Estate.  Except as expressly otherwise herein or in the Loan Agreement, the Note Holders shall not have any duty or responsibility hereunder, including, without limitation, any of the duties mentioned in clauses (i) through (vi) above.

SECTION 6.03.  No Representations or Warranties as to Aircraft or Documents.  SECURITY TRUSTEE (INCLUDING IN ITS INDIVIDUAL CAPACITY) DOES NOT MAKE AND SHALL NOT BE DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, VALUE, COMPLIANCE WITH SPECIFICATIONS, CONDITION, DESIGN, QUALITY, DURABILITY, OPERATION, MERCHANTABILITY, CONSTRUCTION, PERFORMANCE OR FITNESS FOR USE OR PURPOSE OF THE AIRCRAFT OR ANY PART THEREOF, AS TO THE ABSENCE OF LATENT OR OTHER

DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE AIRCRAFT OR ANY PART THEREOF OR ANY OTHER REPRESENTATION OR WARRANTY WITH RESPECT TO THE AIRCRAFT OR ANY PART THEREOF WHATSOEVER.  Security Trustee in its individual capacity does not make and shall not be deemed to have made any representation or warranty as to the validity, legality or enforceability of this Mortgage, the Notes or any other Operative Document or as to the correctness of any statement contained in any thereof, except for the representations and warranties of Security Trustee made in its respective individual capacities under this Mortgage or in the Loan Agreement.  The Note Holders make no representation or warranty hereunder whatsoever.

SECTION 6.04.  No Segregation of Monies; No Interest.  Any monies paid to or retained by Security Trustee pursuant to any provision hereof and not then required to be distributed to any Note Holder or Borrower as provided in Article III need not be segregated in any manner except to the extent required by applicable law, and may be deposited under such general conditions as may be prescribed by applicable law, and Security Trustee shall not (except as otherwise provided in Section 3.07) be liable for any interest thereon, provided that any payments received or applied hereunder by Security Trustee shall be accounted for by the Security Trustee so that any portion thereof paid or applied pursuant hereto shall be identifiable as to the source thereof.

SECTION 6.05.  Reliance; Agents; Advice of Counsel.  Security Trustee shall not incur liability to anyone in acting upon any signature, instrument, notice, resolution, request, consent, order, certificate, report, opinion, bond or other document or paper believed by it to be genuine and believed by it to be signed by the proper party or parties.  Security Trustee may accept a copy of a resolution of the Board of Directors of any party to the Loan Agreement, certified by the Secretary or an Assistant Secretary thereof as duly adopted and in full force and effect, as conclusive evidence that such resolution has been duly adopted and that the same is in full force and effect.  As to any fact or matter relating to Borrower the manner of ascertainment of which is not specifically described herein, Security Trustee may for all purposes hereof rely on a certificate, signed by a duly authorized officer of Borrower, as to such fact or matter, and such certificate shall constitute full protection to Security Trustee for any action taken or omitted to be taken by them in good faith in reliance thereon.  Security Trustee shall assume, and shall be fully protected in assuming, that Borrower is authorized to enter into this Mortgage and to take all action to be taken by it pursuant to the provisions hereof, and shall not inquire into the authorization of Borrower with respect thereto.  In the administration of the trust hereunder, Security Trustee may execute any of the trusts or powers hereof and perform its powers and duties hereunder directly or through agents or attorneys and may, at the expense of the Mortgage Estate, consult with counsel, accountants and other skilled persons to be selected and retained by it, and Security Trustee shall not be liable for anything done, suffered or omitted in good faith by them in accordance with the written advice or written opinion of any such counsel, accountants or other skilled persons.

SECTION 6.06.  Capacity in Which Acting.  Security Trustee acts hereunder solely as trustee herein and not in its individual capacity, except as otherwise expressly provided in the Operative Documents.

SECTION 6.07.  Compensation.  Security Trustee shall be entitled to compensation, if any, as set forth in a separate fee agreement with Lender, including expenses and disbursements (including the reasonable compensation and the expenses and disbursements of its agents and counsel), for all services rendered hereunder.

SECTION 6.08.  May Become Note Holder.  The institution acting as Security Trustee hereunder may become a Note Holder and have all rights and benefits of a Note Holder to the same extent as if it were not the institution acting as Security Trustee.

SECTION 6.09.  Further Assurances; Financing Statements.  At any time and from time to time, upon the request of Security Trustee (acting upon request of the Note Holders), Borrower shall promptly and duly execute and deliver any and all such further instruments and documents as may be specified in such request and as are necessary or desirable to perfect, preserve or protect the mortgage, security interests and assignments created or intended to be created hereby, or to obtain for Security Trustee the full benefit of the specific rights and powers herein granted, including, without limitation, the execution and delivery of Uniform Commercial Code financing statements and continuation statements with respect thereto, or similar instruments relating to the perfection of the mortgage, security interests or assignments created or intended to be created hereby.

ARTICLE VII

SUCCESSOR TRUSTEES; SEPARATE TRUSTEES

SECTION 7.01.  Resignation of Security Trustee; Appointment of Successor.  (a) Security Trustee or any successor thereto may resign at any time without cause by giving at least 30 calendar days’ prior written notice to Borrower and each Note Holder, such resignation to be effective upon the acceptance of the trusteeship by a successor Security Trustee.  In addition, (A) a Majority in Interest of Note Holders may at any time remove Security Trustee without cause by an instrument in writing delivered to Borrower and Security Trustee and (B) Borrower may, so long as no Specified Default or Event of Default shall be continuing, remove Security Trustee at any time to avoid or mitigate an indemnity obligation of Borrower owed to Security Trustee by an instrument in writing delivered to Security Trustee.  Borrower, in the case of either (A) or (B) of the immediately preceding sentence, shall promptly notify each Note Holder thereof in writing, such removal to be effective upon the acceptance of the trusteeship by a successor Security Trustee.  In the case of the resignation or removal of Security Trustee, a Majority in Interest of Note Holders may appoint a successor Security Trustee by an instrument signed by such Note Holders.  If a successor Security Trustee shall not have been appointed within 30 calendar days after such notice of resignation or removal, Security Trustee, Borrower or any Note Holder may apply to any court of competent jurisdiction to appoint a successor Security Trustee to act until such time, if any, as a successor shall have been appointed as above provided.  The successor Security Trustee so appointed by such court shall immediately and without further act be superseded by any successor Security Trustee appointed as above provided within one year from the date of the appointment by such court.

(b)Any successor Security Trustee, however appointed, shall execute and deliver to Borrower and to the predecessor Security Trustee an instrument accepting such appointment, and thereupon such successor Security Trustee, without further act, shall become vested with all the estates, properties, rights, powers and duties of the predecessor Security Trustee hereunder in the trusts hereunder applicable to it with like effect as if originally named Security Trustee herein; but nevertheless upon the written request of such successor Security Trustee, such predecessor Security Trustee shall execute and deliver an instrument transferring to such successor Security Trustee, upon the trusts herein expressed applicable to it, all the estates, properties, rights and powers of such predecessor Security Trustee, and such predecessor Security Trustee shall duly assign, transfer, deliver and pay over to such successor Security Trustee all monies or other property then held by such predecessor Security Trustee hereunder.

(c)Any successor Security Trustee, however appointed, shall be a United States Person and shall also be a bank or trust company having a combined capital and surplus of at least

$100,000,000, if there be such an institution willing, able and legally qualified to perform the duties of Security Trustee hereunder upon reasonable or customary terms.

(d)Any corporation into which Security Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which Security Trustee shall be a party, or any corporation to which substantially all the corporate trust business of Security Trustee may be transferred, shall, subject to the terms of paragraph (c) of this Section, be Security Trustee under this Mortgage without further act.

SECTION 7.02.  Appointment of Separate Trustees.  (a) At any time or times, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Mortgage Estate may at the time be located or in which any action of Security Trustee may be required to be performed or taken or if Security Trustee shall be advised by counsel satisfactory to it that it is so necessary or prudent in the interests of the Note Holders, or in the event Security Trustee shall have been requested to do so by a Majority in Interest of Note Holders, Security Trustee, by an instrument in writing signed by it, and without the concurrence of Borrower, may appoint one or more individuals or corporations to act as separate trustee or separate trustees or co-trustee, acting jointly with Security Trustee, or to act as separate trustee or trustees of all or any part of the Mortgage Estate with such powers as may be provided in an agreement supplemental hereto.

(b)Security Trustee and, at the request of Security Trustee, Borrower, shall execute, acknowledge and deliver all such instruments as may be required by the legal requirements of any jurisdiction or by any such separate trustee or separate trustees or co-trustee for the purpose of more fully confirming such title, rights or duties to such separate trustee or separate trustees or co-trustee and Borrower hereby makes, constitutes and appoints Security Trustee its agent and attorney-in-fact for it and in its name, place and stead to execute, acknowledge and deliver the same in the event that Borrower shall not itself execute and deliver the same within 20 days after receipt by it of such request so to do.  Upon the acceptance in writing of such appointment by any such separate trustee or separate trustees or co-trustee, it, he or they shall be vested with such title to the Mortgage Estate or any part thereof, and with such rights and duties, as shall be specified in the instrument of appointment, jointly with Security Trustee (except insofar as local law makes it necessary for any such separate trustee or separate trustees or co-trustee to act alone) subject to all the terms of this Mortgage.  Any separate trustee or separate trustees or co-trustee may, at any time by an instrument in writing, constitute Security Trustee its or his attorney-in-fact and agent with full power and authority to do all acts and things and to exercise all discretion on its or his behalf and in its or his name.  In case any such separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, the title to the Mortgage Estate and all assets, property, rights, powers, trusts, obligations and duties of such separate trustee or co-trustee shall, so far as permitted by law, vest in and be exercised by Security Trustee, without the appointment of a successor to such separate trustee or co-trustee unless and until a successor is appointed.

(c)All provisions of this Mortgage which are for the benefit of Security Trustee shall extend to and apply to each separate trustee or co-trustee appointed pursuant to the foregoing provisions of this Section 7.02.

(d)Every separate trustee and co-trustee hereunder shall, to the extent permitted by law, be appointed and act and Security Trustee shall act, subject to the following provisions and conditions:

(i)all powers, duties, obligations and rights conferred upon Security Trustee in respect of the receipt, custody, investment and payment of monies shall be exercised solely by Security Trustee;

(ii)all other rights, powers, duties and obligations conferred or imposed upon Security Trustee shall be conferred or imposed upon and exercised or performed by Security Trustee and such separate trustee or separate trustees or co-trustee jointly except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed, Security Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Mortgage Estate in any such jurisdiction) shall be exercised and performed by such separate trustee or separate trustees or co-trustee;

(iii)no power hereby given to, or with respect to which it is hereby provided may be exercised by, any such separate trustee or separate trustees or co-trustee shall be exercised hereunder by such Person except jointly with, or with the consent of, Security Trustee; and

(iv)no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder.

If at any time Security Trustee shall deem it no longer necessary or prudent in order to conform to any such law, or take any such action or shall be advised by such counsel that it is no longer legally required or necessary or prudent in the interest of the Note Holders or in the event Security Trustee shall have been requested to do so by a Majority in Interest of Note Holders, Security Trustee shall execute and deliver a mortgage supplemental hereto and all other instruments and agreements necessary or proper to remove any separate trustee or separate trustees or co-trustee.

(e)Any request, approval or consent in writing by Security Trustee to any separate trustee or separate trustees or co-trustee shall be sufficient warrant to such separate trustee or separate trustees or co-trustee, as the case may be, to take such action as may be so requested, approved or consented to.

(f)Notwithstanding any other provision of this Section 7.02, the powers of any separate trustee or separate trustees or co-trustee appointed pursuant to this Section 7.02 shall not in any case exceed those of Security Trustee hereunder.

ARTICLE VIII

SUPPLEMENTS AND AMENDMENTS TO THIS

MORTGAGE AND OTHER DOCUMENTS

SECTION 8.01.  Instructions of Majority; Limitations.  At any time and from time to time,  Borrower and Security Trustee (but only on the written request of a Majority in Interest of Note Holders) shall execute a supplement hereto for the purpose of adding provisions to, or changing or eliminating provisions of, this Mortgage to the other Operative Documents as specified in such request; provided, however, that, without the consent of each Note Holder, no such amendment of or supplement to any such document, or waiver or modification of the terms of any thereof, shall (i) modify any of the provisions of this Section 8.01 or the definitions of the terms “Breakage Amount,” “LIBOR Break Amount,” “Default,” “Event of Default,” “Borrower’s Cost,” “Majority in Interest of Note Holders” or “Operative Documents,” contained herein or in any other Operative Document (except to change default definitions by providing for additional events of default), (ii) increase the principal amount of any Note or reduce the amount or extend the time of payment of any amount owing or payable under any Note or (except as provided in this Mortgage) increase or reduce the Breakage Amount or interest payable on any Note (except that only the consent of the affected Note Holder shall be required for any decrease in any amounts of or the rate of Breakage Amount or interest payable on such Note or any extension for the time of payment of any amount payable under such Note), or alter or modify the provisions of Article III with respect to the order

of priorities in which distributions thereunder shall be made or with respect to the amount or time of payment of any such distribution, (iii) reduce, modify or amend any indemnities in favor of any Note Holder or alter the definition of “Indemnitee” to exclude any Note Holder (except as consented to by each Person adversely affected thereby), or (iv) modify, amend or supplement the Mortgage or consent to any assignment of the Mortgage, in either case in such a way as to release Borrower from its obligations in respect of the payments of principal and interest and other amounts due and owing hereunder.  This Section 8.01 shall not apply to any mortgage or mortgages supplemental hereto permitted by, and complying with the terms of, Section 5.07, Section 7.02 or Section 8.04.  Notwithstanding the foregoing, without the consent of each Note Holder, no such supplement to this Mortgage, or waiver or modification of the terms hereof or of any other agreement or document shall expressly permit the creation of any Lien on the Mortgage Estate or any part thereof, except as herein expressly permitted, or deprive any Note Holder of the benefit of the Lien of this Mortgage on the Mortgage Estate, except as provided in Sections 5.01 and 5.02 or in connection with the exercise of remedies under Article IV.

SECTION 8.02.  Trustees Protected.  If, in the opinion of the institution acting as Security Trustee hereunder, any document required to be executed pursuant to the terms of Section 8.01 affects any right, duty, immunity or indemnity with respect to it under this Mortgage, Security Trustee may in their discretion decline to execute such document.

SECTION 8.03.  Documents Mailed to Note Holders.  Promptly after the execution of any document entered into pursuant to Section 8.01, Borrower shall mail, postage prepaid, a conformed copy thereof to Security Trustee and Security Trustee shall mail, by certified mail, postage prepaid, a conformed copy thereof to each Note Holder at its address shown on the Note Register, but the failure of Borrower or Security Trustee, as the case may be, to mail such conformed copies shall not impair or affect the validity of such document.

SECTION 8.04.  No Request Necessary for Mortgage Supplement.  Notwithstanding anything contained in Section 8.01, no written request or consent of Security Trustee or any Note Holder pursuant to Section 8.01 shall be required to execute and deliver a Mortgage Supplement to subject the Aircraft or other property hereto pursuant to the terms hereof.

ARTICLE IX

MISCELLANEOUS

SECTION 9.01.  Termination of Mortgage.  Upon (or at any time after) payment in full of the principal of and interest on and Breakage Amount, if any, and all other amounts due under, or otherwise due to the Note Holders holding all Notes and, provided that there shall then be no other amounts due to the Note Holders and Security Trustee hereunder or under the Operative Documents and provided no Event of Default shall have occurred and be continuing, Borrower shall direct Security Trustee to execute and deliver to or as directed in writing by Borrower an appropriate instrument releasing the Aircraft from the Lien of this Mortgage and releasing the Borrower Documents from the assignment and pledge thereof hereunder, and Security Trustee shall execute and deliver such instrument as aforesaid and, at Borrower’s expense, will execute and deliver such other instruments or documents as may be furnished to it and reasonably requested by Borrower to give effect to such release; provided, however, that this Mortgage and the trusts created hereby shall earlier terminate and this Mortgage shall be of no further force or effect upon any sale or other final disposition by Security Trustee of all property part of the Mortgage Estate and the final distribution by Security Trustee of all monies or other property or proceeds constituting part of the Mortgage Estate in accordance with the terms hereof.  Except as aforesaid otherwise provided, this Mortgage and the trusts created hereby shall continue in full force and effect in accordance with the terms hereof.

SECTION 9.02.  No Legal Title to Mortgage Estate in Note Holders.  No Note Holder shall have legal title to any part of the Mortgage Estate.  No transfer, by operation of law or otherwise, of any Note or other right, title and interest of any Note Holder in and to the Mortgage Estate or hereunder shall operate to terminate this Mortgage or entitle such Note Holder or any successor or transferee of such Note Holder to an accounting or to the transfer to it of legal title to any part of the Mortgage Estate.

SECTION 9.03.  Sale of Aircraft by Security Trustee is Binding.  Any sale or other conveyance of any Aircraft by Security Trustee made pursuant to the terms of this Mortgage shall bind the Note Holders and shall be effective to transfer or convey all right, title and interest of Security Trustee, Borrower and the Note Holders in and to such Aircraft.  No purchaser or other grantee shall be required to inquire as to the authorization, necessity, expediency or regularity of such sale or conveyance or as to the application of any sale or other proceeds with respect thereto by Security Trustee.

SECTION 9.04.  Mortgage for Benefit of Security Trustee, Borrower and Note Holders.  Nothing in this Mortgage, whether express or implied, shall be construed to give to any Person other than Borrower, Security Trustee, Guarantor and the Note Holders any legal or equitable right, remedy or claim under or in respect of this Mortgage.

SECTION 9.05.  Quiet Enjoyment.  Notwithstanding any of the provisions of this Mortgage, so long as no Event of Default shall have occurred and be continuing, neither Security Trustee nor any Person claiming by, through or under Security Trustee will interfere with Borrower’s quiet enjoyment and right to possession, use and operation of the Aircraft.

SECTION 9.06.  Notices.  Unless otherwise expressly specified or permitted by the terms hereof, all notices, requests, demands, authorizations, directions, consents, waivers or documents provided or permitted by this Mortgage to be made, given, furnished or filed shall be in writing and delivered in the manner and at the address provided in Section 9 of the Loan Agreement.

SECTION 9.07.  Severability.  Any provision of this Mortgage 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.

SECTION 9.08.  No Oral Modifications or Continuing Waivers.  No terms or provisions of this Mortgage or the Notes may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party or other Person against whom enforcement of the change, waiver, discharge or termination is sought and any other party or other Person whose consent is required pursuant to this Mortgage; and any waiver of the terms hereof or of any Note shall be effective only in the specific instance and for the specific purpose given.

SECTION 9.09.  Successors and Assigns.  All covenants and agreements contained herein shall be binding upon, and inure to the benefit of, each of the parties hereto and the successors and assigns of each, all as herein provided.  Any request, notice, direction, consent, waiver or other instrument or action by any Note Holder shall bind the successors and assigns of such Note Holder.

SECTION 9.10.  Headings.  The headings of the various Articles and Sections herein and in the table of contents hereto are for the convenience of reference only and shall not define or limit any of the terms or provisions hereof.

SECTION 9.11.  Governing Law.  THIS MORTGAGE SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.

SECTION 9.12.  Counterpart Form.  This Mortgage may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument.

SECTION 9.13.  Entire Agreement.  This Agreement, together with all documents referred to herein, constitutes the entire agreement among the parties hereto and supersedes all prior agreements and understandings of the parties with respect to the subject matter hereof and thereof.

SECTION 9.14.  Waiver Of Jury Trial.  EACH OF BORROWER AND SECURITY TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS MORTGAGE OR THE TRANSACTIONS CONTEMPLATED HEREBY.

SECTION 9.15.  Submission to Jurisdiction.  Each of Borrower and Security Trustee agrees that any legal action or proceeding with respect to this Mortgage or any of the transactions contemplated hereby, or to enforce any judgment obtained against it in respect of any of the foregoing (a certified or exemplified copy of which judgment shall be conclusive evidence of the fact and of the amount of any indebtedness therein described), may be brought in the Supreme Court of the State of New York or the United States District Court for the Southern District of New York and by the execution and delivery of this Mortgage, each such Person irrevocably consents and submits to the nonexclusive jurisdiction of each such court, acknowledges its competence and irrevocably agrees to be bound by a final judgment of such court.  Each such Person irrevocably waives, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.  Each of Borrower and Security Trustee hereby generally consents to service of process to the respective addresses set forth in Section 9 of the Loan Agreement in the manner specified in such Section 9 of the Loan Agreement.  Nothing in this paragraph shall affect the right of any party hereto or their successors or assigns to bring any action or proceeding against any other party hereto or their property in the courts of other jurisdictions.

SECTION 9.16.  Payment in Dollars.

(a)If, for the purposes of obtaining judgment in, or enforcing the judgment of, any court, it is necessary for any Person to convert a sum due hereunder in Dollars into another currency (the “Judgment Currency”), the rate of exchange used shall be that at which in accordance with normal banking procedures such Person could purchase Dollars with the Judgment Currency on the Business Day preceding that on which final judgment is given or the order of enforcement made.

(b)The obligation of Borrower in respect of any sum due from it to any Person hereunder shall, notwithstanding any judgment or order of enforcement in such Judgment Currency, be discharged only to the extent that on the Business Day following that on which final judgment is given or the order of enforcement made, such Person may in accordance with normal banking procedures purchase Dollars with the Judgment Currency; if the Dollars so purchased are less than the sum originally due to such Persons in Dollars, Borrower agrees, as a separate obligation and notwithstanding any such judgment or order of enforcement, to indemnify any Person against such loss attributable to any of its

obligations hereunder, and if the Dollars so purchased exceed the sum originally due from Borrower, in Dollars, such Person shall remit to Borrower such excess.  Any additional amount due from Borrower under this Section 9.16 will be due as a separate debt and shall not be affected by judgment or order of enforcement being obtained for any other sums due under or in respect of this Mortgage or any other Operative Document.

[Remainder of Page Intentionally Blank — Signature Page Follows]

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

SKYWEST AIRLINES, INC.,
Borrower
By:	/s/ Michael J. Kraupp
Name:		Michael J. Kraupp
Title:		Vice President Finance and Assistant Treasurer
C.I.T. Leasing Corporation
not in its individual capacity, except as expressly provided herein, but solely as Security Trustee
By:	/s/ Glen T. Dimpfel
Name: Glen T. Dimpfel
Title:  Vice President

APPENDIX A (CIT Loan)

(Attached to and forming a part of

Aircraft Mortgage and Security Agreement

Between SkyWest Airlines, Inc.,

as Borrower, debtor, and C.I.T. Leasing Corporation, as Security Trustee, secured party)

DEFINITIONS

Except as otherwise expressly indicated, all references in this Appendix A, the Aircraft Mortgage and Security Agreement referred to above (the “Mortgage”), and the other Operative Documents to agreements or instruments shall mean such agreements or instruments as the same may from time to time be supplemented or amended or the terms thereof waived or modified to the extent permitted by, and in accordance with, the terms of the Operative Documents and such agreements or instruments.  Except as otherwise expressly indicated, all references in this Appendix A, the Mortgage and the other Operative Documents to Persons shall mean such Persons and their successors and permitted assigns.  Except as otherwise expressly indicated, all references to treaties, statutes, regulations, codes and other laws or sections or provisions thereof shall mean such treaties, statutes, regulations, codes or other laws, or such sections or provisions thereof as amended from time to time or any similar legislation of the relevant jurisdiction enacted to supersede any such items.  “Including” means “including but not limited to.”  “Or” means one or more, or all, of the alternatives listed or described.  “Herein,” “hereof,” “hereunder,” etc. mean in, of, under, etc. the Operative Document in which such reference appears and not merely in, of, under, etc. the section or provision of such Operative Document where the reference appears.

Each exhibit, annex and schedule to each Operative Document is incorporated in, and is made a part of, such Operative Document.

As used in the Mortgage and in the other Operative Documents to the extent such other Operative Documents refer to this Appendix A or the Mortgage for their respective defined terms, the following words and terms shall have the respective meanings set forth below, unless the context hereof otherwise clearly requires, and definitions set forth herein shall be equally applicable both to the singular and plural forms of such defined terms.

“Acceptable Alternate Engine” means a General Electric Company Model CF34-3B1 engine or an engine of the same manufacturer and same model of equivalent or greater value, utility and remaining useful life (without regard to hours and cycles remaining to the next scheduled overhaul) as the Engine being substituted or replaced therefor and suitable for installation and use on the Airframe and compatible with the other Engine; provided that such engine shall be of the same make, model and manufacturer as the other engine installed on the Airframe, and shall have been maintained, serviced, repaired and overhauled in substantially the same manner as Borrower maintains, services, repairs and overhauls similar engines utilized by Borrower without in any way discriminating against such engine.

“Acquisition Date” has the meaning set forth in Schedule II of the Loan Agreement.

“Additional Insured” means Lender, the Security Trustee and their respective officers, directors, employees, servants, agents, successors and assigns.

“Affiliate” means a Person that directly or indirectly through one or more intermediaries controls, or is controlled by, or is under a common control with, another Person.

“After-Tax Basis” means, with respect to any payment to be received or accrued by any Person, the amount of such payment supplemented by a further payment or payments (which shall be payable either simultaneously or, in the event that Taxes resulting from the receipt or accrual of such payment are not actually payable in the year of receipt or accrual, at the time or times such Taxes are actually payable) so that the sum of all such payments, after deduction of all Taxes actually payable to any Taxing authority as a result of the receipt or accrual of such payments (which, in the case of Lender, shall be computed using the highest marginal federal income tax rate generally applicable to corporations and Lender’s actual composite state and local income tax rate), and after taking into account all current Tax Savings actually realized by such Person as a result of the event giving rise to such payment, shall be equal to the payment to be received or accrued by such Person; provided, however, the loss, deferral or recapture of any Tax Savings taken into consideration in making any payment on an After-Tax Basis shall be treated as an indemnifiable Tax under Section 6(b) of the Loan Agreement (determined without regard to Section 6(b)(ii) of the Loan Agreement (other than subparagraphs (4), (11) and (12) thereof)).

“Aircraft” means each, and all, of the Airframe together with the two Engines per Airframe whether or not such Engines are installed on each of the Airframe or any other airframe.

“Aircraft Registration Application” means an aircraft registration application for each of the Aircraft on AC Form 8050-1, dated the Closing Date, executed by Borrower.

“Aircraft Warranties” means all warranties or assurances of any kind whatsoever relating to the Aircraft and related equipment manufactured by the Manufacturer.

“Airframe” means:  (i) each, and all, of the Bombardier Regional Jet aircraft Model CL-600-2B19 (excluding the Engines or engines from time to time installed thereon) specified by United States Registration Numbers and Manufacturer’s serial numbers in the Mortgage Supplement; (ii) any Replacement Airframe which may from time to time be substituted pursuant to Sections 4.01(d)(i)(II) and 5.06 of the Mortgage; and (iii) in any case, any and all related Parts.

“Airworthiness Requirements” has the meaning set forth in Section 4.01(c)(iii) of the Mortgage.

“Applicable Margin” has the meaning set forth in Schedule II of the Loan Agreement.

“Applicable Rate” means the Floating Rate.

“Assumed Debt Rate” has the meaning set forth in Schedule II to the Loan Agreement.

“Bankruptcy Code” means the United States Bankruptcy Code of 1978, as amended.

“Borrower” means SkyWest Airlines, Inc., and its permitted successors and assigns.

“Borrower-Controlled Contest” means a contest involving only Taxes with respect to which (i) participation by neither the Indemnitee nor any Affiliate of the Indemnitee is required (it being understood that any contest involving Taxes in the nature of income Taxes (other than income Taxes imposed by any State or local tax authority in the United States) or any contest conducted in the name of such Indemnitee is a contest requiring the participation of such Indemnitee) and (ii) no tax return of the Indemnitee or any of its Affiliates is held open with respect to which any Indemnitee may reasonably be viewed as having an actual or potential liability for Taxes not indemnified against by Borrower.

“Borrower Documents” means the Operative Documents to which Borrower is a party.

“Breakage Amount” means the LIBOR Break Amount.  If Breakage Amount is owed pursuant to the terms of the Operative Documents, each Note Holder will furnish to Borrower and Security Trustee a certificate setting forth the calculation and amount of the Breakage Amount with respect to its Note, which amount shall be conclusive absent manifest error.

“Business Day” means any day other than a Saturday or Sunday or a day on which commercial banks are required or authorized to close in New York, New York and, if such day relates to the borrowing or making of payment of principal of or interest on the Notes, or any notice in respect of any such borrowing or payment, a day on which Dollar transactions are effected in London, England.

“Certificated Air Carrier” means a solvent United States “air carrier” within the meaning of the Transportation Code holding a certificate issued under Chapter 447 of the Transportation Code for aircraft capable of carrying ten or more individuals or 6,000 pounds or more of cargo, and as to whom there is in force an air carrier operating certificate issued pursuant to FAR Part 121, or if such certification shall cease to be available, an air carrier eligible for certification as to the matters contemplated by such certification under any successor or substitute provisions thereof.

“Change in Tax Law” means a change in the Code (including for this purpose, any non-Code provisions of legislation affecting the Code, such as transitional or effective date provisions), final or temporary Treasury Regulations, any Revenue Ruling or Revenue Procedure or other administrative interpretations, statements or declarations, applicable judicial precedents or Executive Orders of the President of the United States, or income Tax treaties between the United States and any other foreign taxing jurisdiction, or interpretation of any thereof.

“Closing” has the meaning set forth in Section 2(d) of the Loan Agreement.

“Closing Date” means the date of Mortgage Supplement No. 1, which date shall be the date the Loan is made by the Lender to Borrower as contemplated by the Operative Documents.

“Code” means the Internal Revenue Code of 1986, as amended from time to time, or any similar legislation of the United States enacted to supersede, amend or supplement such Code and any reference to a provision or provisions of the Code shall also mean and refer to any successor provisions, however designated.

“Default” means an Event of Default or any event that with the giving of notice or the lapse of time or both is reasonably likely to become an Event of Default.

“Dollars” and “$” mean the lawful currency of the United States of America.

“Engine” means:  (i) each of the two General Electric Company Model CF34-3B1 engines per Airframe listed by Engine Manufacturer’s serial numbers in Mortgage Supplement No. 1 and installed on the Airframe at the time of the delivery to Borrower of such Airframe, whether or not from time to time thereafter installed on such Airframe or any other airframe; (ii) any Acceptable Alternate Engine which may from time to time be substituted for any of such two engines pursuant to the terms of the Mortgage; and (iii) in any case, any and all related Parts.  The term “Engines” means, as of any date of determination, all Engines then subject to the Lien of the Mortgage.

“Engine Manufacturer” means General Electric Company and its successors and assigns.

“Engine Warranties” means all warranties or assurances of any kind whatsoever relating to the Engines and related equipment manufactured by the Engine Manufacturer.

“ERISA” means the federal Employee Retirement Income Security Act of 1974, as amended from time to time.

“Event of Default” has the meaning set forth in Section 4.02 of the Mortgage.

“Event of Loss” has the meaning set forth in Exhibit F to the Mortgage.

“Expenses” means any and all liabilities, obligations, losses, damages, fines, proceedings, judgments, penalties, claims (including, but not limited to, negligence, strict or absolute liability, liability in tort and liabilities arising out of violation of laws or regulatory requirements of any kind), actions, suits, out-of-pocket costs, expenses and disbursements (including reasonable legal fees, costs of investigation of whatsoever kind and nature and expenses, Transaction Costs, and all costs and expenses relating to amendments, supplements, waivers and consents to and under the Operative Documents, but excluding, in all cases (A) internal costs and expenses, such as salaries and overhead of whatsoever kind and nature, (B) any losses, damages or claims in respect of future profits, and (C) other than Breakage Amount, any costs and expenses associated with obtaining and maintaining the Loan.

“FAA” means the Federal Aviation Administration.

“Federal Aviation Administration” means the United States Federal Aviation Administration and any successor agency or agencies thereto.

“Final Maturity Date” has the meaning set forth in Schedule II to the Loan Agreement.

“Floating Rate” with respect to each Interest Period, means LIBOR for such Interest Period plus the Applicable Margin; provided that the Floating Rate for the first Interest Period is the Assumed Debt Rate.

“Floating Rate Loan” means a Note bearing interest at a Floating Rate in accordance with Section 2.02(c) of the Mortgage.

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.

“Guarantor” means SkyWest, Inc., a Utah corporation.

“Guaranty” means the Guaranty (CIT Loan) dated as of the Closing Date among Guarantor and Lender, as the same may be amended, modified or supplemented from time to time.

“Increased Costs” has the meaning set forth in Section 2.13 of the Mortgage.

“Indemnitee” means Lender, Security Trustee and their respective Affiliates, corporate successors, permitted assigns, directors, officers, employees, servants and agents.  For purposes of Section 6(b) of the Loan Agreement, “Indemnitee” shall also include the parties indicated in Section 6(b)(vii) of the Loan Agreement.

“Indemnitee-Controlled Contest” means any contest other than a Borrower-Controlled Contest.

“Insurance Broker” has the meaning set forth in Section 4.01(e)(v) of the Mortgage.

“Insured Amount” has the meaning set forth in Section 4.01(e)(ii) of the Mortgage.

“Interest Determination Date” means (x) in respect of the interest rate for the initial Interest Period, the date which is two London Business Days prior to the Closing Date and (y) in respect of each subsequent Interest Period, the date which is two London Business Days prior to the commencement of such Interest Period.

“Interest Period” means, initially, the period commencing on and including the Closing Date and ending on but excluding the first Payment Date and each succeeding period thereafter commencing on and including the preceding Payment Date and ending on but excluding the next Payment Date, provided that if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless such next succeeding Business Day is the next calendar month, in which case such payment shall be made on the preceding Business Day.

“Lender” means the Lender as defined in the initial paragraph of the Loan Agreement, and its successors and assigns, and any Note Holder from time to time.

“Lending Office” means for any Lender, the office from which such Lender is booking a Note held by it as an asset for accounting purposes.

“LIBOR” means, with respect to any Interest Period for which the same is to be calculated, the interest rate per annum (calculated on the basis of a 360-day year and the actual number of days elapsed) at which Dollar deposits are offered in the London interbank market for a period equal to such period as such rate is displayed on Bloomberg BBAM page at approximately 11:00 a.m., London time (or as soon thereafter as practicable), or if such service does not display any such quote, the arithmetic mean (rounded upwards, if necessary, to the nearest 1/16th of 1%) of such rates as displayed on Reuters Page LIBO at approximately 11:00 a.m., London time (or as soon thereafter as practicable), or if such service does not display any such quote, the arithmetic mean (rounded upwards, if necessary, to the nearest 1/16th of 1%) of such rates, as quoted by London Reference Banks, in any case on the Interest Determination Date.

“LIBOR Break Amount” means an amount equal to the net loss or additional expense which a Lender sustains or incurs as a direct result of the payment or prepayment (whether by mandatory or voluntary prepayment, purchase, acceleration or any other form of payment or prepayment) of all or any portion of such Lender’s Note on a date other than the last day of an Interest Period, as reasonably determined by such Lender by reference to the LIBOR applicable in respect of such Interest Period and set forth in a statement provided by such Lender which includes in reasonable detail the basis for the calculations of the amount being claimed which statement shall be conclusive and binding for all purposes, except in the case of manifest error; provided, that in no event shall any portion of the LIBOR Break Amount, if any, be attributable to loss of future margin or profit.

“Lien” means any mortgage, pledge, lien, claim, encumbrance, lease, security interest or any other charge of any kind on property.

“Loan” has the meaning set forth in Schedule II of the Loan Agreement.

“Loan Agreement” means that certain Loan Agreement (CIT Loan) dated as of the Closing Date among Borrower, Guarantor, Security Trustee and Lender, as such Loan Agreement may be amended or supplemented from to time pursuant to the applicable provisions thereof.

“London Business Day” means a day other than a Saturday or Sunday on which business is carried out on the London interbank market.

“London Reference Banks” means Barclays Bank plc, HSH Nordbank AG and ABN AMRO Bank N.V.

“Loss Payee” means Security Trustee.

“Majority in Interest of Note Holders” means, as of any date of the determination thereof, Note Holders holding Notes evidencing not less than 66-2/3% of the aggregate outstanding principal amount of all Notes.  For all purposes of the foregoing definition, in determining as of any date the then aggregate outstanding principal amount of Notes, there shall be excluded any Notes, if any, held by Borrower or any Affiliate thereof.

“Manufacturer” means Bombardier Inc., a Canadian corporation, represented by its Bombardier Regional Aircraft Division, and its successors and assigns.

“Mortgage” means the Aircraft Mortgage and Security Agreement dated as of the Closing Date between Borrower and Security Trustee, as originally executed or as modified, amended or supplemented in accordance with the provisions thereof, including, without limitation, any Mortgage Supplement entered into pursuant to the applicable provisions thereof.

“Mortgage Estate” has the meaning set forth in the Granting Clause of the Mortgage.

“Mortgage Supplement” means a supplement to the Mortgage, substantially in the form of Exhibit A to the Mortgage.

“Non-U.S. Person” means any Person who is not a United States Person.

“Nonproprietary Parts” means all readily severable appliances, parts, instruments, appurtenances, accessories, furnishings and other equipment of whatever nature which (i) are not necessary or required to satisfy Airworthiness Requirements or any other requirement specified in the Mortgage, (ii) are attached to the Aircraft after the Acquisition Date, (iii) can be removed with minimal cost and without material damage to the Aircraft, and (iv) are in addition to and not in replacement of Parts installed on or attached to the Aircraft on the Acquisition Date.

“Note Holder” means, at any time, each registered holder of one or more Notes.

“Note Register” has the meaning specified in Section 2.07 of the Mortgage.

“Notes” means the Notes issued pursuant to Section 2.01 of the Mortgage and any such certificates issued in exchange or replacement therefor pursuant to Section 2.07 or 2.08 of the Mortgage.

“Obsolete Parts” has the meaning set forth in Section 4.01(c)(iii) of the Mortgage.

“Operative Documents” means the Guaranty, the Mortgage, the Notes, the Loan Agreement, and any Mortgage Supplement.

“Parts” means all appliances, parts, instruments, appurtenances, accessories, furnishings and other equipment of whatever nature (other than complete Engines or engines), which are from time to time

incorporated or installed in or attached to the Airframe or any Engine and all such items which are subsequently removed therefrom and not replaced in accordance with the Mortgage; provided that Parts shall not include Nonproprietary Parts except as otherwise provided by Section 4.01(c)(iii) of the Mortgage.

“Past Due Rate” means a rate per annum equal to 1% plus the Applicable Rate, but in no event greater than that allowed by applicable law.

“Payment Date” means each date during the Term specified as a “Payment Date” in Annex A to the Note.

“Permitted Investments” means (a) investments in direct obligations of the government of the United States or any instrumentality thereof the obligations of which are guaranteed by such government maturing within 90 days of the date of acquisition thereof, (b) investments in obligations fully guaranteed by the government of the United States or any instrumentality thereof the obligations of which are guaranteed by such government maturing within 90 days of the date of acquisition thereof, (c) investments in a money market fund registered under the Investment Company Act of 1940 (15 U.S.C. § 809-1, et seq.), as from time to time amended, (d) investments in open market commercial paper issued by any corporation rated at least P-1 by Moody’s Investors Service, Inc. or A-1 by Standard & Poor’s Ratings Group (or any equivalent rating thereto) maturing within 90 days from the date of acquisition thereof, and (e) investments in certificates of deposit issued by, or bankers’ acceptances of, or time deposits or a deposit account issued by, 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 $500,000,000 in each case maturing within 90 days of the date of acquisition thereof, provided that the aggregate amount at any time so invested in certificates of deposit or commercial paper issued by any one bank or company shall not exceed $1,000,000.

“Permitted Lien” means any Lien referred to in clauses (i) through (v) of Section 4.01(a) of the Mortgage.

“Person” means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof or any other entity.

“Prime Rate” means the rate of interest publicly announced from time to time by Citibank, N.A., as its “base rate” or “prime rate”.

“Purchase Agreement” means the Aircraft Sale and Purchase Agreement, dated as of December 3, 2004, between Borrower and Independence Air, Inc. relating to the purchase by Borrower of the Aircraft, as originally executed or as modified, amended or supplemented in accordance with the terms thereof, but only insofar as the foregoing relates to the Aircraft.

“Realistic Possibility of Success” shall mean the standard upon which an attorney may properly advise the taking of a position on a tax return as set forth in ABA Formal Opinion 85-352 or any successor thereto.

“Replacement Aircraft” means any aircraft substituted for the Aircraft pursuant to Section 5.06 of the Mortgage and Section 4.01(d) of the Mortgage.

“Replacement Airframe” means any airframe substituted for an Airframe pursuant to and in accordance with Section 4.01(d) and Section 5.06 of the Mortgage.

“Replacement Engine” means any engine substituted for an Engine pursuant to Section 4.01(d) and Section 5.06 of the Mortgage.

“Responsible Officer” shall mean, with respect to the subject matter of any covenant, agreement or obligation of any party contained in any Operative Document, the President, any Vice President, Assistant Vice President, Treasurer, Assistant Treasurer or other officer who in the normal performance of his operational responsibility would have knowledge of such matter and the requirements with respect thereto.

“Secured Obligations” has the meaning set forth in the Granting Clause of the Mortgage.

“Securities Act” means the Securities Act of 1933, as amended.

“Specified Default” means a Default described in Section 4.02(a), (b), (f) or (g) of the Mortgage.

“Subsidiary” means, with respect to any Person that is a corporation, any other corporation a majority of the voting securities of which are owned by such Person, such Person and one or more Subsidiaries or one or more Subsidiaries.

“Tangible Net Worth” shall mean, with respect to a Person, the difference between (i) the sum of (a) the par or stated value of all outstanding capital stock, (b) surplus and (c) undivided profits of such Person, and (ii) the sum of (a) any amounts attributable to goodwill, patents, copyrights, trademarks, bond discount and underwriting expenses, (b) write-up in the book value of any assets resulting from a revaluation thereof subsequent to the Closing Date, and (c) organization expenses and other intangibles, all determined in accordance with generally accepted accounting principles consistently applied.

“Taxes” means any and all fees (including, without limitation, license, documentation and registration fees), taxes (including, without limitation, income, gross receipts, sales, rental, use, turnover, value added, property (tangible and intangible), excise and stamp taxes), licenses, levies, imposts, duties, recording charges or fees, charges, assessments, or withholdings of any nature whatsoever, together with any assessments, penalties, fines, additions to Tax and interest thereon (each, individually a “Tax”).

“Tax Savings” shall mean a net Tax benefit, savings, deduction or credit, including foreign Tax credits and any reduction in Taxes resulting from a payment of any Tax or Expense by or on behalf of Borrower pursuant to the terms of the Operative Documents.

“Term” means the period commencing on the Closing Date and ending on the Final Maturity Date or such other earlier date as the Mortgage may be terminated in accordance with terms hereof.

“Transaction Costs” has the meaning specified in Section 11 of the Loan Agreement.

“Transportation Code” means 49 U.S.C. subtitle VII, as amended, and any successor statute thereto and the Federal Aviation Regulations issued or promulgated pursuant thereto.

“Treasury Regulations” shall mean the income tax regulations promulgated under the Code.

“Uniform Commercial Code” means the Uniform Commercial Code as in effect from time to time in any relevant jurisdiction.

“United States Person” shall have the meaning given such term in Section 7701(a)(30) of the Code.

“Upfront Fee” shall have the meaning given to such term in Schedule II to the Loan Agreement.

“U.S. Civil Reserve Air Fleet Program” means any contract entered into by and between Borrower and the U.S. government pursuant to 10 U.S.C. § 9512.

“U.S. Withholding Taxes” means United States federal withholding taxes on United States source interest, rent and other fixed and determinable income.

“Warranties” means, collectively the Aircraft Warranties and the Engine Warranties.

“War Risks” has the meaning set forth in Section 4.01(e)(i) of the Mortgage.

EX-10.3

Exhibit 10.3

MORTGAGE SUPPLEMENT NO. 1 (CIT Loan)

THIS MORTGAGE SUPPLEMENT NO. 1 (CIT Loan), dated September 21, 2005 (this “Mortgage Supplement No. 1”), is executed by SkyWest Airlines, Inc., a Utah corporation (“Borrower”).

W I T N E S S E T H :

WHEREAS, that certain Aircraft Mortgage and Security Agreement (CIT Loan) dated as of the date first set forth above (the “Mortgage”), between Borrower and C.I.T. Leasing Corporation, as Lender and as Security Trustee, in its capacity as Security Trustee, (“Security Trustee”)provides for the execution and delivery of a supplement thereto substantially in the form hereof, which shall particularly describe the Aircraft (such term and other defined terms in the Mortgage being herein used with the same meanings) and any Replacement Airframe or Replacement Engine included in the Mortgage Estate, and shall specifically mortgage such Aircraft, Replacement Airframe or Replacement Engine, as the case may be, to Security Trustee; and

WHEREAS, the Mortgage relates to the Airframe and Engines described below and a counterpart of the Mortgage is attached hereto and made a part hereof and this Mortgage Supplement, together with such counterpart of the Mortgage, is being filed for recordation on the date hereof with the FAA as one document.

NOW, THEREFORE, this Mortgage Supplement No. 1 witnesseth that, to secure (a) the prompt payment of the principal of and the Breakage Amount (if any) and interest on, and all other amounts due with respect to, all Notes from time to time outstanding under the Mortgage and the performance and observance by Borrower of all agreements, covenants and provisions for the benefit of the Note Holders in the Mortgage, the Notes, the Loan Agreement and the other Operative Documents, and the prompt payment and performance of any and all obligations from time to time owing under the Mortgage, the Notes, the Loan Agreement or the other Operative Documents by Borrower to the Note Holders, and (b) the prompt payment when due of the principal of and the breakage amount (if any) and interest on, and all other amounts due with respect to, all notes or loan certificates, as the case may be, from time to time outstanding under a Related Collateral Loan and the performance and observance by Borrower of all of the agreements, covenants and provisions for the benefit of the certificate holders or note holders, as the case may be, therein and in the “Operative Documents” as such term is used in connection with such Related Collateral Loan, and the prompt payment and performance of any and all obligations from time to time owing thereunder by Borrower to the note holder or certificate holder, as the case may be, therein and for the uses and purposes and subject to the terms and provisions of the Mortgage, and in consideration of the premises and of the covenants contained in the Mortgage, and of the acceptance of the Notes by the Note Holders, and of the sum of $1 and other valuable consideration paid to Borrower by Security Trustee at or before the delivery hereof, the receipt whereof is hereby acknowledged, Borrower has granted, bargained, sold, assigned, transferred, conveyed, mortgaged, pledged and confirmed, and does hereby grant, bargain, sell, assign, transfer, convey, mortgage, pledge and confirm, unto Security Trustee and its successors and assigns, for the security and benefit of the Note Holders, in the trust created by the Mortgage a security interest in and mortgage Lien upon, all estate, right, title and interest of Borrower in, to and under the following described property:

AIRFRAME

Four Airframes identified as follows:

Manufacturer	Model	FAA Registration Number	Manufacturer’s Serial Number
Bombardier Inc.	CL-600-2B19	N698BR	7799
Bombardier Inc.	CL-600-2B19	N699BR	7801
Bombardier Inc.	CL-600-2B19	N709BR	7850
Bombardier Inc.	CL-600-2B19	N710BR	7852

together with all Parts, appliances, equipment, instruments and accessories (including, without limitation, radio and radar) from time to time thereto belonging, installed in or appurtenant to said Airframe.

AIRCRAFT ENGINES

Eight aircraft Engines identified as follows:

Manufacturer	Model	Manufacturer’s Serial Numbers	Attached To Airframe With Serial Numbers
General Electric Company	CF34-3B1	Left - 873761 Right – 873762	7799
General Electric Company	CF34-3B1	Left – 873767 Right – 873766	7801
General Electric Company	CF34-3B1	Left – 873903 Right – 873884	7850
General Electric Company	CF34-3B1	Left – 873885 Right - 873890	7852

together with all Parts, equipment and accessories thereto belonging, by whomsoever manufactured, installed in or appurtenant to said aircraft Engines.  Each Engine is of 750 or more rated take-off horsepower or the equivalent of such horsepower.

Together with all substitutions, replacements and renewals of the property above described, and all property that shall hereafter become physically attached to or incorporated in the property above described, whether the same are now owned by Borrower or shall hereafter be acquired by it.

TO HAVE AND TO HOLD all and singular the aforesaid property unto Security Trustee, its successors and assigns, for the benefit and security of the Note Holders for the uses and purposes and subject to the terms and provisions set forth in the Mortgage.

2

This Mortgage Supplement No. 1 shall be construed as supplemental to the Mortgage and shall form a part thereof, and the Mortgage is hereby incorporated by reference herein and is hereby ratified, approved and confirmed.

AND, FURTHER, Borrower hereby acknowledges that the Airframe and Engines referred to in this Mortgage Supplement have been delivered to Borrower and are included in the property of Borrower and are covered by all the terms and conditions of the Mortgage and are subject to the Lien of the Mortgage.

[Remainder of Page Intentionally Blank – Signature Page Follows]

3

IN WITNESS WHEREOF, Borrower has caused this Mortgage Supplement No. 1 to be duly executed by one of its officers thereunto authorized as of the day and year first above written.

SKYWEST AIRLINES, INC.,
Borrower
By:	/s/ Michael J. Kraupp
Name:		Michael J. Kraupp
Title:		Vice President Finance and Assistant Treasurer

[Signature Page to Mortgage Supplement No. 1]

EX-10.4

Exhibit 10.4

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR OFFERED FOR SALE UNLESS REGISTERED UNDER SAID ACT OR LAWS OR UNLESS AN EXEMPTION IS AVAILABLE UNDER SAID ACT OR LAWS.

TRANSFER OF THIS NOTE IS RESTRICTED IN THE MANNER SPECIFIED IN SECTION 2.07 OF THE MORTGAGE.

SKYWEST AIRLINES, INC.,

a Utah corporation

NOTE DUE MARCH 21, 2006, ISSUED IN CONNECTION WITH A LOAN TO SKYWEST AIRLINES, INC. AND SECURED BY FOUR BOMBARDIER REGIONAL JET MODEL CL-600-2B19 AIRCRAFT WITH MANUFACTURER’S SERIAL NUMBER 7799, 7801, 7850 AND 7852 AND INITIALLY BEARING CORRESPONDING UNITED STATES FEDERAL AVIATION ADMINISTRATION REGISTRATION NO. N698BR, N699BR, N709BR AND N710BR AND TWO GENERAL ELECTRIC CF34-3B1 ENGINES ATTACHED TO EACH AIRCRAFT.

No. R-1

US $60,000,000 September 21, 2005

SKYWEST AIRLINES, INC., a Utah corporation (“Borrower”), hereby promises to pay to C.I. T. Leasing Corporation, a Delaware corporation, or its registered transferees, in accordance with that certain Aircraft Mortgage and Security Agreement dated as of September 21, 2005 (the “Mortgage”), the principal sum of SIXTY MILLION AND 00/100 DOLLARS ($60,000,000), to be due and payable on the Final Maturity Date.  Interest on the unpaid principal amount hereof from time to time outstanding from and including the date hereof until such principal amount is paid in full shall accrue at the Floating Rate as provided for in Sections 2.02 and 2.03 of the Mortgage, and shall be payable in arrears on each Payment Date and on theFinal Maturity Date.  A schedule of the Payment Dates is set for on Annex A hereto. Notwithstanding the foregoing, the final payment shall be an amount sufficient to discharge in full the unpaid principal amount, accrued and unpaid interest and all other amounts due and owing to the Note Holder under the Operative Documents.

This Note shall bear interest at the Past Due Rate on any principal hereof, interest and other amounts due hereunder, not paid when due (whether at stated maturity, by acceleration or otherwise), for any period during which the same shall be overdue, payable on demand by the holder hereof given through Security Trustee.  Interest on past-due amounts shall be calculated on the basis of a year of 360 days and the actual days elapsed.  In the event the principal of or interest on this Note or other amount payable hereunder is not paid in full when due (whether at stated maturity, by acceleration or otherwise), the period applicable to the Past Due Rate if and so long as the Applicable Rate for this Note is based on LIBOR shall be either (i) a period commencing on the due date of such principal, interest or other amount and ending on the next succeeding Business Day and thereafter each period commencing on the last day of the preceding period and ending on the next succeeding Business Day, or (ii) such other period or periods (not greater than six months) as the Security Trustee may, at any time and from time to time during the period the same remains past-due, select in its sole discretion for the purpose of determining the Past Due Rate.

Interest shall be calculated as provided for in Sections 2.02 and 2.03 of the Mortgage.  If any sum payable hereunder falls due on a day that is not a Business Day, then such sum shall be payable on the next succeeding Business Day together with interest thereon at the Applicable Rate from and including the scheduled due date to but excluding such next succeeding Business Day; provided, that if such succeeding Business Day falls in the next calendar month, such payment shall be made on the preceding Business Day.

Principal and interest and other amounts due hereon shall be payable in Dollars in immediately available funds prior to 11:15 a.m., New York City time, on the due date thereof, to Security Trustee at it offices, and Security Trustee shall, subject to the terms and conditions of the Mortgage, promptly remit all such amounts so received by it to the Note Holder holding this Note in accordance with the terms of the Mortgage at such account or accounts at such financial institution or institutions as such Note Holder shall have designated to Security Trustee in writing, in immediately available funds, such payment to be made, in the case of any such designated account in New York City, New York prior to 2:00 p.m. New York City time, on the due date thereof.  If Security Trustee, through negligence or willful misconduct, shall fail to make any such payment as provided in the immediately foregoing sentence after its receipt of funds at the place and prior to the time specified above, Security Trustee, in its individual capacity and not as trustee, agrees to compensate the Note Holder holding this Note for loss of use of funds in a commercially reasonable manner, and Borrower shall have no liability for, and the Mortgage Estate shall not secure, any such loss or any overdue interest on this Note in connection with any such failure of Security Trustee to timely distribute funds.  All such payments by Borrower and Security Trustee shall be made free and clear of and without reduction for or on account of all wire or other like charges.

The Note Holder holding this Note, by its acceptance hereof, agrees that, except as otherwise expressly provided in the Mortgage, each payment received by it in respect hereof shall be applied, first, to the payment of any amount (other than the principal of or the Breakage Amount (if any) or interest on this Note) due in respect of this Note, second, to the payment of the Breakage Amount, if any, and interest hereon (as well as any interest on overdue principal and, to the extent permitted by law, interest and other amounts payable hereunder) due and payable hereunder, third, to the payment of the principal of this Note then due and fourth, the balance, if any, remaining thereafter, to the payment of the principal of this Note remaining unpaid, in the manner set forth in the “fourth” clause of Section 2.05 of the Mortgage.

This Note is one of the Notes referred to in the Mortgage that have been or are to be issued by Borrower pursuant to the terms of the Mortgage.  Reference is hereby made to the Mortgage and the Operative Documents referred to therein for a statement of the rights and obligations of the Note Holder holding this Note, and the nature and extent of the security for this Note and of the rights and obligations of the other Note Holders, and the nature and extent of the security for the other Notes, to all of which terms and conditions in the Mortgage and such Operative Documents the Note Holder holding this Note agrees by its acceptance hereof.

There shall be maintained a Note Register for the purpose of registering transfers and exchanges of this and other Notes at the offices of the Security Trustee in the manner provided in Section 2.07 of the Mortgage.  Subject to the Operative Documents and the next following paragraphs, this Note or any interest herein may be assigned or transferred, and the Notes are exchangeable for a like aggregate original principal amount of Notes of any authorized denomination, as requested by the Note Holder surrendering the same; provided that no such transfer shall be effective until recorded in the Note Register.

Prior to the due presentment for registration of transfer of this Note, Borrower and Security Trustee may deem and treat the person in whose name this Note is registered on the Note Register as the

absolute owner of this Note and the Note Holder for the purpose of receiving payment of all amounts payable with respect to this Note and for all other purposes whether or not this Note is overdue, and neither Borrower nor Security Trustee shall be affected by notices to the contrary.

This Note is subject to prepayment only as permitted by Sections 2.10 and 2.11 of the Mortgage and such Note Holder, by its acceptance of this Note, agrees to be bound by said provisions.

This Note shall not be secured by or be entitled to any benefit under the Mortgage or be valid or obligatory for any purpose, unless authenticated by the Security Trustee as evidenced by the manual signature of one of its authorized signatories on the certificate below.

Capitalized terms used herein and not otherwise defined shall have the meaning assigned such terms in Appendix A to the Mortgage.

THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.

[Remainder of Page Intentionally Blank – Signature Page Follows]

IN WITNESS WHEREOF, Borrower has caused this Note to be executed in its corporate name by its officer thereunto duly authorized, as of the day and year first above written.

SKYWEST AIRLINES, INC.,
Borrower
By:	/s/ Michael J. Kraupp
Name:		Michael J. Kraupp
Title:		Vice President Finance and Assistant Treasurer

[Signature page to Note]

ANNEX A

TO

NOTE

SCHEDULED PAYMENT DATES

Payment Date	Principal		Outstanding Principal
21-Oct-2005	$	—	$	60,000,000.00
21-Nov-2005	$	—	$	60,000,000.00
21-Dec-2005	$	—	$	60,000,000.00
21-Jan-2006	$	—	$	60,000,000.00
21-Feb-2006	$	—	$	60,000,000.00
21-Mar-2006	$	60,000,000.00	$	—

RECEIPT

I,                                 , as special counsel to CIT Leasing Corporation, a Delaware corporation (“Lender”), hereby acknowledge receipt of the original Note No. R-1 dated September      , 2005, executed by Borrower in favor of Lender.

September        , 2005

EX-10.5

Exhibit 10.5

GUARANTY

(CIT Loan)

Dated as of September 21, 2005

among

SKYWEST, INC.,

as Guarantor,

C.I.T. LEASING CORPORATION,

as Lender,

and

C.I.T. LEASING CORPORATION,

as Security Trustee

Four Bombardier Regional Jet Model CL-600-2B19 Aircraft

U.S. Registration Numbers: N698BR, N699BR, N709BR and N710BR

Corresponding Manufacturer’s Serial Numbers:  7799, 7801, 7850, 7852

TABLE OF CONTENTS

SECTION 1.	Guaranty of Obligations
SECTION 2.	Rights Limited to Guaranteed Party
SECTION 3.	Bankruptcy, Etc.
SECTION 4.	Subrogation
SECTION 5.	Amendments and Other Actions
SECTION 6.	Remedies
SECTION 7.	No Waiver
SECTION 8.	Instrument for the Payment of Money
SECTION 9.	Continuing Guaranty
SECTION 10.	Mortgage
SECTION 11.	Effectiveness of Amendments
SECTION 12.	Payments
SECTION 13.	Consent to Jurisdiction; Service of Process
SECTION 14.	Governing Law
SECTION 15.	Integration; Counterparts; Successors and Assigns
SECTION 16.	Notices
SECTION 17.	Costs and Expenses
SECTION 18.	Performance
SECTION 19.	Waiver of a Jury Trial
SECTION 20.	Further Assurances
SECTION 21.	Captions
SECTION 22.	Agents and Attorneys-in-Fact
SECTION 23.	Severability
SECTION 24.	Payment in Dollars

GUARANTY

(CIT Loan)

THIS GUARANTY (CIT Loan), dated as of September [  ], 2005, is executed by SkyWest, Inc., a Utah corporation (“Guarantor”), for the benefit of (a) C.I.T. Leasing Corporation, as lender (“Lender”), and (b) C.I.T. Leasing Corporation, not in its individual capacity, except as expressly provided herein, but solely as Security Trustee (“Security Trustee” and, together with Lender, and their respective successors and permitted assigns, each a “Guaranteed Party”, and collectively, the “Guaranteed Parties”).

W I T N E S S E T H :

WHEREAS, pursuant to the terms of that certain Loan Agreement (CIT Loan) dated as of even date herewith (the “Loan Agreement”) by and among SkyWest Airlines, Inc., a Utah corporation (“Borrower”), Guarantor, Lender and Security Trustee, Lender has agreed to provide the Loan to Borrower;

WHEREAS, Borrower and Security Trustee are entering into that certain Aircraft Mortgage and Security Agreement (CIT Loan) (the “Mortgage”) dated as of even date herewith pursuant to which Borrower issues to Lender one or more Notes as evidence of Borrower’s indebtedness to Lender, and Borrower shall execute and deliver an initial Mortgage Supplement dated the Closing Date covering the Aircraft, supplementing the Mortgage;

WHEREAS, capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in Appendix A to the Mortgage; and

WHEREAS, Borrower is a wholly-owned subsidiary of Guarantor and the making of the Loan is a direct benefit to Borrower in connection with the profitable conduct of its business and, therefore, also benefits Guarantor; and

WHEREAS, Guarantor is fully informed, understands and acknowledges that it is a condition precedent and a requisite inducement to the commitment of Lender to make the Loan, and to the execution and delivery of the Operative Documents by the Guaranteed Parties party thereto, that Guarantor execute and deliver this Guaranty (as the same may be amended or supplemented from time to time, herein referred to as this “Guaranty”);

NOW, THEREFORE, in consideration of the benefits, rights and interests to Borrower derived from the making of the Loan and the delivery of the Operative Documents, for a necessary inducement to the Guaranteed Parties to enter into the Operative Documents, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Guarantor, fully aware that the Guaranteed Parties are relying hereupon as an inducement to the provisions of the Operative Documents, hereby agrees as follows:

SECTION 1.Guaranty of Obligations.

(a)Guaranty.

(i)Guarantor hereby (A) acknowledges that it is fully aware of the terms and conditions contained in, and has received a copy of the Mortgage, Loan Agreement, Mortgage Supplement No. 1 and the other Operative Documents (as the same may be amended, modified or supplemented from time to time, collectively, the “Guaranteed Documents”) and is fully aware of the transactions contemplated by the terms thereof and (B) irrevocably, absolutely and unconditionally

guarantees, as primary obligor and not as surety or guarantor of collection, without set-off, abatement, deferment, or deduction, (1) the full and prompt payment by Borrower of all payment obligations of Borrower under the Guaranteed Documents to which Borrower is a party when due, whether by acceleration or otherwise, (including, without limitation, when due by reason of an Event of Default) strictly in accordance with the terms thereof (such obligations of Borrower guaranteed hereby are hereinafter referred to as the “Financial Obligations”), and (2) the performance of each and every other covenant, agreement and obligation to be performed or observed by Borrower under the Guaranteed Documents to which Borrower is a party (the “Nonfinancial Obligations” and, collectively with the Financial Obligations, the “Obligations”).

(ii)Guarantor hereby agrees that, if Borrower fails to pay any Financial Obligation for any reason on the date that such Financial Obligation is required to be paid, Guarantor will pay or cause to be paid such Financial Obligation at the time specified in such Guaranteed Documents, whether by acceleration or otherwise, and that in the case of any extension of time of payment or renewal of any of the Financial Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal (it being the intention hereof that Guarantor shall promptly pay, as a payment obligation directly due from Guarantor, amounts equal to all amounts due that Borrower shall fail to faithfully and properly pay when due under the Guaranteed Documents, whether by acceleration or otherwise).

(iii)Guarantor hereby agrees that, if Borrower fails to perform any Nonfinancial Obligation for any reason on the date that such Nonfinancial Obligation is required to be performed by Borrower under the Guaranteed Documents, Guarantor will perform or cause such Nonfinancial Obligation to be performed when due, and that in the case of any extension of time of performance or renewal of any of the Nonfinancial Obligations, the same will be promptly performed on the date performance is due (whether by extension or otherwise) in accordance with the terms of such extension or renewal.

(b)Absolute Guarantee.  To the fullest extent permitted under applicable law, the obligations of Guarantor hereunder shall be absolute and unconditional, shall be continuing and remain in full force and effect until final and irrevocable payment, performance or observance in full of all of the Obligations has occurred and shall not, in any manner, be affected by (i) any action taken or not taken by any Guaranteed Party or any other Person or by (ii) any lack of prior enforcement or retention of any rights against Borrower or Guarantor or by (iii) any illegality, unenforceability or invalidity of (A) the Obligations or the Guaranteed Documents, (B) any other guarantee or other obligations, or (C) any other agreement or instrument referred to herein or therein, or by (iv) any substitution, release or exchange of any other guarantee of, or security for, any of the Obligations, or by (v) any other circumstance or condition (whether or not Guarantor or Borrower shall have any knowledge or notice thereof), including without limitation: (1) to the extent not covered in Section 5 below, any termination, amendment or modification of, or deletion from, or addition or supplement to, or other change in any of the Guaranteed Documents, the Obligations or any other instrument or agreement applicable to any of the parties to such agreements, any assignment, mortgage or transfer of any thereof or of any interest therein, or to any leasing or subleasing or any registration or re-registration of the Aircraft or any substitution of any Airframe or any Engine; (2) any failure, omission or delay on the part of Borrower or any other Person to conform or comply with any term of any Guaranteed Document; (3) any exercise, delay in the exercise, or nonexercise of any right, remedy, power or privilege under or in respect of any Guaranteed Document or any obligation or liability contained therein; (4) any waiver by any Guaranteed Party, or their successors or assigns, of the performance or observance by Borrower of any Obligation, or of any payment, Default or Event of Default, or breach or failure to perform under any Guaranteed Document; (5) any extension or renewal of time or forbearance for payment of any Financial Obligation or for performance of any other

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Obligation, or of the time for performance of any other obligations, covenants or agreements under or arising out of any Guaranteed Document; (6) the exchange, surrender, substitution or modification of any collateral security for any of the Obligations, or any furnishing or acceptance of additional security, or any release of any security, for the obligations of Borrower under the Guaranteed Documents, or the failure of any security or the failure of any Person to perfect any interest in any collateral security; (7) any failure, omission or delay on the part of any Guaranteed Party, or their successors or assigns (x) to give Guarantor notice of any Default, Event of Default, breach or other failure of performance under any Guaranteed Document or (y) to enforce, assert or exercise any right, power or remedy conferred on it in this Guaranty; (8) any other failure, omission or delay on the part of any Guaranteed Party in connection with any Guaranteed Document, or any other action on the part of the Guaranteed Party; (9) any voluntary or involuntary bankruptcy, insolvency, reorganization, arrangement, readjustment, general assignment for the benefit of creditors, composition, receivership, conservatorship, custodianship, liquidation, marshalling of assets and liabilities or similar proceedings with respect to Borrower, Guarantor, any other Person or any of their respective properties or creditors, or the disaffirmance with respect to Borrower of any of the Guaranteed Documents in any such proceeding or any action taken by any trustee or receiver or by any court in any such proceeding; (10) any limitation on Borrower’s liability or the Obligations (or the liabilities and obligations of any other Person) by cancellation, discharge, termination, frustration, irregularity, invalidity or unenforceability, in whole or in part, of any of the Guaranteed Documents; (11) any defect in the title, compliance with specifications, condition, design, operation or fitness for use of, or any damage to or loss or destruction of, the Aircraft, or any interruption or cessation in the use of the Aircraft or any portion thereof by Borrower or any other Person for any reason whatsoever (including without limitation any governmental or military authority, or any act of God or of the public enemy) regardless of the duration thereof, whether or not resulting from accident and whether or not without fault on the part of Borrower or any other Person; (12) any merger or consolidation of Borrower or Guarantor into or with any other Person, or any sale, lease or transfer of any of the assets of Borrower or Guarantor to any other Person; (13) any compromise, settlement, release, renewal, extension, indulgence, change in amendment to or waiver or modification of any Obligation, or any failure to mitigate damages, or any release or discharge, by operation of law or otherwise, of Guarantor, Borrower or any other Person from the performance or observance of any obligation, covenant or agreement contained in this Guaranty or any other Guaranteed Document; (14) any transfer or permitted assignment by Borrower or any Guaranteed Party, or their successors or assigns of its interest, or any part thereof, in and to any Guaranteed Document or the Aircraft or the assignment or transfer of any rights relating to any Obligation contained in any Guaranteed Document, including, without limitation, the full or partial assignment of any of the Guaranteed Documents or the Aircraft; (15) any defense, set-off, cross-claim or counterclaim which may at any time be available to or asserted against Borrower or Guarantor; (16) any misrepresentation or breach of warranty made by Borrower in any Guaranteed Document or in any certificate or document delivered in connection therewith; (17) the genuineness, legality, validity or enforceability of any Guaranteed Document, or of any assignment or termination of any Guaranteed Document; and (18) any other condition or circumstance that might otherwise constitute a legal or equitable discharge, release, counterclaim, offset or defense of a surety or guarantor, or that might otherwise limit recourse against Guarantor, including, without limitation, any discharge, release, defense or limitation arising out of any laws of the United States of America or any State thereof or any Governmental Authority having jurisdiction thereover that would either exempt, modify or delay the due or punctual payment and performance of the obligations of Guarantor hereunder, it being agreed that the obligations of Guarantor hereunder shall not be discharged except by payment or performance as herein provided.  To the fullest extent permitted by applicable law, Guarantor hereby waives and agrees not to assert any of the foregoing occurrences as a defense to its obligations hereunder.  Without limiting the foregoing, it is understood that repeated and successive demands and recoveries may be made hereunder as and when, from time to time, there shall be a Default or Event of Default by Borrower under the terms of any Guaranteed Document, and that this Guaranty shall remain in force and effect and shall apply to each and every subsequent Default or Event of Default.  No failure or delay in exercising any right under

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this Guaranty shall operate as a waiver thereof, nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right of the Guaranteed Party under this Guaranty or the Guaranteed Documents.

(c)Guarantee of Payment and Performance.  This Guaranty is a guarantee of payment and performance and not of collection and, to the fullest extent permitted by applicable law, Guarantor waives any right to require that any action or recourse against Borrower or any other Person or against any right or interest in any property or collateral security for the obligations be taken or exhausted prior to action being taken against Guarantor.  Guarantor specifically agrees that it shall not be necessary or required, and that Guarantor shall not be entitled to require, that any Guaranteed Party (i) file suit or proceed to obtain or assert a claim against Borrower or any other Person for the Obligations, (ii) give notice of or make demand for or make any effort at collection or obtaining performance of the Obligations from Borrower or any other Person, (iii) foreclose against or seek to realize upon any security now or hereafter existing for the Obligations, (iv) file suit or proceed to obtain or assert a claim for personal judgment or make any effort at collection of the Obligations from or against Borrower or any other Person liable for the Obligations, or exercise or assert any other right or remedy to which any Guaranteed Party is or may be entitled in connection with the Obligations or any security or other guaranty therefor, or (v) assert or file any claim against the assets of Borrower or any other guarantor or any other Person liable for the Obligations, or any part thereof, either before or as a condition to enforcing the liability of Guarantor under this Guaranty or requiring payment of said Obligations by Guarantor hereunder at any time thereafter.

(d)Waiver.  Guarantor hereby specifically agrees that it shall not be necessary or required as a condition to enforcement of the obligations hereunder against it, that there be (and Guarantor, to the fullest extent permitted by applicable law, specifically waives) diligence, presentment, demand, protest or notice of any kind whatsoever with respect to this Guaranty or the Obligations; such waiver includes, without limitation: (i) notice of acceptance of this Guaranty or notice of nonpayment or nonperformance of any of the Obligations; (ii) demand for payment or performance from Borrower or Guarantor; (iii) presentment for payment upon Borrower or Guarantor or the making of any protest; (iv) notice of the amount of the Obligations outstanding at any time; (v) notice of failure to perform on the part of Borrower or notice of dishonor or acceleration; (vi) any requirement to exhaust any remedies exercisable upon a Default or Event of Default under any Guaranteed Document; (vii) any notice of any sale, transfer or other disposition of any right, title to or interest in the Aircraft, or any part thereof; or (viii) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge, release or defense of a guarantor or surety or which might otherwise limit recourse against Guarantor.  Guarantor agrees that any repayment or performance of the Obligations guaranteed hereunder or other act which tolls any statute of limitations applicable to enforcement of the Obligations shall similarly operate to toll any statute of limitations applicable to any liability of Guarantor hereunder.  To the fullest extent permitted by applicable law, Guarantor waives (x) all rights and benefits under any statute or rule of law requiring the holder or holders of any promissory note to pursue the maker thereof, any security that said holder or holders may hold, or any other remedy before proceeding against Guarantor, (y) all rights and benefits under any applicable law (to the extent applicable to Guarantor hereunder) purporting to reduce a guarantor’s obligation in proportion to the principal obligation guaranteed and (z) relinquishes the benefit and advantage of any and all valuation, stay, appraisement, extension or redemption laws which, but for this provision, agreement and waiver, might be applicable to any sale made under any judgment, order or decree of any court or otherwise based on this Guaranty, or any other Guaranteed Document or on the security interest in favor of the Security Trustee under the Mortgage.  All waivers made by Guarantor in this subparagraph (d) and elsewhere throughout this Guaranty are intentional and made by Guarantor after due consideration of all the consequences thereof.

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(e)Borrower’s Financial Position.  Guarantor assumes full responsibility for keeping fully informed of the financial and business conditions of Borrower and all other circumstances materially affecting Borrower’s ability to perform the Obligations, and agrees that no Guaranteed Party will have any duty to report to Guarantor any information that it receives about Borrower’s financial condition, business or operations, or any circumstances bearing on its ability to perform its duties under the Operative Documents.  To the fullest extent permitted by applicable law, Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by any Guaranteed Party upon this Guaranty or acceptance of this Guaranty.  The Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred in reliance upon this Guaranty, and all dealings between Borrower or Guarantor and any Guaranteed Party relating thereto shall likewise be conclusively presumed to have been had or consummated in reliance upon this Guaranty.

(f)Termination.  Subject to the provisions of Section 3 hereof and except as otherwise provided in the Operative Documents, Guarantor’s obligations under this Section 1 shall terminate one year and 30 days from such time as the Obligations shall have been irrevocably paid, performed and observed in full.

SECTION 2.Rights Limited to Guaranteed Party.  This Guaranty shall not and shall not be deemed to create any right in any Person except the Guaranteed Parties (and the successors and the permitted assigns of any Guaranteed Party) and shall not be construed in any respect to be a contract in whole or in part for the benefit of any other Person.

SECTION 3.Bankruptcy, Etc.

(a)Guarantor agrees that if, at any time, all or any part of any payment or performance theretofore applied by any Guaranteed Party to any of the Obligations is or must be rescinded or returned by such Guaranteed Party for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of Borrower, Guarantor or any other Person), such Obligations shall, for the purposes of this Guaranty, to the extent that such payment or performance is or must be rescinded or returned, be deemed to have continued in existence, notwithstanding such application by such Guaranteed Party, and this Guaranty shall continue to be effective or be reinstated as to such Obligations, all as though such application by such Guaranteed Party had not been made.  If an event permitting the declaration of a Default or an Event of Default under a Guaranteed Document shall at any time have occurred and be continuing, and such declaration of Default or Event of Default shall at such time be prevented by reason of the pendency against Borrower, Guarantor or any other Person of a case or proceeding under a bankruptcy or insolvency law, Guarantor agrees that, for purposes of this Guaranty and its obligations hereunder, a Default or Event of Default shall be deemed to have been declared with respect to such Guaranteed Document with the same effect as if such Guaranteed Document had been enforceable in accordance with the terms thereof, and Guarantor shall forthwith pay the amounts specified by any Guaranteed Party to be paid thereunder, any interest thereon and any other amounts guaranteed hereunder without any other notice or demand.

(b)Guarantor hereby agrees that it will fully reimburse and does hereby fully indemnify each Guaranteed Party, on demand, for all reasonable costs and expenses (including without limitation reasonable fees of counsel) incurred by such Guaranteed Party in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law; provided, however, that each Guaranteed Party shall take such reasonable actions (or cease taking actions) as Guarantor may reasonably request to minimize or terminate further costs and expenses in connection with such rescission or restoration upon tender by Guarantor of the amount so rescinded or restored plus all other amounts due and owing hereunder

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(including indemnified amounts reasonably incurred to the date of such tender).  In case any Guaranteed Document shall be terminated as a result of the rejection or disaffirmance thereof by any trustee, receiver, liquidator, agent or other representative of Borrower or any of its property in any assignment for the benefit of creditors or in any bankruptcy, insolvency, reorganization, arrangement, readjustment, liquidation, dissolution of Borrower, or similar proceeding, Guarantor’s obligations hereunder shall continue to the same extent as if such Guaranteed Document had not been so rejected or disaffirmed.  Guarantor shall and does hereby waive all rights and benefits that might accrue to it by reason of any such assignment or proceeding and Guarantor agrees that it shall be liable for the full amount of the Obligations irrespective of and without regard to any modification, limitation or discharge of liability of Borrower that may result from or in connection with any such assignment or proceeding.

SECTION 4.Subrogation.  Guarantor hereby irrevocably and unconditionally waives so long as any Obligation remains outstanding any and all rights it may have or obtain, by reason of the performance of the terms and provisions of this Guaranty, to succeed to or be subrogated to the rights and privileges of any Guaranteed Party against Borrower or against any collateral security or guarantee or right of offset held by any Guaranteed Party for the payment of the Obligations pursuant to the Operative Documents or otherwise.  As between Guarantor and the Guaranteed Parties only, Guarantor hereby further (a) irrevocably waives, to the fullest extent permitted by applicable law, all contractual, common law, statutory or other rights of reimbursement, contribution, exoneration or indemnity (or any similar right) from or against Borrower which may have arisen in connection with this Guaranty and (b) agrees with Borrower for the benefit of each of Borrower’s creditors (including, without limitation, each of the Guaranteed Parties), but not to the benefit of any other Person who may have obligations to Borrower, that any such payment or performance by Guarantor shall constitute a contribution of capital by Guarantor to Borrower (or an investment in the equity capital of Borrower by Guarantor).  So long as any Obligation remains outstanding, if any amount shall be paid by or on behalf of Borrower to Guarantor on account of any of the rights waived in this paragraph, such amount shall be held by Guarantor in trust, segregated from other funds of Guarantor, be turned over to the Guaranteed Party entitled thereto in the exact form received by Guarantor (duly endorsed without recourse by Guarantor to such Guaranteed Party, if required), to be applied against the Obligations, whether matured or unmatured, in such order as such Guaranteed Party may determine.  The provisions of this paragraph shall survive the term of this Guaranty and the payment in full of the Obligations and the termination of the Guaranteed Documents.

SECTION 5.Amendments and Other Actions.  Each Guaranteed Party may, in its discretion, at any time and from time to time, without notice to Guarantor and without Guarantor’s consent (unless otherwise expressly required under the terms of such Guaranteed Documents), and without affecting the liability of Guarantor under this Guaranty, (a) agree to amendments, modifications or supplements to the Guaranteed Documents, give or withhold consents, waivers or approvals, and exercise, or refrain from exercising, rights under the Guaranteed Documents, (b) renew, extend (including extensions beyond the original term), modify, release or discharge any Obligation of Borrower, of co-guarantors (whether hereunder or under a separate instrument) or of any other party at any time directly or contingently liable for the payment of any of said Obligations, (c) accept partial payments of said Obligations, (d) settle, release (by operation of law or otherwise), compound, compromise, collect or liquidate any of said obligations and the security therefor in any manner, (e) consent to the transfer of security, or (f) bid and purchase at any sale of paper or security or any other collateral securing the Guaranteed Obligations.

SECTION 6.Remedies.  Guarantor agrees that, as between Guarantor and the Guaranteed Parties, the Obligations of Borrower may be declared to be forthwith due and payable or to be performed, as the case may be, as provided in the Guaranteed Documents (and shall be deemed to have become automatically due and payable or to be performed, as the case may be, in the circumstances provided for in such Guaranteed Documents) for purposes of this Guaranty, notwithstanding any stay, injunction or other prohibition preventing such declaration (or such Obligations from becoming automatically due and

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payable or to be performed, as the case may be), and such Obligations (whether or not due and payable or to be performed, as the case may be, by Borrower) shall forthwith become due and payable by Guarantor for purposes of this Guaranty.

SECTION 7.No Waiver.  No failure on the part of any Guaranteed Party to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by any Guaranteed Party of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy.  The remedies herein are cumulative and are not exclusive of any remedies provided by law.

SECTION 8.Instrument for the Payment of Money.  Guarantor hereby acknowledges that this Guaranty constitutes an instrument for the payment of money, and consents and agrees that any Guaranteed Party, at its sole option, in the event of a dispute by Guarantor in the payment of any moneys due hereunder, shall have the right, in addition to any other remedies which are available at law, to bring an action for civil remedies under the laws of the State of New York.

SECTION 9.Continuing Guaranty.  This Guaranty is a continuing guarantee, and shall apply to all Obligations whenever arising.

SECTION 10.Mortgage.  Guarantor hereby acknowledges receipt of a copy of the Mortgage and consents to the terms thereof.

SECTION 11.Effectiveness of Amendments.  No amendment of or supplement to this Guaranty, or waiver or modification of or consent under the terms hereof, shall be effective unless evidenced by an instrument in writing signed by Guarantor and each of the Guaranteed Parties.

SECTION 12.Payments.  All payments by Guarantor hereunder in respect of any Obligation shall be made in immediately available funds and otherwise as provided in the Guaranteed Documents pursuant to which such Obligations are created.  All payments by Guarantor hereunder shall be made free and clear of, and without deduction of or withholding for or on account of or liability for any present or future Taxes collected by way of withholding or deduction.  If any such Taxes are so levied or imposed, Guarantor agrees to pay such Taxes and an additional amount such that the net amount actually received by the person entitled to receive such payment will, after such withholding, equal the full amount of the payment then due and shall be free of expense to such person for collection or other charges.  Guarantor will promptly, and in any event within 30 days after the date on which the payment of any such Taxes is due pursuant to applicable law, furnish certified copies to such Guaranteed Party of tax receipts if available or, if not available, other evidence of payment by Guarantor.  Notwithstanding anything to the contrary contained herein, the provisions of clauses 6(b)(ii) through (xiii) of the Loan Agreement shall apply, mutatis mutandis, to any claim for an amount to be paid by Guarantor with respect to Taxes pursuant to the three preceding sentences as though the three preceding sentences were set forth in clause 6(b)(i) of the Loan Agreement and Guarantor were Borrower in all such clauses.

SECTION 13.Consent to Jurisdiction; Service of Process.  Guarantor irrevocably agrees for the benefit of the Guaranteed Parties, by execution and delivery of this Guaranty, that any legal action or proceeding brought against Guarantor with respect to this Guaranty, the Guaranteed Documents or the transactions contemplated hereby and thereby may be brought and determined in the Supreme Court of the State of New York, or in the United States District Court for the Southern District of New York, and Guarantor hereby irrevocably accepts with regard to any such action or proceeding, for itself and in respect of its properties, generally and unconditionally, the non-exclusive jurisdiction of, acknowledges competence of and irrevocably agrees (without waiving any rights to appeal) to be bound by a final

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judgment of the aforesaid courts.  Guarantor irrevocably waives, to the fullest extent permitted by applicable law, any objection that Guarantor may now or hereafter have to venue in such a court and any claim that such court is an inconvenient forum. Guarantor further irrevocably consents to the service of process in any proceeding initiated in either of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered airmail, postage prepaid, to Guarantor.  Nothing herein shall affect the right of any Guaranteed Party to serve process in any manner permitted by law or to commence legal proceedings or otherwise proceed against Guarantor in any other jurisdiction in which Guarantor may be subject to suit.

SECTION 14.Governing Law.  This Guaranty is delivered in, and shall in all respects be governed by and construed in accordance with the laws of the State of New York.

SECTION 15.Integration; Counterparts; Successors and Assigns.  This Guaranty (i) constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among Guarantor and the Guaranteed Parties, with respect to Guarantor’s obligation to guarantee the payment and performance of the Obligations, (ii) may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, and (iii) shall be binding upon the successors and assigns of Guarantor and shall inure to the benefit of, and shall be enforceable by, the Guaranteed Parties and their respective successors and assigns.

SECTION 16.Notices.  All requests, demands, notices, copies of service of process or other communications hereunder shall be addressed and given in the manner, and shall be effective as the times and under the terms, set forth in Section 9(a) of the Loan Agreement.

SECTION 17.Costs and Expenses.  Guarantor agrees to pay to the Guaranteed Parties any and all reasonable expenses (including reasonable legal fees and expenses) incurred by the Guaranteed Parties in construing and/or enforcing this Guaranty, including such costs and expenses incurred at trial or on appeal or in connection with any settlement, arbitration or mediation proceedings, together with any reasonable cost, including attorney’s fees, incurred on account of the bankruptcy or insolvency of Guarantor.

SECTION 18.Performance.  Performance by Guarantor of any or all of the obligations of Borrower under and pursuant to the Guaranteed Documents shall, for all purposes thereof, constitute performance by Borrower of such obligations to the extent so performed by Guarantor hereunder.

SECTION 19.Waiver of a Jury Trial.  GUARANTOR HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO WHICH IT IS A PARTY INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER ARISING IN TORT, CONTRACT, OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATING TO, OR CONNECTED WITH THIS GUARANTY OR ANY OTHER OPERATIVE DOCUMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER AND WHETHER ARISING OR ASSERTED BEFORE OR AFTER THE DATE HEREOF OR BEFORE OR AFTER THE PAYMENT, OBSERVANCE OR PERFORMANCE OF GUARANTOR’S OBLIGATIONS UNDER THIS GUARANTY OR ANY OTHER OPERATIVE DOCUMENT.

SECTION 20.Further Assurances.  Guarantor agrees that at its expense, from time to time upon the written request of any of the of the Guaranteed Parties, Guarantor will execute and deliver such further documents and do such other acts and things as the Guaranteed Parties reasonably request in order fully to effect the purposes of this Guaranty, including without limitation, executing and delivering such further documents as may be reasonably necessary or desirable to confirm or evidence the rights hereunder of any successor or permitted assign of any Guaranteed Party.

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SECTION 21.Captions.  The captions appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Guaranty.

SECTION 22.Agents and Attorneys-in-Fact.  Each Guaranteed Party may employ agents and attorneys-in-fact in connection herewith and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith.

SECTION 23.Severability.  If any provision hereof is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Guaranteed Parties to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction.

SECTION 24.Payment in Dollars.

(a)If, for the purposes of obtaining judgment in, or enforcing the judgment of, any court, it is necessary for any Person to convert a sum due hereunder in Dollars into another currency (the “Judgment Currency”), the rate of exchange used shall be that at which in accordance with normal banking procedures such Person could purchase Dollars with the Judgment Currency on the Business Day on which final judgment is given or the order of enforcement made.

(b)The obligation of Guarantor in respect of any sum due from it to any Person hereunder shall, notwithstanding any judgment or order of enforcement in such Judgment Currency, be discharged only to the extent that on the Business Day following that on which final judgment is given or the order of enforcement made, such Person may in accordance with normal banking procedures purchase Dollars with the Judgment Currency; if the Dollars so purchased are less than the sum originally due to such Persons in Dollars, Guarantor agrees, as a separate obligation and notwithstanding any such judgment or order of enforcement, to indemnify any Person against such loss attributable to any of its obligations hereunder, and if the Dollars so purchased exceed the sum originally due from Guarantor, in Dollars, such Person shall remit to Guarantor such excess.  Any additional amount due from Guarantor under this Section 24 will be due as a separate debt and shall not be affected by judgment or order of enforcement being obtained for any other sums due under or in respect of this Guaranty or any other Operative Document.

[Remainder of Page Intentionally Blank — Signature Page Follows]

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IN WITNESS WHEREOF, each of Guarantor and the Guaranteed Parties have executed this Guaranty on the date set forth above.

SKYWEST, INC.,
Guarantor
By:	/s/ Michael J. Kraupp
Name:		Michael J. Kraupp
Title:		Vice President Finance and Assistant Treasurer
C.I.T. LEASING CORPORATION
not in its individual capacity, except as expressly provided herein, but solely as Security Trustee
By:		/s/ Glen T. Dimpfel
Name:		Glen T. Dimpfel
Title:		Vice President
C.I.T. LEASING CORPORATION
Lender
By:		/s/ Glen T. Dimpfel
Name:		Glen T. Dimpfel
Title:		Vice President

Signature Page for Guaranty

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Jerry C. Atkin, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of SkyWest, Inc. for the quarter ended September 30, 2005;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this report.

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with general accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reported that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2005

/s/ Jerry C. Atkin

Jerry C. Atkin

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Bradford R. Rich, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of SkyWest, Inc. for the quarter ended September 30, 2005;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this report.

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with general accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reported that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2005

/s/ Bradford R. Rich

Bradford R. Rich

Chief Financial Officer and Treasurer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of SkyWest, Inc. (the “Company”) for the quarter ended September 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jerry C. Atkin, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)  The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Jerry C. Atkin

Jerry C. Atkin

Chief Executive Officer

November 9, 2005

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT

TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of SkyWest, Inc. (the “Company”) for the quarter ended September 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bradford R. Rich, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)  The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Bradford R. Rich

Bradford R. Rich

Chief Financial Officer

November 9, 2005

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.