Frontier Airlines Quarterly Report

FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000. [ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-24126 FRONTIER AIRLINES, INC. ----------------------- (Exact name of registrant as specified in its charter) Colorado 84-1256945 ----------------------------------------------------------- ---------------------------------- (State or other jurisdiction of incorporated or organization) (I.R.S. Employer Identification No.) 12015 E. 46th Avenue, Denver, CO 80239 ------------------------------------ ----------- (Address of principal executive offices) (Zip Code) Issuer's telephone number including area code: (303) 371-7400 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares of the Company's Common Stock outstanding as of October 31, 2000 was 18,028,897. TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Page ---- Item 1. Financial Information Financial Statements 1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3: Quantitative and Qualitative Disclosures About Market Risk 16 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 17 Item 6. Exhibits and Reports on Form 8-K 17 PART I. FINANCIAL INFORMATION Item 1. Financial Statements FRONTIER AIRLINES, INC. Balance Sheets (Unaudited) September 30, March 31, 2000 2000 --------------- ---------------- Assets - ------ Current assets: Cash and cash equivalents $ 118,891,103 $ 67,850,933 Short-term investments 2,000,000 15,760,000 Restricted investments 4,000,000 4,000,000 Trade receivables, net of allowance for doubtful accounts of $639,321 and $170,819 at September 30 and March 31, 2000, respectively 28,456,072 22,190,835 Maintenance deposits 24,606,257 19,637,128 Prepaid expenses and other assets 8,775,290 7,386,851 Inventories 2,916,390 2,235,183 Deferred tax assets 1,608,424 1,136,194 Deferred lease expense 101,649 163,527 --------------- ---------------- Total current assets 191,355,185 140,360,651 Security, maintenance and other deposits 25,111,103 17,613,122 Property and equipment, net 26,482,181 21,654,262 Deferred lease and other expenses 84,357 104,243 Restricted investments 11,144,260 7,813,760 --------------- ---------------- $ 254,177,086 $ 187,546,038 =============== ================ Liabilities and Stockholders' Equity - ------------------------------------ Current liabilities: Accounts payable $ 12,168,423 $ 14,407,913 Air traffic liability 55,655,605 44,518,837 Other accrued expenses 18,564,993 12,058,755 Income taxes payable 9,857,387 5,483,264 Accrued maintenance expense 26,976,554 21,893,316 Current portion of obligations under capital leases 119,110 113,029 --------------- ---------------- Total current liabilities 123,342,072 98,475,114 Accrued maintenance expense 9,503,528 7,214,167 Deferred tax liability 995,402 483,514 Obligations under capital leases, excluding current portion 267,934 328,702 --------------- ---------------- Total liabilities 134,108,936 106,501,497 --------------- ---------------- Stockholders' equity: Preferred stock, no par value, authorized 1,000,000 shares; none issued - - Common stock, no par value, stated value of $.001 per share, authorized 40,000,000 shares; 18,001,297 and 17,732,273 shares issued and outstanding at September 30 and March 31, 2000, respectively 18,001 17,732 Additional paid-in capital 69,755,876 67,946,230 Unearned ESOP shares (285,837) (857,713) 50,580,110 13,938,292 --------------- ---------------- Total stockholders' equity 120,068,150 81,044,541 --------------- ---------------- $ 254,177,086 $ 187,546,038 =============== ================ FRONTIER AIRLINES, INC. Statements of Income (Unaudited) Three Months Ended Six Months Ended September 30, September 30, September 30, September 30, 2000 1999 2000 1999 --------------- ---------------- --------------- ---------------- Revenues: Passenger $ 128,403,974 $ 83,412,784 $ 239,371,369 $ 159,387,697 Cargo 2,046,754 1,477,492 3,272,248 2,918,576 Other 632,150 562,989 1,248,005 1,033,189 --------------- ---------------- --------------- ---------------- Total revenues 131,082,878 85,453,265 243,891,622 163,339,462 --------------- ---------------- --------------- ---------------- Operating expenses: Flight operations 44,455,749 30,376,247 84,086,836 56,260,630 Aircraft and traffic servicing 14,840,730 12,025,644 28,488,515 22,870,783 Maintenance 18,199,777 12,608,651 32,590,660 26,046,742 Promotion and sales 15,359,093 12,535,279 27,820,866 24,226,789 General and administrative 6,415,869 4,170,915 12,645,487 7,858,538 Depreciation and amortization 1,218,440 633,441 2,292,782 1,207,652 --------------- ---------------- --------------- ---------------- Total operating expenses 100,489,658 72,350,177 187,925,146 138,471,134 --------------- ---------------- --------------- ---------------- Operating income 30,593,220 13,103,088 55,966,476 24,868,328 --------------- ---------------- --------------- ---------------- Nonoperating income (expense): Interest income 2,148,164 1,122,479 3,772,598 1,947,122 Interest expense (17,491) (26,115) (34,950) (48,016) Other, net (21,301) 136,587 (37,201) 15,021 --------------- ---------------- --------------- ---------------- Total nonoperating income, net 2,109,372 1,232,951 3,700,447 1,914,127 --------------- ---------------- --------------- ---------------- Income before income tax expense and cumulative effect of change in method of accounting for maintenance checks 32,702,592 14,336,039 59,666,923 26,782,455 Income tax expense 12,509,016 5,583,517 23,025,105 10,301,369 --------------- ---------------- --------------- ---------------- Income before cumulative effect of change in accounting principle 20,193,576 8,752,522 36,641,818 16,481,086 Cumulative effect of change in method of accounting for maintenance checks - - - 549,009 --------------- ---------------- --------------- ---------------- Net income $ 20,193,576 $ 8,752,522 $ 36,641,818 $ 17,030,095 =============== ================ =============== ================ (continued) FRONTIER AIRLINES, INC. Statements of Income, continued (Unaudited) Three Months Ended Six Months Ended September 30, September 30, September 30, September 30, 2000 1999 2000 1999 --------------- ---------------- --------------- ---------------- Earnings per share: Basic: Income before cumulative effect of a change in accounting principle $1.13 $0.50 $2.06 $0.97 Cumulative effect of change in method of accounting for maintenance checks - - - 0.03 --------------- ---------------- --------------- ---------------- Net income $1.13 $0.50 $2.06 $1.00 =============== ================ =============== ================ Diluted: Income before cumulative effect of a change in accounting principle $1.04 $0.46 $1.90 $0.88 Cumulative effect of change in method of accounting for maintenance checks - - - 0.03 --------------- ---------------- --------------- ---------------- Net income $1.04 $0.46 $1.90 $0.91 =============== ================ =============== ================ Weighted average shares of common stock outstanding Basic 17,914,437 17,452,641 17,828,548 16,998,582 =============== ================ =============== ================ Diluted 19,487,621 19,090,549 19,298,229 18,637,440 =============== ================ =============== ================ See accompanying notes to financial statements. FRONTIER AIRLINES, INC. Statement of Changes in Stockholders' Equity For the Year Ended March 31, 2000 and the Six Months Ended September 30, 2000 Common Stock Retained -------------------------- Additional Unearned earnings Total Stated paid-in ESOP (accumulated stockholders' Shares value capital shares deficit) equity ------------ ----------- ------------- ------------ ------------- ------------- Balances, March 31, 1999 16,141,172 $16,141 $58,054,844 $ (609,375) $ (13,070,961) $ 44,390,649 Exercise of common stock warrants 1,147,726 1,148 4,758,969 4,760,117 Exercise of common stock options 343,375 343 563,712 564,055 Tax benefit from exercises of common stock options and warrants 3,425,055 3,425,055 Contribution of common stock to employees stock ownership plan 100,000 100 1,143,650 (1,143,750) - Amortization of employee stock compensation 895,412 895,412 Net income 27,009,253 27,009,253 ------------ ----------- ------------- ------------ ------------- ------------- Balances, March 31, 2000 17,732,273 17,732 67,946,230 (857,713) 13,938,292 81,044,541 Exercise of common stock warrants 18,524 19 70,102 70,121 Exercise of common stock options 250,500 250 630,570 630,820 Tax benefit from exercises of common stock options and warrants 1,108,974 1,108,974 Amortization of employee stock compensation 571,876 571,876 Net income 36,641,818 36,641,818 Balances, ------------ ----------- ------------- ------------ ------------- ------------- September 30, 2000 18,001,297 $ 18,001 $69,755,876 (285,837) $50,580,110 $120,068,150 ============ =========== ============= ============ ============= ============= See accompanying notes to financial statements. FRONTIER AIRLINES, INC. Statements of Cash Flows For the Six Months Ended September 30, 2000 and 1999 (Unaudited) 2000 1999 --------------- ---------------- Cash flows from operating activities: Net income $ 36,641,818 $ 17,030,095 Adjustments to reconcile net income to net cash provided by operating activities: Employee stock option plan compensation expense 571,876 406,250 Depreciation and amortization 2,374,546 1,356,016 Deferred tax expense 39,658 5,041,655 Changes in operating assets and liabilities: Restricted investments (400,000) - Trade receivables (6,265,237) 4,309,365 Security, maintenance and other deposits (6,779,311) (3,927,921) Prepaid expenses and other assets (1,388,439) (1,447,044) Inventories (681,207) (847,505) Accounts payable (2,239,490) (31,291) Air traffic liability 11,136,768 3,303,676 Other accrued expenses 6,506,238 (734,814) Income taxes payable 4,374,123 4,564,708 Accrued maintenance expense 7,372,599 3,680,329 --------------- ---------------- Net cash provided by operating activities 51,263,942 32,703,519 --------------- ---------------- Cash flows from investing activities: Decrease (increase) in short-term investments 13,760,000 (33,466,704) Aircraft lease and purchase deposits, net (5,687,799) 1,833,916 Increase in restricted investments (2,930,500) (1,610,000) Capital expenditures (7,120,701) (4,161,830) --------------- ---------------- Net cash used by investing activities (1,979,000) (37,404,618) --------------- ---------------- Cash flows from financing activities: Net proceeds from issuance of common stock 1,809,915 5,148,079 Principal payments on obligations under capital leases (54,687) (52,325) --------------- ---------------- Net cash provided by financing activities 1,755,228 5,095,754 --------------- ---------------- Net increase in cash and cash equivalents 51,040,170 394,655 Cash and cash equivalents, beginning of period 67,850,933 47,289,072 --------------- ---------------- Cash and cash equivalents, end of period $ 118,891,103 $ 47,683,727 =============== ================ See accompanying notes to financial statements. FRONTIER AIRLINES, INC. Notes to Financial Statements September 30, 2000 (1) Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended March 31, 2000. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the six months ended September 30, 2000 are not necessarily indicative of the results that will be realized for the full year. Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 that describe the business and prospects of Frontier Airlines, Inc. ("Frontier" or the "Company") and the expectations of our Company and management. All statements, other than statements of historical facts, included in this report that address activities, events or developments that we expect, believe, intend or anticipate will or may occur in the future, are forward-looking statements. When used in this document, the words "estimate," "anticipate," "project" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. These risks and uncertainties include, but are not limited to: the timing of, and expense associated with, expansion and modification of our operations in accordance with our business strategy or in response to competitive pressures or other factors such as our commencement of passenger service and ground handling operations at several airports and assumption of maintenance and ground handling operations at DIA with our own employees; general economic factors and behavior of the fare-paying public; increased federal scrutiny of low-fare carriers generally that may increase our operating costs or otherwise adversely affect us; actions of competing airlines, such as increasing capacity and pricing actions of United Airlines and other competitors; the availability of suitable aircraft, which may inhibit our ability to achieve operating economies and implement our business strategy; the unavailability of, or inability to secure upon acceptable terms, financing necessary to purchase aircraft which we have ordered; and uncertainties regarding aviation fuel prices. Because our business, like that of the airline industry generally, is characterized by high fixed costs relative to revenues, small fluctuations in our yield per RPM or expense per ASM can significantly affect operating results. See "Risk Factors" in our Form 10-K for the year ended March 31, 2000 as they may be modified by the disclosures contained in this report. General We are a scheduled airline based in Denver, Colorado. As of October 31, 2000, we operate routes linking our Denver hub to 22 cities in 18 states spanning the nation from coast to coast. We added Kansas City, Missouri to our route system on June 15, 2000. We commenced service to Washington, D.C.'s Ronald Reagan International Airport on September 7, 2000 with one daily nonstop flight. On December 14, 2000 we intend to add an additional daily round trip flight to both Orlando, Florida and San Diego, California. We were organized in February 1994 and we began flight operations in July 1994 with two leased Boeing 737-200 jets. We have since expanded our fleet to 25 leased jets, including seven Boeing 737-200s and 18 larger Boeing 737-300s. We currently use up to nine gates at our hub, Denver International Airport ("DIA"), where we operate approximately 114 daily system flight departures. Beginning in May 2001, we will commence a fleet replacement plan by which we will replace our Boeing equipment with new purchased and leased Airbus jet aircraft, a transition we expect to complete by approximately the end of the calendar year 2004. Small fluctuations in our yield per revenue passenger mile ("RPM") or expense per available seat mile ("ASM") can significantly affect operating results because we, like other airlines, have high fixed costs in relation to revenues. Airline operations are highly sensitive to various factors, including the actions of competing airlines and general economic factors, which can adversely affect our liquidity, cash flows and results of operations. Results of Operations We had net income of $36,642,000 or $1.90 per diluted share for the six months ended September 30, 2000 as compared to net income of $17,030,000 or 91(cent)per diluted share for the six months ended September 30, 1999. We had net income of $20,194,000 or $1.04 per diluted share for the three months ended September 30, 2000 as compared to net income of $8,753,000 or 46(cent)per diluted share for the three months ended September 30, 1999. During the six months ended September 30, 2000, as compared to the prior comparable periods, we experienced higher average fares and load factors as a result of increases in the number of business travelers, a general increase in fare levels including increases intended to offset increased fuel costs, and an increase in the number of passengers that a major competitor directed to us because of an increase in the number of delays and cancellations that airline experienced. We estimate that the additional passenger traffic received from that airline had the effect of increasing each of our average fare and load factor for the six months ended September 30, 2000 by approximately 1%. Our cost per ASM for the six months ended September 30, 2000 and 1999 were 8.99(cent)and 8.07(cent), respectively, an increase of .92(cent) or 11.4%. Cost per ASM excluding fuel for the six months ended September 30, 2000 and 1999 were 7.42(cent)and 6.99(cent), respectively, an increase of .43(cent)or 6.2%. Our cost per ASM increased during the six months ended September 30, 2000 principally because of increases in the cost of fuel which accounted for .49(cent)per ASM, aircraft rentals for newer and larger aircraft of .15(cent)per ASM, general and administrative expenses primarily due to accrued bonuses for all employees resulting from increased profitability and a higher level of employee benefits of .15(cent)per ASM, offset by a .08(cent)reduction in cost per ASM in promotion and sales expense as a result of a decrease in the travel agency commission rate from 8% to 5% commencing in November 1999, and decreased advertising and communication expenses offset by an increase in credit card fees associated with the increase in our average fare. A general wage rate increase effective in January 2000 and an increase in pilots' salaries effective in May 2000 also contributed to the increase in cost per ASM during the six months ended September 30, 2000. Our cost per ASM during the six months ended September 30, 1999 included an unanticipated engine repair expense due to a premature failure, which accounted for .08(cent)of cost per ASM. Our cost per ASM for the six months ended September 30, 1999 adjusted for this expense would have been 7.99(cent)and our cost per ASM for the six months ended September 30, 2000 would have represented a .12(cent)increase in cost per ASM over the prior comparable period. During the three months ended September 30, 2000, two of our aircraft underwent an unusually extensive maintenance check. This was the first time we were required to perform an annual maintenance check on these aircraft since they entered our fleet. During the three months ended December 31, 1999, this accrual was reversed as the engine manufacturer agreed to repair the engine at no cost to us. An airline's break-even load factor is the passenger load factor that will result in operating revenues being equal to operating expenses, assuming constant revenue per passenger mile and expenses. For the six months ended September 30, 2000, our break-even load factor was 51.2% compared to our achieved passenger load factor of 68.3%. For the six months ended September 30, 1999, our break-even load factor was 52.4% compared to our achieved passenger load factor of 63%. Our break-even load factor decreased from the prior comparable period largely as a result of an increase in our average fare to $149 during the six months ended September 30, 2000 from $131 during the six months ended September 30, 1999, and an increase in our total yield per RPM from 15.10(cent) for the six months ended September 30, 1999 to 17.08(cent)for the six months ended September 30, 2000 offset by an increase in our expense per ASM to 8.99(cent)for the six months ended September 30, 2000 from 8.07(cent)for the six months ended September 30, 1999. The following table provides certain of our financial and operating data for the three month and six month periods ended September 30, 2000 and 1999. Three Months Ended September 30, Six Months Ended September 30, 2000 1999 2000 1999 ------------------ ----------------- ------------------ ----------------- Passenger revenue (000s) (1) $128,404 $83,413 $239,371 $159,388 Revenue passengers carried (000s) 826 617 1,538 1,170 Revenue passenger miles (RPMs) (000s) 760,845 575,476 1,427,600 1,081,723 Available seat miles (ASMs) (000s) (3) 1,073,703 900,524 2,091,258 1,716,485 Passenger load factor (4) 70.9% 63.9% 68.3% 63.0% Break-even load factor (5) 52.8% 52.9% 51.2% 52.4% Block hours (6) 20,823 17,987 40,848 34,772 Departures 9,772 8,441 18,901 16,384 Average seats per departure 131 127 131 127 Average stage length 839 840 845 825 Average length of haul 921 933 928 925 Aircraft miles (000s) 8,196 7,091 15,964 13,516 Average daily block hour utilization (7) 9.2 10.2 9.3 10.3 Yield per RPM (cents) (8) 16.88 14.49 16.77 14.73 Total yield per RPM (cents) (9) 17.23 14.85 17.08 15.10 Total yield per ASM (cents) (10) 12.21 9.49 11.66 9.52 Expense per ASM (cents) 9.36 8.03 8.99 8.07 Expense per ASM excluding fuel (cents) 7.67 6.86 7.42 6.99 Average fuel cost per gallon $1.07 $ 0.74 $ 1.00 $ 0.68 Passenger revenue per block hour $6,166 $4,637 $5,860 $4,584 Average fare (11) $149 $130 $149 $131 Average aircraft in fleet 24.5 19.1 24.0 18.5 Aircraft in fleet at end of period 25.0 19.0 25.0 19.0 Average age of aircraft at end of period 10.9 11.1 10.9 11.1 Average full-time equivalent employees 1,869 1,514 1,818 1,464 EBITDAR (000s) (12) 46,925 25,518 88,125 48,659 EBITDAR as a % of revenue 35.8% 29.9% 36.1% 29.8% (1) "Passenger revenue" includes revenues for non-revenue passengers, administrative fees, and revenue recognized for unused tickets that are greater than one year from issuance date. (2) "Revenue passenger miles," or RPMs, are determined by multiplying the number of fare-paying passengers carried by the distance flown. (3) "Available seat miles," or ASMs, are determined by multiplying the number of seats available for passengers by the number of miles flown. (4) "Passenger load factor" is determined by dividing revenue passenger miles by available seat miles. (5) "Break-even load factor" is the passenger load factor that will result in operating revenues being equal to operating expenses, assuming constant revenue per passenger mile and expenses (6) "Block hours" represent the time between aircraft gate departure and aircraft gate arrival. (7) "Average daily block hour utilization" represents the total block hours divided by the weighted average number of aircraft days in service. (8) "Yield per RPM" is determined by dividing passenger revenues by revenue passenger miles. (9) "Total Yield per RPM" is determined by dividing total revenues by revenue passenger miles. (10) "Total Yield per ASM" is determined by dividing passenger revenues by available seat miles. (11) "Average fare" excludes revenue included in passenger revenue for non-revenue passengers, administrative fees, and revenue recognized for unused tickets that are greater than one year from issuance date. (12) "EBITDAR", or "earnings before interest, income taxes, depreciation, amortization and aircraft rentals," is a supplemental financial measurement many airline industry analysts and we use in the evaluation of our business. However, EBITDAR should only be read in conjunction with all of our financial statements appearing elsewhere herein, and should not be construed as an alternative either to operating income (as determined in accordance with generally accepted accounting principles) as an indicator of our operating performance or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) as a measure of liquidity. The following table provides our operating revenues and expenses expressed as cents per total ASMs and as a percentage of total operating revenues, as rounded, for the three month and six month periods ended September 30, 2000 and 1999. Three months ended September 30, Six months ended September 30, -------------------------------- ------------------------------ 2000 1999 2000 1999 ------------------- -------------------- --------------------- --------------------- Per % Per % Per % Per % total of total of total of total of ASM Revenue ASM Revenue ASM Revenue ASM Revenue --- ------- --- ------- --- ------- --- ------- Revenues: Passenger 11.96 97.9% 9.26 97.6% 11.45 98.2% 9.29 97.6% Cargo 0.19 1.6% 0.17 1.7% 0.15 1.3% 0.17 1.8% Other 0.06 0.5% 0.06 0.7% 0.06 0.5% 0.06 0.6% ---------- -------- ----------- -------- ----------- --------- ----------- --------- Total revenues 12.21 100.0% 9.49 100.0% 11.66 100.0% 9.52 100.0% ========== ======== =========== ======== =========== ========= =========== ========= Operating expenses: Flight operations 4.14 33.9% 3.37 35.5% 4.02 34.5% 3.28 34.5% Aircraft and traffic servicing 1.38 11.3% 1.34 14.1% 1.36 11.7% 1.33 14.0% Maintenance 1.70 14.0% 1.40 14.8% 1.56 13.4% 1.52 16.0% Promotion and sales 1.43 11.7% 1.39 14.7% 1.33 11.4% 1.41 14.8% General and administrative 0.60 4.9% 0.46 4.9% 0.61 5.2% 0.46 4.8% Depreciation and amortization 0.11 0.9% 0.07 0.7% 0.11 0.9% 0.07 0.7% ---------- -------- ----------- -------- ----------- --------- ----------- --------- Total operating expenses 9.36 76.7% 8.03 84.7% 8.99 77.1% 8.07 84.8% ========== ======== =========== ======== =========== ========= =========== ========= Total ASMs (000s) 1,073,703 900,524 2,091,258 1,716,485 Revenues Our revenues are highly sensitive to changes in fare levels. Fare pricing policies have a significant impact on our revenues. Because of the elasticity of passenger demand, we believe that increases in fares may at certain levels result in a decrease in passenger demand in many markets. We cannot predict future fare levels, which depend to a substantial degree on actions of competitors. When sale prices or other price changes are initiated by competitors in our markets, we believe that we must, in most cases, match those competitive fares in order to maintain our market share. Passenger revenues are seasonal in leisure travel markets depending on the markets' locations and when they are most frequently patronized. Our average fare for the six months ended September 30, 2000 and 1999 was $149 and $131, respectively. We believe that the increase in the average fare during the six months ended September 30, 2000 over the prior comparable period was a result of increases in the number of business travelers, a general increase in fare levels including increases intended to offset increased fuel costs, and an increase in the number of passengers that a major competitor directed to us because of an increase in the number of delays and cancellations that airline experienced. We estimate that the additional passenger traffic received from that airline had the effect of increasing each of our average fare and load factor for the six months ended September 30, 2000 by approximately 1%. Passenger Revenues. Passenger revenues totaled $239,371,000 for the six months ended September 30, 2000 compared to $159,388,000 for the six months ended September 30, 1999, or an increase of 50.2%, which exceeded the 21.8% increase in ASMs of 374,773,000. The number of revenue passengers carried was 1,538,000 for the six months ended September 30, 2000 compared to 1,170,000 for the six months ended September 30, 1999 or an increase of 31.5%. We had an average of 24 aircraft in our fleet during the six months ended September 30, 2000 compared to an average of 18.5 aircraft during the six months ended September 30, 1999, an increase of 29.7%. RPMs for the six months ended September 30, 2000 were 1,427,600,000 compared to 1,081,723,000 for the six months ended September 30, 1999, an increase of 32%. Cargo revenues, consisting of revenues from freight and mail service, totaled $3,272,000 and $2,919,000 for the six months ended September 30, 2000 and 1999, respectively, representing 1.3% and 1.8%, respectively, of total operating revenues, an increase of 12.1%. Cargo revenues, consisting of revenues from freight and mail service, totaled $2,047,000 and $1,477,000 for the three months ended September 30, 2000 and 1999, representing 1.6% and 1.7% of total operating revenues, respectively, an increase of 38.6%. During July 2000 an audit was performed on our contract cargo sales and services provider. The audit disclosed that for a 15 month period between January 1, 1999 and March 31, 2000 both cash and credit card sales were remitted to us by our services provider, even though we had collected for the cash sales directly from our customer. We therefore adjusted cargo revenue downward $423,000 during the three months ended June 30, 2000. Excluding the effect of this adjustment, on the current and prior comparable period, cargo revenue would have been $3,695,000 and $2,742,000 for the six months ended September 30, 2000 and 1999, respectively, an increase of 34.8%. This adjunct to the passenger business is highly competitive and depends heavily on aircraft scheduling, alternate competitive means of same day delivery service and schedule reliability. Other revenues, comprised principally of interline handling fees, liquor sales and excess baggage fees, totaled $1,248,000 and $1,033,000, or .5% and .6% of total operating revenues for the six months ended September 30, 2000 and 1999, respectively, an increase of 20.8% Operating Expenses Operating expenses include those related to flight operations, aircraft and traffic servicing, maintenance, promotion and sales, general and administrative and depreciation and amortization. Total operating expenses were $187,925,000 and $138,471,000 for the six months ended September 30, 2000 and 1999 and represented 77.1% and 84.8% of revenue, respectively. Total operating expenses for the three months ended September 30, 2000 and 1999 were $100,490,000 and $72,350,000 and represented 76.7% and 84.7% of revenue, respectively. Operating expenses decreased as a percentage of revenue during the three and six months ended September 30, 2000 as a result of the 50.2% increase in passenger revenues attributable to a 31.5% increase in passengers and a 13.7% increase in the average fare offset by a 48.2% increase in the average cost per gallon of fuel, a general wage rate increase which became effective in January 2000, an increase in pilots' salaries effective in May 2000, and an increase in accrued bonuses based on increased profitability. Flight Operations. Flight operations expenses of $84,087,000 and $56,261,000 were 34.5% of total revenue for each of the six months ended September 30, 2000 and 1999. Flight operations expenses of $44,456,000 and $30,376,000 were 33.9% and 35.5% of total revenue for the three months ended September 30, 2000 and 1999, respectively. Flight operations expenses include all expenses related directly to the operation of the aircraft including fuel, lease and insurance expenses, pilot and flight attendant compensation, in-flight catering, crew overnight expenses, flight dispatch and flight operations administrative expenses. Aircraft fuel expenses include both the direct cost of fuel, including taxes, as well as the cost of delivering fuel into the aircraft. Aircraft fuel expense of $32,727,000 for 32,695,000 gallons used and $18,512,000 for 27,404,000 gallons used resulted in an average fuel cost of $1 and 67.6(cent)per gallon, for the six months ended September 30, 2000 and 1999, respectively. Aircraft fuel expense represented 38.9% and 32.9% of total flight operations expenses and 13.4% and 11.3% of total revenue for the six months ended September 30, 2000 and 1999, respectively. Aircraft fuel expense of $18,190,000 for 16,995,000 gallons used and $10,557,000 for 14,275,000 gallons used resulted in an average fuel expense of $1.07 and 74(cent)per gallon for the three months ended September 30, 2000 and 1999, respectively. Aircraft fuel expenses represented 40.9% and 34.8% of total flight operations expenses for the three months ended September 30, 2000 and 1999, and 13.9% and 12.4% of total revenue, respectively. Fuel prices are subject to change weekly as we do not purchase supplies in advance for inventory. Fuel consumption for the six months ended September 30, 2000 and 1999 averaged 800 and 788 gallons per block hour, respectively. Fuel consumption increased over the prior comparable period because of an increase in our load factor from 63% to 68.3%. During the six months ended September 30, 2000, a major competitor directed passengers to us because of an increase in the number of delays and cancellations that airline experienced. Because of this we increased the speeds we flew our aircraft to mitigate flight delays, which increased our fuel burn rate. Additionally, we returned five aircraft to the lessor during the year ended March 31, 2000 and replaced them with four aircraft that are larger and have a higher fuel burn rate. Aircraft lease expenses totaled $29,903,000 (12.3% of total revenue) and $22,019,000 (13.5% of total revenue) for the six months ended September 30, 2000 and 1999, respectively, an increase of 35.8%. Aircraft lease expenses totaled $15,135,000 (11.6% of total revenue) and $11,644,000 (13.6% of total revenue) for the three months ended September 30, 2000 and 1999, respectively, an increase of 30%. The increase is largely due to higher lease expenses for larger and newer Boeing 737-300 aircraft added to the fleet and an increase in the average number of aircraft to 24 from 18.5, or 29.7%, during the six month period ended September 30, 2000 compared to the same period in 1999. The average age of our fleet decreased from 11.1 years as of September 30, 1999 to 10.9 years as of September 30, 2000. Aircraft insurance expenses totaled $1,616,000 (.7% of total revenue) for the six months ended September 30, 2000. Aircraft insurance expenses for the six months ended September 30, 1999 were $1,317,000 (.8% of total revenue). Aircraft insurance expenses were .11(cent)and .12(cent) per RPM for the six months ended September 30, 2000 and 1999, respectively. Aircraft insurance expenses totaled $814,000 (.6% of total revenue) for the three months ended September 30, 2000. Aircraft insurance expenses for the three months ended September 30, 1999 were $711,000 (.8% of total revenue). Aircraft insurance expenses were .11(cent)and .12(cent)per RPM for the six months ended September 30, 2000 and 1999, respectively. Pilot and flight attendant salaries before payroll taxes and benefits totaled $10,322,000 and $7,230,000 or 4.3% and 4.5% of passenger revenue for each of the six months ended September 30, 2000 and 1999, an increase of 42.8%. Pilot and flight attendant salaries before payroll taxes and benefits totaled $5,399,000 and $3,777,000 or 4.2% and 4.5% of passenger revenue for each of the three months ended September 30, 2000 and 1999, an increase of 42.9%. In November 1998, our pilots voted to be represented by an independent union, the Frontier Airline Pilots Association. The first bargaining agreement for the pilots, which has a 5-year term, was ratified and made effective in May 2000. Pilot and flight attendant compensation increased principally as a result of a 29.7% increase in the average number of aircraft in service, general wage rate increases, and an increase of 17.5% in aircraft block hours. We pay pilot and flight attendant salaries for training, consisting of approximately six and three weeks, respectively, prior to scheduled increases in service which can cause the compensation expense during such period to appear high in relationship to the average number of aircraft in service. When we are not in the process of adding aircraft to our system, we expect pilot and flight attendant expense per aircraft to normalize. With a scheduled passenger operation, and with salaried rather than hourly crew compensation, our expenses for flight operations are largely fixed, with fuel expenses and flight catering the principal exception. We expect pilot and flight attendant salary expense to increase over approximately the next two years as a result of the Airbus transition and related training required for that transition. Aircraft and Traffic Servicing. Aircraft and traffic servicing expenses were $28,489,000 and $22,871,000 (an increase of 24.6%) for the six months ended September 30, 2000 and 1999, respectively, and represented 11.7% and 14.0% of total revenue. Aircraft and traffic servicing expenses were $14,841,000 and $12,026,000 (an increase of 23.4%) for the three months ended September 30, 2000 and 1999, respectively, and represented 11.3% and 14.1% of total revenue. Aircraft and traffic servicing expenses include all expenses incurred at airports including landing fees, facilities rental, station labor, ground handling expenses, and interrupted trip expenses associated with delayed or cancelled flights. Interrupted trip expenses are amounts paid to other airlines to reaccomodate passengers as well as hotel, meal and other incidental expenses. Aircraft and traffic servicing expenses increased with the addition of new cities and departures to our route system. During the six months ended September 30, 2000, we served 23 cities compared to 20 during the six months ended September 30, 1999, or an increase of 15%. During the six months ended September 30, 2000, our departures increased to 18,901 from 16,384 or 15.4%. Aircraft and traffic servicing expenses were $1,507 per departure for the six months ended September 30, 2000 as compared to $1,396 per departure for the six months ended September 30, 1999, or an increase of $111 per departure. During the three months ended September 30, 2000, our departures increased to 9,772 from 8,441 or 15.8%. Aircraft and traffic servicing expenses were $1,519 per departure for the three months ended September 30, 2000 as compared to $1,425 per departure for the three months ended September 30, 1999, or an increase of $94 per departure. Aircraft and traffic servicing expenses increased as a result of a general wage rate increase effective in January 2000, contract ground handling services in certain of the cities we serve as a result of increased frequencies in existing markets and introduction of service to new cities, and increased per passenger charges as a result of the greater number of passengers we carried. These increases were offset by a decrease in interrupted trip expenses as a result of an improvement in our completion factor from 98.9% for the six months ended September 30, 1999 to 99.4% for the six months ended September 30, 2000. Maintenance. Maintenance expenses of $32,591,000 and $26,047,000 were 13.4% and 16% of total revenue for the six months ended September 30, 2000 and 1999, respectively. Maintenance expenses of $18,200,000 and $12,609,000 were 14% and 14.8% of total revenue for the three months ended September 30, 2000 and 1999, respectively. These include all labor, parts and supplies expenses related to the maintenance of the aircraft. Routine maintenance is charged to maintenance expense as incurred while major engine overhauls and heavy maintenance check expense is accrued monthly with variances from accruals recognized at the time of the check. Maintenance cost per block hour for the six months ended September 30, 2000 and 1999 were $798 and $749, respectively. During the six months ended September 30, 1999, we accrued for an unanticipated engine repair expense as a result of a premature failure totaling $1,500,000. During the quarter ended December 31, 1999, this accrual was reversed as the engine manufacturer agreed to repair the engine at no cost to us. Maintenance cost per block hour for the six months ended September 30, 1999 would have been $706 excluding this engine repair expense and the maintenance cost per block hour for the six months ended September 30, 2000 compared to the six months ended September 30, 1999 would have represented a 13% increase. Maintenance costs per block hour increased as a result of increased facilities rentals to satisfy additional space requirements for the increase in aircraft coupled with an increase in the number of aircraft simultaneously out of service for heavy maintenance, and a general wage rate increase effective January 2000. Because of the increase in the number of aircraft out of service for heavy maintenance, our average daily block hour utilization decreased from 10.3 for the six months ended September 30, 1999 to 9.3 for the six months ended September 30, 2000. Maintenance cost per block hour for the three months ended September 30, 2000 and 1999 were $874 and $701, respectively, or an increase of 24.7%. During the three months ended September 30, 2000, two of our aircraft underwent an unusually extensive maintenance check. This was the first time we were required to perform a heavy annual maintenance check on these aircraft since they entered our fleet. We also incurred increased costs in personnel, training and information technology expenses for implementation of new maintenance and engineering software and in preparation for the Airbus transition. Promotion and Sales. Promotion and sales expenses totaled $27,821,000 and $24,227,000 and were 11.4% and 14.8% of total revenue for the six months ended September 30, 2000 and 1999, respectively. These include advertising expenses, telecommunications expenses, wages and benefits for reservationists and reservations supervision as well as marketing management and sales personnel, credit card fees, travel agency commissions and computer reservations costs. Promotion and sales expenses decreased as a percentage of revenue for the six months ended September 30, 2000 over the prior comparable period largely as a result of the increase in revenue and a decrease in travel agency commissions. During the six months ended September 30, 2000, promotion and sales expenses per passenger decreased to $18.09 compared to $20.71 for the six months ended September 30, 1999. Promotion and sales expenses decreased largely as a result of a decrease in travel agency commissions from 8% to 5% effective in November 1999, matching a decrease instituted by our competitors. Travel agency commissions and interline service charges and handling fees, as a percentage of passenger revenue, before non-revenue passengers, administrative fees and breakage (revenue from expired tickets), decreased to 3.5% for the six months ended September 30, 2000 compared to 5% for the six months ended September 30, 1999. The decrease in travel agency commissions was offset by increased commission expense associated with the increase in our average fare as we do not cap commissions. With increased activity on our web site, our calls per passenger have decreased. Because of the increase in web site activity, as well as a decrease in long distance rates, we experienced a decrease in communications expense. These cost savings were offset by an increase in credit card fees associated with the increase in our average fare from $131 for the six months ended September 30, 1999 to $149 for the six months ended September 30, 2000. General and Administrative. General and administrative expenses for the six months ended September 30, 2000 and 1999 totaled $12,645,000 and $7,859,000 and were 5.2% and 4.8% of total revenue, respectively, an increase of 60.9%. During the six months ended September 30, 2000 and 1999, we accrued for employee performance bonuses totaling $4,293,000 and $1,875,000, respectively, which were 1.8% and 1.2% of total revenue, an increase of 129%. Employee performance bonuses increased over the prior comparable period as a result of our increased profitability and an enhancement to the bonus program. General and administrative expenses include the wages and benefits for several of our executive officers and various other administrative personnel including legal, accounting, information technology, aircraft procurement, corporate communications, training and human resources and other expenses associated with these departments. Employee health benefits, accrued vacation and bonus expenses, general insurance expenses including worker's compensation, and write-offs associated with uncollectible accounts are also included in general and administrative expenses. We experienced increases in our human resources, training and information technology expenses as a result of an increase in employees from approximately 1,763 in September 1999 to approximately 2,273 in September 2000, an increase of 28.9%. We also experienced personnel increases in the area of aircraft procurement as a result of the purchase and lease agreements for Airbus aircraft. Because of the increase in personnel, our health insurance benefit expenses and accrued vacation expense increased accordingly. During the six months ended September 30, 2000, our accrued vacation expense increased as a result of the increase in pilot salaries and vacation benefits due to a collective bargaining agreement concluded with the pilots' union effective in May 2000. General and administrative expenses for the three months ended September 30, 2000 and 1999 totaled $6,416,000 and $4,171,000 and were 4.9% of total revenue for each of these periods, an increase of 53.8%. During the three months ended September 30, 2000, we reduced our health insurance liability by $507,000 because our benefit claim payments have been less than actuarially developed expected costs. Depreciation and Amortization. Depreciation and amortization expenses of $2,293,000 and $1,208,000 were approximately .9% and .7% of total revenue for the six months ended September 30, 2000 and 1999, an increase of 89.9%. These expenses include depreciation of office equipment, ground station equipment, spare parts, aircraft leasehold improvements, and other fixed assets. Amortization of start-up and route development costs are not included as these expenses have been expensed as incurred. Depreciation and amortization expenses increased over the prior year as a result of an increase in our spare parts inventory including a spare engine, leasehold improvements associated with 14 aircraft (eight additional and six replacement) added to our fleet during the past 18 months, ground handling equipment, and computers to support new employees as well as replacement computers for those with dated technology. Nonoperating Income (Expense). Net nonoperating income totaled $3,700,000 for the six months ended September 30, 2000 compared to $1,914,000 for the six months ended September 30, 1999. Interest income increased from $1,947,000 to $3,773,000 during the six months ended September 30, 2000 from the prior period due to an increase in cash balances as a result of an increase in cash provided by operating activities and proceeds from stock option and warrant exercises. Income Tax Expense. We accrued income taxes of $23,025,000 and $10,301,000 at 39% and 38.25% of taxable income during the six months ended September 30, 2000 and 1999, respectively. Liquidity and Capital Resources Our balance sheet reflected cash and cash equivalents and short-term investments of $120,891,000 and $83,611,000 at September 30, 2000 and March 31, 2000, respectively. At September 30, 2000, total current assets were $191,355,000 as compared to $123,342,000 of total current liabilities, resulting in working capital of $68,013,000. At March 31, 2000, total current assets were $140,361,000 as compared to $98,475,000 of total current liabilities, resulting in working capital of $41,886,000. The increase in our working capital is largely a result of cash flows provided by operating activities and proceeds from exercises of common stock options and warrants during the six months ended September 30, 2000. We believe that our existing cash balances, combined with improved operating results, are and will be adequate to fund our operations for the foreseeable future. However, as discussed below, we will require financing in order to fund our intended purchase of Airbus A319 and A318 aircraft. Cash provided by operating activities for the six months ended September 30, 2000 was $51,264,000. This is attributable to our net income for the period, increases in air traffic liability, other accrued expenses, income taxes payable, and accrued maintenance expense, offset by increases in trade receivables, security, maintenance and other deposits, prepaid expenses and inventories, and a decrease in accounts payable. Cash provided by operating activities for the six months ended September 30, 1999 was $32,704,000. This is attributable to our net income for the period, the utilization of deferred tax assets, decreases in trade receivables, increases in our air traffic liability, other accrued expenses, and accrued maintenance expenses, offset by increases in security, maintenance and other deposits, prepaid expenses and inventories. Cash used by investing activities for the six months ended September 30, 2000 was $1,979,000. We had maturities of $13,760,000 in short-term investments, net of purchases, comprised of certificates of deposit and government-backed agencies with maturities of one year or less. During the six months ended September 30, 2000, we made cash security deposits and pre-delivery payments totaling $5,688,000 associated with two leased Boeing 737-300 aircraft delivered during the six months ended September 30, 2000, the 16 Airbus aircraft we have agreed to lease with delivery dates beginning in June 2001, and the 12 Airbus aircraft we have agreed to purchase with delivery dates beginning in May 2001. During the six months ended September 30, 2000, we used $7,121,000 for capital expenditures for rotable aircraft components, maintenance equipment and tools, aircraft leasehold costs and improvements, computer equipment and software for enhancements to our internet booking site, our reservation system and a replacement maintenance system. Cash used by investing activities for the six months ended September 30, 1999 was $37,405,000. We invested $33,467,000 in short-term investments, net of maturities, comprised of government-backed agencies with maturities of one year or less. During the six months ended September 30, 1999, cash security deposits for aircraft totaling $1,834,000 were returned to us. We had issued to certain of our aircraft lessors warrants to purchase 395,000 shares of our Common Stock at an aggregate purchase price of $2,391,600. During May 1999 and June 1999, aircraft lessors exercised all of these warrants and we received $2,391,600. To the extent that the aircraft lessors were able to realize certain profit margins on their subsequent sale of our Common Stock, they were required to refund a portion of the cash security deposits they were holding. As a result of their sales of our Common Stock, $1,024,000 in cash security deposits were returned to us during the six months ended September 30, 1999. Other cash security deposits were replaced with letters of credit and these deposits were returned to us. We also received $500,000 in cash security deposits for aircraft returned to the lessor during the six months ended September 30, 1999. Additionally, we secured five aircraft delivered during the six months ended September 30, 1999 with letters of credit totaling $1,610,000. Our restricted investments increased $1,610,000 to collateralize these letters of credit. We used $4,162,000 for capital expenditures for rotable aircraft components, maintenance equipment and tools, aircraft leasehold costs and improvements, and computer equipment during the six months ended September 30, 1999. Cash provided by financing activities for the six months ended September 30, 2000 and 1999 was $1,755,000 and $5,096,000, respectively. During the six months ended September 30, 2000 and 1999 we received $1,810,000 and $5,148,000, respectively, from the exercise of common stock options and warrants. As of October 31, 2000, we lease 25 Boeing 737 type aircraft under operating leases with expiration dates ranging from 2002 to 2006. Under these leases, we were required to make cash security deposits or issue letters of credit to secure our lease obligations. At September 30, 2000, we had made cash security deposits and had arranged for issuance of letters of credit totaling $3,858,000 and $10,215,000, respectively. Accordingly, our restricted cash balance includes $10,215,000 that collateralize the outstanding letters of credit. Additionally, we make deposits for maintenance of these aircraft. At September 30 and March 31, 2000, we had made maintenance deposits of $33,659,000 and $26,912,000, respectively. In March 2000, we entered into an agreement, amended in July 2000, to purchase up to 29 new Airbus aircraft. We have agreed to firm purchases of 12 of these aircraft, and have options to purchase up to an additional 17 aircraft. This order contemplates a fleet replacement plan by which we will phase out our Boeing 737 aircraft and replace them with a combination of Airbus A319 and A318 aircraft. The aggregate additional amounts due under this purchase commitment and estimated amounts for buyer-furnished equipment and spare parts for both the purchased and leased aircraft was approximately $374,046,000 as of October 2000. Under the terms of the purchase agreement, we are required to make scheduled pre-delivery payments. These payments are non-refundable with certain exceptions. As of October 31, 2000, the Company has made pre-delivery payments totaling $11,488,000 to secure these aircraft and option aircraft. As a complement to this purchase, in April and May 2000 we signed two agreements to lease 16 new Airbus aircraft. As of September 30, 2000, we have made cash security deposits and had arranged for issuance of letters of credit totaling $200,000 and $3,089,000, respectively, to secure these aircraft. Upon completion of our fleet transition, we expect our owned and leased fleet to be comprised of approximately two-thirds A319 aircraft and one-third A318 aircraft. We expect to take delivery of our first purchased Airbus aircraft in May 2001 and our first leased Airbus aircraft in June 2001, and plan to complete our fleet transition by the end of 2004. The A319 and A318 aircraft will be configured with 132 and 114 passenger seats, respectively, with a 33-inch seat pitch. In order to complete the purchase of these aircraft we must secure acceptable aircraft financing. The amount of financing required will depend on the number of aircraft purchase options we exercise and the amount of cash generated by operations prior to delivery of the aircraft. We continue to explore various financing alternatives, including but not limited to, domestic and foreign bank financing, public debt financing such as enhanced equipment trust certificates, and leveraged lease arrangements. While we believe that such financing will be available to us, there can be no assurance that financing will be available when required, or on acceptable terms. The inability to secure such financing could have a material adverse effect on us and result in delays in or our inability to take delivery of Airbus aircraft we have agreed to purchase. Item 3: Quantitative and Qualitative Disclosures About Market Risk The risk inherent in our market risk sensitive position is the potential loss arising from an adverse change in the price of fuel as described below. The sensitivity analysis presented does not consider either the effect that such an adverse change may have on overall economic activity or additional action management may take to mitigate our exposure to such a change. Actual results may differ from the amounts disclosed. At the present time, we do not utilize fuel price hedging instruments to reduce our exposure to fluctuations in fuel prices. Our earnings are affected by changes in the price and availability of aircraft fuel. Market risk is estimated as a hypothetical 10 percent increase in the average cost per gallon of fuel for the year ended March 31, 2000. Based on fiscal year 2000 actual fuel usage, such an increase would have resulted in an increase to aircraft fuel expense of approximately $4,442,000 in that fiscal year. Comparatively, based on projected fiscal year 2001 fuel usage, such an increase would result in an increase to aircraft fuel expense of approximately $5,343,000 in fiscal year 2001. The increase in exposure to fuel price fluctuations in fiscal year 2001 is due to the increase of our average aircraft fleet size during the year ended March 31, 2000, projected increases to our fleet during the year ended March 31, 2001 and related gallons purchased. The price of aviation fuel has recently increased substantially more than the foregoing hypothetical example as our average cost per gallon of fuel for the six months ended September 30, 2000 increased 47.9% over our average cost for fuel during the same period ended September 30, 1999. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Operating Expenses." PART II. OTHER INFORMATION Item 4: Submission of Matters to a Vote of Security Holders --------------------------------------------------- The annual meeting of shareholders of the Company was held on September 7, 2000, at which a quorum for the transaction of business was present. One matter was voted upon, as described below. Members of the Company's Board of Directors elected at the meeting were Samuel D. Addoms, D. Dale Browning, Paul S. Dempsey, William B. McNamara, B. Larae Orullian, , and James B. Upchurch. The votes cast with respect to each nominee were as follows: 10,982,378 "For" Mr. Addoms; 11,096 "Withheld" 10,978,831 "For" Mr. Browning; 14,643 "Withheld" 10,980,612 "For" Mr. Dempsey; 12,862 "Withheld" 10,980,435 "For" Mr. McNamara; 13,039 "Withheld" 10,977,332 "For" Ms. Orullian; 16,142 "Withheld" 10,979,487 "For" Mr. Upchurch; 13,987 "Withheld" Item 6: Exhibits and Reports on Form 8-K -------------------------------- Exhibit Numbers - ------- (a) Exhibits 10.11(b) Aircraft Lease Extension and Amendment Agreement (MSN23257) dated as of September 29, 2000, between General Electric Capital Corporation and Frontier Airlines, Inc. (1) 10.12(a) Aircraft Lease Extension and Amendment Agreement (MSN22733) dated as of September 29, 2000, between Polaris Holding Company and Frontier Airlines, Inc. (1) 10.13(b) Aircraft Lease Extension and Amendment Agreement (MSN22734) dated as of September 29, 2000, between Polaris Holding Company and Frontier Airlines, Inc. (1) 10.51(a) Amendment No. 1 to Airbus A318/A319 Purchase Agreement dated as of March 10, 2000 between AVSA, S.A.R.L., Seller, and Frontier Airlines, Inc., Buyer. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (1) 10.59 Aircraft Lease Agreement dated as of August 14, 2000 between Frontier Airlines, Inc., Lessee, and International Lease Finance Corporation, Lessor, in respect to one Boeing 737-300 aircraft (MSN26301). Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (1) 10.60 General Terms Agreement No. 6-13616 between CFM International and Frontier Airlines, Inc. Portions of this exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (1) 27.1 Financial Data Schedule (1) (1) Filed herewith. (b) Reports on Form 8-K None. SIGNATURES Pursuant to the requirements of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FRONTIER AIRLINES, INC. Date: November 2, 2000 By: /s/ Steve B. Warnecke ---------------------------------------------- Steve B. Warnecke, Vice President and Chief Financial Officer Date: November 2, 2000 By: /s/ Elissa A. Potucek ---------------------------------------------- Elissa A. Potucek, Vice President, Controller, Treasurer and Principal Accounting Officer

EXECUTION VERSION AIRCRAFT LEASE EXTENSION AND AMENDMENT AGREEMENT No. 2 Dated as of September 29, 2000 Between GENERAL ELECTRIC CAPITAL CORPORATION as Lessor and FRONTIER AIRLINES, INC. as Lessee in respect of Aircraft Lease Agreement dated as of October 20, 1995 relating to one Boeing 737-301 aircraft manufacturer's serial number 23257 THIS AGREEMENT is dated as of September 29, 2000 BETWEEN: GENERAL ELECTRIC CAPITAL CORPORATION, a company incorporated under the laws of New York whose headquarters are at 260 Long Ridge Road, Stamford, CT 06927 ("Lessor"); and FRONTIER AIRLINES, INC., a company incorporated under the laws of Colorado whose headquarters are at 12015 East 46th Avenue, Denver, Colorado 80239 ("Lessee"). WHEREAS: (A) By an Aircraft Lease Agreement dated as of October 20, 1995 as amended and supplemented by Letter Agreement No. 1 dated as of October 20, 1995, and as further amended and supplemented by an Aircraft Lease Extension and Amendment Agreement dated as of October 1, 1999 and an Amendment to Letter Agreement No. 1 dated as of October 1, 1999 (as further amended, modified and supplemented from time to time, the "Lease"), Lessor leased to Lessee and Lessee took on lease one Boeing 737-301 aircraft with manufacturer's serial number 23257, together with the engines (each having 750 or more rated takeoff horsepower) installed thereon, all more fully identified in Schedule 1 hereto, together with the related parts and equipment (collectively, the "Aircraft") on the terms and subject to the conditions contained therein. (B) Interests in the Aircraft and such engines are affected by the Lease and the other instruments identified (together with information respecting their recordation by the FAA under the Federal Aviation Act) in Schedule 2 hereto. (C) Lessor and Lessee wish to enter into this Agreement for the purpose of extending the term of the Lease and making certain further amendments to the Lease. IT IS AGREED as follows: 1. INTERPRETATION 1.1 Definitions: Capitalised terms used herein but not defined shall have the respective meanings ascribed to such terms in the Lease. In this Agreement "Extended Lease" means the Lease as amended by this Agreement. 1.2 Construction: The provisions of Clause 1.2 (Construction) of the Lease shall apply to this Agreement as if the same were set out in full herein. 2. REPRESENTATIONS AND WARRANTIES Lessee hereby repeats the representations and warranties in Clause 2.1 of the Lease as if made with reference to the facts and circumstances existing as at the date hereof and as if the references in such representations and warranties to "this Agreement" referred to the Lease as amended by this Agreement. 3. LEASE EXTENSION Lessor and Lessee hereby agree (subject to satisfaction of the conditions specified in Clause 5) to extend the period for which the Aircraft is leased to Lessee pursuant to the Lease from the current Expiry Date of February 23, 2003 to September 30, 2003. Accordingly, the Lease is hereby amended (subject to satisfaction of the conditions specified in Clause 5) by deleting it in its entirety and replacing it with the following: Expiry Date September 30, 2003 or if earlier the date on which: (a) Lessor, acting in accordance with the terms of this Agreement terminates the leasing of the Aircraft to Lessee under this Agreement; or (b) Lessor receives the Agreed Value together with any other amounts then due and unpaid by Lessee following an Event of Loss. 4. OTHER AMENDMENTS TO LEASE 4.1 Other Amendments: The Lease shall be further amended (subject to satisfaction of the conditions specified in Clause 5) as follows: 4.1.1 The following definitions shall be added in the appropriate alphabetical order in Clause 1.1: "Pre-Approved Bank Wells Fargo Bank, N.A." "Letter of Credit as defined in Clause 5.1 hereof." "Required LC Expiry Date" the date which is 91 days after the Expiry Date." 4.1.2 Clause 5.1 is hereby amended and restated its entirety as follows: "5.1 Deposit: (a) Lessee shall pay to Lessor a Deposit in the amount set forth in the definition of that term in Letter Agreement Number 1. (b) In lieu of a cash Deposit, Lessee shall have the option to provide Lessor with a letter of credit issued and payable by a Pre-Approved Bank or another bank reasonably acceptable to Lessor in its reasonable discretion and in form and substance reasonably acceptable to Lessor, and, if not issued by a Pre-Approved Bank or by the New York branch of a major bank reasonably acceptable to Lessor in its reasonable discretion from time to time, will be confirmed by and payable at the New York branch of a major bank reasonably acceptable to Lessor in its reasonable discretion from time to time (the "Letter of Credit"). The Letter of Credit will be issued in lieu of a cash Deposit as security for all payment obligations of Lessee under the Lease and Other Agreements (including any and all obligations to indemnify Lessor for Losses suffered or incurred by it), which shall remain in full force and effect and may be drawn down by Lessor upon demand at any time or times following the occurrence of an Event of Default until the Required LC Expiry Date. (c) With the prior written consent of Lessor, the Letter of Credit may have a validity period or periods ending prior to the Required LC Expiry Date, provided that (i) the Letter of Credit shall, in each case, be renewed and delivered to Lessor not later than 45 days prior to its expiry; and (ii) a Letter of Credit shall remain in force at all times up to the Required LC Expiry Date. (d) If at any time during the Term, Lessor reasonably determines in its reasonable discretion that the current issuing or confirming bank for the Letter of Credit is no longer an acceptable issuing or confirming bank (whether by virtue of a material adverse change in its financial condition, a decrease in any credit rating of its long-term unsecured debt obligations, or for any other reason) Lessee shall promptly procure that the Letter of Credit is replaced by a Letter of Credit issued by another bank reasonably acceptable to Lessor in its reasonable discretion and (if reasonably requested by Lessor in its reasonable discretion) that such replacement Letter of Credit is confirmed by another bank reasonably acceptable to Lessor in its reasonable discretion. (e) If Lessor makes a drawing under the Letter of Credit, Lessee shall, following a demand in writing by Lessor, procure that the maximum amount available for drawing under the Letter of Credit is promptly restored to the level at which it stood immediately prior to such drawing. (f) If Lessee elects to provide Lessor with a Letter of Credit in lieu of the cash Deposit pursuant to the provisions of this Clause 5.1, then promptly upon receipt by Lessor of such Letter of Credit, Lessor shall return such cash Deposit to Lessee. If at any time thereafter a Letter of Credit shall not be in force and effect, then Lessee shall promptly provide Lessor with a cash Deposit. (g) So long as no Default or Event of Default then exists, Lessor shall refund to Lessee all Deposits (if any) then held by Lessor or, as the case may be, return the Letter of Credit upon return and final acceptance of the Aircraft by Lessor on the Expiry Date or promptly after receipt of the Agreed Value after an Event of Loss. 4.1.3 Clause 7.3(b)(i) shall be amended by inserting the words "(if any) or, as the case may be, return the Letter of Credit" immediately after the word "Deposit". 4.1.4 Clause 16.7 (a) shall be amended be deleting the Phrase beginning with the words "The U.N. Convention" through the words ", and" at the end thereof and replacing them with the word "or". 4.1.5 The following sentence shall be added at the end of Clause 16.12(a): "The U.N. Convention on Contracts for the International Sales of Goods is not applicable to this Agreement and all of its terms must be construed in accordance with the Governing Law applicable to domestic transactions in the jurisdiction to which the Governing Law pertains." 5. CONDITIONS PRECEDENT 5.1 Conditions: This Agreement and Lessor's obligation to extend the Term shall be subject to the satisfaction of each of the following conditions and receipt of the following documents: (a) Insurances: certificates of insurance, an undertaking from Lessee's insurance broker and other evidence satisfactory to Lessor of Lessee's due compliance with the provisions of the Lease (as extended hereby) regarding Insurances; (b) Legal Opinion: a legal opinion from Lessee's counsel in form and substance reasonably acceptable to Lessor; (c) Filings and FAA Opinion: evidence of the recordation of this Amendment with the FAA and, promptly after such recordation, provision by Lessee to Lessor of an opinion of FAA counsel acceptable to Lessor who are recognized specialists with regard to FAA registration matters in a form acceptable to Lessor acting reasonably as to the due filing for recordation of this Amendment; (d) Certificate of Lease Termination: a replacement certificate of lease termination executed by a duly authorized officer of Lessee, substantially in the form of Schedule 3 hereto, acknowledging that the Extended Lease is no longer in effect with respect to the Aircraft, which certificate Lessor will hold in escrow to be filed at the FAA upon the expiration of the Term or other termination of the leasing of the Aircraft to Lessee pursuant to the Extended Lease. (e) Other: such other documents as Lessor may reasonably request. 5.2 Further Conditions: The obligation of Lessor to extend the Term under this Agreement is subject to the further condition that, as of February 23, 2003 (the Expiry Date prior to the amendment contained herein), no Default or Event of Default shall have occurred and be continuing under the Lease or any other Operative Document. 5.3 Waiver: The conditions specified in Clauses 5.1 and 5.2 are for the sole benefit of Lessor and may be waived or deferred (in whole or in part and with or without conditions) by Lessor. 6. MISCELLANEOUS 6.1 Further Assurances: Lessee agrees from time to time to do and perform such other and further acts and execute and deliver any and all such other instruments as may be required by law or reasonably requested by Lessor to establish, maintain and protect the rights and remedies of Lessor and to carry out and effect the intent and purpose of this Agreement. 6.2 Counterparts: This Agreement may be executed in any number of separate counterparts, and each counterpart shall when executed and delivered be an original document, but all counterparts shall together constitute one and the same instrument. 6.3 Governing Law: The provisions of Clause 16.12 (Governing Law and Jurisdiction) of the Lease shall apply to this Agreement as if the same were set out in full herein. 6.4 Variation: The provisions of this Agreement shall not be varied otherwise than by an instrument in writing executed by or on behalf of Lessor and Lessee. 6.5 Invalidity of any Provision: If any provision of this Agreement becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired. 6.6 Costs and Expenses: In accordance with Clause 16.9 of the Lease, Lessee shall bear the costs and expenses associated with this extension and amendment of the Lease, including without limitation the costs and expenses of legal counsel providing the legal opinions referenced in Clause 5.1 7. CONTINUATION OF LEASE Save as expressly amended by this Agreement, the Lease shall continue in full and unvaried force and effect as the legal, valid and binding rights and obligations of each of Lessor and Lessee enforceable in accordance with their respective terms. IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day and year first above written. Signed for and on behalf of GENERAL ELECTRIC CAPITAL CORPORATION By: __________________ Title: __________________ Signed for and on behalf of FRONTIER AIRLINES, INC. By: __________________ Title: __________________ SCHEDULE 1 DESCRIPTION OF AIRCRAFT ----------------------- AIRCRAFT: N578US Manufacturer: Boeing Model: 737-301 Serial Number 23257 ENGINES: Type: CFM International Inc. CFM-56-3B2 Serial Nos.: 721160 and 725729 SCHEDULE 2 INSTRUMENTS ----------- Aircraft Lease Agreement dated as of October 20, 1995, between General Electric Capital Corporation as lessor and Frontier Airlines, Inc. as lessee, as supplemented by Lease Supplement No. 1 dated October 24, 1995, recorded by the Federal Aviation Administration on December 20, 1995, as Conveyance no. SS004071 (the "Lease") SCHEDULE 3 [FORM OF] CERTIFICATE OF LEASE TERMINATION The undersigned hereby certify that the Aircraft Lease Agreement dated as of October 20, 1995, as amended and supplemented from time to time, including, without limitation, by the Aircraft Lease Extension and Amendment Agreement dated as of October 1, 1999 and by the Aircraft Lease Extension and Amendment Agreement No. 2 dated as of September __, 2000, and as further described in the Appendix attached hereto, has terminated and the aircraft and the aircraft engines covered thereby are no longer subject to the terms thereof. This certificate may be executed in one or more counterparts each of which when taken together shall constitute one and the same instrument. DATED this _________________ day of____________________________ Lessor: Lessee: GENERAL ELECTRIC CAPITAL FRONTIER AIRLINES, INC. CORPORATION By: _______________________ By: ________________________ Title: Title:

EXECUTION VERSION AIRCRAFT LEASE EXTENSION AND AMENDMENT AGREEMENT Dated as of September 29, 2000 between POLARIS HOLDING COMPANY as Lessor and FRONTIER AIRLINES, INC. as Lessee in respect of Aircraft Lease Agreement dated as of May 1, 1996 relating to one Boeing 737-2L9 aircraft manufacturer's serial number 22733 THIS AGREEMENT is dated as of September 29, 2000 BETWEEN: POLARIS HOLDING COMPANY, a company incorporated under the laws of Delaware whose principal office is c/o GE Capital Aviation Services, Inc., 201 High Ridge Road, Stamford, CT 06927 ("Lessor"); and FRONTIER AIRLINES, INC., a company incorporated under the laws of Colorado whose headquarters are at 12015 East 46th Avenue, Denver, Colorado 80239 ("Lessee"). WHEREAS: (A) By an Aircraft Lease Agreement dated as of May 1, 1996 as amended and supplemented by Letter Agreement No. 1 dated as of May 1, 1996 (as further amended, modified and supplemented from time to time, the "Lease"), Lessor leased to Lessee and Lessee took on lease one Boeing 737-2L9 aircraft with manufacturer's serial number 22733, together with the engines (each having 750 or more rated takeoff horsepower) installed thereon, all more fully identified in Schedule 1 hereto, together with the related parts and equipment (collectively, the "Aircraft") on the terms and subject to the conditions contained therein. (B) Interests in the Aircraft and such engines are affected by the Lease and the other instruments identified (together with information respecting their recordation by the FAA under the Federal Aviation Act) in Schedule 2 hereto. (C) Lessor and Lessee wish to enter into this Agreement for the purpose of extending the term of the Lease and making certain further amendments to the Lease. IT IS AGREED as follows: 1. INTERPRETATION 1.1 Definitions: Capitalised terms used herein but not defined shall have the respective meanings ascribed to such terms in the Lease. In this Agreement "Extended Lease" means the Lease as amended by this Agreement. 1.2 Construction: The provisions of Clause 1.2 (Construction) of the Lease shall apply to this Agreement as if the same were set out in full herein. 2. REPRESENTATIONS AND WARRANTIES Lessee hereby repeats the representations and warranties in Clause 2.1 of the Lease as if made with reference to the facts and circumstances existing as at the date hereof and as if the references in such representations and warranties to "this Agreement" referred to the Lease as amended by this Agreement. 3. LEASE EXTENSION Lessor and Lessee hereby agree (subject to satisfaction of the conditions specified in Clause 5) to extend the period for which the Aircraft is leased to Lessee pursuant to the Lease from the current Expiry Date of May 30, 2001 to September 30, 2002. Accordingly, the Lease is hereby amended (subject to satisfaction of the conditions specified in Clause 5), by deleting the words "the day preceding the day which is the 60th monthly anniversary of the Delivery Date" in the definition of "Expiry Date" in Clause 1.1 and replacing them with the words "September 30, 2002". 4. OTHER AMENDMENTS TO LEASE 4.1 Other Amendments: The Lease shall be further amended (subject to satisfaction of the conditions specified in Clause 5) as follows: 4.1.1 The definition of "Other Agreements" in Clause 1.1 shall be amended by deleting the words "GPA Group plc" and replacing them with the words "Airplanes Holdings Limited". 4.1.2 The following definitions shall be added in the appropriate alphabetical order in Clause 1.1: "Pre-Approved Bank Wells Fargo Bank, N.A." "Letter of Credit as defined in Clause 5.1 hereof." "Required LC Expiry Date" the date which is 91 days after the Expiry Date." 4.1.3 Clause 5.1 is hereby amended and restated its entirety as follows: "5.1 Deposit: (a) Lessee shall pay to Lessor a Deposit in the amount set forth in the definition of that term in Letter Agreement Number 1. (b) In lieu of a cash Deposit, Lessee shall have the option to provide Lessor with a letter of credit issued and payable by a Pre-Approved Bank or another bank reasonably acceptable to Lessor in its reasonable discretion and in form and substance reasonably acceptable to Lessor, and, if not issued by a Pre-Approved Bank or by the New York branch of a major bank reasonably acceptable to Lessor in its reasonable discretion from time to time, will be confirmed by and payable at the New York branch of a major bank reasonably acceptable to Lessor in its reasonable discretion from time to time (the "Letter of Credit"). The Letter of Credit will be issued in lieu of a cash Deposit as security for all payment obligations of Lessee under the Lease and Other Agreements (including any and all obligations to indemnify Lessor for Losses suffered or incurred by it), which shall remain in full force and effect and may be drawn down by Lessor upon demand at any time or times following the occurrence of an Event of Default until the Required LC Expiry Date. (c) With the prior written consent of Lessor, the Letter of Credit may have a validity period or periods ending prior to the Required LC Expiry Date, provided that (i) the Letter of Credit shall, in each case, be renewed and delivered to Lessor not later than 45 days prior to its expiry; and (ii) a Letter of Credit shall remain in force at all times up to the Required LC Expiry Date. (d) If at any time during the Term, Lessor reasonably determines in its reasonable discretion that the current issuing or confirming bank for the Letter of Credit is no longer an acceptable issuing or confirming bank (whether by virtue of a material adverse change in its financial condition, a decrease in any credit rating of its long-term unsecured debt obligations, or for any other reason) Lessee shall promptly procure that the Letter of Credit is replaced by a Letter of Credit issued by another bank reasonably acceptable to Lessor in its reasonable discretion and (if reasonably requested by Lessor in its reasonable discretion) that such replacement Letter of Credit is confirmed by another bank reasonably acceptable to Lessor in its reasonable discretion. (e) If Lessor makes a drawing under the Letter of Credit, Lessee shall, following a demand in writing by Lessor, procure that the maximum amount available for drawing under the Letter of Credit is promptly restored to the level at which it stood immediately prior to such drawing. (f) If Lessee elects to provide Lessor with a Letter of Credit in lieu of the cash Deposit pursuant to the provisions of this Clause 5.1, then promptly upon receipt by Lessor of such Letter of Credit, Lessor shall return such cash Deposit to Lessee. If at any time thereafter a Letter of Credit shall not be in force and effect, then Lessee shall promptly provide Lessor with a cash Deposit. (g) So long as no Default or Event of Default then exists, Lessor shall refund to Lessee all Deposits (if any) then held by Lessor or, as the case may be, return the Letter of Credit upon return and final acceptance of the Aircraft by Lessor on the Expiry Date or promptly after receipt of the Agreed Value after an Event of Loss. 4.1.4 Clause 7.3(b)(i) shall be amended by inserting the words "(if any) or, as the case may be, return the Letter of Credit" immediately after the word "Deposit". 4.1.5 Clause 16.11 shall be amended by (a) deleting the Lessor contact information and replacing it with the following: "Lessor: Address: c/o GE Capital Aviation Services, Inc., 201 High Ridge Road, Stamford, CT 06927; Attn: Contracts Leader; Facsimile: (203) 357-3201; Telephone: (203) 357-4482"; and (b) by deleting the "With a copy to" contact information. 4.1.6 The following sentence shall be added at the end of Clause 16.12(a): "The U.N. Convention on Contracts for the International Sales of Goods is not applicable to this Agreement and all of its terms must be construed in accordance with the Governing Law applicable to domestic transactions in the jurisdiction to which the Governing Law pertains." 5. CONDITIONS PRECEDENT 5.1 Conditions: This Agreement and Lessor's obligation to extend the Term shall be subject to the satisfaction of each of the following conditions and receipt of the following documents: (a) Insurances: certificates of insurance, an undertaking from Lessee's insurance broker and other evidence satisfactory to Lessor of Lessee's due compliance with the provisions of the Lease (as extended hereby) regarding Insurances; (b) Legal Opinion: a legal opinion from Lessee's counsel in form and substance reasonably acceptable to Lessor; (c) Filings and FAA Opinion: evidence of the recordation of this Amendment with the FAA and, promptly after such recordation, provision by Lessee to Lessor of an opinion of FAA counsel acceptable to Lessor who are recognized specialists with regard to FAA registration matters in a form acceptable to Lessor acting reasonably as to the due filing for recordation of this Amendment; (d) Certificate of Lease Termination: a replacement certificate of lease termination executed by a duly authorized officer of Lessee, substantially in the form of Schedule 3 hereto, acknowledging that the Extended Lease is no longer in effect with respect to the Aircraft, which certificate Lessor will hold in escrow to be filed at the FAA upon the expiration of the Term or other termination of the leasing of the Aircraft to Lessee pursuant to the Extended Lease. (e) Other: such other documents as Lessor may reasonably request. 5.2 Further Conditions: The obligation of Lessor to extend the Term under this Agreement is subject to the further condition that, as of May 30, 2001 (the Expiry Date prior to the amendment contained herein), no Default or Event of Default shall have occurred and be continuing under the Lease or any other Operative Document. 5.3 Waiver: The conditions specified in Clauses 5.1 and 5.2 are for the sole benefit of Lessor and may be waived or deferred (in whole or in part and with or without conditions) by Lessor. 6. MISCELLANEOUS 6.1 Further Assurances: Lessee agrees from time to time to do and perform such other and further acts and execute and deliver any and all such other instruments as may be required by law or reasonably requested by Lessor to establish, maintain and protect the rights and remedies of Lessor and to carry out and effect the intent and purpose of this Agreement. 6.2 Counterparts: This Agreement may be executed in any number of separate counterparts, and each counterpart shall when executed and delivered be an original document, but all counterparts shall together constitute one and the same instrument. 6.3 Governing Law: The provisions of Clause 16.12 (Governing Law and Jurisdiction) of the Lease shall apply to this Agreement as if the same were set out in full herein. 6.4 Variation: The provisions of this Agreement shall not be varied otherwise than by an instrument in writing executed by or on behalf of Lessor and Lessee. 6.5 Invalidity of any Provision: If any provision of this Agreement becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired. 6.6 Costs and Expenses: In accordance with Clause 16.9 of the Lease, Leasee shall bear the costs and expenses associated with this extension and amendment of the Lease, including without limitation the costs and expenses of legal counsel providing the legal opinions referenced in Clause 5.1 7. CONTINUATION OF LEASE Save as expressly amended by this Agreement, the Lease shall continue in full and unvaried force and effect as the legal, valid and binding rights and obligations of each of Lessor and Lessee enforceable in accordance with their respective terms. IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day and year first above written. Signed for and on behalf of POLARIS HOLDING COMPANY By: __________________ Title: __________________ Signed for and on behalf of FRONTIER AIRLINES, INC. By: __________________ Title: __________________ SCHEDULE 1 DESCRIPTION OF AIRCRAFT ----------------------- AIRCRAFT: N270FL Manufacturer: Boeing Model: 737-2L9 Serial Number 22733 ENGINES: Type: Pratt & Whitney JT8D-17 Serial Nos.: 688456 and 702762 SCHEDULE 2 INSTRUMENTS ----------- Aircraft Lease Agreement dated as of May 1, 1996, between Polaris Holding Company as lessor and Frontier Airlines, Inc. as lessee, as supplemented by Lease Supplement No. 1 dated May 1, 1996, recorded by the FAA on August 5, 1996, as Conveyance No. XX006402, as amended by Amendment No. 1 dated as of October 11, 1996, recorded November 13, 1996, as Conveyance No. NN012761 (collectively, the "Lease") SCHEDULE 3 [FORM OF] CERTIFICATE OF LEASE TERMINATION The undersigned hereby certify that the Aircraft Lease Agreement dated as of May 1, 1996, as amended and supplemented by the Aircraft Lease Extension and Amendment Agreement dated as of September ___, 2000, and as further described in the Appendix attached hereto, has terminated and the aircraft and the aircraft engines covered thereby are no longer subject to the terms thereof. This certificate may be executed in one or more counterparts each of which when taken together shall constitute one and the same instrument. DATED this _________________ day of____________________________ Lessor: Lessee: POLARIS HOLDING COMPANY FRONTIER AIRLINES, INC. By: _______________________ By: ________________________ Title: Title:

EXECUTION VERSION AIRCRAFT LEASE EXTENSION AND AMENDMENT AGREEMENT Dated as of September 29, 2000 between POLARIS HOLDING COMPANY as Lessor and FRONTIER AIRLINES, INC. as Lessee in respect of Aircraft Lease Agreement dated as of June 3, 1996 relating to one Boeing 737-2L9 aircraft manufacturer's serial number 22734 THIS AGREEMENT is dated as of September 29, 2000 BETWEEN: POLARIS HOLDING COMPANY, a company incorporated under the laws of Delaware whose principal office is c/o GE Capital Aviation Services, Inc., 201 High Ridge Road, Stamford, CT 06927 ("Lessor"); and FRONTIER AIRLINES, INC., a company incorporated under the laws of Colorado whose headquarters are at 12015 East 46th Avenue, Denver, Colorado 80239 ("Lessee"). WHEREAS: (A) By an Aircraft Lease Agreement dated as of June 3, 1996 as amended and supplemented by Letter Agreement No. 1 dated as of June 3, 1996, and as further amended and supplemented by Amendment No. 1 to Aircraft Lease Agreement dated as of November 17, 1997 and Letter Agreement No. 2 dated as of November 17, 1997 (as further amended, modified and supplemented from time to time, the "Lease"), Lessor leased to Lessee and Lessee took on lease one Boeing 737-2L9 aircraft with manufacturer's serial number 22734, together with the engines (each having 750 or more rated takeoff horsepower) installed thereon, all more fully identified in Schedule 1 hereto, together with the related parts and equipment (collectively, the "Aircraft") on the terms and subject to the conditions contained therein. (B) Interests in the Aircraft and such engines are affected by the Lease and the other instruments identified (together with information respecting their recordation by the FAA under the Federal Aviation Act) in Schedule 2 hereto. (C) Lessor and Lessee wish to enter into this Agreement for the purpose of extending the term of the Lease and making certain further amendments to the Lease. IT IS AGREED as follows: 1. INTERPRETATION 1.1 Definitions: Capitalised terms used herein but not defined shall have the respective meanings ascribed to such terms in the Lease. In this Agreement "Extended Lease" means the Lease as amended by this Agreement. 1.2 Construction: The provisions of Clause 1.2 (Construction) of the Lease shall apply to this Agreement as if the same were set out in full herein. 2. REPRESENTATIONS AND WARRANTIES Lessee hereby repeats the representations and warranties in Clause 2.1 of the Lease as if made with reference to the facts and circumstances existing as at the date hereof and as if the references in such representations and warranties to "this Agreement" referred to the Lease as amended by this Agreement. 3. LEASE EXTENSION Lessor and Lessee hereby agree (subject to satisfaction of the conditions specified in Clause 5) to extend the period for which the Aircraft is leased to Lessee pursuant to the Lease from the current Expiry Date of June 25, 2002 to September 30, 2002. Accordingly, the Lease is hereby amended (subject to satisfaction of the conditions specified in Clause 5), by deleting the words "the day preceding the day which is the 72nd monthly anniversary of the Delivery Date" in the definition of "Expiry Date" in Clause 1.1 and replacing them with the words "September 30, 2002". 4. OTHER AMENDMENTS TO LEASE 4.1 Other Amendments: The Lease shall be further amended (subject to satisfaction of the conditions specified in Clause 5) as follows: 4.1.1 The definition of "Other Agreements" in Clause 1.1 shall be amended by deleting the words "GPA Group plc" and replacing them with the words "Airplanes Holdings Limited". 4.1.2 The following definitions shall be added in the appropriate alphabetical order in Clause 1.1: "Pre-Approved Bank Wells Fargo Bank, N.A." "Letter of Credit as defined in Clause 5.1 hereof." "Required LC Expiry Date" the date which is 91 days after the Expiry Date." 4.1.3 Clause 5.1 is hereby amended and restated its entirety as follows: "5.1 Deposit: (a) Lessee shall pay to Lessor a Deposit in the amount set forth in the definition of that term in Letter Agreement Number 1. (b) In lieu of a cash Deposit, Lessee shall have the option to provide Lessor with a letter of credit issued and payable by a Pre-Approved Bank or another bank reasonably acceptable to Lessor in its reasonable discretion and in form and substance reasonably acceptable to Lessor, and, if not issued by a Pre-Approved Bank or by the New York branch of a major bank reasonably acceptable to Lessor in its reasonable discretion from time to time, will be confirmed by and payable at the New York branch of a major bank reasonably acceptable to Lessor in its reasonable discretion from time to time (the "Letter of Credit"). The Letter of Credit will be issued in lieu of a cash Deposit as security for all payment obligations of Lessee under the Lease and Other Agreements (including any and all obligations to indemnify Lessor for Losses suffered or incurred by it), which shall remain in full force and effect and may be drawn down by Lessor upon demand at any time or times following the occurrence of an Event of Default until the Required LC Expiry Date. (c) With the prior written consent of Lessor, the Letter of Credit may have a validity period or periods ending prior to the Required LC Expiry Date, provided that (i) the Letter of Credit shall, in each case, be renewed and delivered to Lessor not later than 45 days prior to its expiry; and (ii) a Letter of Credit shall remain in force at all times up to the Required LC Expiry Date. (d) If at any time during the Term, Lessor reasonably determines in its reasonable discretion that the current issuing or confirming bank for the Letter of Credit is no longer an acceptable issuing or confirming bank (whether by virtue of a material adverse change in its financial condition, a decrease in any credit rating of its long-term unsecured debt obligations, or for any other reason) Lessee shall promptly procure that the Letter of Credit is replaced by a Letter of Credit issued by another bank reasonably acceptable to Lessor in its reasonable discretion and (if reasonably requested by Lessor in its reasonable discretion) that such replacement Letter of Credit is confirmed by another bank reasonably acceptable to Lessor in its reasonable discretion. (e) If Lessor makes a drawing under the Letter of Credit, Lessee shall, following a demand in writing by Lessor, procure that the maximum amount available for drawing under the Letter of Credit is promptly restored to the level at which it stood immediately prior to such drawing. (f) If Lessee elects to provide Lessor with a Letter of Credit in lieu of the cash Deposit pursuant to the provisions of this Clause 5.1, then promptly upon receipt by Lessor of such Letter of Credit, Lessor shall return such cash Deposit to Lessee. If at any time thereafter a Letter of Credit shall not be in force and effect, then Lessee shall promptly provide Lessor with a cash Deposit. (g) So long as no Default or Event of Default then exists, Lessor shall refund to Lessee all Deposits (if any) then held by Lessor or, as the case may be, return the Letter of Credit upon return and final acceptance of the Aircraft by Lessor on the Expiry Date or promptly after receipt of the Agreed Value after an Event of Loss. 4.1.4 Clause 7.3(b)(i) shall be amended by inserting the words "(if any) or, as the case may be, return the Letter of Credit" immediately after the word "Deposit". 4.1.5 Clause 16.11 shall be amended by (a) deleting the Lessor contact information and replacing it with the following: "Lessor: Address: c/o GE Capital Aviation Services, Inc., 201 High Ridge Road, Stamford, CT 06927; Attn: Contracts Leader; Facsimile: (203) 357-3201; Telephone: (203) 357-4482"; and (b) by deleting the "With a copy to" contact information. 4.1.6 The following sentence shall be added at the end of Clause 16.12(a): "The U.N. Convention on Contracts for the International Sales of Goods is not applicable to this Agreement and all of its terms must be construed in accordance with the Governing Law applicable to domestic transactions in the jurisdiction to which the Governing Law pertains." 5. CONDITIONS PRECEDENT 5.1 Conditions: This Agreement and Lessor's obligation to extend the Term shall be subject to the satisfaction of each of the following conditions and receipt of the following documents: (a) Insurances: certificates of insurance, an undertaking from Lessee's insurance broker and other evidence satisfactory to Lessor of Lessee's due compliance with the provisions of the Lease (as extended hereby) regarding Insurances; (b) Legal Opinion: a legal opinion from Lessee's counsel in form and substance reasonably acceptable to Lessor; (c) Filings and FAA Opinion: evidence of the recordation of this Amendment with the FAA and, promptly after such recordation, provision by Lessee to Lessor of an opinion of FAA counsel acceptable to Lessor who are recognized specialists with regard to FAA registration matters in a form acceptable to Lessor acting reasonably as to the due filing for recordation of this Amendment; (d) Certificate of Lease Termination: a replacement certificate of lease termination executed by a duly authorized officer of Lessee, substantially in the form of Schedule 3 hereto, acknowledging that the Extended Lease is no longer in effect with respect to the Aircraft, which certificate Lessor will hold in escrow to be filed at the FAA upon the expiration of the Term or other termination of the leasing of the Aircraft to Lessee pursuant to the Extended Lease. (e) Other: such other documents as Lessor may reasonably request. 5.2 Further Conditions: The obligation of Lessor to extend the Term under this Agreement is subject to the further condition that, as of June 25, 2002 (the Expiry Date prior to the amendment contained herein), no Default or Event of Default shall have occurred and be continuing under the Lease or any other Operative Document. 5.3 Waiver: The conditions specified in Clauses 5.1 and 5.2 are for the sole benefit of Lessor and may be waived or deferred (in whole or in part and with or without conditions) by Lessor. 6. MISCELLANEOUS 6.1 Further Assurances: Lessee agrees from time to time to do and perform such other and further acts and execute and deliver any and all such other instruments as may be required by law or reasonably requested by Lessor to establish, maintain and protect the rights and remedies of Lessor and to carry out and effect the intent and purpose of this Agreement. 6.2 Counterparts: This Agreement may be executed in any number of separate counterparts, and each counterpart shall when executed and delivered be an original document, but all counterparts shall together constitute one and the same instrument. 6.3 Governing Law: The provisions of Clause 16.12 (Governing Law and Jurisdiction) of the Lease shall apply to this Agreement as if the same were set out in full herein. 6.4 Variation: The provisions of this Agreement shall not be varied otherwise than by an instrument in writing executed by or on behalf of Lessor and Lessee. 6.5 Invalidity of any Provision: If any provision of this Agreement becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired. 6.6 Costs and Expenses: In accordance with Clause 16.9 of the Lease, Leasee shall bear the costs and expenses associated with this extension and amendment of the Lease, including without limitation the costs and expenses of legal counsel providing the legal opinions referenced in Clause 5.1 7. CONTINUATION OF LEASE Save as expressly amended by this Agreement, the Lease shall continue in full and unvaried force and effect as the legal, valid and binding rights and obligations of each of Lessor and Lessee enforceable in accordance with their respective terms. IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day and year first above written. Signed for and on behalf of POLARIS HOLDING COMPANY By: __________________ Title: __________________ Signed for and on behalf of FRONTIER AIRLINES, INC. By: __________________ Title: __________________ SCHEDULE 1 DESCRIPTION OF AIRCRAFT ----------------------- AIRCRAFT: N271FL Manufacturer: Boeing Model: 737-2L9 Serial Number 22734 ENGINES: Type: Pratt & Whitney JT8D-17 Serial Nos.: 688416 and 702681 SCHEDULE 2 INSTRUMENTS ----------- Aircraft Lease Agreement dated as of June 3, 1996, between Polaris Holding Company as lessor and Frontier Airlines, Inc. as lessee, as supplemented by Lease Supplement No. 1 dated June 26, 1996, recorded by the Federal Aviation Administration on August 7, 1996 as Conveyance No. X129854 (the "Lease") SCHEDULE 3 [FORM OF] CERTIFICATE OF LEASE TERMINATION The undersigned hereby certify that the Aircraft Lease Agreement dated as of June 3 , 1996, as amended and supplemented by the Aircraft Lease Extension and Amendment Agreement dated as of September ___, 2000, and as further described in the Appendix attached hereto, has terminated and the aircraft and the aircraft engines covered thereby are no longer subject to the terms thereof. This certificate may be executed in one or more counterparts each of which when taken together shall constitute one and the same instrument. DATED this _________________ day of____________________________ Lessor: Lessee: POLARIS HOLDING COMPANY FRONTIER AIRLINES, INC. By: _______________________ By: ________________________ Title: Title:

Amendment No. 1 To the A318/A319 Purchase Agreement Dated as of March 10, 2000 between AVSA, S.A.R.L. and FRONTIER AIRLINES, INC. This Amendment No. 1 (hereinafter referred to as the "Amendment") is entered into as of July _____, 2000, between AVSA, S.A.R.L., a societe a responsabilite limitee organized and existing under the laws of the Republic of France, having its registered office located at 2, Rond-Point Maurice Bellonte, 31700 Blagnac, France (hereinafter referred to as the "Seller"), and Frontier Airlines, Inc., a corporation organized and existing under the laws of the State of Colorado, United States of America, having its principal corporate offices located at 12015 East 46th Avenue, Suite 200, Denver, CO 80239-3116, USA (hereinafter referred to as the "Buyer"). WITNESSETH WHEREAS, the Buyer and the Seller entered into an A320 Purchase Agreement, dated as of March 10, 2000, relating to the sale by the Seller and the purchase by the Buyer of certain Airbus Industrie A318-100 and A319-100 model aircraft (the "Aircraft") which, together with all Exhibits, Appendixes and Letter Agreements attached thereto is hereinafter called the "Agreement". WHEREAS, the Buyer and the Seller have agreed to make changes to the delivery schedule of the Aircraft. NOW, THEREFORE, IT IS AGREED AS FOLLOWS 1. DEFINITIONS ----------- Capitalized terms used herein and not otherwise defined herein will have the meanings assigned to them in the Agreement. The terms "herein", "hereof" and "hereunder" and words of similar import refer to this Amendment. 2. CLAUSE 9: DELIVERY SHEDULE --------------------------- 2.1 The Buyer and the Seller agree *. 2.2 In addition, the Buyer hereby exercises its option under *. 2.3 As a consequence of Paragraphs 2.1 and 2.2 above, the delivery schedule set forth in Clause 9.1.1 of the Agreement is hereby canceled and replaced by the following quoted provisions: QUOTE Firm Aircraft No. Aircraft Type Delivery ----------------- ------------- -------- 1 * 2 * 3 * 4 * 5 * 6 * 7 * 8 * 9 * 10 * 11 * 12 * Option Aircraft No. Aircraft Type Delivery ------------------ ------------- -------- 1 * 2 * 3 * 4 * 5 * 6 * 7 * 8 * 9 * UNQUOTE 3. PREDELIVERY PAYMENTS -------------------- The schedule of Predelivery Payments for the Aircraft. is hereby amended to reflect the changes detailed above in Paragraph 2. On signature of this Amendment, the Buyer will make all Predelivery Payments then due to the Seller. 4. CLAUSE 5.3: DEPOSIT -------------------- On signature of this Amendment, the Buyer will pay the Seller the sum of US$*, which represents the nonrefundable deposit for the Additional Option Aircraft. The deposit paid will be credited without interest against the first Predelivery Payment for such Aircraft. 5. EFFECT OF THE AMENDMENT ----------------------- The Agreement will be deemed amended to the extent herein provided, and, except as specifically amended hereby, will continue in full force and effect in accordance with its original terms. This Amendment supersedes any previous understandings, commitments, or representations whatsoever, whether oral or written, related to the subject matter of this Amendment. Both parties agree that this Amendment will constitute an integral, nonseverable part of the Agreement and be governed by its provisions, except that if the Agreement and this Amendment have specific provisions that are inconsistent, the specific provisions contained in this Amendment will govern. 6. CONFIDENTIALITY --------------- This Amendment is subject to the confidentiality provisions set forth in Clause 22.5 of the Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers or agents on the dates written below. AVSA, S.A.R.L. By: _________________ Its: _________________ Date: ________________ FRONTIER AIRLINES, INC. By: __________________ Its: __________________ Date: ________________

AIRCRAFT LEASE AGREEMENT Dated as of August 14, 2000 BETWEEN FRONTIER AIRLINES, INC. as LESSEE and INTERNATIONAL LEASE FINANCE CORPORATION as LESSOR Aircraft Make and Model: Used Boeing B737-300 Aircraft Manufacturer's Serial Number: 26301 Aircraft Registration Mark: Per Exhibit E Make and Model of Engines: CFM56-3C1 Serial Numbers of Engines: 726115 and 727103 USED AIRCRAFT NO. 2 TABLE OF CONTENTS ARTICLE 1 SUMMARY OF TRANSACTION....................................................................2 1.1 Description of Aircraft...................................................................2 1.2 Scheduled Delivery Date and Location......................................................2 1.3 Initial Lease Term........................................................................2 1.4 Lease Extension Option....................................................................2 1.5 Security Deposit..........................................................................2 1.6 Transaction Fee...........................................................................2 1.7 Rent During Initial Lease Term............................................................2 1.8 Rent During Lease Extension Term..........................................................3 1.9 Reserves..................................................................................3 1.10 Country of Aircraft Registration..........................................................3 1.11 Maintenance Program.......................................................................3 1.12 Agreed Value of Aircraft..................................................................3 1.13 LESSOR's Bank Account.....................................................................4 ARTICLE 2 DEFINITIONS...............................................................................5 2.1 General Definitions.......................................................................5 2.2 Specific Definitions.....................................................................10 ARTICLE 3 PLACE AND DATE OF DELIVERY...............................................................12 3.1 Place of Delivery........................................................................12 3.2 Scheduled Delivery Date..................................................................12 3.3 No LESSOR Liability......................................................................12 3.4 Total Loss of Aircraft prior to Delivery.................................................12 3.5 Cancellation for Delay...................................................................12 ARTICLE 4 LEASE TERM AND EXTENSION OPTION..........................................................13 4.1 Initial Lease Term.......................................................................13 4.2 Lease Extension Option...................................................................13 4.3 "Lease Term" and "Expiration Date".......................................................13 4.4 "Termination Date".......................................................................13 ARTICLE 5 SECURITY DEPOSIT, TRANSACTION FEE, RENT, RESERVES AND OTHER PAYMENTS.....................15 5.1 Security Deposit.........................................................................15 5.2 Transaction Fee..........................................................................15 5.3 Rent.....................................................................................16 5.4 Reserves.................................................................................16 5.5 LESSOR's Bank Account....................................................................17 5.6 Default Interest.........................................................................18 5.7 No Deductions or Withholdings............................................................18 5.8 Value Added Taxes........................................................................18 5.9 Wire Transfer Disbursement Report........................................................19 5.10 Net Lease................................................................................19 5.11 LESSOR Performance of LESSEE Obligation..................................................20 5.12 Consideration for Rent and other Amounts.................................................20 ARTICLE 6 DELIVERY CONDITION AND INSPECTION OF AIRCRAFT............................................21 6.1 LESSEE Selection of Aircraft.............................................................21 6.2 Condition at Delivery....................................................................21 6.3 LESSEE Inspection of Aircraft at Delivery................................................21 6.4 Delivery of Aircraft to LESSEE...........................................................21 6.5 LESSEE Acceptance of Aircraft............................................................21 ARTICLE 7 PRE-DELIVERY, DELIVERY AND POST-DELIVERY DOCUMENTARY AND OTHER REQUIREMENTS..............22 7.1 Pre-Delivery Requirements................................................................22 7.2 LESSOR's Pre-Delivery Requirements.......................................................22 7.3 Delivery Requirements....................................................................23 7.4 Post-Delivery Requirements...............................................................24 ARTICLE 8 DISCLAIMERS..............................................................................25 8.1 "As Is, Where Is"........................................................................25 8.2 Waiver of Warranty of Description........................................................25 8.3 LESSEE Waiver............................................................................26 8.4 Conclusive Proof.........................................................................26 8.5 No LESSOR Liability for Losses...........................................................26 8.6 No Liability to Repair or Replace........................................................27 8.7 No Waiver................................................................................27 ARTICLE 9 MANUFACTURERS' AND VENDORS' WARRANTIES...................................................28 9.1 Warranties...............................................................................28 9.2 Non-Assignable Warranties................................................................28 9.3 Reassignment.............................................................................28 9.4 Warranty Claims..........................................................................28 ARTICLE 10 OPERATION OF AIRCRAFT....................................................................29 10.1 Costs of Operation.......................................................................29 10.2 Compliance with Laws.....................................................................29 10.3 Training.................................................................................29 10.4 No Violation of Insurance Policies.......................................................29 10.5 Flight Charges...........................................................................29 ARTICLE 11 SUBLEASES................................................................................30 11.1 No Sublease without LESSOR Consent.......................................................30 11.2 LESSOR Costs.............................................................................30 11.3 Any Approved Sublease....................................................................30 11.4 Assignment of Sublease...................................................................31 11.5 Continued Responsibility of LESSEE.......................................................31 ARTICLE 12 MAINTENANCE OF AIRCRAFT..................................................................32 12.1 General Obligation.......................................................................32 12.2 Specific Obligations.....................................................................32 12.3 Replacement of Parts.....................................................................34 12.4 Removal of Engines.......................................................................35 12.5 Pooling of Engines and Parts.............................................................35 12.6 Installation of Engines on other aircraft................................................35 12.7 Engine Thrust Rating.....................................................................36 12.8 Modifications............................................................................36 12.9 Performance of Work by Third Parties.....................................................38 12.10 Reporting Requirements...................................................................38 12.11 Information Regarding Maintenance Program................................................38 12.12 LESSOR Rights to Inspect Aircraft........................................................38 ARTICLE 13 USE OF RESERVES..........................................................................39 13.1 Airframe Reserves........................................................................39 13.2 Engine Reserves..........................................................................39 13.3 Landing Gear Reserves....................................................................40 13.4 Reimbursement............................................................................40 13.5 Reimbursement Adjustment.................................................................40 13.6 Costs in Excess of Reserves..............................................................41 13.7 Reimbursement after Termination Date.....................................................41 ARTICLE 14 TITLE AND REGISTRATION...................................................................42 14.1 Title to the Aircraft During Lease Term..................................................42 14.2 Registration of Aircraft.................................................................42 14.3 Filing of this Lease.....................................................................42 14.4 Evidence of Registration and Filings.....................................................42 ARTICLE 15 IDENTIFICATION PLATES....................................................................43 15.1 Airframe Identification Plates...........................................................43 15.2 Engine Identification Plates.............................................................43 ARTICLE 16 TAXES....................................................................................44 16.1 General Obligation of LESSEE.............................................................44 16.2 Exceptions to Indemnity..................................................................44 16.3 After-Tax Basis..........................................................................45 16.4 Timing of Payment........................................................................46 16.5 Contests.................................................................................46 16.6 Refunds..................................................................................46 16.7 Cooperation in Filing Tax Returns........................................................46 16.8 Survival of Obligations..................................................................46 ARTICLE 17 INDEMNITIES..............................................................................47 17.1 General Indemnity........................................................................47 17.2 Exceptions to General Indemnities........................................................48 17.3 After-Tax Basis..........................................................................49 17.4 Timing of Payment........................................................................49 17.5 Subrogation..............................................................................49 17.6 Notice...................................................................................49 17.7 Refunds..................................................................................49 17.8 Defense of Claims........................................................................49 17.9 Survival of Obligation...................................................................50 ARTICLE 18 INSURANCE................................................................................51 18.1 Categories of Insurance..................................................................51 18.2 Write-back of any Date Recognition Exclusion.............................................51 18.3 Insurance for Indemnities................................................................51 18.4 Insurance required by Manufacturer.......................................................51 18.5 Renewal..................................................................................51 18.6 Assignment of Rights by LESSOR...........................................................51 18.7 Other Insurance..........................................................................52 18.8 Information..............................................................................52 18.9 Currency.................................................................................52 18.10 Grounding of Aircraft....................................................................52 18.11 Failure to Insure........................................................................52 18.12 Reinsurance..............................................................................52 18.13 Limit on Hull in favor of LESSEE.........................................................53 ARTICLE 19 LOSS, DAMAGE AND REQUISITION.............................................................54 19.1 Definitions..............................................................................54 19.2 Notice of Total Loss.....................................................................55 19.3 Total Loss of Aircraft or Airframe.......................................................55 19.4 Surviving Engine(s)......................................................................56 19.5 Total Loss of Engine and not Airframe....................................................56 19.6 Other Loss or Damage.....................................................................57 19.7 Copy of Insurance Policy.................................................................58 19.8 Government Requisition...................................................................58 19.9 LESSOR Retention of Reserves; Return of Security Deposit and Prepaid Rent................58 ARTICLE 20 REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE......................................59 20.1 Representations and Warranties...........................................................59 20.2 Covenants................................................................................60 ARTICLE 21 REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSOR......................................63 21.1 Representations and Warranties...........................................................63 21.2 Covenant of Quiet Enjoyment..............................................................64 ARTICLE 22 FINANCIAL AND RELATED INFORMATION........................................................65 ARTICLE 23 RETURN OF AIRCRAFT.......................................................................66 23.1 Date of Return...........................................................................66 23.2 Technical Report.........................................................................66 23.3 Return Location..........................................................................66 23.4 Full Aircraft Documentation Review.......................................................66 23.5 Aircraft Inspection......................................................................66 23.6 Certificate of Airworthiness Matters.....................................................67 23.7 General Condition of Aircraft at Return..................................................68 23.8 Checks Prior to Return...................................................................70 23.9 Engine Return Requirements...............................................................71 23.10 Hour/Cycle/Calendar Time Requirements....................................................73 23.11 Like for Like............................................................................74 23.12 Export and Deregistration of Aircraft....................................................74 23.13 LESSEE's Continuing Obligations..........................................................74 23.14 Airport and Navigation Charges...........................................................75 23.15 Return Acceptance Certificate............................................................75 23.16 Indemnities and Insurance................................................................76 23.17 Civil Reserve Air Fleet..................................................................76 ARTICLE 24 ASSIGNMENT...............................................................................78 24.1 No Assignment by LESSEE..................................................................78 24.2 Sale or Assignment by LESSOR.............................................................78 24.3 LESSOR's Lender..........................................................................78 24.4 LESSEE Cooperation.......................................................................78 24.5 Protections..............................................................................79 ARTICLE 25 DEFAULT OF LESSEE........................................................................80 25.1 LESSEE Notice to LESSOR..................................................................80 25.2 Events of Default........................................................................80 25.3 LESSOR's General Rights..................................................................82 25.4 Deregistration and Export of Aircraft....................................................82 25.5 LESSEE Liability for Damages.............................................................82 25.6 Waiver of Default........................................................................83 25.7 Present Value of Payments................................................................83 25.8 Use of "Termination Date"................................................................84 25.9 LESSEE's Remedies........................................................................84 25.10 Waiver of Consequential Damages..........................................................84 ARTICLE 26 NOTICES..................................................................................85 26.1 Manner of Sending Notices................................................................85 26.2 Notice Information.......................................................................85 ARTICLE 27 GOVERNING LAW AND JURISDICTION...........................................................86 27.1 California Law...........................................................................86 27.2 Non-Exclusive Jurisdiction in California.................................................86 27.3 Service of Process.......................................................................86 27.4 Prevailing Party in Dispute..............................................................86 27.5 Waiver...................................................................................86 ARTICLE 28 MISCELLANEOUS............................................................................87 28.1 Transportation of Personnel..............................................................87 28.2 Press Releases...........................................................................87 28.3 Power of Attorney........................................................................87 28.4 LESSOR Performance for LESSEE............................................................87 28.5 LESSOR's Payment Obligations.............................................................87 28.6 Application of Payments..................................................................87 28.7 Usury Laws...............................................................................87 28.8 Delegation by LESSOR.....................................................................88 28.9 Confidentiality..........................................................................88 28.10 Rights of Parties........................................................................88 28.11 Further Assurances.......................................................................88 28.12 Use of Word "including"..................................................................89 28.13 Headings.................................................................................89 28.14 Invalidity of any Provision..............................................................89 28.15 Time is of the Essence...................................................................89 28.16 Amendments in Writing....................................................................89 28.17 Counterparts.............................................................................89 28.18 Delivery of Documents by Fax.............................................................89 28.19 Entire Agreement.........................................................................89 28.20 Expenses.................................................................................90 EXHIBIT A AIRCRAFT DESCRIPTION.....................................................................92 EXHIBIT B CONDITION AT DELIVERY....................................................................93 EXHIBIT C CERTIFICATE OF INSURANCE.................................................................99 EXHIBIT D BROKERS' LETTER OF UNDERTAKING..........................................................106 EXHIBIT E ESTOPPEL AND ACCEPTANCE CERTIFICATE.....................................................108 EXHIBIT F OPINION OF COUNSEL......................................................................110 EXHIBIT G FORM OF POWER OF ATTORNEY...............................................................111 EXHIBIT H ASSIGNMENT OF RIGHTS (AIRFRAME).........................................................113 EXHIBIT I ASSIGNMENT OF RIGHTS (ENGINES)..........................................................118 EXHIBIT J RETURN ACCEPTANCE RECEIPT...............................................................122 EXHIBIT K MONTHLY REPORT..........................................................................132 EXHIBIT L AIRCRAFT DOCUMENTATION..................................................................135 EXHIBIT M TECHNICAL EVALUATION REPORT.............................................................137 AIRCRAFT LEASE AGREEMENT THIS AIRCRAFT LEASE AGREEMENT is made and entered into as of August 14, 2000. BETWEEN: FRONTIER AIRLINES, INC., a Colorado corporation whose address and principal place of business is at 12015 East 46th Avenue, Suite 200, Denver, Colorado 80239 ("LESSEE") and INTERNATIONAL LEASE FINANCE CORPORATION, a California corporation whose address and principal place of business is at 1999 Avenue of the Stars, 39th Floor, Los Angeles, California 90067, United States of America ("LESSOR"). The subject matter of this Lease is one (1) used B737-300 aircraft as more particularly described on Exhibit A attached hereto. In consideration of and subject to the mutual covenants, terms and conditions contained in this Lease, LESSOR hereby agrees to lease to LESSEE and LESSEE hereby agrees to lease from LESSOR the aircraft and the parties further agree as follows: ARTICLE 1 SUMMARY OF TRANSACTION The following is a summary of the lease transaction between LESSEE and LESSOR. It is set forth for the convenience of the parties only and will not be deemed in any way to amend, detract from or simplify the other provisions of this Lease. 1.1 Description of Aircraft One used Boeing B737-300 aircraft with two (2) installed CFM56-3C1 engines, all as more particularly described on Exhibit A hereto 1.2 Scheduled Delivery Date and Location On or about August 17, 2000 at the TIMCO maintenance facility at Greensboro, North Carolina. 1.3 Initial Lease Term Approximately 38 months ending on November 1, 2003. However, upon prior written notice to LESSEE given on or before November 1, 2002 LESSOR may elect to continue such initial lease term until July 31, 2004 1.4 Lease Extension Option One (1) Lease extension option of nine (9) months 1.5 Security Deposit * 1.6 Transaction Fee * 1.7 Rent During Initial Lease Term Period of Lease Term Amount of Rent * * * * 1.8 Rent During Lease Extension Term * 1.9 Reserves * 1.10 Country of Aircraft Registration United States 1.11 Maintenance Program LESSEE's Maintenance Program 1.12 Agreed Value of Aircraft * 1.13 LESSOR's Bank Account * ARTICLE 2 DEFINITIONS Except where the context otherwise requires, the following words have the following meanings for all purposes of this Lease. The definitions are equally applicable to the singular and plural forms of the words. Any agreement defined below includes each amendment, modification, supplement and waiver thereto in effect from time to time. 2.1 General Definitions. "Aircraft" means the Aircraft described on Exhibit A hereto, including the Airframe, two (2) Engines, Parts and Aircraft Documentation, collectively. As the context requires, "Aircraft" may also mean the Airframe, any Engine, any Part, the Aircraft Documentation or any part thereof individually. For example, in the context of return to LESSOR the term "Aircraft" means the Airframe, Engines, Parts and Aircraft Documentation collectively, yet in the context of LESSEE not creating any Security Interests other than Permitted Liens on the Aircraft, the term "Aircraft" means any of the Airframe, any Engine, any Part or the Aircraft Documentation individually. "Aircraft Documentation" means all (a) log books, Aircraft records, manuals and other documents provided to LESSEE in connection with the Aircraft, (b) documents listed in Exhibits E and L and (c) any other documents required to be maintained during the Lease Term by the Aviation Authority, LESSEE's Maintenance Program and this Lease. "Airframe" means the airframe listed in the Estoppel and Acceptance Certificate executed at Delivery together with all Parts relating thereto (except Engines or engines). "Airframe Warranty Assignment" means the Assignment of Rights (Airframe) to be entered into between LESSOR and LESSEE in the form of Exhibit H. "Airworthiness Directives" or "ADs" means all airworthiness directives (or equivalent) of the FAA and the Aviation Authority applicable to the Aircraft. "APU" means the auxiliary power unit of the Aircraft. "Aviation Authority" means the FAA or any Government Entity which under the Laws of U.S. from time to time has control over civil aviation or the registration, airworthiness or operation of aircraft in U.S. If the Aircraft is registered in a country other than the U.S., "Aviation Authority" means the agency which regulates civil aviation in such other country. "Aviation Documents" means any or all of the following which at any time may be obtainable from the Aviation Authority: (a) if required, a temporary certificate of airworthiness from the Aviation Authority allowing the Aircraft to be flown after Delivery to the State of Registration, (b) an application for registration of the Aircraft with the appropriate authority in the State of Registration, (c) the certificate of registration for the Aircraft issued by the State of Registration, (d) a full certificate of airworthiness for the Aircraft specifying transport category (passenger), (e) an air transport license, (f) an air operator's certificate, (g) such recordation of LESSOR's title to the Aircraft and interest in this Lease as may be available in the State of Registration and (h) all such other authorizations, approvals, consents and certificates in the State of Registration as may be required to enable LESSEE lawfully to operate the Aircraft. "Basic Engine" means those units and components of the Engine which are used to induce and convert fuel/air mixture into thrust/power; to transmit power to the fan and accessory drives; to supplement the function of other defined systems external to the Engine; and to control and direct the flow of internal lubrication, plus all essential accessories as supplied by Engine manufacturer. The nacelle, installed components related to the Aircraft systems, thrust reversers, QEC and the primary flight nozzle are excluded. "Business Day" means a day other than a Saturday or Sunday on which the banks in New York City are open for the transaction of business of the type required by this Lease. "Certificated Air Carrier" means any Person (except the U.S. Government) that is a "citizen of the United States of America" (as defined in Section 40102 of Title 49 of U.S.C.) and holding a Certificate of Public Convenience and Necessity issued under Section 41102 of Title 49 of U.S.C. by the Department of Transportation or any predecessor or successor agency thereto, or, in the event such certificates shall no longer be applicable, any Person (except the U.S. Government) that is a citizen of the U.S. (as defined in Section 40102 of Title 49 of the U.S.C.) and legally engaged in the business of transporting for hire passengers or cargo by air predominantly to, from or between points within the U.S., and, in either event, operating commercial jet aircraft capable of carrying ten or more individuals or 6,000 pounds or more of cargo, which also is certificated. "Creditor" means any lessor, owner, bank, lender, mortgagee or other Person which is the owner of or has any interest in an aircraft engine or aircraft operated by LESSEE. "Creditor Agreement" means the applicable agreement between a Creditor and LESSEE or between Creditors pursuant to which such Creditor owns, leases or has an interest in either an aircraft operated by LESSEE on which an Engine may be installed or in an aircraft engine which may be installed on the Airframe. "Default" means any event which, upon the giving of notice or the lapse of time would constitute an Event of Default. "Delivery" means the delivery of the Aircraft from LESSOR to LESSEE pursuant to Article 6.4. "Delivery Date" means the date on which Delivery takes place. "Dollars" and "$" means the lawful currency of the U.S. "Engine" means (a) each of the engines listed on the Estoppel and Acceptance Certificate; (b) any replacement engine acquired by LESSOR and leased to LESSEE pursuant to Article 19.5 following a Total Loss of an Engine; and (c) all Parts installed in or on any of such engines at Delivery (or substituted, renewed or replacement Parts in accordance with this Lease) so long as title thereto is or remains vested in LESSOR in accordance with the terms of Article 12.3. "Engine Warranty Assignment" means the Assignment of Rights (Engines) to be entered into between LESSOR and LESSEE in the form of Exhibit I. "Estoppel and Acceptance Certificate" means that certain estoppel and acceptance certificate in the form of Exhibit E pursuant to which LESSEE accepts Delivery of the Aircraft. "Event of Default" means any of the events referred to in Article 25.2. "FAA" means the Federal Aviation Administration of the Department of Transportation or any successor thereto under the Laws of the U.S. "FARs" means the U.S. Federal Aviation Regulations embodied in Title 14 of the U.S. Code of Federal Regulations, as amended from time to time, or any successor regulations thereto. "Geneva Convention" means the Convention on the International Recognition of Rights in Aircraft signed in Geneva, Switzerland on June 19, 1948. "Government Entity" means any (a) national, state or local government, (b) board, commission, department, division, instrumentality, court, agency or political subdivision thereof and (c) association, organization or institution of which any of the entities listed in (a) or (b) is a member or to whose jurisdiction any such entity is subject. "Landing Gear" means the installed main and nose landing gear, components and their associated actuators, side braces and parts. "Law" means any (a) statute, decree, constitution, regulation, order or any directive of any Government Entity, (b) treaty, pact, compact or other agreement to which any Government Entity is a signatory or party and (c) judicial or administrative interpretation or application of any of the foregoing. "Lease" means this Aircraft Lease Agreement, together with all Exhibits hereto. "LESSOR's Lien" means any Security Interest created by LESSOR or otherwise arising solely as a result of any act or omission of LESSOR or any Person claiming by or through LESSOR. "LESSOR's Taxes" means any Taxes referred to in Article 16.2. "Maintenance Program" means LESSEE's maintenance program as approved by the Aviation Authority or such other maintenance program as LESSOR may, in its reasonable discretion, accept in writing. "Manufacturer" means The Boeing Company. "MPD" means the Maintenance Planning Document published by Manufacturer and applicable to the Aircraft. With respect to the hour/cycle/calendar time limitation of Parts and inspections, references to the MPD mean the most restrictive limitation set forth therein. "Operative Documents" means this Lease, the Airframe Warranty Assignment, the Engine Warranty Assignment, the Estoppel and Acceptance Certificate and any Side Letter or other document or agreement entered into on or after the date hereof between LESSEE and LESSOR relating to the leasing of the Aircraft hereunder or the transactions contemplated hereby. "Overhaul" means the full reconditioning of the Aircraft, an Engine, APU, Landing Gear, module or Part, as the case may be, in which such equipment has been fully disassembled; cleaned; thoroughly inspected; and returned to the highest standard specified by the applicable manufacturer's manual. "Part" means any part, component, appliance, system module, engine module, accessory, material, instrument, communications equipment, furnishing, LESSEE furnished or LESSOR purchased equipment, the APU, or other item of equipment (other than complete Engines or engines) for the time being installed in or attached to the Airframe or any Engine, or which, having been removed from the Airframe or any Engine, remains the property of LESSOR. "Permitted Lien" means (a) LESSOR's Liens; (b) Security Interests arising in the ordinary course of LESSEE's business for Taxes either not yet assessed or, if assessed, not yet due or being contested in good faith in accordance with Article 16.5 or (c) materialmen's, mechanics', workmen's, repairmen's, employees' liens or similar Security Interests arising by operation of Law after the Delivery Date in the ordinary course of LESSEE's business for amounts which are either not yet due or are being contested in good faith by appropriate proceedings (and for which adequate reserves have been made or, when required in order to pursue such proceedings, an adequate bond has been provided) so long as such proceedings do not involve any danger of sale, forfeiture or loss of the Aircraft. "Permitted Sublessee" has the meaning ascribed thereto in Article 11.1.1. "Permitted Transferee" means any Person who: (a) is a "citizen of the United States" as defined in Section 40102 of Title 49 of the U.S.C. with the requisite power and authority to enter into and carry out the transactions contemplated by this Lease; (b) is not, and is not affiliated with, a Certificated Air Carrier; (c) enters into a binding agreement with LESSEE pursuant to which it agrees to be bound by the terms of this Lease and agrees to perform all of the obligations of LESSOR hereunder; and (d) is either (i) a U.S. bank, insurance company or other financial institution with a consolidated net worth of at least $25,000,000, (ii) a corporation which has (or a general partnership whose general partners have) a consolidated net worth of at least $25,000,000 and which is a sophisticated entity, experienced in participating as an equity investor in commercial aircraft leases, (iii) the trustee or agent of an aircraft income or similar fund; provided that such trustee or agent has a consolidated net worth of at least $25,000,000, or (iv) such other Person as LESSEE shall approve in writing, such approval not to be unreasonably withheld or delayed. "Person" means any individual, firm, partnership, joint venture, trust, corporation, Government Entity, committee, department, authority or any body, incorporated or unincorporated, whether having distinct legal personality or not. "Prime Rate" means the rate of interest from time to time announced by Chase Manhattan Bank in New York as its prime commercial lending rate. "Prior Lessee" means Pro Air, Inc. "Security Interest" means any encumbrance or security interest, however and wherever created or arising including (without prejudice to the generality of the foregoing) any right of ownership, security, mortgage, pledge, charge, encumbrance, lease, lien, statutory or other right in rem, hypothecation, title retention, attachment, levy, claim or right of possession or detention. "State of Registration" means U.S. or such other country or state of registration of the Aircraft as LESSOR may, in its absolute discretion, approve in writing. "U.S." means the United States of America. 2.2 Specific Definitions. The following terms are defined in the Articles referenced below: Terms Article Agreed Value 19.1 Airframe Reserves 5.4.1 CRAF 23.17.1 CRAF Program Requisition Period 23.17.1 Default Interest 5.6 Delivery Location 3.1 Engine Reserves 5.4.1 Expenses 17.1 Expiration Date 4.3 Extension Lease Term 4.2.1 Indemnitees 17.1 Initial Lease Term 4.3 Landing Gear Reserves 5.4.1 Lease Term 4.3 LESSOR's Assignee 24.2.1 LESSOR's Bank 5.5 LESSOR's Lender 24.3 Modification 12.8.1 Net Total Loss Proceeds 19.1 Outside Delivery Date 3.5 Passenger Service Equipment 12.8.1 Rent 5.3.1 Reserves 5.4.1 Scheduled Delivery Date 3.2 Security Deposit 5.1.1 Taxes 16.1 Termination Date 4.4 Total Loss 19.1 Total Loss Date 19.1 Total Loss Proceeds 19.1 Transaction Fee 5.2 ARTICLE 3 PLACE AND DATE OF DELIVERY 3.1 Place of Delivery. LESSOR will deliver the Aircraft to LESSEE at the TIMCO maintenance facility at Greensboro, North Carolina or such other place as may be agreed in writing between the parties (the "Delivery Location"). 3.2 Scheduled Delivery Date. As of the date of this Lease, Delivery of the Aircraft from LESSOR to LESSEE is scheduled to occur on or about August 17, 2000. LESSOR will notify LESSEE from time to time and in a timely manner of the exact date on which LESSOR expects Delivery to take place (the "Scheduled Delivery Date"). 3.3 No LESSOR Liability. LESSOR will not be liable for any loss or expense, or any loss of profit, arising from any delay or failure in Delivery to LESSEE unless such delay or failure arises as a direct consequence of the willful misconduct of LESSOR. 3.4 Total Loss of Aircraft prior to Delivery. If a Total Loss of the Aircraft occurs prior to Delivery, neither party will have any further liability to the other except that LESSOR will return to LESSEE the Security Deposit in accordance with Article 5.1.3 and any prepaid Rent, whereupon this Lease shall terminate. 3.5 Cancellation for Delay. Promptly after LESSOR becomes aware that a delay will cause Delivery to be delayed beyond September 30, 2000 (the "Outside Delivery Date"), LESSOR will notify LESSEE. By written notice given within thirty (30) days after the first to occur of (i) LESSEE's receipt of such LESSOR notice or (ii) the Outside Delivery Date, either party may by written notice to the other party terminate this Lease and this Lease will terminate on the date of receipt of such notice. In the event of such termination, neither party will have any further liability to the other party except that LESSOR will return to LESSEE the Security Deposit in accordance with Article 5.1.3 and any prepaid Rent. If neither party gives notice of termination within such thirty (30) day period, then the period for termination shall be deemed to be extended for an additional one hundred and eighty (180) days after the expiration of such thirty (30) day period. In the event that neither party gives a notice of termination within such one hundred and eighty (180) day period, the Lease will automatically terminate upon the expiration of such period, and LESSOR will return to LESSEE the Security Deposit and any prepaid Rent as provided above. ARTICLE 4 LEASE TERM AND EXTENSION OPTION 4.1 Initial Lease Term. The term of leasing of the Aircraft will commence on the Delivery Date and continue until November 1, 2003; provided, however, that upon prior written notice to LESSEE given on or before November 1, 2002 LESSOR may elect to continue such initial lease term until July 31, 2004 (and upon LESSEE's timely receipt of such notice the initial lease term will be deemed to continue until July 31, 2004 without any further act or notice) (the "Initial Lease Term"). 4.2 Lease Extension Option. 4.2.1 So long as no payment Default or Event of Default has occurred and is continuing hereunder on the date of exercise of the option or on the commencement date of the extension lease term with respect to such option, LESSEE will have one (1) option to extend the term of the Lease for a period of nine (9) months (the "Extension Lease Term"). 4.2.2 In order to exercise its option, LESSEE must give written notice to LESSOR not less than nine (9) months prior to the then existing Expiration Date of this Lease. Any notice given by LESSEE in accordance herewith will be irrevocable. 4.3 "Lease Term" and "Expiration Date". "Lease Term" means the term of leasing commencing on the Delivery Date and terminating on the Expiration Date. "Expiration Date" means the date on which LESSEE is required to redeliver the Aircraft to LESSOR in the condition required by this Lease on the last day of the Initial Lease Term or Extension Lease Term, if and as applicable. 4.4 "Termination Date". This Lease may in fact terminate on any of the dates set forth below: (a) the Expiration Date, provided LESSEE returns the Aircraft to LESSOR on the Expiration Date in the condition required by Article 23; or (b) a date earlier than the Expiration Date, if: (i) there is a Total Loss of the Aircraft prior to Delivery pursuant to Article 3.4; (ii) cancellation of this Lease occurs pursuant to Article 3.5; (iii) there is a Total Loss of the Aircraft and payment is made to LESSOR in accordance with Article 19.3; or (iv) an Event of Default occurs and LESSOR repossesses the Aircraft or otherwise terminates this Lease pursuant to Article 25.3. (c) a date later than the Expiration Date, if: (i) LESSEE fails to return the Aircraft in the condition required by this Lease on the Expiration Date in accordance with Article 23; or (ii) an Event of Default occurs and LESSOR repossesses the Aircraft or otherwise terminates this Lease pursuant to Article 25.3. The "Termination Date" is the date on which this Lease terminates because one of the above has occurred. ARTICLE 5 SECURITY DEPOSIT, TRANSACTION FEE, RENT, RESERVES AND OTHER PAYMENTS 5.1 Security Deposit. 5.1.1 * 5.1.2 The Security Deposit may be commingled with LESSOR's general funds and any interest earned on such Security Deposit will be for LESSOR's account. If the Security Deposit is reduced below the required amount by application to meet LESSEE's unperformed obligations under this Lease, LESSEE will replenish the Security Deposit within ten (10) days after LESSOR's demand therefor. The Security Deposit will serve as security for the performance by LESSEE of its obligations under this Lease and any other agreements between LESSEE and LESSOR relating to aircraft, engines, aircraft equipment or the extension of credit and may be applied by LESSOR upon the occurrence of an Event of Default hereunder or of an event of default by LESSEE under any such other agreements. 5.1.3 Upon termination of this Lease in accordance with Article 4.4 other than if an Event of Default has occurred and is continuing, LESSOR will return to LESSEE the amount of the Security Deposit then held by LESSOR (so long as no default by LESSEE exists under any other agreement between LESSEE and LESSOR relating to aircraft, engines or aircraft equipment or the extension of credit by LESSOR to LESSEE in which case LESSOR will be entitled to set off amounts owing to it), without interest, less an amount determined to be a reasonable estimate of the costs, if any, which LESSOR will incur to remedy any unperformed obligations of LESSEE under this Lease, including the correction of any discrepancies from the required condition of the Aircraft on return of the Aircraft. 5.2 Transaction Fee. * 5.3 Rent. 5.3.1 * 5.3.2 The first payment of the fixed portion of the Rent (US$20,000) during the Lease Term will be paid no later than the Delivery Date. Each subsequent payment of the fixed portion of the Rent will be due monthly thereafter no later than the same day of the month as the Delivery Date of the Aircraft except that, if such day is not a Business Day, the Rent will be due on the immediately preceding Business Day. If Delivery occurred on the 29th, 30th or 31st of the month and in any given month during the Lease Term there is no such corresponding date, Rent will be payable on the last Business Day of such month. 5.4 Reserves. 5.4.1 * 5.4.2 The amount of the Engine Reserves set forth in Article 5.4.1 may be increased by LESSOR in the event of an increase in the thrust rating of an Engine in accordance with Article 12.7. 5.4.3 Such Reserves (along with the flight hour variable portion of the Rent referred to in Article 5.3.1) will be paid on or before the 10th day of the calendar month next following the month in which the Delivery Date occurs and on or before the 10th day of each succeeding calendar month for flying performed during the calendar month prior to payment. All Reserves (and the flight hour variable portion of the Rent referred to in Article 5.3.1) for flying performed during the month in which the Termination Date occurs will be paid on the Termination Date, unless otherwise agreed by the parties. 5.4.4 No interest will accrue or be paid at any time to LESSEE on such Reserves and, subject to LESSOR's obligations under Article 13, LESSOR may commingle the Reserves with LESSOR's general funds. 5.5 LESSOR's Bank Account. The Security Deposit, Transaction Fee, Rent, Reserves and any other payment due under this Lease will be paid by wire transfer of immediately available U.S. Dollar funds to LESSOR's bank account at: * or to such other bank account as LESSOR may from time to time designate by written notice ("LESSOR's Bank"). When it is stated in this Lease that an installment of the Security Deposit, the monthly Rent, Reserves or any other payment is due or must be paid or made by LESSEE by a specific date, then such payment actually must be received by LESSOR's Bank on or before such specific date, even if, in order for such payment to be received by LESSOR's Bank by such specific date, LESSEE must initiate the wire transfer prior to such specific date. 5.6 Default Interest. * 5.7 No Deductions or Withholdings. All payments by LESSEE under this Lease, including the Security Deposit, Transaction Fee, Rent, Reserves, Default Interest, fees, indemnities or any other item, will be made in full without any deduction or withholding whether in respect of set off, counterclaim, duties, or Taxes (as defined in Article 16) imposed in the State of Registration or any jurisdiction from which such payments are made except to the extent otherwise required by Law, in which event LESSEE will pay any additional amount such that the net payment received by LESSOR after any required deduction or withholding equals the amount that LESSOR would have received if such withholding had not been required; provided, however, that if LESSEE pays any such additional amount to compensate for the withholding of any LESSOR Taxes, LESSOR shall pay to LESSEE promptly after receipt of LESSEE's written request therefor (which request shall include a description in reasonable detail of the LESSOR Taxes involved and the calculation of the amounts to be paid) such amounts as are necessary so that the net additional amounts received by LESSOR under this Article 5.7 do not exceed the amounts that LESSOR would have received if no amounts in respect of LESSOR Taxes had been required to be withheld or deducted by LESSEE. 5.8 Value Added Taxes. The Rent and other amounts payable by LESSEE under this Lease are exclusive of any value added tax, turnover tax or similar tax or duty. 5.9 Wire Transfer Disbursement Report. At the time of each Rent or other payment, LESSEE will advise LESSOR in writing of the amount of the payment being made by LESSEE and the allocation of such payment to the Security Deposit, Rent, Reserves, Default Interest and other charges. Notwithstanding the allocation set forth in LESSEE's report, in the event an Event of Default has occurred and is continuing under this Lease, LESSOR will have complete discretion to allocate LESSEE's payments as LESSOR determines. 5.10 Net Lease. 5.10.1 This Lease is a net lease and LESSEE's obligation to pay Rent and make other payments in accordance with this Lease will be absolute and unconditional under any and all circumstances and regardless of other events, including the following: (a) any right of set off, counterclaim, recoupment, defense or other right (including any right of reimbursement) which LESSEE may have against LESSOR, Prior Lessee, Manufacturer, the Engine manufacturer or any other person for any reason, including any claim LESSEE may have for the foregoing; (b) unavailability or interruption in use of the Aircraft for any reason, including a requisition thereof or any prohibition or interference with or other restriction against LESSEE's use, operation or possession of the Aircraft (whether by Law or otherwise), any defect in title, airworthiness, merchantability, fitness for any purpose, condition, design, specification or operation of any kind or nature of the Aircraft, the ineligibility of the Aircraft for any particular use or trade or for registration under the Laws of any jurisdiction or Total Loss of the Aircraft; (c) insolvency, bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, liquidation, receivership, administration or similar proceedings by or against LESSOR, LESSEE, Prior Lessee, Manufacturer, the Engine manufacturer or any other Person; (d) invalidity or unenforceability or lack of due authorization of or other defect in this Lease; (e) failure or delay on the part of any party to perform its obligations under this Lease; or (f) any other circumstance which but for this provision would or might have the effect of terminating or in any other way affecting any obligation of LESSEE hereunder. 5.10.2 Nothing in Article 5.10 will be construed to limit LESSEE's rights and remedies in the event of LESSOR's breach of its warranty of quiet enjoyment set forth in Article 21.2 or to limit LESSEE's rights and remedies to pursue in a court of law any claim it may have against LESSOR or any other Person; provided, however, that LESSEE will have no obligation to pay Rent as aforesaid, except in respect of Rent accrued at the time, for the number of days that LESSEE is deprived of the possession and use of the Aircraft as the result of the breach by LESSOR of its warranty of quiet enjoyment obligations set forth Article 21.2. 5.11 LESSOR Performance of LESSEE Obligation. If LESSEE fails to make any payment due under this Lease to a third party in connection with the Aircraft or fails to perform any other obligation required under this Lease, LESSOR may (but is not required to) at its election and without waiver of its rights perform such obligation and/or pay such amount. Within five (5) Business Days after written notice to LESSEE of the amount paid by LESSOR on behalf of LESSEE, LESSEE will repay such amount to LESSOR together with Default Interest. Such payment to LESSOR will constitute additional Rent payable by LESSEE to LESSOR hereunder. Any payment, performance or compliance by LESSOR of a LESSEE obligation hereunder will not affect the occurrence or continuance of a Default or Event of Default, as the case may be. 5.12 Consideration for Rent and other Amounts. The amount of the Rent and other payments contained herein are in consideration of LESSEE's waiver of warranties and indemnities set forth in Articles 8 and 17, respectively, and the other provisions of this Lease. ARTICLE 6 20 DELIVERY CONDITION AND INSPECTION OF AIRCRAFT ARTICLE 6 DELIVERY CONDITION AND INSPECTION OF AIRCRAFT 6.1 LESSEE Selection of Aircraft. LESSEE COVENANTS TO LESSOR THAT LESSEE HAS USED ITS OWN JUDGMENT IN SELECTING THE AIRCRAFT AND HAS DONE SO BASED ON ITS SIZE, DESIGN AND TYPE. LESSEE ACKNOWLEDGES THAT LESSOR IS NOT A MANUFACTURER, REPAIRER OR SERVICING AGENT OF THE AIRCRAFT. 6.2 Condition at Delivery. LESSOR has advised LESSEE that at Delivery the Aircraft will be as set forth in Exhibit A and in the condition set forth in Exhibit B. To the extent that at Delivery there are non substantial or minor deviations from the condition set forth in Exhibit B which do not affect the airworthiness of the Aircraft, LESSEE will nonetheless accept the Aircraft subject to such deviations and LESSEE and LESSOR will mutually agree to either (i) adjust the return conditions of the Aircraft set forth in Article 23 accordingly or (ii) arrange for LESSOR to reimburse LESSEE for the reasonable cost of rectification of such deviations. 6.3 LESSEE Inspection of Aircraft at Delivery. LESSEE will have the ground inspection and acceptance flight rights set forth in Exhibit B. LESSEE acknowledges that, as between LESSEE and LESSOR, in accepting the Aircraft LESSEE is relying on its own inspection and knowledge of the Aircraft in determining whether the Aircraft meets the requirements of this Lease. 6.4 Delivery of Aircraft to LESSEE. Subject to LESSEE having performed all of the conditions precedent to Delivery set forth herein, LESSOR will deliver the Aircraft to LESSEE at the Delivery Location. Provided that the Aircraft is in the condition required by Article 6.2, upon the tender of the Aircraft by LESSOR to LESSEE, LESSEE will accept the Aircraft by executing and delivering to LESSOR the Estoppel and Acceptance Certificate, whereupon Delivery will be deemed to have occurred for all purposes under this Lease, including, but not limited to, the commencement of LESSEE's obligation to pay Rent hereunder. 6.5 LESSEE Acceptance of Aircraft. If LESSEE fails to (a) comply with the conditions contained in Articles 7.1 and 7.3 so as to allow Delivery to take place on the Scheduled Delivery Date or (b) take delivery of the Aircraft when properly tendered for delivery by LESSOR in the condition required hereunder, LESSEE will indemnify LESSOR for all costs and expenses incurred by LESSOR as a result thereof. ARTICLE 7 PRE DELIVERY, DELIVERY AND POST DELIVERY 23 DOCUMENTARY AND OTHER REQUIREMENTS ARTICLE 7 PRE DELIVERY, DELIVERY AND POST DELIVERY DOCUMENTARY AND OTHER REQUIREMENTS 7.1 Pre Delivery Requirements. LESSEE will deliver to LESSOR each of the following prior to the Scheduled Delivery Date of the Aircraft: (a) copies of resolutions of the Board of Directors of LESSEE or other written evidence of appropriate corporate action, duly certifying and authorizing the lease of the Aircraft hereunder and the execution, delivery and performance of this Lease, together with an incumbency certificate as to the person or persons authorized to execute and deliver documents on behalf of LESSEE hereunder; and (b) an opinion of counsel in the form and substance of Exhibit F. (c) a Certificate of Insurance and Brokers' Letter of Undertaking in the form and substance of Exhibits C and D, respectively, from LESSEE's insurance brokers evidencing insurance of the Aircraft in accordance with this Lease from the Delivery Date; (d) a copy of LESSEE's Air Operator's Certificate; (e) a power of attorney empowering LESSEE's representative, who may be an officer or employee of LESSEE, to accept the Aircraft on behalf of LESSEE; (f) a power of attorney in the form of Exhibit G; and (g) such other documents as LESSOR may reasonably request. 7.2 LESSOR's Pre Delivery Requirements. LESSEE's obligation to accept delivery of and lease the Aircraft hereunder is subject to satisfaction of the following conditions precedent: (a) LESSOR shall tender the Aircraft including the Aircraft Documentation to LESSEE at the Delivery Location in accordance with Article 6.2; (b) The Aircraft shall be registered in the U.S. in the name of LESSOR and the Aircraft shall have a valid Certificate of Airworthiness and shall be in the condition required in order to meet the operating requirements of FAR Part 121; and (c) All Airworthiness Directives which are issued prior to the Delivery Date and which require compliance (either by means of repetitive inspections, modifications or terminating action) prior to Delivery or within one (1) year after Delivery will be complied with on a terminating action basis at LESSOR's cost; Airworthiness Directives which do not have a terminating action will be accomplished at the highest level of inspection or modification possible. 7.3 Delivery Requirements. On the Delivery Date of the Aircraft, each of the following will occur: 7.3.1 If not previously done, LESSEE will pay to LESSOR the first monthly installment of Rent in accordance with Article 5.3.2; 7.3.2 LESSEE will execute and deliver to LESSOR the Estoppel and Acceptance Certificate covering the Aircraft and dated the Delivery Date. 7.3.3 LESSEE will deliver a certificate signed by an officer of LESSEE stating all of the following: (a) the representations and warranties contained in Article 20 are true and accurate on and as of the Delivery 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); and (b) no Default has occurred and is continuing or will result from LESSEE's lease of the Aircraft hereunder. 7.3.4 LESSEE's counsel will deliver an opinion confirming the matters set forth in the opinion of counsel described in Article 7.1 and advising that all filing and other requirements described in the earlier opinion of counsel have been met. 7.3.5 If any Creditor Agreement provides or contemplates that such Creditor will obtain any right, title or interest in an Engine which is installed on such Creditor's aircraft, prior to placing the Engine on such Creditor's aircraft LESSEE will deliver to LESSOR an engines cooperation agreement in form and substance acceptable to LESSOR which is executed by LESSEE and LESSEE's Creditors (as defined therein). 7.4 Post Delivery Requirements. Within fourteen (14) days after Delivery, if not previously provided, LESSOR will deliver to LESSEE (a) the Airframe Warranty Assignment duly executed by LESSOR and acknowledged by Manufacturer and (b) the Engine Warranty Assignment duly executed by LESSOR. ARTICLE 8 DISCLAIMERS LESSOR HAS COMMITTED TO LESSEE THAT ON THE DELIVERY DATE THE AIRCRAFT WILL BE IN THE CONDITION REQUIRED BY EXHIBIT B. SUCH COMMITMENT OR COVENANT ON THE PART OF LESSOR EXPIRES AND THE DISCLAIMERS SET FORTH IN THIS ARTICLE 8 APPLY UPON LESSEE'S ACCEPTANCE OF THE AIRCRAFT AND EXECUTION OF THE ESTOPPEL AND ACCEPTANCE CERTIFICATE. AFTER SUCH TIME, THEN AS BETWEEN LESSOR AND LESSEE: 8.1 "As Is, Where Is". LESSEE AGREES THAT IT IS LEASING THE AIRCRAFT "AS IS, WHERE IS". LESSEE UNCONDITIONALLY ACKNOWLEDGES AND AGREES THAT NEITHER LESSOR NOR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES OR REPRESENTATIVES HAVE MADE OR WILL BE DEEMED TO HAVE MADE ANY TERM, CONDITION, REPRESENTATION, WARRANTY OR COVENANT EXPRESS OR IMPLIED (WHETHER STATUTORY OR OTHERWISE) AS TO (a) THE CAPACITY, AGE, AIRWORTHINESS, VALUE, QUALITY, DURABILITY, CONFORMITY TO THE PROVISIONS OF THIS LEASE, DESCRIPTION, CONDITION (WHETHER OF THE AIRCRAFT, ANY ENGINE, ANY PART THEREOF OR THE AIRCRAFT DOCUMENTATION), DESIGN, WORKMANSHIP, MATERIALS, MANUFACTURE, CONSTRUCTION, OPERATION, DESCRIPTION, STATE, MERCHANTABILITY, PERFORMANCE, FITNESS FOR ANY PARTICULAR USE OR PURPOSE (INCLUDING THE ABILITY TO OPERATE OR REGISTER THE AIRCRAFT OR USE THE AIRCRAFT DOCUMENTATION IN ANY OR ALL JURISDICTIONS) OR SUITABILITY OF THE AIRCRAFT OR ANY PART THEREOF, OR THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, KNOWN OR UNKNOWN, APPARENT OR CONCEALED, EXTERIOR OR INTERIOR, (b) THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHTS, (c) ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE OR (d) ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT OR ANY PART THEREOF, ALL OF WHICH ARE HEREBY EXPRESSLY EXCLUDED AND EXTINGUISHED EXCEPT AS EXPRESSLY PROVIDED IN ARTICLE 21 HEREOF. 8.2 Waiver of Warranty of Description. IN CONSIDERATION OF (a) LESSEE'S RIGHTS HEREUNDER TO INSPECT THE AIRCRAFT AND (b) LESSOR'S ASSIGNMENT TO LESSEE OF ANY EXISTING AND ASSIGNABLE WARRANTIES OF MANUFACTURER AND THE ENGINE MANUFACTURER, LESSEE HEREBY AGREES THAT ITS ACCEPTANCE OF THE AIRCRAFT AT DELIVERY AND ITS EXECUTION AND DELIVERY OF THE ESTOPPEL AND ACCEPTANCE CERTIFICATE CONSTITUTE LESSEE'S WAIVER OF THE WARRANTY OF DESCRIPTION, ANY CLAIMS LESSEE MAY HAVE AGAINST LESSOR BASED UPON THE FAILURE OF THE AIRCRAFT TO CONFORM WITH SUCH DESCRIPTION AND ANY AND ALL RIGHTS IT MAY HAVE TO THE REMEDIES SET FORTH IN SECTIONS 10508 THROUGH 10522 OF THE CALIFORNIA COMMERCIAL CODE. EVEN IF AT ANY TIME THE FAILURE OF THE AIRCRAFT TO CONFORM TO SUCH DESCRIPTION SUBSTANTIALLY IMPAIRS THE VALUE AND UTILITY OF THE AIRCRAFT AND EITHER (i) LESSEE ACCEPTED THE AIRCRAFT BASED ON A REASONABLE ASSUMPTION THAT THE NONCONFORMITY WOULD BE CURED AND IT WAS NOT SEASONABLY CURED OR (ii) LESSEE ACCEPTED THE AIRCRAFT WITHOUT DISCOVERING THE NONCONFORMITY BUT LESSEE'S ACCEPTANCE OF THE AIRCRAFT WAS REASONABLY INDUCED EITHER BY LESSOR'S ASSURANCES OR BY THE DIFFICULTY OF DISCOVERING ANY DEFECT PRIOR TO ACCEPTANCE, LESSEE AGREES NOT TO LOOK TO LESSOR FOR DAMAGES OR RELIEF ARISING OUT OF THE FAILURE OF THE AIRCRAFT TO CONFORM TO SUCH DESCRIPTION. 8.3 LESSEE Waiver. LESSEE hereby waives as between itself and LESSOR and agrees not to seek to establish or enforce any rights and remedies, express or implied (whether statutory or otherwise) against LESSOR or the Aircraft relating to any of the matters mentioned in Articles 8.1 or 8.2 and the leasing thereof by LESSOR to LESSEE. 8.4 Conclusive Proof. DELIVERY BY LESSEE TO LESSOR OF THE ESTOPPEL AND ACCEPTANCE CERTIFICATE WILL BE CONCLUSIVE PROOF AS BETWEEN LESSOR AND LESSEE THAT LESSEE'S TECHNICAL EXPERTS HAVE EXAMINED AND INVESTIGATED THE AIRCRAFT, INCLUDING THE ENGINES AND THE AIRCRAFT DOCUMENTATION AND THAT EACH IS IN THE CONDITION REQUIRED HEREUNDER AND WITHOUT DEFECT, EXCEPT AS SPECIFICALLY SET FORTH IN SUCH CERTIFICATE, (WHETHER OR NOT DISCOVERABLE AT DELIVERY) AND OTHERWISE IN EVERY WAY SATISFACTORY TO LESSEE. 8.5 No LESSOR Liability for Losses. LESSEE agrees that LESSOR will not be liable to LESSEE, any sublessee or any Person, whether in contract or tort and however arising, for any cost, loss or damage (consequential or otherwise) arising out of the condition of the Aircraft, whether or not due in whole or in part to an act or omission or the active or passive negligence of LESSOR. 8.6 No Liability to Repair or Replace. LESSOR will not be liable for any expense in repairing or replacing any item of the Aircraft or be liable to supply another aircraft or any item in lieu of the Aircraft or any Part thereof if the same is lost, confiscated, damaged, destroyed or otherwise rendered unfit for use. 8.7 No Waiver. Nothing in this Article 8 or elsewhere in this Lease will be deemed to be a waiver by LESSEE of any rights it may have against Manufacturer, the Engine manufacturer or any other Person. ARTICLE 9 MANUFACTURERS' AND VENDORS' WARRANTIES 9.1 Warranties. Effective upon Delivery LESSOR will assign to LESSEE for the duration of the Lease Term the benefit of all warranties and indemnities given to LESSOR by Manufacturer and the Engine manufacturer pursuant to the Airframe Warranty Assignment and the Engine Warranty Assignment, respectively. Effective on the Delivery Date, all other assignable vendor warranties with respect to the Aircraft are hereby assigned by LESSOR to LESSEE. 9.2 Non Assignable Warranties. To the extent that any warranty or indemnity given to LESSOR by Manufacturer and others with respect to the Aircraft cannot be assigned, LESSEE will be entitled to take such action to enforce such warranty or indemnity in the name of LESSOR against Manufacturer and such other parties as LESSEE sees fit, but subject to LESSEE first ensuring that LESSOR is indemnified and secured to LESSOR's satisfaction against all losses, damage, costs, expenses and liabilities thereby incurred or reasonably likely to be incurred. 9.3 Reassignment. On the Termination Date, the benefit of any warranty assigned by LESSOR to LESSEE will be reassigned automatically to LESSOR or its designee. LESSEE's rights under such warranties (including LESSEE's claims and rights to payment thereunder) will revert to LESSOR during any period in which an Event of Default is continuing. LESSEE at its own cost and expense will do all such things and execute such documents as may be reasonably required for this purpose. 9.4 Warranty Claims. LESSEE will diligently and promptly pursue any valid claims it may have against Manufacturer and others under such warranties with respect to the Aircraft and will provide notice of the same to LESSOR. ARTICLE 10 OPERATION OF AIRCRAFT 10.1 Costs of Operation. LESSEE will pay all costs incurred in the operation of the Aircraft during the Lease Term, for profit or otherwise, including the costs of flight crews, cabin personnel, fuel, oil, lubricants, maintenance, insurance, storage, landing and navigation fees, airport charges, passenger service and any and all other expenses of any kind or nature, directly or indirectly, in connection with or related to the use, movement and operation of the Aircraft. The obligations, covenants and liabilities of LESSEE under this paragraph arising prior to return of the Aircraft to LESSOR will continue in full force and effect, notwithstanding the termination of this Lease or expiration of the Lease Term. 10.2 Compliance with Laws. Except as expressly provided in this Lease, LESSEE agrees throughout the Lease Term to maintain operational control of the Aircraft and use the Aircraft in accordance with applicable Laws of the State of Registration and of any country, state, territory or municipality into or over which LESSEE may operate. LESSEE will not employ, suffer or cause the Aircraft to be used in any business which is forbidden by Law or in any manner which may render it liable to condemnation, destruction, seizure, or confiscation by any authority. LESSEE will not permit the Aircraft to fly to any airport or country if so doing would cause LESSEE to be in violation of any Law applicable to LESSEE or the Aircraft. 10.3 Training. LESSEE will not use the Aircraft for testing or for training of flight crew members other than LESSEE crew members and it will not use the Aircraft for training any more than it utilizes for training the other B737 300 aircraft in its fleet. 10.4 No Violation of Insurance Policies. LESSEE will not use or permit the Aircraft to be used in any manner or for any purpose which is not covered by the insurance policies LESSEE is required to carry and maintain as set forth in this Lease. LESSEE will not carry any goods of any description excepted or exempted from such policies or do any other act or permit to be done anything which could reasonably be expected to invalidate or limit any such insurance policy. 10.5 Flight Charges. LESSEE will pay promptly when due all enroute navigation charges, navigation service charges and all other charges payable by LESSEE for the use of or for services provided at any airport, whether in respect of the Aircraft or any other aircraft of LESSEE, and will indemnify and hold LESSOR harmless in respect of the same. This indemnity will continue in full force and effect notwithstanding the termination or expiration of the Lease Term for any reason or the return of the Aircraft. ARTICLE 11 SUBLEASES 11.1 No Sublease without LESSOR Consent. LESSEE WILL NOT SUBLEASE OR PART WITH POSSESSION OF THE AIRCRAFT (EXCEPT FOR MAINTENANCE AND REPAIR) AT ANY TIME WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR (NOT TO BE UNREASONABLY WITHHELD OR DELAYED) EXCEPT FOR A SUBLEASE TO A PERMITTED SUBLESSEE PRE APPROVED IN ARTICLE 11.1.1 BELOW, AND IN ACCORDANCE WITH SUCH REQUIREMENTS AS MAY FROM TIME TO TIME BE AGREED IN WRITING BETWEEN LESSOR AND LESSEE. The wet leasing of the Aircraft during the Lease Term (in which LESSEE and its crews retain operational control of the Aircraft) will not be considered a sublease of the Aircraft. 11.1.1 LESSEE may sublease the Aircraft without LESSOR's prior consent to an operator based in the U.S. which is then currently a lessee of LESSOR, provided such operator is not then in default under the aircraft lease agreement between such operator and LESSOR ("Permitted Sublessee"). Any such sublease will be subject to the provisions of this Article 11, including the provisions of Article 11.2 below. 11.2 LESSOR Costs. LESSEE will indemnify LESSOR on demand for all reasonable and actual out of pocket expenses (including legal fees) incurred in connection with LESSOR's assessment of the subleasing proposal (whether or not LESSOR's consent to such sublease is ultimately given), review of the sublease documentation and implementation of the sublease. 11.3 Any Approved Sublease. Any sublease to a Permitted Sublessee, and any other sublease approved by LESSOR will be for a term no greater than the remaining Lease Term and contain provisions consistent with this Lease protecting LESSOR's title to the Aircraft, providing appropriate LESSOR indemnities, regarding the maintenance and repair standards for the Aircraft, concerning the insurances which will be carried by the sublessee and the circumstances which constitute a Total Loss of the Aircraft. Any such sublease will be subject and subordinate to this Lease. In its sole discretion, LESSOR may require an opinion of counsel in connection with such sublease, including LESSOR's right to repossess the Aircraft in the event of an Event of Default hereunder or under the sublease. LESSEE will not amend the terms of any approved sublease without the prior written consent of LESSOR, which will not be unreasonably withheld. Notwithstanding the foregoing, LESSOR agrees that even if an Event of Default has occurred and is continuing hereunder, so long as the approved sublessee fully performs all of the obligations of LESSEE hereunder and agrees to do so on a going forward basis and there is no risk to LESSOR of an impairment to LESSOR's unencumbered title to the Aircraft, LESSOR will not interfere with such sublessee's quiet use and enjoyment of the Aircraft. 11.4 Assignment of Sublease. Any approved sublease will be assigned to LESSOR as security. LESSEE will deliver the original counterpart of the sublease to LESSOR and make any filings necessary to protect LESSOR's security interest. 11.5 Continued Responsibility of LESSEE. LESSEE will continue to be responsible for performance of its obligations under this Lease during any period of sublease. ARTICLE 12 MAINTENANCE OF AIRCRAFT 12.1 General Obligation. 12.1.1 During the Lease Term and until the Aircraft is returned to LESSOR in the condition required by this Lease, LESSEE alone has the obligation, at its expense, to maintain and repair the Aircraft, Engines, and all of the Parts (a) in accordance with the Maintenance Program, (b) in accordance with the rules and regulations of the Aviation Authority, (c) in accordance with Manufacturer's type design, (d) in accordance with any other regulations or requirements necessary in order to maintain a valid Certificate of Airworthiness for the Aircraft and meet the requirements at all times during the Lease Term and upon return of the Aircraft to LESSOR for issuance of a Standard Certificate of Airworthiness for transport category aircraft issued by the FAA in accordance with FAR Part 21 (except during those periods when the Aircraft is undergoing maintenance or repairs as required or permitted by this Lease and to the extent in conflict with the requirements of the Aviation Authority) and (e) in the same manner and with the same care as used by LESSEE with respect to similar aircraft and engines operated by LESSEE and without in any way discriminating against the Aircraft. 12.1.2 No Engine will remain in an unserviceable condition for more than three (3) months. 12.1.3 LESSEE will not enter into any Engine maintenance cost per flight hour, power by the hour or similar agreement with Engine manufacturer or any other Engine maintenance facility or organization without LESSOR's prior written consent, which consent shall not be unreasonably withheld or delayed. 12.2 Specific Obligations. Without limiting Article 12.1, LESSEE agrees that such maintenance and repairs will include but will not be limited to each of the following specific items: (a) performance in accordance with the Maintenance Program of all routine and non routine maintenance work; (b) incorporation in the Aircraft of all Airworthiness Directives, all alert service bulletins of Manufacturer, Engine manufacturer and other vendors or manufacturers of Parts incorporated on the Aircraft and any service bulletins which must be performed in order to maintain the warranties on the Aircraft, Engines, and Parts; (c) incorporation in the Aircraft of all other service bulletins of Manufacturer, the Engine manufacturer and other vendors which LESSEE schedules to adopt within the Lease Term for the rest of its B737 aircraft fleet. It is the intent of the parties that the Aircraft will not be discriminated against in service bulletin compliance (including method of compliance) or other maintenance matters compared with the rest of LESSEE's B737 aircraft fleet. LESSEE will not discriminate against the Engines with respect to Overhaul build standards and life limited part replacements; (d) incorporation in the Maintenance Program for the Aircraft of a corrosion prevention and control program as recommended by Manufacturer, the Aviation Authority and the FAA and the correction of any discrepancies in accordance with the recommendations of Manufacturer and the Structural Repair Manual. In addition, all inspected areas will be properly treated with corrosion inhibitor as recommended by Manufacturer; (e) maintaining in English and keeping in an up to date status the records and historical documents set forth in Exhibit L; (f) maintaining historical records, in English, for on condition, condition monitored, hard time and life limited Parts (including tags from the manufacturer of such Part or a repair facility which evidence that such Part is new or overhauled and establish authenticity, total time in service and time since overhaul for such Part), the hours and cycles the Aircraft and Engines operate and all maintenance and repairs performed on the Aircraft; and (g) properly documenting all repairs, Modifications and alterations and the addition, removal or replacement of equipment, systems or components in accordance with the rules and regulations of the Aviation Authority and reflecting such items in the Aircraft Documentation. In addition, all repairs to the Aircraft will be accomplished in accordance with either (i) Manufacturer's Structural Repair Manual (or FAA approved Repair Approval Sheets) or (ii) FAA approved data (such as FAA Form 8110 or equivalent). All Modifications and alterations will be accomplished in accordance with FAA approved data (such as FAA Form 8110 or equivalent). 12.3 Replacement of Parts. 12.3.1 LESSEE, at its own cost and expense, will promptly replace all Parts which may from time to time become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or rendered unfit or beyond economical repair (BER) for use for any reason. In the ordinary course of maintenance, service, repair, overhaul or testing, LESSEE may remove any Part provided that LESSEE replaces such Part as promptly as practicable. All replacement Parts will (a) be free and clear of all Security Interests (except Permitted Liens) of any kind or description, (b) be in airworthy condition and of at least equivalent model, service bulletin and modification status and have a value and utility at least equal to the Parts replaced, assuming such replaced Parts were in the condition and repair required to be maintained by the terms hereof and (c) have a current "serviceable tag" of the manufacturer or maintenance facility providing such items to LESSEE, indicating that such Parts are new, serviceable or Overhauled. So long as a substitution meets the requirements of the Maintenance Program and the Aviation Authority, LESSEE may substitute for any Part a part that does not meet the requirements of the foregoing sentence if a complying Part cannot be procured or installed within the available groundtime of the Aircraft and as soon as practicable the noncomplying part is removed and replaced by a complying Part. With respect to replacement modules in an Engine, LESSEE will use best reasonable efforts to ensure that any replacement module will not have been previously operated at a higher thrust rating than the replaced module provided that in all circumstances life limited Parts in such replacement module will have no less life remaining than the life limited Parts in the replaced module. 12.3.2 All Parts removed from the Airframe or any Engine will remain the property of LESSOR and subject to this Lease no matter where located, until such time as such Parts have been replaced by Parts (which have been incorporated or installed in or attached to the Airframe or such Engine) which meet the requirements for replacement Parts specified above and title to such replacement Parts has passed to LESSOR under the Laws of the State of Registration and lex situs. To the extent permitted by the Laws of the State of Registration and the lex situs it is the intent of LESSOR and LESSEE that without further act and immediately upon any replacement Part becoming incorporated, installed or attached to the Airframe or an Engine as above provided, (a) title to the removed Part will thereupon vest in LESSEE, free and clear of all rights of LESSOR, (b) title to the replacement Part will thereupon vest in LESSOR free and clear of all rights of LESSEE (other than LESSEE's rights under this Lease) and (c) such replacement Part will become subject to this Lease and be deemed to be a Part hereunder to the same extent as the Parts originally incorporated or installed in or attached to the Airframe or such Engine. 12.4 Removal of Engines. 12.4.1 If an Engine is removed for testing, service, repair, maintenance, Overhaul work, alterations or modifications, title to such Engine will at all times remain vested in LESSOR. 12.4.2 LESSEE will be entitled to remove any of the Engines from the Aircraft and install another engine or engines on the Aircraft, provided that LESSEE complies with each of the following obligations: (a) the insurance requirements set forth in Article 18 and Exhibit C are in place; (b) LESSEE ensures that the identification plates referred to in Article 15 are not removed from any Engine upon such Engine being detached from the Aircraft; and (c) title to the Engine remains with LESSOR free from all Security Interests (except Permitted Liens) regardless of the location of the Engine or its attachment to or detachment from the Aircraft. 12.5 Pooling of Engines and Parts. LESSEE may subject the Engines and Parts to normal interchange or pooling agreements with responsible international scheduled commercial air carriers customary in the airline industry and entered into by LESSEE in the ordinary course of its business with respect to its entire B737 fleet so long as (a) in the case of pooling of an Engine, such Engine is returned to LESSEE within four (4) months, (b) no transfer of title to the Engine occurs, (c) all other terms of this Lease continue to be observed with respect to the Engines or Parts, including but not limited to Articles 8, 10, 12, 14, 15, 16, 17, 18 and 19 and (d) LESSEE continues to be fully responsible to LESSOR for the performance of all of its obligations hereunder. 12.6 Installation of Engines on other aircraft. Any Engine removed from the Aircraft may be installed on another aircraft in LESSEE's fleet which utilizes engines of the same type as the Engine only if one of the situations described in this Article 12.6 exists: 12.6.1 LESSEE or LESSOR has title to such other aircraft free and clear of all Security Interests (except Permitted Liens). 12.6.2 LESSEE, LESSOR and all of the Creditors of LESSEE of such aircraft enter into an engines cooperation agreement in form and substance reasonably acceptable to LESSOR in which each party agrees to recognize one another's rights in the engines. LESSEE will reimburse LESSOR and LESSOR's Lender for their reasonable attorneys' fees and costs in negotiating and finalizing engine cooperation agreement arrangements with LESSEE and its Creditors. 12.6.3 Such other aircraft is subject to a Creditor Agreement (but no other Security Interests except Permitted Liens) which by its terms expressly or effectively states that such Creditor and its successors and assigns will not acquire any right, title or interest in any Engine by reason of such Engine being installed on such aircraft. LESSEE hereby agrees that if LESSOR's title to an Engine is in fact impaired under any such Creditor Agreement, such impairment will be deemed to be a Total Loss of such Engine and the provisions of Article 19.5 will apply. To the extent another Creditor Agreement contains such provisions, then LESSOR hereby agrees for the benefit of the Creditor of such Creditor Agreement that neither LESSOR nor its successors or assigns will acquire or claim any right, title or interest in any engine in which LESSEE or another Creditor has an interest as a result of such engine being installed on the Airframe. 12.7 Engine Thrust Rating. If an Engine is utilized by LESSEE on the Aircraft or on any other airframe (or if the Engine is utilized by any sublessee or user under a pooling arrangement in accordance with this Lease) at a thrust rating greater than the thrust rating set forth in Exhibit A, LESSEE will promptly notify LESSOR and the Engine Reserves amounts set forth in Article 5.4.1 will be increased in an amount proportional to the accelerated rate of deterioration of the Engine resulting from the increased thrust rating. 12.8 Modifications. 12.8.1 * 12.8.2 LESSOR may review LESSEE's proposed designs, plans, engineering drawings and diagrams, and flight and maintenance manual revisions for any proposed Modification. If requested by LESSOR, LESSEE will furnish LESSOR (at LESSEE's expense) with such documents in final form and any other documents required by Law, as a result of such Modification. All Modifications incorporated on the Aircraft will be properly documented in the Aircraft Documentation and be fully approved by the Aviation Authority. 12.8.3 Notwithstanding any other provision of this Lease, no Modification will be made which has the effect of decreasing the utility or value of the Aircraft or invalidating any warranty applicable to the Aircraft. 12.8.4 No Modification will be made by LESSEE if an Event of Default exists and is continuing hereunder. 12.8.5 Unless otherwise agreed by LESSOR in writing, all permanent or structural Modifications will forthwith become a part of the Aircraft and LESSEE relinquishes to LESSOR all rights and title thereto. However, all (i) temporary and non structural Modifications and (ii) all Passenger Service Equipment so long as such equipment can be removed without causing material damage to the Aircraft, will remain the property of LESSEE and, at LESSOR's request and LESSEE's cost, will be removed from the Aircraft prior to return of the Aircraft, with LESSEE restoring the Aircraft to the condition it was in prior to the Modification or installation of Passenger Service Equipment in a manner cosmetically acceptable to LESSOR. Notwithstanding the foregoing, no such removal will be permitted without LESSOR's permission during the occurrence of an Event of Default hereunder and immediately upon the occurrence of an Event of Default hereunder, without the requirement of any further act or notice, all right, title and interest in such Modifications and Passenger Service Equipment will immediately vest in LESSOR; provided however, that in the event of such an Event of Default, with respect to any Passenger Service Equipment, LESSOR will use commercially reasonable efforts to reach agreement with any vendors or suppliers holding title to the Passenger Service Equipment in order to protect the mutual interests of LESSOR and such parties. 12.8.6 LESSOR will bear no liability for the cost of Modifications of the Aircraft whether in the event of grounding or suspensions of certification, or for any other cause. 12.9 Performance of Work by Third Parties. Whenever maintenance and repair work on the Aircraft or Engines will be regularly performed by a Person other than LESSEE, such Person will be an FAA authorized repair station. 12.10 Reporting Requirements. 12.10.1 Commencing with a report furnished ten (10) days after the end of the calendar month in which Delivery occurs, LESSEE will furnish to LESSOR a Monthly Report in English in the form attached hereto as Exhibit K. Each Monthly Report will be furnished within ten (10) days after the end of each calendar month, except that the Monthly Report pertaining to the last month (or any portion thereof) of the Lease Term will be furnished to LESSOR on the Termination Date. 12.10.2 Commencing with the second scheduled "C" check for the Aircraft, LESSEE will provide LESSOR with a Technical Evaluation Report for the Aircraft in the form and substance of Exhibit M, as revised. Such Technical Evaluation Report will be furnished within three (3) Business Days after the completion of every second "C" check performed during the Lease Term and at other times reasonably requested by LESSOR. 12.11 Information Regarding Maintenance Program. LESSEE will provide LESSOR with a copy of or information regarding the Maintenance Program for the Aircraft, as reasonably requested by LESSOR. 12.12 LESSOR Rights to Inspect Aircraft. On reasonable notice, LESSOR and/or its authorized agents or representatives will have the right to inspect the Aircraft and Aircraft Documentation. LESSOR agrees that such requests will be coordinated with LESSEE so as to cause the minimum practical disturbance to LESSEE's operation or its personnel. LESSEE agrees to cooperate with LESSOR in making the Aircraft and Aircraft Documentation available to such authorized technical teams. LESSOR will have no duty to make any such inspection and will not incur any liability or obligation by reason of (and LESSEE's indemnity obligations pursuant to Article 17 will apply notwithstanding) not making any such inspection or by reason of any reports it receives or any reviews it may make of the Aircraft records. ARTICLE 13 USE OF RESERVES 13.1 Airframe Reserves. The Airframe Reserves payable by LESSEE hereunder will be retained by LESSOR as LESSEE's contribution toward payment of the cost of performance of the "C7"inspection and the 22,400 flight hour structural inspection of the Aircraft pursuant to the MPD. LESSEE and LESSOR acknowledge and agree that such "C7" and 22,400 flight hour structural inspection tasks will not be due to be performed until after return of the Aircraft by LESSEE. As a result, the parties agree that the Airframe Reserves are not reimburseable to LESSEE hereunder and that LESSOR will retain all Airframe Reserves paid by LESSEE; provided, however, in the event of the Total Loss of the Aircraft, fifty percent (50%) of the Airframe Reserves held by LESSOR will be retained by LESSOR and the remaining portion of such Reserves will be paid to LESSEE in accordance with Article 19.9. 13.2 Engine Reserves. 13.2.1 Subject to the limitations set forth in Article 13.2.2, LESSOR will reimburse LESSEE from the Engine Reserves for the actual cost associated with performance restoration, the replacement of life limited Parts or permanent repair of on condition Parts in the Basic Engine during completed Engine shop visits (i.e. heavy maintenance visits) requiring off wing teardown and/or disassembly, with work performed for all other causes excluded, including those causes set forth in Article 13.5. Subject to Article 16.1 and excluding exchange fees and handling, packaging and shipping charges, reimbursement for an Engine will be made up to the amount in the Engine Reserves applicable to such Engine at the time of removal of such Engine. 13.2.2 Twenty three percent (23%) of the per hour Engine Reserve payable by LESSEE for an Engine will be designated and will be reimbursable solely for the replacement of life limited parts in such Engine. With respect only to Engine Reserves applicable to performance restoration of an Engine, reimbursement will be further limited as to each module of such Engine in accordance with the following percentages of the remaining total amount in the Engine Reserves for such Engine: 18% Fan & Accessory Gearbox 22% High Pressure Compressor Module 44% High Pressure Turbine Module 16% Low Pressure Turbine Module 13.2.3 LESSEE will not enter into any Engine maintenance cost per flight hour, power by the hour or similar agreement with Engine manufacturer or any other Engine maintenance facility or organization without LESSOR's consent which consent shall not be unreasonably withheld or delayed. 13.3 Landing Gear Reserves. LESSOR will reimburse LESSEE from the Landing Gear Reserves for the actual cost of an Overhaul of the Landing Gear, up to the amount remaining in the Landing Gear Reserves, with work performed for all other causes excluded, including those causes set forth in Article 13.5. 13.4 Reimbursement. LESSEE will be entitled to reimbursement from the Engine Reserves and the Landing Gear Reserves after the work is completed and the Engine or Landing Gear has left the repair agency, by submitting invoices and proper documentation within six (6) months after completion of the work. For the Engine, proper documentation includes a description of the reason for removal (if removed), a shop teardown report, a shop findings report if an Engine is removed (or an equivalent report if an Engine is not removed), a full description of the workscope and complete disk records for the Engine both prior to and after the repair. Both the invoice supplied by the Engine repair facility and that submitted by LESSEE to LESSOR with respect to an Engine will state whether or not credits were provided due to life remaining on any removed Engine Parts and the amount of any such credits will be itemized. For the Landing Gear, proper documentation includes the total calendar time, hours and cycles on the Landing Gear both prior to and after the Overhaul, a copy of the complete Overhaul report which includes a life limited component list and a description of all work performed on the Landing Gear assembly. 13.5 Reimbursement Adjustment. By way of example, among the exclusions from reimbursement are those items resulting from repairs covered by LESSEE's or a third party's insurance, (deductibles being for the account of LESSEE) or warranties or required as a result of an Airworthiness Directive, manufacturer's service bulletin, faulty maintenance or installation, improper operations, misuse, neglect, accident, incident, ingestion, or other accidental cause. Reimbursement from the Reserves will not be available for the APU, quick engine change (QEC) Parts, thrust reversers, or any of their associated components. All invoices subject to reimbursement from LESSOR will be reduced (by adjustment between LESSEE and LESSOR retroactively if necessary) by the actual amounts received by LESSEE on account of such work from responsible third parties or other sources, such as insurance proceeds, manufacturer's warranties, guarantees, concessions and credits (including, with respect to Engines, credits due to life remaining on any removed Engine Parts). 13.6 Costs in Excess of Reserves. LESSEE will be responsible for payment of all costs in excess of the amounts reimbursed hereunder. If on any occasion the balance in the Engine Reserves or Landing Gear Reserves for a particular Engine or Landing Gear (at the time of removal, in the case of an Engine or the Landing Gear) is insufficient to satisfy a claim for reimbursement in respect of such Engine or the Landing Gear, as applicable, the shortfall may not be carried forward or made the subject of any further claim for reimbursement. 13.7 Reimbursement after Termination Date. LESSEE may not submit any invoice for reimbursement from the Engine Reserves or Landing Gear Reserves after the Termination Date unless on or prior to such date LESSEE has notified LESSOR in writing that such outstanding invoice will be submitted after the Termination Date and the anticipated amount of such invoice. So long as LESSEE has provided such notice to LESSOR, LESSEE may then submit such outstanding invoice at any time within six (6) months after the Termination Date. In the event of the Total Loss of the Aircraft, fifty percent (50%) of the unreimbursed Reserves held by LESSOR will be retained by LESSOR and the remaining portion of the Reserves will be paid to LESSEE in accordance with Article 19.9. ARTICLE 14 TITLE AND REGISTRATION 14.1 Title to the Aircraft During Lease Term. Title to the Aircraft will be and remain vested in LESSOR. LESSOR and LESSEE intend this Lease to be a "true lease". LESSEE will have no right, title or interest in the Aircraft except as provided in this Lease. 14.2 Registration of Aircraft. LESSOR at its sole cost and expense will register and maintain registration of the Aircraft in the name of LESSOR at the register of aircraft in the State of Registration. LESSEE will cooperate with LESSOR and will from time to time take all other steps then required by Law (including the Geneva Convention if applicable) or as LESSOR may reasonably request to protect and perfect LESSOR's interest in the Aircraft and this Lease in the State of Registration or in any other jurisdictions in or over which LESSEE may operate the Aircraft. 14.3 Filing of this Lease. To the extent permitted by Law and in accordance with the requirements of the Law from time to time, LESSEE at its sole cost and expense will cause this Lease to be kept, filed, recorded and refiled or rerecorded in the State of Registration and in any other offices necessary to protect LESSOR's rights hereunder as reasonably requested by LESSOR. 14.4 Evidence of Registration and Filings. As LESSOR may reasonably request from time to time, LESSEE will furnish to LESSOR an opinion of counsel or other evidence reasonably satisfactory to LESSOR of the registrations and filings required hereunder. ARTICLE 15 IDENTIFICATION PLATES LESSOR will affix and LESSEE will at all times maintain on the Airframe and each Engine the identification plates containing the following legends or any other legend reasonably requested by LESSOR in writing: 15.1 Airframe Identification Plates. Location: One to be affixed to the Aircraft structure above the forward entry door adjacent to and not less prominent than that of Manufacturer's data plate and another in a prominent place on the flight deck. Size: No smaller than 4" x 6". Legend: "THIS AIRCRAFT IS OWNED BY INTERNATIONAL LEASE FINANCE CORPORATION. MANUFACTURER'S SERIAL NO: 26301 OWNER'S ADDRESS: INTERNATIONAL LEASE FINANCE CORPORATION 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067 United States of America Fax: (310) 788 1990" 15.2 Engine Identification Plates. Location: The legend on the plate must be no less prominent than the Engine data plate and must be visible. Size: No smaller than 2" x 6". "THIS ENGINE IS OWNED BY INTERNATIONAL LEASE FINANCE CORPORATION, LOS ANGELES, CALIFORNIA, USA." ARTICLE 16 TAXES 16.1 General Obligation of LESSEE. Except as set forth in Article 16.2, LESSEE agrees to pay promptly when due, and to indemnify and hold harmless LESSOR on a full indemnity basis from, all license and registration fees and all taxes, fees, levies, imposts, duties, charges, deductions or withholdings of any nature (including without limitation any value added, franchise, transfer, sales, gross receipts, use, business, excise, turnover, personal property, stamp or other tax) together with any assessments, penalties, fines, additions to tax or interest thereon, however or wherever imposed (whether imposed upon LESSEE, LESSOR, on all or part of the Aircraft, the Engines or otherwise), by any Government Entity or taxing authority in the U.S. (including without limitation the City or County of Los Angeles), or any foreign country or by any international taxing authority, upon or with respect to, based upon or measured by any of the following (collectively, "Taxes"): (a) the Aircraft, Engines or any Parts; (b) the use, operation or maintenance of the Aircraft or carriage of passengers or freight during the Lease Term; (c) this Lease, the payments due hereunder and the terms and conditions hereof; and (d) the ownership, financing, delivery, import or export, return, sale, payment of Total Loss Proceeds or other disposition of the Aircraft. 16.2 Exceptions to Indemnity. The indemnity provided for in Article 16.1 does not extend to any of the following Taxes (hereinafter referred to as "LESSOR's Taxes"): (a) Taxes imposed by the U.S. or by any state within the U.S. on the net income, profits or gains, gross receipts, capital or net worth of LESSOR; (b) Taxes attributable to the period, or an event occurring, prior to Delivery or after return of the Aircraft to LESSOR in accordance with this Lease; (c) Taxes attributable to LESSOR's gross negligence, willful misconduct or breach of this Lease; (d) Taxes which LESSEE is contesting in good faith in accordance with Article 16.5; (e) Taxes imposed by any country other than the U.S. on the net income, gross receipts, capital or net worth of LESSOR but only to the extent that (i) such Taxes were not in any way connected with, due to or arising out of this Lease, LESSEE's business operations or office locations in any such country or LESSEE's use and operation of the Aircraft and (ii) such Taxes would be otherwise payable by LESSOR notwithstanding this Lease, LESSEE's business operations or office locations in any such country or LESSEE's use and operation of the Aircraft; (f) excess Taxes imposed as a result of LESSOR's voluntary or involuntary transfer or other disposition of the Aircraft, Engines or any Parts or this Lease (except a transfer or sale resulting directly from LESSEE's Default) provided that LESSEE remains responsible for payment of any Taxes and the specific amount of such Taxes that it would have been required to indemnify for had such voluntary or involuntary transfer not occurred; (g) Taxes consisting of any interest, penalties or additions to tax imposed on LESSOR as a result, in whole or in part, of a failure of LESSOR to file any Tax return properly and timely, unless such failure shall be caused by the failure of LESSEE to fulfill any obligations of LESSEE under Section 16.7 with respect to such Tax return; or (h) Taxes resulting from, or that would not have been imposed but for, any LESSOR's Lien arising as a result of claims against, or acts or omissions of, or otherwise attributable to, LESSOR or any related party. 16.3 After Tax Basis. The amount which LESSEE is required to pay with respect to any Taxes indemnified against under Article 16.1 is an amount sufficient to restore LESSOR on an after tax basis to the same position LESSOR would have been in had such Taxes not been incurred. If LESSOR determines in good faith that it has realized a Tax benefit (by way of deduction, credit or otherwise) as a result of any payment for which LESSEE is liable under Section 5.7 or 16.1 of this Lease, and such benefit was not previously taken into account in calculating the amount of such payment on an after tax basis in accordance with the immediately preceding sentence of this Article 16.3, LESSOR will pay to LESSEE an amount that is reasonably sufficient to ensure that LESSOR is in no better an after tax position than it would have been in if the event giving rise to LESSEE's liability for payment had not occurred. 16.4 Timing of Payment. Any amount payable to LESSOR pursuant to this Article 16 will be paid within ten (10) days after receipt of a written demand therefor from LESSOR accompanied by a written statement describing in reasonable detail the basis for such indemnity and the computation of the amount so payable provided, however, that such amount need not be paid by LESSEE prior to the earlier of (a) the date any Tax is payable to the appropriate Government Entity or taxing authority or (b) in the case of amounts which are being contested by LESSEE in good faith or by LESSOR pursuant to Article 16.5, the date such contest is finally resolved. 16.5 Contests. If claim is made against LESSOR for Taxes with respect to which LESSEE is liable for a payment or indemnity under this Lease, LESSOR will promptly give LESSEE notice in writing of such claim provided, however, that LESSOR's failure to give notice will not relieve LESSEE of its obligations hereunder unless such failure materially impairs or precludes LESSEE's ability to contest the claim. So long as (a) a contest of such Taxes does not involve any material risk of the sale, forfeiture or loss of the Aircraft or any interest therein, (b) if LESSOR so requests, LESSEE has provided LESSOR with an opinion of independent tax counsel that a reasonable basis exists for contesting such claim and (c) adequate reserves have been made for such Taxes or, if required, an adequate bond has been posted, then LESSOR at LESSEE's written request will in good faith, with due diligence and at LESSEE's expense, contest (or permit LESSEE to contest in the name of LESSEE or LESSOR) the validity, applicability or amount of such Taxes. 16.6 Refunds. Upon receipt by LESSOR of a refund of all or any part of any Taxes (including any deductions or withholdings referred to in Article 5.7) which LESSEE has paid, LESSOR will promptly pay to LESSEE the net amount of such Taxes refunded. 16.7 Cooperation in Filing Tax Returns. LESSEE and LESSOR will cooperate with one another in providing information which may be reasonably required to fulfill each party's tax filing requirements and any audit information request arising from such filing. 16.8 Survival of Obligations. The indemnity obligations and other agreements of LESSEE as set forth in this Article 16 will survive the Termination Date. ARTICLE 17 INDEMNITIES 17.1 General Indemnity. Except as set forth in Article 17.2 and Article 28.20, LESSEE agrees to indemnify and hold harmless LESSOR and its officers, directors, employees, agents and shareholders (individually an "Indemnitee" and collectively "Indemnitees") from any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, disbursements and expenses (including legal fees, costs and related expenses) of every kind and nature, whether or not any of the transactions contemplated by this Lease are consummated (collectively "Expenses"), which are imposed on, incurred by or asserted against any Indemnitee and which are in any way relating to, based on or arising out of any of the following: (a) this Lease or any transactions contemplated hereby; (b) the operation, possession, use, non use, control, leasing, subleasing, maintenance, storage, overhaul, testing, inspections or acceptance flights at return of the Aircraft, any Engine, or any Part during the Lease Term by LESSEE, any sublessee or any other Person, whether or not the same is in compliance with the terms of this Lease, including without limitation claims for death, personal injury, property damage, other loss or harm to any Person and claims relating to any Laws, including without limitation environmental control, noise and pollution laws, rules or regulations; (c) the manufacture, design, acceptance, rejection, delivery, return, sale after an Event of Default, import, export, condition, repair, modification, servicing, rebuilding, enforcement of warranties whether in LESSOR's or LESSEE's name, customer and product support provided by Manufacturer and other vendors, airworthiness, registration, reregistration, performance, sublease, merchantability, fitness for use, substitution or replacement of the Aircraft, Engine, or any Part under this Lease or other transfer of use or possession of the Aircraft, Engine, or any Part, including under a pooling or interchange arrangement, including without limitation latent and other defects, whether or not discoverable and patent, trademark or copyright infringement; (d) any non compliance by LESSEE with any term of this Lease or the falsity or inaccuracy of any representation or warranty of LESSEE set forth herein; (e) the prevention or attempt to prevent the arrest, confiscation, seizure, taking in execution, impounding, forfeiture or detention of the Aircraft, or in securing the release of the Aircraft; or (f) as a consequence of any Default in payment by LESSEE of any sum to be paid by LESSEE when due under this Lease or any other Default by LESSEE in the due and punctual performance of its obligations under this Lease. The foregoing indemnity by LESSEE is intended to include and cover any Expense to which an Indemnitee may be subject (in contract, tort, strict liability or under any other theory) regardless of the negligence, active or passive or any other type, of such Indemnitee, so long as such Expense does not fall within any of the exceptions listed in Article 17.2. 17.2 Exceptions to General Indemnities. The indemnity provided for in Article 17.1 will not extend to Expenses of any Indemnitee to the extent resulting from or arising out of any of the following: (a) Expenses which LESSEE and LESSOR mutually agree or, absent mutual agreement, are judicially determined to have resulted from the willful misconduct of such Indemnitee; (b) Expenses which LESSEE and LESSOR mutually agree or, absent mutual agreement, are judicially determined to be attributable to incidents, accidents or occurrences prior to the Delivery Date, but only where both the act or omission which gave rise to the incident, accident or occurrence and the incident, accident or occurrence itself occurred prior to the Delivery Date; (c) Expenses which LESSEE and LESSOR mutually agree or, absent mutual agreement, are judicially determined to be attributable to acts or events which occur after the Termination Date and return of the Aircraft to LESSOR in the condition required hereunder, but in any such case only to the extent not attributable to acts or omissions of LESSEE; (d) Expenses representing Taxes, it being acknowledged that the terms of Article 16 apply exclusively to LESSEE's indemnity obligations with respect to Taxes; (e) Expenses due to the breach by LESSOR of its covenant of quiet enjoyment pursuant to Article 21.2; (f) Expenses related to LESSOR Taxes or a LESSOR's Lien; or (g) Expenses that LESSOR has expressly agreed to pay under this Lease. 17.3 After Tax Basis. The amount which LESSEE will be required to pay with respect to any Expense indemnified against under Article 17.1 will be an amount sufficient to restore the Indemnitee, on an after tax basis, to the same position such Indemnitee would have been in had such Expense not been incurred. 17.4 Timing of Payment. It is the intent of the parties that each Indemnitee will have the right to indemnification for Expenses hereunder as soon as a claim is made and as soon as an Expense is incurred, whether or not such claim is meritorious and whether or not liability is established (but subject to Article 17.8). LESSEE will pay an Indemnitee for Expenses pursuant to this Article 17 within ten (10) days after receipt of a written demand therefor from such Indemnitee accompanied by a written statement describing in reasonable detail the basis for such indemnity and reasonable proof of such Expenses incurred. 17.5 Subrogation. Upon the payment in full of any indemnity pursuant to this Article 17 by LESSEE, LESSEE will be subrogated to any right of the Indemnitee in respect of the matter against which such indemnity has been made. 17.6 Notice. Each Indemnitee and LESSEE will give prompt written notice one to the other of any liability of which such party has knowledge for which LESSEE is, or may be, liable under Article 17.1 provided, however, that failure to give such notice will not terminate any of the rights of Indemnitees under this Article 17 except to the extent that LESSEE has been materially prejudiced by the failure to provide such notice. 17.7 Refunds. If any Indemnitee obtains a recovery of all or any part of any amount which LESSEE has paid to such Indemnitee, such Indemnitee will promptly pay to LESSEE the net amount recovered by such Indemnitee. 17.8 Defense of Claims. Unless an Event of Default has occurred and is continuing, LESSEE and its insurers will have the right (in each such case at LESSEE's sole expense) to investigate or, provided that LESSEE or its insurers have not reserved the right to dispute liability with respect to any insurance policies pursuant to which coverage is sought, defend or compromise any claim covered by insurance for which indemnification is sought pursuant to Article 17.1 and each Indemnitee will cooperate with LESSEE or its insurers with respect thereto. If LESSEE or its insurers are retaining attorneys to handle such claim, such counsel must be reasonably satisfactory to the Indemnitees. If not, the Indemnitees will have the right to retain counsel of their choice at LESSEE's expense. 17.9 Survival of Obligation. Notwithstanding anything in this Lease to the contrary, the provisions of this Article 17 will survive the Termination Date and continue in full force and effect notwithstanding any breach by LESSOR or LESSEE of the terms of this Lease, the termination of the lease of the Aircraft to LESSEE under this Lease or the repudiation by LESSOR or LESSEE of this Lease. ARTICLE 18 INSURANCE 18.1 Categories of Insurance. Throughout the Lease Term and until the Termination Date LESSEE will, at its own expense, effect and maintain in full force and effect the types of insurance and amounts of insurance (including deductibles) described in Exhibit C through such brokers and with such insurers as may be approved by LESSOR, such approval not to be unreasonably withheld, in London or New York or such other insurance markets as mutually agreed upon by the parties. 18.2 Write back of any Date Recognition Exclusion. In the event any of LESSEE's insurances (either the primary insurance or the reinsurance) contain any date recognition exclusion clause or similar clause excluding from such insurance coverage damage to any property (including the Aircraft) or death or injury to any person on account of accidents, incidents or occurrences caused by date recognition or other Year 2000 related problems, LESSEE at its cost will obtain for the benefit of itself and LESSOR the broadest write back available in the U.S. insurance market with respect to such exclusion. 18.3 Insurance for Indemnities. The insurance referred to in Article 18.1 will in each case include and insure (to the extent of the risks covered by the policies) the indemnity provisions of Article 17 and LESSEE will maintain such insurance of the indemnities for a minimum of two (2) years following the Termination Date. 18.4 Insurance required by Manufacturer. During the Lease Term, LESSEE will carry the insurance required by Manufacturer in connection with LESSOR's assignment of Manufacturer's warranties and product support to LESSEE. 18.5 Renewal. Not less than five (5) Business Days before the expiration or termination date of any insurance required hereunder, LESSEE will provide LESSOR with fax confirmation from LESSEE's insurance brokers that renewed certificates of insurance evidencing the renewal or replacement of such insurance and complying with Exhibit C will be issued on the termination date of the prior certificate. Within seven (7) days after such renewal, LESSEE will furnish its brokers' certificates of insurance to LESSOR. 18.6 Assignment of Rights by LESSOR. If LESSOR assigns all or any of its rights under this Lease as permitted by this Lease or otherwise disposes of any interest in the Aircraft to any other Person as permitted by this Lease, LESSEE will, upon request, procure that such Person hereunder be added as loss payee and/or additional assured in the policies effected hereunder and enjoy the same rights and insurance enjoyed by LESSOR under such policies. LESSOR will nevertheless continue to be covered by LESSEE's third party liability insurance policies. 18.7 Other Insurance. LESSOR may from time to time by notice to LESSEE require LESSEE at LESSEE's expense to effect such other insurance or such variations to the terms of the existing insurance as may then be customary in the airline industry for aircraft of the same type as the Aircraft and at the time commonly available in the insurance market. 18.8 Information. LESSEE will provide LESSOR with any information reasonably requested by LESSOR from time to time concerning the insurance maintained with respect to the Aircraft or in connection with any claim being made or proposed to be made thereunder. 18.9 Currency. All proceeds of insurance pursuant to this Lease will be payable in Dollars except as may be otherwise agreed by LESSOR. 18.10 Grounding of Aircraft. If at any time any of the insurance required pursuant to this Lease will cease to be in full force and effect, LESSEE will forthwith ground the Aircraft and keep the Aircraft grounded until such time as such insurance is in full force and effect again. 18.11 Failure to Insure. If at any time LESSEE fails to maintain insurance in compliance with this Article 18, LESSOR will be entitled but not bound to do any of the following (without prejudice to any other rights which it may have under this Lease by reason of such failure): (a) to pay any premiums due or to effect or maintain insurance consistent with the terms of this Lease or otherwise remedy such failure in such manner as LESSOR considers appropriate (and LESSEE will upon demand reimburse LESSOR in full for any amount so expended in that connection); or (b) at any time while such failure is continuing, to require the Aircraft to remain at any airport or (as the case may be), if allowed by applicable Law proceed to and remain at any airport within the continental U.S. designated by LESSOR, until such failure is remedied to LESSOR's reasonable satisfaction. 18.12 Reinsurance. Any reinsurance will be maintained with reinsurers and brokers reasonably acceptable to LESSOR. Such reinsurance will contain each of the following terms and will in all other respects (including amount) be reasonably satisfactory to LESSOR: (a) the same terms as the original insurance; (b) a cut through and assignment clause reasonably satisfactory to LESSOR; and (c) payment will be made notwithstanding (i) any bankruptcy, insolvency, liquidation or dissolution of any of the original insurers and/or (ii) that the original insurers have made no payment under the original insurance policies. 18.13 Limit on Hull in favor of LESSEE. LESSEE may carry hull all risks or hull war and allied perils on the Aircraft in excess of the Agreed Value (such Agreed Value being payable to LESSOR) only to the extent such excess insurance which would be payable to LESSEE in the event of a Total Loss does not exceed ten percent (10%) of the Agreed Value and only to the extent that such additional insurance will not prejudice the insurances required herein or the recovery by LESSOR thereunder. LESSEE agrees that it will not create or permit to exist any liens or encumbrances over the insurances, or its interest therein, except as constituted by this Lease. ARTICLE 19 LOSS, DAMAGE AND REQUISITION Throughout the Lease Term and until the Termination Date, LESSEE will bear all risk of loss, theft, damage and destruction to the Aircraft. 19.1 Definitions. In this Article 19 and throughout this Lease: "Agreed Value" * "Net Total Loss Proceeds" means the Total Loss Proceeds actually received by LESSOR following a Total Loss, less any legal and other out of pocket expenses, taxes or duties incurred by LESSOR in connection with the collection of such proceeds. "Total Loss" means any of the following in relation to the Aircraft, Airframe or any Engine, and "Total Loss Date" means the date set forth in parenthesis after each Total Loss: (a) destruction, damage beyond repair or being rendered permanently unfit for normal use for any reason (the date such event occurs or, if not known, the date on which the Aircraft, Airframe or Engine was last heard of); (b) actual or constructive total loss (including any damage to the Aircraft which results in an insurance settlement on the basis of a total loss) (the earlier of the date on which the loss occurs or thirty (30) days after the date of notice to LESSEE's brokers or insurers claiming such total loss); (c) requisition of title, confiscation, forfeiture or any compulsory acquisition or other similar event (the date on which the same takes effect); (d) sequestration, detention, seizure or any similar event for more than sixty (60) consecutive days or one hundred eighty (180) consecutive days if the Aircraft is located in the U.S. for such entire period (the earlier of the date on which insurers make payment on the basis of a total loss or the date of expiration of such period); (e) requisition for use for more than one hundred eighty (180) consecutive days, except as set forth in Article 19.8 (the earlier of the date on which the insurers make payment on the basis of a total loss or the date of expiration of such period); or (f) in the case of an Engine, the event described in Article 12.6.3 (the date on which the same takes effect). "Total Loss Proceeds" means the proceeds of any insurance or any compensation or similar payment arising in respect of a Total Loss. 19.2 Notice of Total Loss. LESSEE will notify LESSOR in writing within two (2) Business Days after a Total Loss Date of the Aircraft, Airframe or any Engine. 19.3 Total Loss of Aircraft or Airframe. If the Total Loss of the Aircraft or Airframe occurs during the Lease Term, the following will occur: 19.3.1 After the Total Loss Date and until receipt by LESSOR of the Agreed Value and all other amounts then due under this Lease, LESSEE will continue to pay Rent and the parties will perform, to the extent possible, all of their other obligations under this Lease. 19.3.2 On the date which is the earlier of the following dates: (a) the date on which the Total Loss Proceeds of the Aircraft or the Airframe are paid by LESSEE's insurance underwriters or brokers and (b) the date which falls forty five (45) days after the Total Loss Date, LESSEE will pay to LESSOR an amount equal to the sum of: (a) the Agreed Value and (b) all other amounts then due under this Lease, less an amount equal to the Net Total Loss Proceeds received by LESSOR by such date. 19.3.3 LESSOR will apply the Net Total Loss Proceeds and any amounts received from LESSEE pursuant to Article 19.3.2 as follows: (a) first, in discharge of any unpaid Rent and any other amounts accrued and unpaid up to the date of LESSOR's receipt of the Agreed Value; (b) second, in discharge of the Agreed Value; and (c) third, payment of the balance, if any, to LESSEE. 19.3.4 Upon receipt by LESSOR of all monies payable by LESSEE in Article 19.3, this Lease will terminate except for LESSEE's obligations under Articles 10.5, 16 and 17 which survive the Termination Date. FOR AVOIDANCE OF DOUBT, THE AGREED VALUE OF THE AIRCRAFT WILL BE PAYABLE TO LESSOR PURSUANT TO THIS ARTICLE 19.3 WHEN A TOTAL LOSS OF THE AIRFRAME OCCURS EVEN IF THERE HAS NOT BEEN A TOTAL LOSS OF AN ENGINE OR ENGINES. 19.4 Surviving Engine(s). If a Total Loss of the Airframe occurs and there has not been a Total Loss of an Engine or Engines, then, provided no Default has occurred and is continuing, at the request of LESSEE (subject to agreement of relevant insurers) and on receipt of all monies due under Article 19.3 and payment by LESSEE of all airport, navigation and other charges on the Aircraft, LESSOR will transfer all its right, title and interest in the surviving Engine(s) to LESSEE, but without any responsibility, condition or warranty on the part of LESSOR other than as to freedom from any LESSOR's Lien. 19.5 Total Loss of Engine and not Airframe. 19.5.1 Upon a Total Loss of any Engine not installed on the Airframe or a Total Loss of an Engine installed on the Airframe not involving a Total Loss of the Airframe, LESSEE will replace such Engine as soon as reasonably possible by duly conveying to LESSOR title to another engine (a) free and clear of all Security Interests (except Permitted Liens) of any kind or description, (b) in airworthy condition and of the same or improved model, service bulletin and modification status and having a value and utility at least equal to the Engine which sustained the Total Loss, (c) not older (by reference to serial number or manufacture date) than the older of the two Engines (on the date of the replacement) delivered by LESSOR to LESSEE with the Aircraft on the Delivery Date, and (d) in the same or better operating condition as the Engine which sustained a Total Loss, including time in service, hours and cycles since new and hours and cycles available to the next inspection, Overhaul or scheduled or anticipated removal; provided that with respect to replacement modules in such other engine, LESSEE will use best reasonable efforts to ensure that such other engine will not have been previously operated at a higher thrust rating than the Engine which sustained the Total Loss and provided further that in all circumstances life limited Parts in such replacement engine will have no less life remaining than the life limited Parts in the Engine which sustained the Total Loss. Such replacement engine will be an Engine as defined herein and the Engine which sustained such Total Loss will cease to be an Engine; whereupon, subject to agreement of relevant insurers, LESSOR will transfer all of its right, title and interest in and to the Engine which sustained the Total Loss to LESSEE, but without any responsibility, condition or warranty on the part of LESSOR other than as to title and freedom from any LESSOR's Lien. 19.5.2 LESSEE agrees at its own expense to take such action as LESSOR may reasonably request in order that any such replacement Engine becomes the property of LESSOR and is leased hereunder on the same terms as the destroyed Engine. LESSEE's obligation to pay Rent will continue in full force and effect, but an amount equal to the Net Total Loss Proceeds received by LESSOR with respect to such destroyed Engine will, subject to LESSOR's right to deduct therefrom any amounts then due and payable by LESSEE under this Lease, be paid to LESSEE. 19.6 Other Loss or Damage. 19.6.1 If the Aircraft or any Part thereof suffers loss or damage not constituting a Total Loss of the Aircraft or the Airframe or any Engine, all the obligations of LESSEE under this Lease (including payment of Rent) will continue in full force. 19.6.2 * 19.6.3 To the extent insurance proceeds received by LESSEE directly from its insurers do not cover the cost of such repair work on the Aircraft or Engine and LESSOR has received additional insurance proceeds from LESSEE's insurers with respect to such repair work, LESSOR will (subject to LESSOR's right to deduct therefrom any amounts then due and payable by LESSEE under this Lease and submission by LESSEE of reasonable documentation in support of such excess repair costs) pay to LESSEE insurance proceeds received by LESSOR as and when such repair work is performed on the Aircraft. 19.7 Copy of Insurance Policy. Promptly after the occurrence of a partial loss or Total Loss of the Aircraft or an Engine, at the request of LESSOR (and then only in the event reasonably required by LESSOR in connection with insurance policies pursuant to which coverage is sought) LESSEE will provide LESSOR with a copy of the relevant portions of LESSEE's insurance policy. LESSEE's insurance policy will be confidential between LESSOR and LESSEE and will not be disclosed by LESSOR to third parties other than LESSOR's professional advisors and except as necessary in respect of proceedings relating to such insurance claim. 19.8 Government Requisition. If the Aircraft, Airframe or any Engine is requisitioned for use by any Government Entity, LESSEE will promptly notify LESSOR of such requisition. All of LESSEE's obligations hereunder will continue as if such requisition had not occurred. So long as no Event of Default has occurred and is continuing, all payments received by LESSOR or LESSEE from such Government Entity will be paid over to or retained by LESSEE. If an Event of Default has occurred and is continuing, all payments received by LESSEE or LESSOR from such Government Entity may be used by LESSOR to satisfy any obligations owing by LESSEE. 19.9 LESSOR Retention of Reserves; Return of Security Deposit and Prepaid Rent . For avoidance of doubt, the parties agree that (a) notwithstanding the Total Loss of the Airframe and/or Engines LESSOR will retain an amount equal to fifty percent (50%) of all Reserves paid by LESSEE and not payable to LESSEE pursuant to Article 13.4, and (b) in the event of the Total Loss of the Airframe and/or Engines upon receipt by LESSOR of all monies payable by LESSEE in accordance with Article 19.1.3, and subject to Article 5.1.3, LESSOR will (i) return the Security Deposit and any prepaid Rent to LESSEE and (ii) pay to LESSEE an amount equal to fifty percent (50%) of the Reserves then held by LESSOR. ARTICLE 20 REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE 20.1 Representations and Warranties. LESSEE represents and warrants the following to LESSOR as of the date of execution of this Lease and as of the Delivery Date: 20.1.1 Corporate Status. LESSEE is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of Colorado. It has the corporate power and authority to carry on its business as presently conducted and to perform its obligations hereunder. 20.1.2 Governmental Approvals. No authorization, approval, consent, license or order of, or registration with, or the giving of notice to the Aviation Authority or any other Government Entity is required for the valid authorization, execution, delivery and performance by LESSEE of this Lease, except as will have been duly effected as of the Delivery Date. 20.1.3 Binding. LESSEE's Board of Directors has authorized LESSEE to enter into this Lease and the other Operative Documents and to perform its obligations hereunder and thereunder. This Lease and the other Operative Documents that have been executed and delivered by LESSEE as of the date of this Lease been duly executed and delivered by LESSEE and represent the valid, binding and enforceable obligations of LESSEE except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar Laws of general application affecting the enforcement of creditors' rights and by such principles of equity as a court having jurisdiction may impose. When executed by LESSEE at Delivery, the same will apply to the Estoppel and Acceptance Certificate and the other Operative Documents. 20.1.4 No Breach. The execution and delivery of the Operative Documents that have been executed and delivered by LESSEE as of the date of this Lease, the consummation by LESSEE of the transactions contemplated under the Operative Documents and compliance by LESSEE with the terms and provisions thereof do not and will not contravene any Law applicable to LESSEE, or result in any material breach of or constitute any material default under or result in the creation of any Security Interest upon any property of LESSEE, pursuant to any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement, corporate charter, by law or other material agreement or instrument to which LESSEE is a party or by which LESSEE or its properties or assets may be bound or affected. When executed by LESSEE at Delivery, the same will apply to the Estoppel and Acceptance Certificate and the other Operative Documents. 20.1.5 Filings. Except for any filing or recording that may be required under the U.S. Federal Aviation Administration and except for the filing of UCC 1 financing statements with the Secretary of State of the State of Colorado, no filing or recording of any instrument or document (including the filing of any financial statement) is necessary under the Laws of the State of Registration in order for this Lease to constitute a valid and perfected lease of record relating to the Aircraft. 20.1.6 Licenses. LESSEE holds all licenses, certificates and permits from applicable Government Entities in the U.S. necessary for the conduct of its business as a Certificated Air Carrier and performance of its obligations under this Lease. 20.1.7 No Suits. There are no suits, arbitrations or other proceedings pending or threatened before any court or administrative agency against or affecting LESSEE which, if adversely determined, would have a material adverse effect on the business, assets or condition (financial or otherwise) of LESSEE or its ability to perform under this Lease, except as described in the filings provided to LESSOR pursuant to Article 22. 20.1.8 Tax Returns. All necessary returns have been delivered by LESSEE to all relevant taxation authorities in the jurisdiction of its incorporation and LESSEE is not in default in the payment of any taxes due and payable. 20.1.9 No Material Adverse Effect. LESSEE is not in default under any agreement to which it is a party or by which it may be bound which default if left uncured would have a material adverse effect on its business, assets or condition. 20.1.10 No Default under this Lease. At the time of execution of this Lease, no Default has occurred and is continuing and the financial statements provided to LESSOR pursuant to Article 22 fairly present the financial condition of LESSEE. 20.2 Covenants. LESSEE covenants to LESSOR that it will comply with the following throughout the entire Lease Term: 20.2.1 Licensing. LESSEE will hold all licenses, certificates and permits from applicable Government Entities in the U.S. necessary for the conduct of its business as a Certificated Air Carrier and performance of its obligations under this Lease. LESSEE will advise LESSOR promptly in the event any such licenses, certificates or permits are cancelled, terminated, revoked or not renewed. 20.2.2 Information about Suits. LESSEE will promptly give to LESSOR a notice in writing of any suit, arbitration or proceeding before any court, administrative agency or Government Entity which, if adversely determined, would materially adversely affect LESSEE's financial condition, affairs, operations or its ability to perform under this Lease provided, however, that compliance by LESSEE with the requirements of Article 22 hereof will be deemed compliance with the provisions of this Article 20.2.2. 20.2.3 Restrictions on Mergers. LESSEE will not consolidate with or merge into any other corporation or other Person, and will not convey, transfer, lease or otherwise dispose of all or substantially all of its assets to any corporation or other Person, unless: (i) such transaction shall not have any material adverse effect on the rights of LESSOR under or in respect of the Lease or the Aircraft; (ii) the Person formed by or surviving such consolidation or merger or the Person which acquires by conveyance, transfer, lease or other disposition all or substantially all of such property and other assets: (A) shall be a corporation organized and existing under the laws of the U. S. or any State thereof or the District of Columbia; (B) immediately after giving effect to such transaction, shall have acquired or succeeded to all or substantially all of the assets of LESSEE (if such assets are being transferred) as an entirety, and shall have a tangible net worth (determined in accordance with GAAP) of not less than LESSEE's tangible net worth (determined in accordance with GAAP) immediately prior to such transaction; (C) shall be a "citizen of the United States" of America as defined in Section 40102(a)(15)(c) of Title 49 of the U.S.C. and a Certificated Air Carrier; and (D) shall executed and deliver to LESSOR (1) such recordations and filings with any Government Entity and such other documents as shall be reasonably necessary or advisable in connection with such consolidation, merger, sale, lease, transfer or other disposition (2) an agreement, in form and substance reasonably satisfactory to LESSOR, assuming all of LESSEE's obligations under the Lease and the other Operative Documents without amendment thereto and (3) an officer's certificate to the effect that the requirements of this Section have been satisfied; and (iii) no Event of Default shall have occurred and be continuing or shall occur as a result thereof. 20.2.4 Restriction on Relinquishment of Possession. LESSEE will not, without the prior consent of LESSOR, deliver, transfer or relinquish possession of the Aircraft except in accordance with Articles 11 and 12. 20.2.5 No Security Interests. LESSEE will not create or agree to or permit to arise any Security Interest (other than Permitted Liens) on or with respect to the Aircraft, title thereto or any interest therein. LESSEE will forthwith, at its own expense, take all action as may be reasonably necessary to discharge or remove any such Security Interest if it exists at any time. 20.2.6 Representations to Other Parties. LESSEE will not represent or hold out LESSOR as carrying goods or passengers on the Aircraft or as being in any way connected or associated with any operation of the Aircraft. ARTICLE 21 REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSOR 21.1 Representations and Warranties. LESSOR represents and warrants the following to LESSEE as of the date of execution of the Lease and as of the Delivery Date and ALL OTHER WARRANTIES, EXPRESS OR IMPLIED HAVE BEEN WAIVED IN ACCORDANCE WITH ARTICLE 8: 21.1.1 Corporate Status. LESSOR is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of California. It has the corporate power and authority to carry on its business as presently conducted and to perform its obligations hereunder. 21.1.2 Governmental Approvals. No authorization, approval, consent, license or order of, or registration with, or the giving of notice to any U.S. Government Entity is required for the valid authorization, execution, delivery and performance by LESSOR of this Lease. 21.1.3 Binding. This Lease and the other Operative Documents that have been have been executed and delivered by LESSEE as of the date of this Lease have been duly authorized, executed and delivered by LESSOR and represent the valid, enforceable and binding obligations of LESSOR except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar Laws of general application affecting the enforcement of creditors' rights and by such principles of equity as a court having jurisdiction may impose. When executed by LESSOR at Delivery, the same will apply to the other Operative Documents. 21.1.4 No Breach. The execution and delivery of the Operative Documents that have been executed and delivered by LESSOR as of the date of this Lease, the consummation by LESSOR of the transactions contemplated therein and compliance by LESSOR with the terms and provisions thereof do not and will not contravene any Law applicable to LESSOR, or result in any material breach of or constitute any material default under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement, corporate charter, by law or other material agreement or instrument to which LESSOR is a party or by which LESSOR or its properties or assets may be bound or affected. When executed by LESSOR at Delivery, the same will apply to the other Operative Documents. 21.1.5 Title to Aircraft. On the Delivery Date LESSOR will have good and valid title to the Aircraft. 21.1.6 Citizen of the United States. LESSOR is a "citizen of the United States of America" (as defined in Section 40102 of Title 49 of U.S.C.). 21.1.7 Airframe and Engine Warranty Assignments. The Airframe Warranty Assignment and the Engine Warranty Assignment when executed and delivered by LESSOR in accordance with Article 7.4 represent the valid and enforceable assignment to LESSEE of the warranties set forth therein. 21.2 Covenant of Quiet Enjoyment. So long as no Event of Default has occurred and is continuing hereunder, LESSOR covenants that neither LESSOR nor any person lawfully claiming through LESSOR will interfere with LESSEE's quiet, peaceful use and enjoyment of the Aircraft during the Lease Term. ARTICLE 22 FINANCIAL AND RELATED INFORMATION LESSEE agrees to furnish each of the following to LESSOR: (a) within forty five (45) days after the end of each fiscal quarter of LESSEE, three (3) copies of the unaudited consolidated financial statements (including a balance sheet and profit and loss statement) prepared for such quarter in accordance with generally accepted accounting principles in the U.S.; (b) within ninety (90) days after the end of each fiscal year of LESSEE, three (3) copies of the audited consolidated financial statements (including a balance sheet and profit and loss statement) prepared as of the close of such fiscal year in accordance with generally accepted accounting principles in the U.S.; (c) promptly after distribution, three (3) copies of all reports and financial statements which LESSEE sends or makes available to its stockholders or creditors generally; (d) Technical Evaluation Reports in conjunction with every second "C" check for the Aircraft and at other times reasonably requested by LESSOR in accordance with Article 12.10.2 hereof; and (e) from time to time, such other reasonable information as LESSOR or LESSOR's Lender may reasonably request concerning the location, condition, use and operation of the Aircraft or the financial condition of LESSEE. ARTICLE 23 RETURN OF AIRCRAFT 23.1 Date of Return. LESSEE is obligated to return the Aircraft, Engines, Parts and Aircraft Documentation to LESSOR on the Expiration Date, unless a Total Loss of the Aircraft occurred prior to the Expiration Date and this Lease was terminated early in accordance with Article 19.3. If LESSEE is in Default hereunder by failing to return the Aircraft on the Expiration Date or if an Event of Default occurs prior to the Expiration Date and LESSOR repossesses the Aircraft, the return requirements set forth in this Article 23 nonetheless must be met on the date the Aircraft is actually returned to LESSOR or repossessed by LESSOR. 23.2 Technical Report. Six (6) months prior to the Expiration Date (and in an updated form at return of the Aircraft), LESSEE will provide LESSOR with a Technical Evaluation Report in the form and substance of Exhibit M, as revised, and, in addition upon LESSOR's request, will make copies available of (a) drawings of the interior configuration of the Aircraft both as it then exists and as it will exist at return, (b) an Airworthiness Directive status list, (c) a service bulletin incorporation list, (d) rotable tracked, hard time and life limited component listings, (e) a list of LESSEE initiated modifications and alterations, (f) interior material burn certificates, (g) the Aircraft Maintenance Program, (h) the complete workscope for the checks, inspections and other work to be performed prior to return, (i) a list of all no charge service bulletin kits with respect to the Aircraft which were ordered by LESSEE from Manufacturer or Engine manufacturer, (j) current Engine disk sheets and a description of the last shop visit for each Engine and (k) any other data which is reasonably requested by LESSOR. 23.3 Return Location. LESSEE at its expense will return the Aircraft, Engines, Parts and Aircraft Documentation to LESSOR at Denver, Colorado or to such other airport on LESSEE's route system as may be mutually agreed to by LESSEE and LESSOR. 23.4 Full Aircraft Documentation Review. For the period commencing at least ten (10) Business Days prior to the proposed redelivery date and continuing until the date on which the Aircraft is returned to LESSOR in the condition required by this Lease, LESSEE will provide for the review of LESSOR and/or its representative all of the Aircraft records and historical documents described in Exhibit L in one central room at the Aircraft return location. 23.5 Aircraft Inspection. 23.5.1 During the maintenance checks performed immediately prior to the proposed redelivery and at the actual return of the Aircraft, LESSOR and/or its representatives will have an opportunity to conduct a full systems functional and operational inspection of the Aircraft (and other types of reasonable inspections based upon the Aircraft type, age, use and other known factors with respect to the Aircraft) and a full inspection of the Aircraft Documentation (including records and manuals), all to LESSOR's reasonable satisfaction. Any deficiencies from the Aircraft return condition requirements set forth in this Article 23 will be corrected by LESSEE at its cost prior to the acceptance flight described in Article 23.5.2. 23.5.2 Immediately prior to the proposed redelivery of the Aircraft, LESSEE will carry out for LESSOR and/or LESSOR's representatives an Aircraft acceptance flight in accordance with Manufacturer's standard flight operation check flight procedures or, if agreed to in writing by LESSOR, in accordance with an airline acceptance flight procedure, either of which will be for two (2) hours, or such longer duration as is necessary to perform such check flight procedures. Flight costs and fuel will be furnished by and at the expense of LESSEE. Any deficiencies from the Aircraft return condition requirements set forth in this Article 23 will be corrected by LESSEE at its cost prior to return of the Aircraft. 23.5.3 To the extent that the ground inspection and acceptance flight extend beyond the Expiration Date, the Lease Term will be deemed to have been automatically extended and the obligations of LESSEE hereunder (including Article 23.13.3) will continue on a day to day basis until the Aircraft is accepted by LESSOR as being in the condition required hereunder, which acceptance shall be evidenced by LESSOR executing and delivering to LESSEE the Return Acceptance Receipt in the form of Exhibit J. 23.6 Certificate of Airworthiness Matters. 23.6.1 The Aircraft will possess a current Certificate of Airworthiness issued by the Aviation Authority for transport category aircraft in accordance with FAR Part 21 and FAR Part 121 (although this Certificate of Airworthiness may later be substituted by the Export Certificate of Airworthiness or equivalent if requested by LESSOR pursuant to Article 23.12). 23.6.2 If the Aircraft is registered in a country other than the U.S. at time of return, LESSEE at its cost will demonstrate that the Aircraft meets the requirements for issuance of the U.S. Standard Certificate of Airworthiness for transport category aircraft specified in ARTICLE 23.6.1 by delivering to LESSOR at its option either an actual U.S. Standard Certificate of Airworthiness (if the Aircraft is to be registered in the U.S.) or a letter acceptable to LESSOR signed by an FAA Designated Airworthiness Representative (DAR) or another Person acceptable to LESSOR stating that the DAR or such Person has inspected the Aircraft and Aircraft Documentation (including records and manuals) and has found that the Aircraft meets the requirements for issuance of a U.S. Standard Certificate of Airworthiness for transport category aircraft in accordance with FAR Part 21 and, in addition, meets the operating requirements of FAR Part 121. 23.6.3 If the Aircraft is to be registered in a country other than in the U.S. after return from LESSEE, LESSOR may in its sole discretion waive the requirements of Article 23.6.1 and instead require that LESSEE at its expense (to the extent such expense is no greater than that which LESSEE would have incurred pursuant to Article 23.6.1, with any additional expenses being for LESSOR's account) put the Aircraft in a condition to meet the requirements for issuance of a Certificate of Airworthiness of the Aviation Authority of the next country of register, provided that if solely as a result of such work the Aircraft is returned after the scheduled redelivery date, LESSEE will not be liable for payment of Rent in respect of the period following the date the Aircraft would have been returned following completion of the requirements of this Article 23, but for the provisions of this Article 23.6.3. 23.7 General Condition of Aircraft at Return. 23.7.1 The Aircraft, Engines and Parts will have been maintained and repaired in accordance with the Maintenance Program, the rules and regulations of the Aviation Authority and this Lease. 23.7.2 Aircraft Documentation (including records and manuals) will have been maintained in an up to date status, in accordance with the rules and regulations of the Aviation Authority and the FAA and this Lease and in a form necessary in order to meet the requirements of ARTICLE 23.6.2. The records and historical documents set forth in Attachment 1 of Exhibit J will be in English. 23.7.3 The Aircraft will be in the same working order and condition as at Delivery (subject to the other provisions of this Article 23, reasonable wear and tear from normal flight operations excepted), with all pilot discrepancies and deferred maintenance items cleared on a terminating action basis. 23.7.4 The Aircraft will be airworthy (conform to type design and be in a condition for safe operation), with all Aircraft equipment, components and systems operating in accordance with their intended use and within limits approved by Manufacturer, Aviation Authority and the FAA. 23.7.5 The interior of the Aircraft (including cabin and windows) will be in a reasonable condition and cosmetically acceptable, with no cracks, tears or rips. 23.7.6 No special or unique Manufacturer, Engine manufacturer or Aviation Authority inspection or check requirements which are specific to the Aircraft or Engines (as opposed to all aircraft or engines of their types) will exist with respect to the Airframe, Engines and Aircraft equipment, components and systems. 23.7.7 All repairs, modifications and alterations to the Aircraft will have been accomplished in accordance with the FARs or Manufacturer's Structural Repair Manual (or FAA approved data supported by FAA Form 8110 3) for the Aircraft, as applicable. 23.7.8 The Aircraft will be returned with LESSOR's Engines installed and with the same equipment as at Delivery, subject only to those replacements, additions and Modifications permitted under this Lease. 23.7.9 All Airworthiness Directives which are issued during the Lease Term and require compliance (either by means of repetitive inspections, modifications or terminating action) prior to return of the Aircraft to LESSOR or within one (1) year after the Termination Date will have been complied with on the Aircraft on a terminating action basis at LESSEE's cost. Airworthiness Directives which do not have a terminating action will be accomplished at the highest level of inspection or modification possible. If, after using commercially reasonable efforts, LESSEE is unable to acquire the material, parts or components necessary to accomplish such Airworthiness Directive, LESSEE will pay to LESSOR upon return of the Aircraft the estimated cost of terminating such Airworthiness Directive. If the estimated cost cannot be mutually agreed upon by LESSEE and LESSOR, LESSEE and LESSOR will each obtain an estimate from a reputable FAA approved maintenance facility (unaffiliated with LESSEE or LESSOR) and the estimated cost will be the average of the two estimates. 23.7.10 The Aircraft will be in compliance with Manufacturer's Corrosion Prevention and Control Program (CPCP) specified for the model type by Manufacturer. 23.7.11 If any waivers, deviations, dispensations, alternate means of compliance, extensions or carry overs with respect to maintenance or operating requirements, repairs or Airworthiness Directives are granted by the Aviation Authority or permitted by the Maintenance Program, LESSEE at its sole cost and expense will nonetheless perform such maintenance or operating requirements, repairs or Airworthiness Directives as if such waivers, deviations, dispensations, alternate means of compliance, or extensions or carry overs did not exist; provided, however, that if any Airworthiness Directive has been deemed terminated by means of an alternate means of compliance that is widely accepted by the international airline industry, such alternative means of compliance will be deemed to satisfy the terms of this Article 23.7.11. 23.7.12 The Aircraft will be free from any Security Interest except LESSOR's Liens and no circumstance will have so arisen whereby the Aircraft is or could become subject to any Security Interest or right of detention or sale in favor of the Aviation Authority, any airport authority, or any other authority. 23.7.13 All no charge vendor and Manufacturer's service bulletin kits received by LESSEE for the Aircraft but not installed thereon will be on board the Aircraft as cargo. At LESSOR's request, any other service bulletin kit which LESSEE paid for will also be delivered to LESSOR on board the Aircraft, but LESSOR will reimburse LESSEE for its actual out of pocket costs for such kit, unless LESSEE purchased such kit as part of its implementation of a service bulletin on its fleet of aircraft of the same type as the Aircraft but had not yet installed such kit on the Aircraft, in which case such kit will be furnished free of charge to LESSOR. 23.7.14 The Aircraft will be free of any leaks and any damage resulting therefrom. All repairs will have been performed on a permanent basis in accordance with the applicable manufacturer's instructions. 23.7.15 The Aircraft fluid reservoirs (including oil, oxygen, hydraulic and water) will be serviced to full and the waste tank serviced in accordance with Manufacturer's instructions. Fuel tanks will be at least as full as at Delivery. 23.7.16 The Aircraft will be painted in LESSEE's livery. 23.8 Checks Prior to Return. Prior to return of the Aircraft to LESSOR, LESSEE at its expense will do each of the following: 23.8.1 Have performed, by LESSEE or any other FAA approved repair station, the next due "C" check as described in the MPD. LESSEE will also weigh the Aircraft. Any discrepancies revealed during such inspection will be corrected in accordance with Manufacturer's maintenance and repair manuals or FAA approved data. LESSEE agrees to perform during such check any other work reasonably required by LESSOR (and not otherwise required under this Lease) and LESSOR will reimburse LESSEE for such work at LESSEE's preferred customer rates. 23.8.2 Perform an internal and external corrosion inspection where any evidence of corrosion exists and correct any discrepancies in accordance with the recommendations of Manufacturer and the Structural Repair Manual. In addition, all inspected areas will be properly treated with corrosion inhibitor if and as recommended by Manufacturer. 23.8.3 All required external placards, signs and markings will be properly attached, free from damage, clean and legible. 23.8.4 Clean the exterior and interior of the Aircraft. 23.8.5 If reasonably required by LESSOR, repaint the flight deck and replace placards of the Aircraft. 23.8.6 In accordance with Article 23.7.7, permanently repair damage to the Aircraft that exceeds Manufacturer's limits and replace any non flush structural patch repairs installed on the Aircraft with flush type repairs, unless Manufacturer does not recommend a flush type repair. 23.9 Engine Return Requirements. 23.9.1 Immediately prior to the return of the Aircraft to LESSOR, LESSEE at LESSEE's expense will perform each of the following on the Engines: (a) With LESSOR or its representatives present, LESSEE will perform a full and complete hot and cold section videotape borescope on each Engine and its modules in accordance with the Engine manufacturer's maintenance manual. (b) If the Engine historical and technical records and/or condition trend monitoring data of any Engine (including the APU) indicate an acceleration in the rate of deterioration in the performance of an Engine, LESSEE will correct, to LESSOR's reasonable satisfaction, such conditions which are determined to be causing such accelerated rate of deterioration. (c) With LESSOR or its representatives present, LESSEE will accomplish a maximum power assurance run and an acceleration check on the Engines. LESSEE will evaluate the Engine performance and record the Engine maximum power assurance test conditions and results on the Return Acceptance Receipt. 23.9.2 At return, each Engine will meet all of the following: (a) Each Engine will have at least 4,000 hours and 3,000 cycles remaining until its next anticipated removal regardless of the operating environment of such Engine. In determining whether an Engine has at least 4,000 hours and 3,000 cycles remaining until its next anticipated removal, the following will be considered: (i) the Engine manufacturer's estimated mean time between removals for engines of the same type as the Engines; (ii) the remaining EGT margin on such Engine; and (iii) the Engine historical and technical records, borescope inspection, trend monitoring, the maximum power assurance run and the acceleration check; (b) The Engine historical and technical records, borescope inspection, trend monitoring, the maximum power assurance run and the acceleration check do not reveal any condition which would cause the Engines or any module to be serviceable with an increased frequency of inspection or with calendar time, flight hour or flight cycle restrictions under the Engine manufacturer's maintenance manual; (c) No life limited Part of an Engine will have more hours or cycles consumed than such Engine's data plate; and (d) Each Part of an Engine which has a hard time limit will have at least 3,000 cycles remaining to operate until its next scheduled Overhaul. Each Part of an Engine which has a life limit will have at least 3,000 cycles remaining to operate until its removal. LESSEE will correct any discrepancies in the required condition of the Engines set forth in this Article 23.9.2 in accordance with the guidelines set out by the Engine manufacturer. If there is a dispute as to whether an Engine meets the requirements of this Article 23.9.2, LESSEE and LESSOR will consult with Engine manufacturer and follow Engine manufacturer's recommendations (including the accomplishment of an Engine test cell operational check) and the manner in which any discrepancies from the requirements of this Article 23.9.2 will be rectified. 23.10 Hour/Cycle/Calendar Time Requirements. At return, the condition of the Aircraft will be as follows: 23.10.1 The Aircraft will have zero (0) hours consumed since completion of the last "C" check in accordance with the MPD (excluding hours consumed on the acceptance flight and any ferry flight). 23.10.2 The APU will be in serviceable condition. 23.10.3 The Landing Gear will be cleared for at least eight (8) months (or one (1) month if LESSEE exercises its extension option) of operation until the next Overhaul or scheduled removal; provided, however, that at LESSOR's request by notice at least six (6) months prior to the Expiration Date, LESSEE will cause to be performed an Overhaul the Landing Gear prior to return of the Aircraft and the costs of such Overhaul will be paid as follows: (i) first, by application of the Landing Gear Reserves paid by LESSEE and (ii) second, the balance will be paid by LESSOR. 23.10.4 Each Part of the Aircraft which has a hard time (hour/cycle) limit to Overhaul of less than four thousand (4,000) hours or three thousand (3,000) cycles will be freshly overhauled or replaced and each Part of the Aircraft which has a hard time (hour/cycle) limit to Overhaul of more than four thousand (4,000) hours or three thousand (3,000) cycles will have four thousand (4,000) hours and three thousand (3,000) cycles (whichever is applicable) remaining to operate until its next scheduled Overhaul or removal. 23.10.5 Each life limited Part of the Aircraft will have four thousand (4,000) hours and three thousand (3,000) cycles (whichever is applicable) remaining to operate until its next scheduled removal. 23.10.6 Each Part (excluding Landing Gear) which has a calendar limit (including emergency equipment) will have remaining to operate the lesser of the following calendar times: (i) one (1) year from the return of the Aircraft to LESSOR or (ii) one hundred percent (100%) of such Part's total approved life. 23.10.7 With respect to all installed Parts as a group, such Parts will have an average total time since new no greater than that of the Airframe. 23.10.8 The Aircraft Landing Gear tires and brakes will have at least fifty percent (50%) life remaining until their next Overhaul (except for the acceptance flight). 23.11 Like for Like. Notwithstanding anything in this Article 23 to the contrary, in the event that at Delivery the Aircraft did not meet a particular standard with respect to a specific item set forth in Exhibit B, and such deficiency was noted on the Estoppel and Acceptance Certificate, then LESSEE's return obligations with respect to such specific item will be modified accordingly so that LESSEE is not required to return such specific item with greater time remaining than existed at Delivery. 23.12 Export and Deregistration of Aircraft. At LESSOR's request by notice at least fifteen (15) days prior to the Expiration Date, LESSEE at its cost (except as set forth in the second sentence of this Article 23.12) will (a) provide an Export Certificate of Airworthiness or its equivalent from the State of Registration for the country designated by LESSOR, (b) assist with deregistration of the Aircraft from the register of aircraft in the State of Registration, (c) assist with arranging for prompt confirmation of such deregistration to be sent by the registry in the State of Registration to the next country of registration and (d) perform any other acts reasonably required by LESSOR in connection with such deregistration. If any Aircraft work which LESSEE is not otherwise required to perform hereunder, including engineering, is required in order to obtain such Export Certificate of Airworthiness, LESSEE will, to the extent reasonably possible, perform such work and LESSOR will reimburse LESSEE for such work at LESSEE's preferred customer rates. 23.13 LESSEE's Continuing Obligations. In the event that LESSEE does not return the Aircraft to LESSOR on the Expiration Date and in the condition required by this Article 23 for any reason (whether or not the reason is within LESSEE's control): 23.13.1 the obligations of LESSEE under this Lease will continue in full force and effect on a day to day basis until such return. This will not be considered a waiver of LESSEE's Event of Default or any right of LESSOR hereunder. 23.13.2 Until such return, the Agreed Value will be an amount equal to the Agreed Value on the day the Aircraft should have been returned to LESSOR pursuant to this Lease. 23.13.3 LESSEE will fully indemnify LESSOR on demand for all losses (including damages in accordance with Article 25.5(b)), liabilities, actions, proceedings, costs and expenses thereby suffered or incurred by LESSOR and, in addition, until such time as the Aircraft is redelivered to LESSOR and put into the condition required by this Article 23, instead of paying the Rent specified in Article 5.3, LESSEE will pay twice the amount of Rent for each day from the scheduled Expiration Date until the Termination Date (the monthly Rent payable under ARTICLE 5.3.1 will be prorated based on the actual number of days in the applicable month). Payment will be made upon presentation of LESSOR's invoice. Notwithstanding the foregoing, in the event that the Aircraft is removed from service by LESSEE and placed in a maintenance facility for the performance of work required to put the Aircraft into the condition required by this Article 23 and as a result of delays in the performance of such work the Aircraft is not returned on the Expiration Date, for a period of up to seven (7) days following the Expiration Date, LESSEE shall only be responsible for normal Rent. After the 7th day of such period, if LESSEE has not returned the Aircraft to LESSOR in the condition required by this Lease, LESSEE shall be responsible for twice the Rent for the period after such 7 day period in accordance with the provisions of this Article 23.13.3 until the actual Termination Date. 23.13.4 LESSOR may elect, in its sole and absolute discretion, to accept the return of the Aircraft prior to the Aircraft being put in the condition required by this Article 23 and thereafter have any such non conformance corrected at such time as LESSOR may deem appropriate (but within ninety (90) days following the return of the Aircraft) and at commercial rates then charged by the Person selected by LESSOR to perform such correction. Any direct expenses incurred by LESSOR for such correction will become additional Rent payable by LESSEE within fifteen (15) days following the submission of a written statement by LESSOR to LESSEE, identifying the items corrected and setting forth the expense of such corrections in reasonable detail. LESSEE's obligation to pay such supplemental Rent will survive the Termination Date. 23.14 Airport and Navigation Charges. LESSEE will ensure that at return of the Aircraft any and all airport, navigation and other charges which give rise or would if unpaid give rise to any lien, right of detention, right of sale or other Security Interest in relation to the Aircraft, Engine or any Part have been paid and discharged in full and will at LESSOR's request produce evidence thereof satisfactory to LESSOR. 23.15 Return Acceptance Certificate. Upon return of the Aircraft in accordance with the terms of this Lease, LESSEE will promptly prepare and execute two (2) Return Acceptance Certificates in the form and substance of Exhibit J and LESSOR will countersign and return one such Return Acceptance Certificate to LESSEE. In addition, LESSEE and LESSOR will execute a Lease Termination for filing with the FAA evidencing termination of this Lease. 23.16 Indemnities and Insurance. The indemnities and insurance requirements set forth in Articles 17 and 18, respectively, will apply to Indemnitees and LESSOR's representatives during return of the Aircraft, including the ground inspection and acceptance flight. With respect to the acceptance flight, LESSOR's representatives will receive the same protections as LESSOR on LESSEE's Aviation and Airline General Third Party Liability Insurance. 23.17 Civil Reserve Air Fleet. 23.17.1 LESSEE may transfer possession of the Aircraft to the United States of America or any instrumentality or agency thereof as part of the Civil Reserve Air Fleet Program authorized under 10 U.S.C.ss.9511 et seq. (or any substantially similar program) ("CRAF Program") for a period which includes (collectively, the "CRAF Program Requisition Period") (a) the entire period of requisition under the CRAF Program and (b) an additional six (6) months after the expiration of the requisition under the CRAF Program. If the CRAF Program Requisition Period extends beyond the Expiration Date provided by this Lease, then the Lease will be deemed to continue until the end of the CRAF Program Requisition Period at a monthly rental rate equal to the monthly rental rate in effect at the end of the Lease Term and the Expiration Date will be deemed to be the end of the CRAF Program Requisition Period. If the Aircraft is requisitioned under the CRAF Program for a period which extends beyond the Lease Term, then LESSEE will provide LESSOR with written notice of the proposed redelivery at least six (6) months prior to such redelivery date and LESSEE must return the Aircraft in the condition required by Article 23 on the redelivery date set forth in such written notice. 23.17.2 LESSEE will promptly notify LESSOR in writing in the event of the requisition for use of the Aircraft under CRAF activation by the U.S. Government. All of LESSEE's obligations under this Lease will continue to the same extent as if such requisition had not occurred. 23.17.3 Any provisions of this Lease to the contrary notwithstanding, if there is a requisition for use of the Aircraft pursuant to the CRAF Program and/or CRAF activation, LESSOR agrees that LESSEE's insurances described in Exhibit C may be supplemented or replaced by insurances provided under Title XIII of the Act, and/or U.S. Government indemnification (which Title XIII insurances and indemnification will be, as to the Aircraft, in an amount not less than the Agreed Value and, as to all other insurances, in amounts not less than those established in Exhibit C); provided, however, that LESSEE will remain responsible for full compliance with all the provisions of this Lease, including Articles 17 and 19, to the extent Title XIII and/or the U.S. Government indemnification do not satisfy LESSEE's obligations under this Lease. 23.17.4 If there is a requisition for use of the Aircraft pursuant to the CRAF Program and/or CRAF activation, there will be no limitation on the geographic area in which the Aircraft may be operated so long as, taken as a whole, LESSEE's insurance, the Title XIII insurance and/or the indemnification provided by the U.S. Government fully cover (without any geographic exclusions) LESSEE's Exhibit C insurance requirements. 23.17.5 If an Event of Default occurs under this Lease and LESSOR elects to pursue its remedies under Article 25.3(e) to terminate this Lease and repossess the Aircraft, LESSOR will so notify the U.S. Government by sending a written communication with a copy to LESSEE as follows: Headquarters Air Mobility Command AMC Contracting Office XOKA Scott Air Force Base, Illinois 62225 5007 23.17.6 So long as no Event of Default has occurred and is continuing, all payments received by LESSOR or LESSEE from such Government Entity in connection with the requisition of the Aircraft under the CRAF Program (except payments on account of a Total Loss of the Aircraft) will be paid over to or retained by LESSEE. If an Event of Default has occurred and is continuing, all payments received by LESSEE or LESSOR from such Government Entity in connection with the requisition of the Aircraft under the CRAF Program may be used by LESSOR to satisfy any obligations owing by LESSEE. ARTICLE 24 ASSIGNMENT 24.1 No Assignment by LESSEE. EXCEPT AS EXPRESSLY PERMITTED BY ARTICLE 11 OR ARTICLE 20.2.3, NO ASSIGNMENT, NOVATION, TRANSFER, MORTGAGE OR OTHER CHARGE MAY BE MADE BY LESSEE OF ANY OF ITS RIGHTS WITH RESPECT TO THE AIRCRAFT, ENGINE OR PART OR THIS LEASE. 24.2 Sale or Assignment by LESSOR. 24.2.1 Subject to LESSEE's rights pursuant to this Lease, LESSOR may at any time and without LESSEE's consent sell, assign or transfer its rights, interest and obligations hereunder, under any other Operative Document, or with respect to the Aircraft to a Permitted Transferee; provided, however, that no such transfer shall materially increase LESSEE's liabilities or obligations hereunder or materially adversely affect LESSEE's rights under this Lease. For a period of two (2) years after such sale or assignment and at LESSEE's cost, LESSEE will continue to name LESSOR as an additional insured under the Aviation and Airline General Third Party Liability Insurance specified in Exhibit C. 24.2.2 The term "LESSOR" as used in this Lease means the lessor of the Aircraft at the time in question. In the event of the sale of the Aircraft and transfer of LESSOR's rights and obligations under this Lease to a Permitted Transferee, such Permitted Transferee will become "LESSOR" of the Aircraft under this Lease and the transferring party (the prior "LESSOR") will be relieved of all liability to LESSEE under this Lease for obligations arising on and after the date the Aircraft is sold. LESSEE will acknowledge and accept the Permitted Transferee as the new "LESSOR" under this Lease and will look solely to the Permitted Transferee for the performance of all LESSOR obligations and covenants under this Lease arising on and after the Aircraft sale date. 24.3 LESSOR's Lender. Subject to LESSEE's rights pursuant to this Lease, LESSOR may at any time and without LESSEE's consent grant security interests over the Aircraft and assign the benefit of this Lease to a lender ("LESSOR's Lender") as security for LESSOR's obligations to LESSOR's Lender. 24.4 LESSEE Cooperation. On request by LESSOR, LESSEE will execute all such documents (such as a consent to a lease assignment agreement) as LESSOR may reasonably require to confirm LESSEE's obligations under this Lease and obtain LESSEE's acknowledgment that LESSOR is not in breach of the Lease. LESSEE will provide all other reasonable assistance and cooperation to LESSOR in connection with any such sale or assignment or the perfection and maintenance of any such security interest, including, at LESSOR's cost, making all necessary filings and registrations in the State of Registration and providing all opinions of counsel with respect to matters reasonably requested by LESSOR. LESSOR will reimburse LESSEE for its reasonable out of pocket costs and expenses (including reasonable legal fees) in reviewing documents required by LESSOR and cooperating with a transfer pursuant to this Article 24. 24.5 Protections. 24.5.1 LESSOR will obtain for the benefit of LESSEE a written acknowledgment from any Permitted Transferee or LESSOR's Lender that, so long as no Event of Default has occurred and is continuing hereunder, neither such Person nor any Person claiming by, through or under such Person will not interfere with LESSEE's quiet, peaceful use and enjoyment of the Aircraft. 24.5.2 Wherever the term "LESSOR" is used in this Lease in relation to any of the provisions relating to disclaimer, title and registration, indemnity and insurance contained in ARTICLES 8, 14, 17 and 18, respectively, or with respect to Article 20.2.6, the term "LESSOR" will be deemed to include any Permitted Transferee and its lenders, if applicable. For avoidance of doubt, in the event of LESSOR's sale or financing of the Aircraft, the disclaimer and indemnity provisions contained in Articles 8 and 17 will continue to be applicable after the sale or assignment to International Lease Finance Corporation, as well as being applicable to any Permitted Transferee and its lenders. ARTICLE 25 82 DEFAULT OF LESSEE ARTICLE 25 DEFAULT OF LESSEE 25.1 LESSEE Notice to LESSOR. LESSEE will promptly notify LESSOR if LESSEE becomes aware of the occurrence of any Default. 25.2 Events of Default. The occurrence of any of the following will constitute an Event of Default and material breach of this Lease by LESSEE: * 25.3 LESSOR's General Rights. Upon the occurrence and continuance of any Event of Default, LESSOR may do all or any of the following at its option (in addition to such other rights and remedies which LESSOR may have by statute or otherwise but subject to any requirements of applicable Law): (a) terminate this Lease by giving written notice to LESSEE; (b) require that LESSEE immediately move the Aircraft to an airport or other location designated by LESSOR; (c) for LESSEE's account, do anything that may reasonably be required to cure any default and recover from LESSEE all reasonable costs, including legal fees and expenses incurred in doing so and Default Interest; (d) proceed as appropriate to enforce performance of this Lease and to recover any damages for the breach hereof, including the amounts specified in Article 25.5; (e) terminate this Lease by taking possession of the Aircraft or by serving notice requiring LESSEE to return the Aircraft to LESSOR at the location specified by LESSOR. If LESSOR takes possession of the Aircraft, it may enter upon LESSEE's premises where the Aircraft is located without liability except for the willful misconduct of LESSOR. Upon repossession of the Aircraft, LESSOR will then be entitled to sell, lease or otherwise deal with the Aircraft as if this Lease had never been made. LESSOR will be entitled to the full benefit of its bargain with LESSEE; or (f) apply all or any portion of the Security Deposit and any other security deposits held by LESSOR pursuant to any other agreements between LESSOR and LESSEE to any amounts due. 25.4 Deregistration and Export of Aircraft. If an Event of Default has occurred and is continuing, LESSOR may take all steps necessary to deregister the Aircraft in and export the Aircraft from the State of Registration. 25.5 LESSEE Liability for Damages. Upon the occurrence and during the continuance of an Event of Default, in addition to all other remedies available at law or in equity, LESSOR has the right to recover from LESSEE and LESSEE will pay LESSOR within two (2) Business Days after LESSOR's written demand, all of the following: (a) all amounts which are then due and unpaid hereunder and which become due prior to the earlier of LESSOR's recovery of possession of the Aircraft or LESSEE making an effective tender thereof; (b) subject to LESSOR's obligations at Law to mitigate its damages, any losses suffered by LESSOR because of LESSOR's inability to place the Aircraft on lease with another lessee or to otherwise utilize the Aircraft on financial terms as favorable to LESSOR as the terms hereof or, if LESSOR elects to dispose of the Aircraft, the funds arising from a sale or other disposition of the Aircraft are not as profitable to LESSOR as leasing the Aircraft in accordance with the terms hereof would have been (and LESSOR will be entitled to accelerate any and all Rent which would have been due from the date of LESSOR's recovery or repossession of the Aircraft through the Expiration Date); (c) all costs associated with LESSOR's exercise of its remedies hereunder, including but not limited to repossession costs, legal fees, Aircraft storage costs and Aircraft re lease or sale costs; (d) any amount of principal, interest, fees or other sums paid or payable on account of funds borrowed in order to carry any unpaid amount; (e) any loss, premium, penalty or expense which may be incurred in repaying funds raised to finance the Aircraft or in unwinding any financial instrument relating in whole or in part to LESSOR's financing of the Aircraft; (f) direct expenses incurred by LESSOR to correct non conformance of the Aircraft with return conditions in accordance with Article 23.13.3; and (g) an amount sufficient to fully compensate LESSOR for any loss of or damage to the Aircraft caused by LESSEE's default. 25.6 Waiver of Default. By written notice to LESSEE, LESSOR may at its election waive any Default or Event of Default and its consequences and rescind and annul any prior notice of termination of this Lease. The respective rights of the parties will then be as they would have been had no Default or Event of Default occurred and no such notice been given. 25.7 Present Value of Payments. In calculating LESSOR's damages hereunder, upon an Event of Default all Rent and other amounts which would have been due hereunder during the Lease Term if an Event of Default had not occurred will be calculated on a present value basis using a discounting rate of six percent (6%) per annum discounted to the earlier of the date on which LESSOR obtains possession of the Aircraft or LESSEE makes an effective tender thereof. 25.8 Use of "Termination Date". For avoidance of doubt, it is agreed that if this Lease terminates and the Aircraft is repossessed by LESSOR due to an Event of Default, then, notwithstanding the use of the term "Termination Date" in this Lease, the period of the Lease Term and the "Expiration Date" will be utilized in calculating the damages to which LESSOR is entitled pursuant to Article 25.5. For example, it is agreed and understood that LESSOR is entitled to receive from LESSEE the Rent and the benefit of LESSEE's insurance and maintenance of the Aircraft until expiration of the Lease Term. 25.9 LESSEE's Remedies. Except as otherwise set forth in the Operative Documents, upon a breach by LESSOR of any of the terms and conditions of this Lease, LESSEE shall have all rights available at law or in equity. 25.10 Waiver of Consequential Damages. LESSEE and LESSOR each agree that it shall not be entitled to recover, and hereby disclaims and waives any right that it may otherwise have to recover, any special, indirect or consequential damages as a result of any breach or alleged breach by the other party of any of the agreements, representations or warranties contained in this Lease or the other Operative Documents; provided, however, that nothing herein shall be deemed to disclaim or waive any of LESSOR's remedies expressly set forth in Article 25.5(a) through 25.5 (g). ARTICLE 26 NOTICES 26.1 Manner of Sending Notices. Any notice, request or information required or permissible under this Lease will be in writing and in English. Notices will be delivered in person or sent by fax, letter (mailed airmail, certified and return receipt requested), or by expedited delivery addressed to the parties as set forth in Article 26.2. In the case of a fax, notice will be deemed received upon actual receipt (and the date of actual receipt will be deemed to be the date set forth on the confirmation of receipt produced by the sender's fax machine immediately after the fax is sent). In the case of a mailed letter, notice will be deemed received on the tenth (10th) day after mailing. In the case of a notice sent by expedited delivery, notice will be deemed received on the date of delivery set forth in the records of the Person which accomplished the delivery. If any notice is sent by more than one of the above listed methods, notice will be deemed received on the earliest possible date in accordance with the above provisions. 26.2 Notice Information. Notices will be sent: If to LESSOR: INTERNATIONAL LEASE FINANCE CORPORATION 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067, U.S.A. Attention: Legal Department Fax: 310 788 1990 Telephone: 310 788 1999 If to LESSEE: FRONTIER AIRLINES, INC. 12015 East 46th Avenue Suite 200 Denver, CO 80239 Attention: General Counsel Fax: 303 371 7007 Telephone: 303 371 7400 or to such other places and numbers as either party directs in writing to the other party. ARTICLE 27 GOVERNING LAW AND JURISDICTION 27.1 California Law. This Lease is being delivered in the State of California and will in all respects be governed by and construed in accordance with the Laws of the State of California (notwithstanding the conflict Laws of the State of California). 27.2 Non Exclusive Jurisdiction in California. As permitted by Section 410.40 of the California Code of Civil Procedure, the parties hereby irrevocably submit to the non exclusive jurisdiction of the Federal District Court for the Central District of California and the State of California Superior or Municipal Court in Los Angeles, California. Nothing herein will prevent either party from bringing suit in any other appropriate jurisdiction. 27.3 Service of Process. The parties hereby consent to the service of process (a) out of any of the courts referred to above, (b) in accordance with Section 415.40 of the California Code of Civil Procedure by mailing copies of the summons and complaint to the person to be served by air mail, certified or registered mail to the address set forth in Article 26.2, postage prepaid, return receipt requested or (c) in accordance with the Hague Convention, if applicable. 27.4 Prevailing Party in Dispute. If any legal action or other proceeding is brought in connection with or arises out of any provisions in this Lease, the prevailing party will be entitled to recover reasonable attorneys' fees and other actual and reasonable costs incurred in such action or proceedings. The prevailing party will also, to the extent permissible by Law, be entitled to receive pre and post judgment Default Interest. 27.5 Waiver. LESSEE AND LESSOR HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY. LESSEE AND LESSOR HEREBY IRREVOCABLY WAIVE ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATED TO THIS LEASE BROUGHT IN ANY OF THE COURTS REFERRED TO IN ARTICLE 27.2, AND HEREBY FURTHER IRREVOCABLY WAIVE ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. ARTICLE 28 MISCELLANEOUS 28.1 Transportation of Personnel. LESSEE will provide transportation to LESSOR's personnel on a positive space basis on the Aircraft or any other aircraft operated by LESSEE for the purposes of conducting business between LESSEE and LESSOR. 28.2 Press Releases. The parties will give copies to one another, in advance if possible, of all news, articles and other releases provided to the public media regarding this Lease or the Aircraft. 28.3 Power of Attorney. LESSEE hereby irrevocably appoints LESSOR as its attorney for the purpose of putting into effect the intent of this Lease following and during the continuation of an Event of Default, including without limitation, the return, repossession, deregistration and exportation of the Aircraft. To evidence this appointment, LESSEE has executed the Power of Attorney in the form of Exhibit G. LESSEE will take all steps required under the Laws of the State of Registration to provide such power of attorney to LESSOR. 28.4 LESSOR Performance for LESSEE. The exercise by LESSOR of its remedy of performing a LESSEE obligation hereunder is not a waiver of and will not relieve LESSEE from the performance of such obligation at any subsequent time or from the performance of any of its other obligations hereunder. 28.5 LESSOR's Payment Obligations. Any obligation of LESSOR under this Lease to pay or release any amount to LESSEE is conditioned upon and will be delayed until (a) all amounts then due and payable by LESSEE to LESSOR under this Lease or under any other agreement between LESSOR and LESSEE having been paid in full and (b) no payment or other material Default having occurred and continuing hereunder at the time such payment or release of payment is payable to LESSEE. 28.6 Application of Payments. Any amounts paid or recovered in respect of LESSEE liabilities hereunder may be applied to Rent, Default Interest, fees or any other amount due hereunder in such proportions, order and manner as LESSOR determines. 28.7 Usury Laws. The parties intend to contract in strict compliance with the usury Laws of the State of California and, to the extent applicable, the U.S. Notwithstanding anything to the contrary in the Operative Documents, LESSEE will not be obligated to pay Default Interest or other interest in excess of the maximum non usurious interest rate, as in effect from time to time, which may by applicable Law be charged, contracted for, reserved, received or collected by LESSOR in connection with the Operative Documents. During any period of time in which the then applicable highest lawful rate is lower than the Default Interest rate, Default Interest will accrue and be payable at such highest lawful rate; however, if at later times such highest lawful rate is greater than the Default Interest rate, then LESSEE will pay Default Interest at the highest lawful rate until the Default Interest which is paid by LESSEE equals the amount of interest that would have been payable in accordance with the interest rate set forth in Article 5.6. 28.8 Delegation by LESSOR. LESSOR may delegate to any Person(s) all or any of the rights, powers or discretion vested in it by this Lease and any such delegation may be made upon such terms and conditions as LESSOR in its absolute discretion thinks fit, provided that no such delegation shall relieve LESSOR of any of its obligations hereunder. 28.9 Confidentiality. The Operative Documents and all non public information obtained by either party about the other are confidential and are between LESSOR and LESSEE only and will not be disclosed by a party to third parties (other than (i) to such party's auditors or professional advisors, (ii) to potential equity investors or lenders or (iii) as required in connection with any filings of this Lease in accordance with Article 14 or as otherwise required by Law) without the prior written consent of the other party. If disclosure is required as a result of applicable Law, LESSEE and LESSOR will cooperate with one another to obtain confidential treatment as to the commercial terms and other material provisions of this Lease. 28.10 Rights of Parties. The rights of the parties hereunder are cumulative, not exclusive, may be exercised as often as each party considers appropriate and are in addition to its rights under general Law. The rights of one party against the other party are not capable of being waived or amended except by an express waiver or amendment in writing. Any failure to exercise or any delay in exercising any of such rights will not operate as a waiver or amendment of that or any other such right any defective or partial exercise of any such rights will not preclude any other or further exercise of that or any other such right and no act or course of conduct or negotiation on a party's part or on its behalf will in any way preclude such party from exercising any such right or constitute a suspension or any amendment of any such right. 28.11 Further Assurances. Each party agrees from time to time to do and perform such other and further acts and execute and deliver any and all such other instruments as may be required by Law or reasonably requested by the other party to establish, maintain or protect the rights and remedies of the requesting party or to carry out and effect the intent and purpose of this Lease. 28.12 Use of Word "including". The term "including" is used herein without limitation. 28.13 Headings. All article and paragraph headings and captions are purely for convenience and will not affect the interpretation of this Lease. Any reference to a specific article, paragraph or section will be interpreted as a reference to such article, paragraph or section of this Lease. 28.14 Invalidity of any Provision. If any of the provisions of this Lease become invalid, illegal or unenforceable in any respect under any Law, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired. 28.15 Time is of the Essence. Time is of the essence in the performance of all obligations of the parties under this Lease and, consequently, all time limitations set forth in the provisions of this Lease will be strictly observed. 28.16 Amendments in Writing. The provisions of this Lease may only be amended or modified by a writing executed by LESSOR and LESSEE. 28.17 Counterparts. This Lease may be executed in any number of identical counterparts, each of which will be deemed to be an original, and all of which together will be deemed to be one and the same instrument when each party has signed and delivered one such counterpart to the other party. 28.18 Delivery of Documents by Fax. Delivery of an executed counterpart of this Lease or of any other documents in connection with this Lease by fax will be deemed as effective as delivery of an originally executed counterpart. Any party delivering an executed counterpart of this Lease or other document by fax will also deliver an originally executed counterpart, but the failure of any party to deliver an originally executed counterpart of this Lease or such other document will not affect the validity or effectiveness of this Lease or such other document. 28.19 Entire Agreement. The Operative Documents constitute the entire agreement between the parties in relation to the leasing of the Aircraft by LESSOR to LESSEE and supersede all previous proposals, agreements and other written and oral communications in relation hereto. The parties acknowledge that there have been no representations, warranties, promises, guarantees or agreements, express or implied, except as set forth herein. 28.20 Expenses. Each party shall be responsible for its own expenses in connection with the drafting, negotiation, execution and delivery of this Lease and the other Operative Documents. IN WITNESS WHEREOF, LESSEE and LESSOR have caused this Lease to be executed by their respective officers as of August 14, 2000. INTERNATIONAL LEASE FINANCE CORPORATION FRONTIER AIRLINES, INC. By: By: Its: Its: EXHIBIT B AIRCRAFT DESCRIPTION Aircraft Manufacturer and Model: B737 300 Seating Configuration: 148Y Manufacturer's Serial Number: 26301 Registration Mark: N _____ Engine Manufacturer and Model: CFM56 3C1 Engine Serial Numbers: 726115 and 727103 Engine Thrust Rating: 22,000 pounds Maximum Gross Takeoff Weight: 139,500 pounds EXHIBIT C CONDITION AT DELIVERY 1. Technical Report Prior to the Delivery Date, LESSOR will provide LESSEE with a Technical Evaluation Report in the form and substance of Exhibit M, as revised, and, in addition upon LESSEE's request, will make copies available of (a) drawings of the interior configuration of the Aircraft as it will exist at Delivery, (b) an Airworthiness Directive status list, (c) a service bulletin incorporation list, (d) rotable tracked, hard time and life limited component listings, (e) a list of Prior Lessee initiated modifications and alterations, (f) information regarding Prior Lessee's maintenance program for the Aircraft, (g) the complete workscope for the checks, inspections and other work to be performed prior to Delivery, (h) a list of all no charge service bulletin kits with respect to the Aircraft which were ordered by LESSOR from Manufacturer or Engine manufacturer, (i) current Engine disk sheets and a description of the last shop visit for each Engine and (j) any other data which is reasonably requested by LESSEE. 2. Full Aircraft Documentation Review Prior to the Scheduled Delivery Date and continuing until the date on which the Aircraft is delivered to LESSEE in the condition required by this Exhibit B, LESSOR will provide for the review of LESSEE and/or its representative all of the Aircraft records and historical documents described in Exhibit L in one central room at the Aircraft delivery location. 3. Aircraft Inspection (a) During the maintenance checks performed prior to Delivery, LESSEE and/or its representatives will have an opportunity to conduct a full systems functional and operational inspection of the Aircraft (and other types of reasonable inspections based upon the Aircraft type, age, use and other known factors with respect to the Aircraft) and a full inspection of the Aircraft Documentation (including records and manuals), all to LESSEE's satisfaction. Any deficiencies from the delivery condition requirements set forth in this Exhibit B will be corrected by LESSOR at its cost prior to Delivery. (b) Immediately prior to the Delivery of the Aircraft, LESSOR will carry out for LESSEE and/or LESSEE's representatives one takeoff and one landing phase. If LESSEE identifies any discrepancies immediately following such takeoff and landing phase and requests LESSOR to correct such discrepancies at LESSOR's cost, such discrepancies will be corrected. 4. Certificate of Airworthiness Matters The Aircraft will possess a current Certificate of Airworthiness issued by the FAA. 5. General Condition of the Aircraft at Delivery (a) The Aircraft, Engines and Parts will have been maintained and repaired in accordance with Prior Lessee's maintenance program and the rules and regulations of the FAA. (b) Aircraft Documentation (including records and manuals) will have been maintained in accordance with the rules and regulations of the FAA. (c) All pilot discrepancies and deferred maintenance items will be cleared on a terminating action basis. (d) The Aircraft will be airworthy (conform to type design and be in a condition for safe operation under FAR Part 121), with all Aircraft equipment, components and systems operating in accordance with their intended use and within limits approved by Manufacturer and the FAA. (e) The interior of the Aircraft (including cabin and windows) will be in a reasonable condition and cosmetically acceptable, with no cracks, tears or rips. (f) No special or unique Manufacturer, Engine manufacturer or FAA inspection or check requirements which are specific to the Aircraft or Engines (as opposed to all aircraft or engines of their types) will exist with respect to the Airframe, Engines and Aircraft equipment, components and systems. (g) All repairs, modifications and alterations to the Aircraft will have been accomplished in accordance with the FARs or Manufacturer's Structural Repair Manual (or FAA approved data supported by FAA Form 8110 3) for the Aircraft, as applicable. (h) All Airworthiness Directives which are issued prior to the Delivery Date and require compliance (either by means of repetitive inspections, modifications or terminating action) prior to Delivery of the Aircraft to LESSEE or within one (1) year after the Delivery Date will have been complied with on the Aircraft on a terminating action basis at LESSOR's cost. Airworthiness Directives which do not have a terminating action will be accomplished at the highest level of inspection or modification possible. (i) The Aircraft will be in compliance with Manufacturer's Corrosion Prevention and Control Program (CPCP) specified for the model type by Manufacturer. (j) If any waivers, deviations, dispensations, alternate means of compliance, extensions or carry overs with respect to maintenance or operating requirements, repairs or Airworthiness Directives were granted by the FAA or permitted by Prior Lessee's maintenance program, such maintenance or operating requirements, repairs or Airworthiness Directives will have been performed as if such waivers, deviations, dispensations, alternate means of compliance, or extensions or carry overs did not exist. (k) The Aircraft will be free of fuel, oil and hydraulic leaks. Any temporary fuel leak repairs will have been replaced by permanent repairs. (l) The Aircraft fluid reservoirs (including oil, oxygen, hydraulic and water) will be serviced to full and the waste tank serviced in accordance with Manufacturer's instructions. (m) The Aircraft will be fully fueled. (n) The Aircraft will be painted in the livery of Prior Lessee. 6. Checks Prior to Delivery Prior to Delivery of the Aircraft to LESSEE, the following will have been performed: (a) A full and complete zonal, systems and structural check ("C" or its equivalent) and the corresponding lower checks ("A" and "B" or equivalent) at an FAA approved repair station in accordance with the MPD sufficient to clear the Aircraft until the next full and complete zonal, systems and structural check. Any discrepancies revealed during such inspection will be corrected in accordance with Manufacturer's maintenance and repair manuals or FAA approved data. (b) All required external placards, signs and markings will be properly attached, free from damage, clean and legible. (c) Cleaning the exterior and interior of the Aircraft. (d) If reasonably required by LESSEE, repainting the interior of the Aircraft, including flight deck, and replace placards. (e) In accordance with Manufacturer's Structural Repair Manual, permanently repairing damage to the Aircraft that exceeds Manufacturer's limits. Any non flush structural patch repairs installed on the Airframe will be replaced with flush type repairs if such flush type repairs are available unless it is unreasonable to install a flush type repair. 7. Condition of the Engines At Delivery (a) Prior to Delivery of the Aircraft to LESSEE, the following checks of the Engines will have been performed: (i) With LESSEE or its representatives present, performance of a full and complete hot and cold section videotape borescope on each Engine and its modules in accordance with the Engine manufacturer's maintenance manual. (ii) If the Engine historical and technical records and/or condition trend monitoring data of any Engine (including the APU) indicate an acceleration in the rate of deterioration in the performance of an Engine, LESSOR will correct, to LESSEE's satisfaction, such conditions which are determined to be causing such accelerated rate of deterioration. (iii) With LESSEE or its representatives present, LESSOR will accomplish a maximum power assurance run and an acceleration check on the Engines. LESSEE will evaluate the Engine performance and record the Engine maximum power assurance test conditions and results on the Estoppel and Acceptance Receipt. (b) Each Engine will meet all of the following: (i) Each Engine will have at least 4,000 hours and 3,000 cycles remaining until its next anticipated removal regardless of the operating environment of such Engine. In determining whether an Engine has at least 4,000 hours and 3,000 cycles remaining until its next anticipated removal, the following will be considered: (1) the Engine manufacturer's estimated mean time between removals for engines of the same type as the Engines; (2) the remaining EGT margin on such Engine; and (3) the Engine historical and technical records, borescope inspection, trend monitoring, the maximum power assurance run and the acceleration check; (ii) the Engine historical and technical records, borescope inspection, trend monitoring, the maximum power assurance run and the acceleration check do not reveal any condition which would cause the Engines or any module to be serviceable with an increased frequency of inspection or with calendar time, flight hour or flight cycle restrictions under the Engine manufacturer's maintenance manual; (iii) No life limited Part of an Engine will have more hours or cycles consumed than such Engine's data plate; and (iv) Each Part of an Engine which has a hard time limit will have at least 3,000 cycles remaining to operate until its next scheduled Overhaul. Each Part of an Engine which has a life limit will have at least 3,000 cycles remaining to operate until its removal. LESSOR will correct any discrepancies in the required condition of the Engines set forth in this Exhibit B in accordance with the guidelines set out by the Engine manufacturer. If there is a dispute as to whether an Engine meets the requirements of this Exhibit B, LESSEE and LESSOR will consult with Engine manufacturer and follow Engine manufacturer's recommendations (including the accomplishment of an Engine test cell operational check) and the manner in which any discrepancies from the requirements of this Exhibit B will be rectified. 8. Hour/Cycle/Calendar Times At Delivery The condition of the Aircraft and installed systems upon Delivery to LESSEE will be as follows: (a) The Aircraft will have no more that fifteen (15) months consumed since the last 24,000 Hour Structural Check. (b) The Aircraft will have not more than nine hundred forty (940) hours consumed since the last "C" check or its equivalent in accordance with the MPD. (c) The APU will be in serviceable condition. (d) The Landing Gear will be cleared for four thousand five hundred (4,500) cycles/hours (depending on Prior Lessee's maintenance program) of operation until the next Overhaul or scheduled removal. (e) Each Part of the Aircraft which has a hard time (hour/cycle) limit to Overhaul of less than four thousand (4,000) hours or three thousand (3,000) cycles will be freshly overhauled or replaced and each Part of the Aircraft which has a hard time (hour/cycle) limit to Overhaul of more than four thousand (4,000) hours or three thousand (3,000) cycles will have four thousand (4,000) hours and three thousand (3,000) cycles (whichever is applicable) remaining to operate until its next scheduled Overhaul or removal. (f) Each life limited Part of the Aircraft will have four thousand (4,000) hours and three thousand (3,000) cycles (whichever is applicable) remaining to operate until its next scheduled removal. (g) Each Part which has a calendar limit (including emergency equipment and excluding Landing Gear which is addressed in paragraph 8(d) above) will have remaining to operate the lesser of the following calendar times: (i) one (1) year from the Delivery Date of the Aircraft to LESSEE or (ii) one hundred percent (100%) of such Part's total approved life. (h) With respect to all installed Parts as a group, such Parts will have an average total time since new no greater than that of the Airframe. (i) The Aircraft Landing Gear tires and brakes will have at least fifty percent (50%) life remaining until their next Overhaul (except for the acceptance flight). EXHIBIT D CERTIFICATE OF INSURANCE [Refer to Aircraft Lease Agreement dated as of August 14, 2000 between LESSEE and LESSOR (the "Lease"). If applicable, insurance certificates from both the insurers and reinsurers will be provided. If there is a LESSOR's Lender, include references to it where appropriate after references to LESSOR.] To: INTERNATIONAL LEASE FINANCE CORPORATION ("LESSOR") 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067 United States Re: FRONTIER AIRLINES, INC. ("LESSEE") Boeing B737 300 Manufacturer's Serial No.: 26301 Registration Mark: N _____ (the "Aircraft") The following security has subscribed to the insurance and/or reinsurance policies: [LIST COMPANIES & PERCENTAGES] THIS IS TO CERTIFY THAT, as Insurance Brokers, we have effected Fleet Insurance in respect of aircraft owned or operated by LESSEE (including the Aircraft) as specified below. AIRCRAFT HULL ALL RISKS COVERING: * DEDUCTIBLES: * GEOGRAPHICAL COVERAGE: Worldwide. AVIATION AND AIRLINE GENERAL THIRD PARTY LIABILITY COVERING: * GEOGRAPHICAL LIMITS: Worldwide. HULL WAR AND ALLIED PERILS COVERING: * DEDUCTIBLE: * GEOGRAPHICAL LIMITS: Worldwide. AIRCRAFT SPARES ALL RISKS INSURANCE COVERING: * DEDUCTIBLE: * GEOGRAPHICAL COVERAGE: Worldwide. INSURANCE REQUIRED BY MANUFACTURER LESSEE will carry the insurance required by Manufacturer in connection with LESSOR's assignment of Manufacturer's warranties and product support to LESSEE. CONTRACTUAL INDEMNITY LESSEE has insurance coverage for the indemnities agreed to by LESSEE pursuant to Article 17 of the Lease to the extent provided in the relevant policies. PERIOD OF COVERAGE (ALL POLICIES) From Delivery Date of Aircraft to [EXPIRATION DATE] It is further certified that LESSOR has an interest in respect of the Aircraft under the Lease. Accordingly, with respect to losses occurring during the period from the Effective Date until the expiry of the Insurance or until the expiry or agreed termination of the Lease or until the obligations under the Lease are terminated by any action of the Insured or LESSOR and in consideration of the Additional Premium it is confirmed that the Insurance afforded by the Policy is in full force and effect and it is further agreed that the following provisions are specifically endorsed to the Policy. 1. UNDER THE HULL (ALL RISKS AND HULL WAR AND ALLIED RISKS) AND AIRCRAFT SPARES INSURANCES (a) * (b) * (c) Insurers have no right to replace the Aircraft on a Total Loss (arranged, constructive or otherwise). (d) Insurers recognize that LESSEE and LESSOR have agreed that a Total Loss of the Airframe will constitute a Total Loss of the Aircraft. (e) In the event of Total Loss of the Aircraft, Insurers agree to pay LESSOR all amounts up to the Agreed Value based solely upon LESSOR's (not LESSEE's) execution of the appropriate form of release/discharge document. LESSOR may sign any required release in lieu of the Insured in the event of a Total Loss, Constructive Total Loss or Arranged Total Loss. (f) "Cut through clause": Insurers confirm that in the event of any claim arising under the hull insurances, the Reinsurers will in lieu of payment of the Insurers, its successors in interest and assigns, pay to the person named as sole loss payee under the original insurances that portion of any loss due for which the Reinsurers would otherwise be liable to pay the Insurers (subject to proof of loss), it being understood and agreed that any such payment by any Reinsurers will fully discharge and release such Reinsurer from any and all further liability in connection therewith and provide for payment to be made notwithstanding (i) any bankruptcy, insolvency, liquidation or dissolution of the Insurers and (ii) that the Insurers have made no payment under the original insurance policies. (g) Insurers confirm that under the insurance policies, if the Insured installs an engine owned by a third party on the Aircraft, either (i) the hull insurance will automatically increase to such higher amount as is necessary in order to satisfy both LESSOR's requirement to receive the Agreed Value in the event of a Total Loss, Constructive Total Loss or Arranged Total Loss and the amount required by the third party engine owner, or (ii) separate additional insurance on such engine will attach in order to satisfy separately the requirements of the Insured to such third party engine owner. 2. UNDER THE LEGAL LIABILITY INSURANCE (a) Subject to the provisions of this Endorsement, the Insurance will operate in all respects as if a separate Policy had been issued covering each party insured hereunder, but this provision will not operate to include any claim arising howsoever in respect of loss or damage to the Aircraft insured under the Hull or Spares Insurance of the Insured. Notwithstanding the foregoing the total liability of Insurers in respect of any and all Insureds will not exceed the limits of liability stated in the Policy. (b) The Insurance provided hereunder will be primary and without right of contribution from any other insurance which may be available to LESSOR. 3. UNDER ALL INSURANCES (a) LESSOR, its successors and assigns, and (with respect to Aviation and Airline General Third Party Liability only) its directors, officers and employees for their respective rights and interests, are included as Additional Insureds. (b) The cover afforded to LESSOR by the Policy in accordance with this Endorsement will not be invalidated by any act or omission (including misrepresentation and non disclosure) of any other person or party which results in a breach of any term, condition or warranty of the Policy provided that LESSOR has not caused, contributed to or knowingly condoned the said act or omission. (c) LESSOR will have no responsibility for premium and insurers will waive any right of set off or counterclaim against LESSOR except in respect of outstanding premium in respect of the Aircraft, provided that Insurer may only set off for premiums against the proceeds of the hull insurance for outstanding premiums in connection with hull all risks and hull war and allied perils insurance. (d) Upon payment of any loss or claim to or on behalf of LESSOR, Insurers will to the extent and in respect of such payment be thereupon subrogated to all legal and equitable rights of LESSOR indemnified hereby (but not against LESSOR). Insurers will not exercise such rights without the consent of those indemnified, such consent not to be unreasonably withheld. At the expense of Insurers LESSOR will do all things reasonably necessary to assist the Insurers to exercise said rights. (e) Except in respect of any provision for Cancellation or Automatic Termination specified in the Policy or any endorsement thereof, cover provided by this Endorsement may only be cancelled or materially altered in a manner adverse to LESSOR by the giving of not less than thirty (30) days notice in writing to LESSOR. Notice will be deemed to commence from the date such notice is given by the Insurers. Such notice will NOT, however, be given at normal expiry date of the Policy or any endorsement. 4. EXCEPT AS SPECIFICALLY VARIED OR PROVIDED BY THE TERMS OF THIS CERTIFICATE (a) LESSOR IS COVERED BY THE POLICY SUBJECT TO ALL TERMS, CONDITIONS, LIMITATIONS, WARRANTIES, EXCLUSIONS AND CANCELLATION PROVISIONS THEREOF. (b) THE POLICY WILL NOT BE VARIED BY ANY PROVISIONS CONTAINED IN THE LEASE WHICH PURPORT TO SERVE AS AN ENDORSEMENT OR AMENDMENT TO THE POLICY. SUBJECT (save as specifically stated in this Certificate) to policy terms, conditions, limitations and exclusions. Yours faithfully, [BROKERS] EXHIBIT E BROKERS' LETTER OF UNDERTAKING To: INTERNATIONAL LEASE FINANCE CORPORATION 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067 United States Date: Our Ref: Re: FRONTIER AIRLINES, INC. ("LESSEE") B737 300 Manufacturer's Serial No.: 26301 Registration Mark: N _____ (the "Aircraft") Dear Sirs: We confirm that insurance has been effected for the account of [LESSEE] (the "Operator") covering all aircraft owned or operated by them, including the above referenced aircraft (the "Aircraft"). [Also confirm, if applicable, the amount of any hull all risks or hull war and allied perils on the Aircraft which LESSEE is carrying in excess of the Agreed Value (which excess insurance would be payable to LESSEE). Such excess insurance may not exceed ten percent (10%) of the Agreed Value.] Pursuant to instructions received from the Operator and in consideration of your approving the arrangement of the Operator's "Fleet Policy" (under which the above referenced Aircraft is insured) through the intermediary of ourselves as Brokers in connection with the insurance (the "Insurance") mentioned in our Certificate of Insurance (Reference No. [ ] dated [ ] and attached hereto), we undertake as follows: 1. In relation to the Hull and War Risks Insurance to hold to your order the insurance Slips or Contracts and any Policies which may be issued or any policies substituted (with your consent) therefor (but only insofar as the same relate to the Aircraft only) and the benefit of the Hull and War Risks Insurance thereunder, but subject to our requirements to operate the Fleet Policy insofar as it relates to any other aircraft insured thereunder. 2. To advise you of any of the following: (a) If any insurer cancels or gives notice of cancellation of any of the Insurance at least thirty (30) days (or such lesser period as may be available in the case of War and Allied Perils) before such cancellation is to take effect in respect of the Aircraft. (b) Of any act or omission or of any event (including non payment of premium) of which we have knowledge or are notified and which might invalidate or render unenforceable in whole or in part any of the Insurance, insofar as the same relate to the Aircraft. (c) If we do not receive instructions to renew all or any of the Insurance at least thirty (30) days prior to their expiration. (d) If any of the Insurance are not renewed on the same terms (save as to premium and period of cover and as you might otherwise have notified us to be acceptable to you) seven (7) days prior to expiry thereof. The above undertakings are given subject to our continuing appointment for the time being as Insurance Brokers to the Operator. We also undertake to advise you if we cease to be Insurance Brokers to the Operator. Yours faithfully, EXHIBIT F ESTOPPEL AND ACCEPTANCE CERTIFICATE FRONTIER AIRLINES, INC. ("LESSEE"), a corporation organized under the laws of Colorado does hereby agree as follows: 1. LESSEE and INTERNATIONAL LEASE FINANCE CORPORATION, as LESSOR, have entered into an Aircraft Lease Agreement dated as of August 14, 2000 (hereinafter referred to as the "Lease"). Words used herein with capital letters and not otherwise defined will have the meanings set forth in the Lease. 2. LESSEE has this ____ day of __________, ____ (Time: __________) at ____________________ received from LESSOR possession of: (a) One (1) Boeing B737 300 aircraft bearing Manufacturer's serial number 26301 and United States registration mark N _____, together with two (2) CFM56 3C1 engines bearing manufacturer's serial numbers 726115 and 727103 (each of which has 750 or more rated take off horsepower), all in airworthy condition. (b) All Aircraft Documentation, including the usual and customary manuals, logbooks, flight records and historical information regarding the Aircraft, Engines, and Parts. 3. All of the foregoing has been delivered on the date set forth above pursuant to the terms and provisions of the Lease. 4. The amount of fuel on board at Delivery is __________ (circle one) pounds/kilos (________ gallons). 5. The Aircraft, Engines, Parts and Aircraft Documentation as described in the Lease have been fully examined by LESSEE and, except as set forth in the attached Discrepancies List, have been received and accepted by LESSEE in a condition fully satisfactory to LESSEE and in full conformity with the Lease in every respect. 6. The Lease is in full force and effect, LESSOR has fully, duly and timely performed all of its obligations of every kind or nature thereunder and LESSEE has no claims, offsets, deductions, set off or defenses of any kind or nature in connection with the Lease. 7. LESSEE has obtained all required permits, authorizations, licenses and fees of the State of Registration or any Government Entity thereof necessary in order for LESSEE to operate the Aircraft as permitted by the terms of the Lease. Dated on the date set forth above FRONTIER AIRLINES, INC. By: Title: EXHIBIT G OPINION OF COUNSEL [SEE ATTACHED] EXHIBIT H FORM OF POWER OF ATTORNEY FRONTIER AIRLINES, INC. ("Frontier") hereby irrevocably appoints INTERNATIONAL LEASE FINANCE CORPORATION ("ILFC") of 1999 Avenue of the Stars, 39th Floor, Los Angeles, California 90067, U.S.A. as Frontier's true and lawful attorney so that ILFC may take any of the following actions in the name of and for Frontier with respect to the Boeing B737 300 aircraft bearing manufacturer's serial number 26301 (the "Aircraft") leased by ILFC to Frontier pursuant to an Aircraft Lease Agreement dated as of August 14, 2000 (the "Lease"): 1. Pursuant to the Lease, Frontier has procured and is maintaining insurances for the Aircraft. ILFC has been named sole loss payee on the all risk hull and war risk insurances for the Aircraft. In the event of a total loss or constructive total loss of the Aircraft, ILFC is entitled to receive insurance proceeds in an amount equal to *. ILFC may take all action and sign all documents otherwise required to be performed by Frontier, including execution on behalf of Frontier of an appropriate form of discharge/release document, in order for ILFC to collect such insurance proceeds. 2. In the exercise of the rights of ILFC under the Lease to recover the Aircraft from Frontier and United States after termination of the Lease due to an Event of Default under the Lease or for termination of the Lease due to any other reason, ILFC may take all action otherwise required to be performed by Frontier before the authorities and courts in United States in order to cause the Aircraft to be repossessed by ILFC, deregistered from the U.S. Federal Aviation Administration and exported from the United States. 3. In the exercise of the rights mentioned in paragraphs 1 and 2, ILFC may make any declarations or statements and sign any public or private documents which may be considered necessary or appropriate. 4. ILFC may delegate the powers conferred hereby, in whole or in part, to any individual(s), including but not limited to employees of ILFC or legal counsel in United States. ILFC is empowered to determine in its sole discretion when to exercise the powers conferred upon ILFC pursuant to this Power of Attorney. Any person, agency or company relying upon this Power of Attorney need not and will not make any determination or require any court judgment as to whether an Event of Default has occurred under the Lease or whether the Lease has been terminated. Frontier hereby waives any claims against (a) any person acting on the instructions given by ILFC or its designee pursuant to this Power of Attorney and (b) any person designated by ILFC or an officer of ILFC to give instructions pursuant to this Power of Attorney. Frontier also agrees to indemnify and hold harmless any person, agency or company which may act in reliance upon this Power of Attorney and pursuant to instructions given by ILFC or its designee. This Power of Attorney is irrevocable until the Aircraft has been returned to the possession of ILFC, deregistered and exported from United States. FRONTIER AIRLINES has made and delivered this Power of Attorney on _________ in ____________. FRONTIER AIRLINES By: Title: EXHIBIT I ASSIGNMENT OF RIGHTS (AIRFRAME) [DATE] Boeing Commercial Airplane Group P.O. Box 3707 Seattle, Washington 98124 2207 Attention: Vice President Contracts Mail Code 21 34 Subject: Full Assignment of Rights and Obligations International Lease Finance Corporation as Lessor and Frontier Airlines, Inc. as Lessee of Model B737 300 aircraft bearing manufacturer's serial number 26301 Ladies and Gentlemen: In connection with International Lease Finance Corporation's lease to Frontier Airlines, Inc. ("Lessee") of a Boeing aircraft (more fully described below), reference is made to the following documents: A. Purchase Agreement No. 1500 dated August 25, 1988 between The Boeing Company ("Boeing") and International Lease Finance Corporation ("ILFC") (the "Boeing Agreement") under which ILFC purchased a certain Boeing Model B737 300 aircraft bearing manufacturer's serial number 26301 (the "Aircraft"). B. Aircraft Lease Agreement (the "Lease") for the Aircraft dated as of November __, 1999 between ILFC and Lessee. Capitalized terms used herein without definition will have the same meaning as in the Boeing Agreement. In connection with ILFC's lease of the Aircraft under the Lease, ILFC is transferring to Lessee certain rights of ILFC related to the Aircraft under the Boeing Agreement. To accomplish this transfer of rights, as authorized by the provisions of the Boeing Agreement: 1. Lessee acknowledges that it has received copies of the following specific provisions of the Boeing Agreement applicable to the Aircraft and agrees to be bound by and comply with all the terms, conditions, and limitations contained in such provisions, including without limitation the disclaimer and release, exclusion of liabilities, indemnity and insurance provisions thereof: (a) Boeing Agreement Article 6 Excusable Delay 6.1 General Article 8 Assignment, Resale or Lease 8.1 Title and Risk with Boeing 8.2 Buyer's Indemnification of Boeing; Insurance Article 10 Assignment, Resale or Lease 10.1 No Increase in Boeing Liability 10.3 Sale by Buyer after Delivery 10.4 Lease by Buyer after Delivery 10.5 No Increase in Boeing Liability 10.6 Exculpatory or Indemnity Clause in Post delivery Sale or Lease Article 12 Product Assurance; Disclaimer and Release; Exclusion of Liabilities; Customer Support; Indemnification and Insurance (in its entirety) Article 14 Contractual Notices and Requests Article 15 Miscellaneous 15.4 Governing Law Exhibit B Product Assurance Document Part A Boeing Warranty Part B Warranty Repairs and Modifications by Buyer Part C Boeing Service Life Policy Part D Boeing Indemnity Against Patent Infringement Part D 1 Boeing Indemnity Against Copyright Infringement Part E Supplier Warranties and Patent Indemnities Part G Boeing Interface Commitment Part H General Exhibit C 1 Customer Support Document Part B Boeing Customer Support Services Part D Technical Data and Documents Part E Buyer's Indemnification of Boeing and Insurance Exhibit E Buyer Furnished Equipment Provisions Document Paragraph 8 Indemnification of Boeing Paragraph 9 Patent Indemnity Paragraph 10 Definitions Paragraph 11 Notice of Claim Letter Agreement No. 1500 __ Seller Purchased Equipment Paragraph 6 Buyer's Indemnification of Boeing 2. Lessee recognizes that Boeing's obligation to provide support and services to Lessee pursuant to Exhibit C of the Boeing Agreement is conditioned on the receipt by Boeing of evidence of compliance by Lessee with the insurance requirements set forth in paragraph 2 of Part E of Exhibit C or in such other form as may be satisfactory to Boeing, prior to the commencement of such support and services. 3. ILFC reserves to itself all rights, claims and interests it may have under the Boeing Agreement not expressly assigned to Lessee hereunder. ILFC will remain responsible to Boeing for any amounts with respect to the Aircraft owed to Boeing under the Boeing Agreement prior to the effective date of this letter, including any amounts owed by ILFC to Boeing under the specific portions of the Boeing Agreement referenced in paragraph 1 above based upon the events or incidents relating to the Aircraft occurring prior to the effective date of this letter. 4. ILFC hereby assigns to Lessee the sole authority to exercise in Lessee's name all rights and powers of ILFC with respect to the Aircraft under the specific portions of the Boeing Agreement referenced in paragraph 1 above. Such authorization will continue until Boeing receives from ILFC written notice to the contrary addressed to Boeing's Vice President, Contracts, P.O. Box 3707, Seattle, Washington 98124 2207 with a copy to Lessee. Until Boeing receives such notice, Boeing will be entitled to deal exclusively with Lessee with respect to the Aircraft under the specific portions of the Boeing Agreement referenced in paragraph 1 above and, with respect to the rights, powers, duties or obligations under such portions of the Boeing Agreement, any and all actions taken by Lessee or agreements entered into by Lessee during the period prior to Boeing's receipt of such notice will be final and binding on ILFC. In addition, any payment made by Boeing as a result of claims made by Lessee will be made to the credit of Lessee. 5. Lessee hereby accepts the authorization set forth in paragraph 4 above and agrees to be bound by and to comply with all the terms, conditions and limitations of the portion of the Boeing Agreement referenced in paragraph 1 above. 6. This Assignment may be signed by the parties hereto in separate counterparts, each of which when executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 7. This Assignment shall be governed by, and construed in accordance with, the laws of the State of Washington, including all matters of construction, validity and performance. We request that Boeing, upon receipt of this letter, acknowledge receipt thereof and the transfer of rights set forth above by signing the acknowledgment and forwarding one copy of this letter to each of the undersigned. IN WITNESS WHEREOF, the parties hereto have caused this Assignment Agreement to be duly executed as of the dates written below. INTERNATIONAL LEASE FINANCE CORPORATION, as Lessor and FRONTIER AIRLINES, INC., as Lessee Buyer By: By: Its: Its: Receipt of the above letter is acknowledged and transfer of certain rights under the Boeing Agreement with respect to the Aircraft is confirmed, effective as of this date. THE BOEING COMPANY By: Its: Date: EXHIBIT J ASSIGNMENT OF RIGHTS (ENGINES) November __, 1999 CFM INTERNATIONAL, INC. 1 Neumann Way, F 17 Cincinnati, Ohio 45215 Attention: Riv Goldman Commercial Contracts Warranty Assignment Administrator Dear Ms. Goldman: Reference is hereby made to that Consent to Assignment made as of April 29, 1988, (the "Consent to Assignment"), by and between CFM INTERNATIONAL, INC. ("CFMI") and INTERNATIONAL LEASE FINANCE CORPORATION ("ILFC"). Terms defined in the Consent to Assignment are used herein with the same meaning as in the Consent to Assignment. As of November ___, 1999, ILFC has assigned all of its rights and interest in, to and under the Engine Warranties to Frontier Airlines, Inc. ("Assignee") in connection with its lease to Assignee of a used B737 300 aircraft (the "Aircraft") together with two (2) CFMI Model 56 3C1 bearing Manufacturer's Serial Numbers 726115 and 727103 (the "Engines") as of the date each such Engine was delivered to Assignee. Such assignment shall be effective from such date until ILFC provides written notice to CFMI (with a copy to Assignee) that such assignment has been terminated. The Assignee has accepted such assignment and all the limitations and liabilities pertaining to the Engine Warranties as stated in the provisions of the GTA listed in Schedule 2 to the Consent to Assignment. A copy of the aforesaid assignment is attached hereto. Very truly yours, INTERNATIONAL LEASE FINANCE CORPORATION By: Title: cc: Ruben M. Cabrera Director, Commercial Contracts ASSIGNMENT OF WARRANTIES November __, 1999 In consideration of Frontier Airlines, Inc. ("Lessee") leasing from International Lease Finance Corporation ("ILFC") one (1) B737 300 aircraft together with two (2) CFMI Model 56 3C1 engines bearing manufacturer's serial numbers 726115 and 727103, it is hereby agreed as follows: 1. ILFC hereby assigns and transfers to Lessee all of ILFC's respective rights and interest in and to and in and under the Engine Warranties set forth in and subject to the limitations and liabilities set forth in Exhibit B Warranty, Section X (the "Engine Warranties") of CFM International, Inc. ILFC General Terms Agreement No. 6 3987 dated 22 June 1984 (the "GTA") during the term of such leases so long as Lessee is not in default thereunder. 2. Lessee hereby accepts such assignment including all the limitations and liabilities pertaining to said Engine Warranties as stated in the provisions of Exhibit B Warranty, Section X of the GTA. In addition, any payment made by CFM International, Inc. as a result of claims made by Lessee will be made to the credit of Lessee. 3. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns to the extent permitted by the GTA and hereunder. 4. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 5. This Agreement may be executed in any number of counterparts, each of which when executed and delivered is an original but all of which taken together constitute one and the same instrument and any party may execute this Agreement by signing any counterpart. IN WITNESS WHEREOF, the authorized representative of the parties hereto have executed this Agreement as of the day and year first above written. For and on behalf of For and on behalf of INTERNATIONAL LEASE FINANCE CORPORATION FRONTIER AIRLINES, INC. By: By: Its: Its: EXHIBIT K RETURN ACCEPTANCE RECEIPT Date: _________________ ___, ____ 1. FRONTIER AIRLINES, INC. as LESSEE, and INTERNATIONAL LEASE FINANCE CORPORATION, as LESSOR, have entered into an Aircraft Lease Agreement dated as of August 14, 2000 (the "Lease"). Words used herein with capital letters and not otherwise defined will have the meanings set forth in the Lease. 2. LESSOR has this ____ day of __________, ____ (Time: __________) at ____________________ received from LESSEE possession of: (a) One (1) Boeing B737 300 Aircraft bearing Manufacturer's serial number 26301, together with two (2) CFM 56 3C1 Engines bearing manufacturer's serial numbers 726115 and 727103, and all Parts attached thereto and thereon in an airworthy condition and (b) All Aircraft Documentation, including the usual and customary manuals, logbooks, flight records and historical information regarding the Aircraft, Engines, and Parts, as listed in the Document Receipt attached hereto. 3. The Airframe, Engines, and Parts had the following hours/cycles at return: (a) Airframe: Total hours: _______________ Total Landings: _______________ Date last "C" check performed: _________________ ______ hours/ ______ cycles since last "C" check Date last "D" check performed: _________________ ______ hours/ ______ cycles since last "D" check (b) Engines: Position Serial No. Total Hours Total Cycles Hrs/Cycles since last shop visit Time Remaining to Next Life Limited Part Removal Part Name Hours Cycles MSN MSN (c) APU: MSN __________ Total hours: __________ ______ hours/ ______ cycles since last Overhaul ______ hours/ ______ cycles remaining on APU life limited Parts (d) Landing Gears: Position Serial No. Total Hrs/Cycles Hrs/Cycles since Date of last last Overhaul Overhaul Nose Right Main Left Main (e) Fuel on board at return: ______ (circle one) pounds/kilos (______ gallons) 4. Other technical information regarding the Aircraft and its components are correctly set forth on the Technical Evaluation Report (in the form of Exhibit M) attached hereto. 5. With reference to Article 13.7 of the Lease regarding reimbursement from the Reserves after return of the Aircraft: _____ There are no claims for reimbursement from the Reserves which will be submitted after the date hereof. or _____ Claims for reimbursement from the Reserves will be submitted after the date hereof for the following: Type of Work Estimated Invoice Amount 6. The above specified aircraft, engines and documentation are hereby accepted by LESSOR subject to correction by LESSEE (or procurement by LESSEE at LESSEE's cost) as soon as reasonably possible of the discrepancies specified in Attachment 2 hereto. 7. Subject to the following paragraph, the leasing of the Aircraft by LESSOR to LESSEE pursuant to the Lease is hereby terminated without prejudice to LESSEE's continuing obligations under the Lease including, without limitation, paragraph 6 above, paragraph 8 below, and Articles 10.5, 16 and 17. 8. LESSEE represents and warrants that during the term of the Lease all maintenance and repairs to the Airframe and Engines were performed in accordance with the requirements contained in the Lease. LESSEE further confirms that all of its obligations under the Lease whether accruing prior to the date hereof or which survive the termination of the Lease by their terms and accrue after the date hereof, will remain in full force and effect until all such obligations have been satisfactorily completed. 9. This Return Acceptance Supplement is executed and delivered by the parties in [place]. IN WITNESS WHEREOF, the parties hereto have caused this Return Acceptance Receipt to be executed in their respective corporate names by their duly authorized representatives as of the day and year first above written. INTERNATIONAL LEASE FINANCE CORPORATION FRONTIER AIRLINES, INC. By: By: Its: Its: ATTACHMENTS: 1. List of Aircraft Documentation 2. List of Loose Equipment 3. List of Discrepancies 4. Engine Maximum Power Assurance Test Conditions and Results 5. Dent and Damage Chart 6. Form of No Accident/Incident Letter 7. Technical Evaluation Report (in the form of Exhibit M) ATTACHMENT 1 TO RETURN ACCEPTANCE RECEIPT LIST OF AIRCRAFT DOCUMENTATION [INSERT LIST] . ATTACHMENT 2 TO RETURN ACCEPTANCE RECEIPT LIST OF LOOSE EQUIPMENT ATTACHMENT 3 TO RETURN ACCEPTANCE RECEIPT LIST OF DISCREPANCIES ATTACHMENT 4 TO RETURN ACCEPTANCE RECEIPT ENGINE MAXIMUM POWER ASSURANCE TEST CONDITIONS AND RESULTS ATTACHMENT 5 TO RETURN ACCEPTANCE RECEIPT DENT AND DAMAGE CHART ATTACHMENT 6 TO RETURN ACCEPTANCE RECEIPT FORM OF NO ACCIDENT/INCIDENT LETTER EXHIBIT L MONTHLY REPORT (SEE FOLLOWING SHEET) MONTHLY AIRCRAFT UTILIZATION AND STATUS REPORT Page 1 of 2 Report Due Date: To: INTERNATIONAL LEASE FINANCE CORPORATION Fax: (310) 788 1990 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067, United States Attn: Finance Department From: FRONTIER AIRLINES Contact: Fax: AIRCRAFT TYPE: Boeing B737 300 ENGINE TYPE: CFM56 3C1 REGISTRATION: N _____ SERIAL NUMBER: 26301 MONTH OF: NOTE: PLEASE RECORD TIME IN HOURS AND MINUTES NOT DECIMALS. Aircraft Total Time Since New As Of Last Month: Hours: Min: Aircraft Total Time Since New: Hours: Min: Aircraft Total Cycles Since New: Cycles: Airframe Hours Flown During Month: Hours: Min: Airframe Cycles/Landings During Month: Cycles: Time Remaining to "D" or Heavy Maintenance Check: HOURS OR CYCLES FLOWN x US$ PER HOUR OR = RESERVES DURING MONTH (as CYCLE (as applicable) applicable) TOTAL AIRFRAME: Hrs: x = TOTAL LANDING GEAR: Hrs: x = Original Engine Serial Number: Hrs: Min: x = Cycles = Original Engine Serial Number: Hrs: Min: x = Cycles = TOTAL AMOUNT OF RESERVES (US$) PAID THIS MONTH: US$ Monthly Aircraft Utilization and Status Report From: FRONTIER AIRLINES Page 2 of 2 ENGINE SERIAL NUMBER: ENGINE SERIAL NUMBER: ORIGINAL POSITION: ORIGINAL POSITION: ACTUAL LOCATION: ACTUAL LOCATION: CURRENT THRUST RATING: CURRENT THRUST RATING: ============================================================= =========================================================== HOURS:/MIN: HOURS:/MIN: Total Time Since New As Of Last Total Time Since New As Of Last Month: Month: Total Time Since New: Total Time Since New: Total Cycles Since New: Total Cycles Since New: Hours Flown During Month: Hours Flown During Month: Cycles During Month: Cycles During Month: IMPORTANT: IF ILFC OWNED ENGINE IS REMOVED OR INSTALLED ON ANOTHER AIRCRAFT, IT MUST BE REPORTED MONTHLY ON THIS FORM. EXHIBIT M AIRCRAFT DOCUMENTATION AIRCRAFT RECORDS 1. Copies of original Certificates delivered by Boeing a. Airworthiness Certificate for Export b. Radio installation conformity certificate c. Noise limitation certificate 2. Copies of original Documents delivered by Boeing: a. Airworthiness Directive Compliance list b. Aircraft inspection report c. Aircraft Definition Report d. Weighing report 3. Copies of current Certificates: a. Airworthiness Certificate b. Noise limitation c. Radio license d. Interior material burn certificates e. Certificate of Export f. Aircraft deregistration confirmation e. Aircraft Registration 4. Letters signed and stamped by Quality Assurance: a. Current aircraft hours and cycles b. Current engines hours and cycles c. Accident and Incident report d. Summary of Maintenance Program e. AD compliance during the lease term 5. Aircraft log books and Aircraft readiness log. 6. Aircraft Hard Time (HT) inspection status. 7. One year forecast for HT inspection. 8. Aircraft Modification status, including service bulletins. 9. Last weighing report prior to redelivery. 10. AD compliance report with original signoffs. 11. Routine and non routine job cards of the last "C" and "D" checks. 12. Past year pilots and maintenance discrepancies. 13. Major and Minor structural repairs with applicable approvals. 14. Compass Swing report of the last three years. 15. Cabin Configuration drawing (LOPA). 16. Emergency equipment location drawing. 17. Last X RAYs ENGINES RECORDS 1. Last test cell run reports. 2. Life Limited Parts status and traceability. 3. AD compliance report with original signoffs. 4. Engine Modification / service bulletin /inspection report and applicable forms. 5. Last heavy maintenance records for each module. 6. Engine log books. 7. Engine removal history. 8. Past year trend monitoring reports. 9. Historical borescope reports. 10. Engine component report. APU RECORDS 1. APU status (FH, FC, limits). 2. Life limited Part status and traceability. 3. AD compliance with original signoffs. 4. Modification status. 5. Last heavy maintenance documents. 6. APU log books. 7. Last test cell report. COMPONENT RECORDS 1. Aircraft component inventory. 2. Hard time component inventory. 3. All serviceable tags. 4. Landing Gear status with last overhaul and life limited Part status. 5. AD compliance with original signoffs. 6. Modification status. EXHIBIT N TECHNICAL EVALUATION REPORT (SEE FOLLOWING SHEETS) INTERNATIONAL LEASE FINANCE CORPORATION AIRCRAFT / OPERATOR TECHNICAL EVALUATION REPORT 133 TABLE OF CONTENTS AIRCRAFT SUMMARY......................................................................................1 MAINTENANCE & INSPECTION..............................................................................2 LANDING GEAR..........................................................................................4 ENGINES...............................................................................................5 AUXILIARY POWER UNIT (APU)............................................................................8 PASSENGER CABIN CONFIGURATION (Seating)...............................................................9 GALLEY PROVISIONS....................................................................................10 LAVATORIES, AUDIO/ENTERTAINMENT, CARGO, INTERIOR.....................................................11 HYDRAULIC, FUEL, WEIGHT & BALANCE....................................................................12 AVIONICS SYSTEMS.....................................................................................13 INSPECTOR RECORD.....................................................................................16 CONFIDENTIAL INFORMATION REVISION 7 18 NOT FOR DISTRIBUTION January 1999 Page 18 AIRCRAFT SUMMARY as of / / Aircraft Make Boeing Model FUS No. S/N MFG Date: Current Registration: Country: Previous Registration: Country: Annual Utilization: Hour/Cycle Ratio: Total Aircraft Time: TAT (Hrs) As of (date): Total Aircraft Cycles: TAC (Cyc) Time Since Last "C" or equivalent Check: (Hrs) (Cyc) Time Since Last Structural Check: (Hrs) (Cyc) Engine Make: Model: Thrust Rating: Engine: 1 S/N: 2 S/N: TSN: (Hrs) CSN: (Cyc) IMPORTANT NOTE: THE ENGINE SERIAL NUMBERS SPECIFIED ON THIS REPORT REFLECT THE ENGINE SERIAL NUMBERS THAT DELIVERED WITH THE AIRCRAFT. IF THE ENGINE SERIAL NUMBER HAVE NOT BEEN FILLED IN FOR YOU, PLEASE PROVIDE DATA FOR THE ENGINES ORIGINALLY DELIVERED WITH THE AIRCRAFT (LESSOR OWNED ENGINES). MAINTENANCE PROGRAM GENERAL Aircraft Maintenance Program Provided By: [ ] Operator [ ] Other: Program Approved By Authority Of: [ ] FAA Approved [ ] Other: Repair Station Providing Service: Repair Station Number: FAA Approved?: [ ] Yes [ ] No Primary Line Maintenance Provided By: [ ] Operator [ ] Contract Service Reliability Controlled Maintenance Program?: [ ] Yes [ ] No Component Tags Available For Controlled Components: [ ] Yes [ ] No At Aircraft Delivery Currently Approved By Local Currently Operated/Maintained Aviation Authority ETOPS Qualification: Minutes Minutes Minutes Auto Land Qualification: CAT I, II, IIIa, IIIb, IIIc CAT I, II, IIIa, IIIb, IIIc CAT I, II, IIIa, IIIb, IIIc (Circle one that applies) MAINTENANCE & INSPECTION PROGRAM DESCRIPTION Check Operator's Calendar Frequency Hours Cycles Number of Phases Nomenclature "C" "D" or Structural Program MAINTENANCE & INSPECTION PROGRAM STATUS Phase or Date Aircraft TAT Aircraft TAC Equivalent Next "C" Phase or Equivalent: / / Last "C" Phase or Equivalent: / / Time Remaining to Next Phase: (Days) (Hrs) (Cyc) Structural Cards Worked During Last "C" Phase?: [ ] Yes [ ] No CPCP Cards Worked During Last "C" Phase?: [ ] Yes [ ] No Next "D" Phase or Equivalent Structural: / / Last "D" Phase or Equivalent Structural: / / Time Remaining to Next Phase: (Days) (Hrs) (Cyc) CPCP Cards Worked During Last "D" Phase?: [ ] Yes [ ] No Next CPCP Phase: / / Last CPCP Phase: / / Time Remaining to Next Phase: (Days) (Hrs) (Cyc) Date of Last ATC Transponder Test: #1 #2 Date of Last Flight Recorder Check: Date of Last Aircraft Weighing: LANDING GEAR MLG Tires: (Size) (MPH Rating) (MFG) NLG Tires: (Size) (MPH Rating) (MFG) Brake Manufacture: Type: [ ] Steel [ ] Carbon LEFT MAIN: P/N S/N Last Overhaul:(Date) _____/_____/_____ (Hrs) (Cyc) Agency Performing Service: Cert # Approved Overhaul Interval: (Hrs) (Cyc) Present Landing Gear Total Time: (Hrs) (Cyc) Time Remaining to Next Overhaul: (Hrs) (Cyc) RIGHT MAIN: P/N S/N Last Overhaul:(Date) _____/_____/_____ (Hrs) (Cyc) Agency Performing Service: Cert # Approved Overhaul Interval: (Hrs) (Cyc) Present Landing Gear Total Time: (Hrs) (Cyc) Time Remaining to Next Overhaul: (Hrs) (Cyc) NOSE: P/N S/N Last Overhaul:(Date) _____/_____/_____ (Hrs) (Cyc) Agency Performing Service: Cert # Approved Overhaul Interval: (Hrs) (Cyc) Present Landing Gear Total Time: (Hrs) (Cyc) Time Remaining to Next Overhaul: (Hrs) (Cyc) ENGINES ENGINE MAINTENANCE PROGRAM Engine Maintenance Program Provided By: Engine Condition Monitoring Trend Analysis Program?: [ ] Yes [ ] No Engine Oil Type: Engine(s) operated at INCREASED or DECREASED Thrust Rating; Program limitations & required Mods. to operate at designated thrust rating ENGINE SPECIFICATIONS ENGINE NUMBER 1 Engine Make: Model: S/N: Date of Mfg: Total Time: (Hrs) (Cyc) Time Since Last Performance Restoration Visit: (Visit Date) (Hrs) (Cyc) Time Since Last Shop Visit: (visit Date) (Hrs) (Cyc) Test Cell EGT Margin: Work Scope of Last Shop Visit: Agency Performing Service: Agency FAA Approved?: [ ] Yes [ ] No Cert. #: 1st LIMITER* Part Name: Allowable Life/Insp Limit: (Hrs) (Cyc) Total Component Time: (Hrs) (Cyc) Time Remaining: (Hrs) (Cyc) 2nd LIMITER* Part Name: Allowable Life/Insp Limit: (Hrs) (Cyc) Total Component Time: (Hrs) (Cyc) Time Remaining: (Hrs) (Cyc) *Provide a copy of a current Disk Sheet for all modules. ENGINE SPECIFICATIONS ENGINE NUMBER 2 Engine Make: Model: S/N: Date of Mfg: Total Time: (Hrs) (Cyc) Time Since Last Performance Restoration Visit: (Visit Date) (Hrs) (Cyc) Time Since Last Shop Visit: (Visit Date) (Hrs) (Cyc) Test Cell EGT Margin: Work Scope of Last Shop Visit: Agency Performing Service: Agency FAA Approved?: [ ] Yes [ ] No Cert. #: 1st LIMITER* Part Name: Allowable Life/Insp Limit: (Hrs) (Cyc) Total Component Time: (Hrs) (Cyc) Time Remaining: (Hrs) (Cyc) 2nd LIMITER* Part Name: Allowable Life/Insp Limit: (Hrs) (Cyc) Total Component Time: (Hrs) (Cyc) Time Remaining: (Hrs) (Cyc) *Provide a copy of a current Disk Sheet for all modules. AUXILIARY POWER UNIT APU Make: Model: S/N: Date of Mfg: Total Time: (Hrs) (Cyc) APU Times Are Recorded By: [ ] APU Clock or [ ] A/C Time Ratio _____:_____ Time Between Overhaul: (Hrs) (Cyc) Time @ Last Hot Section (Date) (Hrs) (Cyc) Refurbishment: Time @ Last Overhaul: (Date) (Hrs) (Cyc) Time @ Last Shop Visit: (Date) (Hrs) (Cyc) Work Scope: Agency Performing Service: Location: Cert. #: Agency FAA Approved?: [ ] Yes [ ] No APU Oil Type: 1st LIMITER Part Name: Allowable Life/Insp Limit: (Hrs) (Cyc) Total Component Time: (Hrs) (Cyc) Time Remaining: (Hrs) (Cyc) 2nd LIMITER Part Name: Allowable Life/Insp Limit: (Hrs) (Cyc) Total Component Time: (Hrs) (Cyc) Time Remaining: (Hrs) (Cyc) PASSENGER CABIN CONFIGURATION SEATING CONFIGURATION Present Configuration Occupancy: No. of Handicap Seats Installed: Passenger Exit Door Configuration: Air Stairs: Installed / Partial Provision/ Full Provision (Circle One) FIRST CLASS Pax Qty: Seat Mfg: Model: P/N: Seats Fireblocked? [ ] Yes [ ] No Color: 16 G Seat Installation: [ ] Yes [ ] No BUSINESS CLASS Pax Qty: Seat Mfg: Model: P/N: Seats Fireblocked? [ ] Yes [ ] No Color: 16 G Seat Installation: [ ] Yes [ ] No COACH CLASS Pax Qty: Seat Mfg: Model: P/N: Seats Fireblocked? [ ] Yes [ ] No Color: 16 G Seat Installation: [ ] Yes [ ] No Provisions for Life Vests Under Seats?: [ ] Yes [ ] No Entertainment Controls(PCU) Installed?: [ ] Yes [ ] No Manufacturer: Part Number: Emergency Escape Path Lighting: [ ] Floor Mounted [ ] Seat Mounted Configuration Drawing Number: Source: Engineering Order / Installation Document: Installation FAA Approved?: [ ] Yes [ ] No Method of Approval: GALLEY PROVISIONS GALLEY's ARE (Check one): (___) Atlas Standard (___) KSSU Standard (____) Other GALLEY LOCATION MANUFACTURER MODEL NUMBER PART NUMBER EQUIPPED WaterPower 1. [ ] [ ] 2. [ ] [ ] 3. [ ] [ ] 4. [ ] [ ] 5. [ ] [ ] 6. [ ] [ ] 7. [ ] [ ] 8. [ ] [ ] 9. [ ] [ ] 10. [ ] [ ] NOTE: Galley Locations per Spec or LOPA drawing i.e., G1, G2 etc. Galley Location numbers above correspond to the numbers below. OVENS BUN WARMERS REFER CHILLERS COFFEE WATER HOT HOT BEV UNITS MAKERS BOILERS JUGS CUPS JUGS 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. LAVATORIES Number of Lavatories: Handicap Provisions?: [ ] Yes [ ] No Locations: IN FLIGHT AUDIO & ENTERTAINMENT SYSTEM Boarding Music: [ ] Yes [ ] No Auto Evac & Warning: [ ] Yes [ ] No Pre Recorded Announcement: [ ] Yes [ ] No Passenger Entertainment (Audio): [ ] Yes [ ] No Passenger Entertainment (Video): [ ] Yes [ ] No VTR Format: [ ] VHS [ ]Hi 8 [ ] Other [ ] Projector [ ] PSU Monitor [ ] Isle Monitor [ ] In Seat (Check All That Apply) Passenger En Route Information Display: [ ] Yes [ ] No Telephone: [ ] Yes [ ] No [ ] Leased [ ] Owned Satellite: [ ] Yes [ ] No CARGO COMPARTMENT Cargo Loading System Installed: [ ] Yes [ ] No Smoke\Fire Detection System installed: [ ] Yes [ ] No Fire Suppression System installed: [ ] Yes [ ] No INTERIOR COLORS Interior Color Scheme: Carpets: Curtains: PLACARDS & LIGHTED SIGNS English?: [ ] Yes [ ] No Bi Lingual?: [ ] Yes [ ] No First Language: Second Language: HYDRAULIC SYSTEM Type of Hydraulic Fluid Used: (MFG): FUEL SYSTEM Total Fuel Capacity: U.S. gallons [ ] lbs or [ ] kilos Number of Tanks: Auxiliary Tanks Installed?: [ ] Yes [ ] No Auxiliary Tank Capacity: U.S. gallons [ ] lbs or [ ] kilos Fuel Instrumentation / Calibration: [ ] U.S. pounds [ ] kilograms WEIGHT & BALANCE Has Aircraft Been Modified For Increased Gross Weight by Current Lessee?: [ ] Yes [ ] No From MTOGW To MTOGW Weight & Balance Manual Document No.: Rev: For the below weights specify AFM approved limits: POUNDS KILOS Maximum Takeoff Gross Weight: (MTOGW) / Maximum Taxi Weight: (MTW) / Maximum Landing Weight: (MLW) / Manufacturer's Empty Weight: (MEW) / Maximum Zero Fuel Weight: (MZFW) / Operational Empty Weight: (OEW) / AVIONICS SYSTEMS 22 AUTO FLIGHT QTY COMPONENT MANUFACTURER MODEL or PART NUMBER FMGC Flight Management & Guidance Computer: FAC Flight Augmentation Computer: FCU Flight Control Unit: MCDU Multipurpose Control Display Unit: 23 COMMUNICATIONS QTY COMPONENT MANUFACTURER MODEL or PART NUMBER CIDS Director Cabin Intercommunications Data System HF Transceiver: VHF Transceiver: Cockpit Voice Recorder: PRAM Tape Reproducer (Pre Recorded PAX Address): MPES Tape Reproducer (Audio Entertainment): Tape Reproducer (Video Entertainment): Audio management unit/SELCAL Decoder: ACARS Management Unit: RMP Radio Management Panel: AVIONICS SYSTEMS (continued) 27 FLIGHT CONTROL COMPUTER QTY COMPONENT MANUFACTURER MODEL or PART NUMBER ELAC Elevator/Aileron Computer: SFCC Slat/flap Control Computer: SEC Spoiler/Elevator Computer: FCDC Flight Control Data Concentrator: 31 INDICATING AND RECORDING QTY COMPONENT MANUFACTURER MODEL or PART NUMBER Multifunction Printer: DFDR Flight Data Recorder: FDIU Digital Flight Data Interface Unit: Accelerometer: FWC Flight Warning Computers: Windshear Activated: Yes / No QAR Quick Access Recorder: AIDS Aircraft Integrated Data System: ELECTRONIC INSTRUMENT SYSTEM (EIS) PFD Primary Flight Display: ND Navigation Display: SDACS System Data Acquisition Concentrators: Display Management Computers: EWD Engine/Warning Display: SD System Display: AVIONICS SYSTEMS (continued) QTY COMPONENT MANUFACTURER MODEL or PART NUMBER CFDIU Centralized Fault Display Interface: 34 NAVIGATION QTY COMPONENT MANUFACTURER MODEL or PART NUMBER ADIRU Air Data/Intertial Reference System: DME Distance Measuring Equipment Interrogators: VHF VOR/Marker Beacon Receiver: VHF ILS Receiver: DDRMI Digital Distance & Radio Magnetic Indicator: Radio Altimeter Transceiver: Weather Radar Transceiver: TCAS Traffic Alert and Collision Avoidance System Computer: ATC Air Traffic Control System Transponder: Microwave Landing Receiver: GPWS Ground Proximity Warning System: ADF Automatic Direction Finder Receiver: INSPECTOR RECORD INSPECTED BY: DATE: OPERATOR: REGISTERED OWNER: ADDRESS OF OPERATOR: CONTACT (Name/Title): TELEPHONE: TELEFAX: Email Address: Department Contact Name Phone Fax Email Quality Control: Power Plant Engineering: Maintenance Programs/Planning:

GENERAL TERMS AGREEMENT NO. 6 13616 Table of Contents Agreement ARTICLE I PRODUCTS ARTICLE II PRICES ARTICLE III ORDER PLACEMENT ARTICLE IV DELIVERY ARTICLE V PAYMENT ARTICLE VI TAXES ARTICLE VII CFM56 PRODUCT SUPPORT PLAN ARTICLE VIII EXCUSABLE DELAY ARTICLE IX PATENTS ARTICLE X INFORMATION AND DATA ARTICLE XI FAA AND DGAC CERTIFICATION REQUIREMENTS ARTICLE XII TERMINATION FOR INSOLVENCY ARTICLE XIII LIMITATION OF LIABILITY ARTICLE XIV EXPORT SHIPMENT ARTICLE XV GOVERNMENTAL AUTHORIZATION ARTICLE XVI NOTICES ARTICLE XVII MISCELLANEOUS o Exhibit A Products o Exhibit B CFM56 Product Support Plan SECTION I DEFINITIONS SECTION II WARRANTIES SECTION III SPARE PARTS PROVISIONING SECTION IV TECHNICAL DATA SECTION V TECHNICAL TRAINING SECTION VI CUSTOMER FACTORY AND FIELD SUPPORT SECTION VII PRODUCT SUPPORT ENGINEERING SECTION VIII OPERATIONS ENGINEERING SECTION IX GROUND SUPPORT EQUIPMENT SECTION X GENERAL CONDITIONS CFM56 PRODUCT SUPPORT PLAN o Exhibit C Escalation o Exhibit D Payment o Exhibit E Technical Data A 1 c:\temp\cfm agreement redact1.doc THIS GENERAL TERMS AGREEMENT NO. 6 13616 (hereinafter referred to as this Agreement) dated as of the 30th day of June , 2000, by and between CFM International, Inc. (hereinafter referred to as CFMI), a Delaware corporation jointly owned by General Electric Company (hereinafter referred to as "GE"), a New York corporation and Societe Nationale D'Etude et de Construction de Moteurs d'Aviation (hereinafter referred to as "SNECMA"), a French Company, and Frontier Airlines, Inc., a corporation organized under the law of Colorado (hereinafter referred to as "Airline"). Capitalized terms not defined herein are used as defined in Exhibit B hereto. = WITNESSETH WHEREAS, Airline has agreed to lease and purchase certain aircraft equipped with CFM installed Engines, and WHEREAS, the parties hereto desire to enter into this Agreement for the support by CFMI of the installed Engines and the purchase by Airline from CFMI and the sale and support by CFMI of spare Engines, related equipment and spare Parts therefor. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: ARTICLE I PRODUCTS CFMI shall sell and Airline shall purchase, under the terms and subject to the conditions hereinafter set forth, the Engines, Modules, spare Parts and other products and equipment identified in the attached Exhibit A, and hereinafter referred to as "Product(s)." Products purchased hereunder for installation on Airline's type A319 aircraft shall conform to the specifications for Products installed by the manufacturer on new type A319 aircraft purchased or leased by Airline and shall be interchangeable with, and of the same quality as, such Products. ARTICLE II PRICES The selling prices of Products, including certain spare Parts, shall be the prices as quoted by CFMI and as set forth in each Airline purchase order accepted by CFMI. A. The selling prices of Engines and related equipment therefor shall be quoted by CFMI as base prices subject to an adjustment for escalation. The escalation provisions currently in effect are set forth in attached Exhibit C and CFMI will advise Airline in writing ninety (90) days in advance of any change thereto. B. The selling price of spare Parts, except for those which may be quoted by CFMI to Airline, shall be those prices set forth in CFMI's then current CFM56 Engine Spare Parts Price Catalog ("Spare Parts Catalog") or in procurement data issued by CFMI in accordance with Airline Transport Association of America (ATA) Specification (Spec) 200. The price of a new spare Part which is first listed by CFMI in procurement data, may be changed by CFMI in subsequent procurement data revisions until such time as the Part is included in CFMI's Spare Parts Catalog as from time to time revised by CFMI. C. CFMI will advise Airline in writing * days in advance of any changes in prices in CFMI's Spare Parts Catalog. During such * day period, CFMI shall not be obligated to accept Airline purchase orders for quantities of spare Parts in excess of up to * normal usage beyond the effective date of the announced price change. D. The selling prices of all Products shall be expressed in U.S. Dollars. ARTICLE III ORDER PLACEMENT A. In the event of any conflict between this Agreement and the printed terms and conditions appearing on Airline's purchase orders, this Agreement shall govern, except that the description of Products, price, quantity, delivery dates and shipping instructions shall be as set forth on each purchase order accepted by CFMI. B. Airline shall place purchase orders for Products quoted by CFMI, in accordance with CFMI's quotation for said Products. C. Airline may place purchase orders for spare Parts using one of the following methods: telephone, telegram, facsimile transmission, ARINC or SITA utilizing ATA Spec 200 (Chapter 6 format) or Spec 2000 (Chapter 3 format) or Airline purchase order as prescribed in the Spare Parts Catalog or CFMI's quotation. D. Airline shall place purchase orders for initial provisioning quantities of spare Parts as provided in Section III of the attached Exhibit B within one hundred eighty (180) days following receipt from CFMI of initial provisioning data relating thereto. E. CFMI's acknowledgment of each purchase order shall constitute acceptance thereof. If CFMI fails to acknowledge any purchase order within ten (10) business days after receipt thereof, such purchase order shall be deemed to have been accepted by CFMI in accordance with its terms. In the case of emergency, shipment of spare Parts by CFMI in accordance with Section III G.2 of Exhibit B shall constitute acceptance of the purchase order for such spare Parts. ARTICLE IV DELIVERY A. Except as otherwise provided under Section III.G. of Exhibit B herein, CFMI shall deliver Products under each purchase order placed by Airline and accepted by CFMI, on a mutually agreed upon schedule consistent with CFMI's lead times and as set forth in each such purchase order. Delivery dates are subject to (1) prompt receipt by CFMI of all information necessary to permit CFMI to proceed with work immediately and without interruption, and (2) Airline's compliance with the payment terms set forth herein. B. Title to and risk of loss of all Products shall pass to Airline upon delivery to the common carrier designated by Airline, Ex Works, at the point of manufacture, or (2) to storage, in the event shipment cannot be made for reasons set forth in Paragraph C of this Article IV. Wherever transportation rates and the carrier's liability for damage depend upon the declared value of the shipment, CFMI will declare such value as will entitle Airline to ship Products at the lowest permissible rates, unless otherwise instructed in writing by Airline. C. If any Product cannot be delivered when ready due to any acts, or failure to act of Airline , CFMI shall place such Product in storage. In such event, (1) all expenses incurred by CFMI for activities such as, but not limited to, preparation for and placement into storage and handling, storage, inspection, preservation and insurance shall be paid by Airline upon presentation of CFMI's invoices, and (2) CFMI shall assist and cooperate with Airline in any reasonable manner with respect to the removal of any such Product from storage. D. Unless otherwise instructed by Airline, CFMI shall deliver each Product, except for spare Parts, packaged in accordance with CFMI's normal standards for domestic shipment or export shipment. Any special boxing or preparation for shipment specified by Airline shall be for Airline's account and responsibility. The cost of any re usable shipping stand or container is not included in the price of Engines or of equipment and will be paid by Airline within ten (10) days of presentation of CFMI's invoice if such stand or container is not returned by Airline, ex works the original point of shipment, in the condition in which it was received by Airline within ninety (90) days after shipment. CFMI may, at its option, use non reusable shipping stands or containers at no charge to Airline. E. CFMI shall deliver spare Parts packaged and labeled in accordance with ATA Spec 300, Revision No. 4, or to a revision mutually agreed in writing between CFMI and Airline. CFMI shall notify Airline, when applicable, that certain spare Parts are packed in unit package quantities (UPQ's), or multiples thereof. ARTICLE V PAYMENT Airline shall pay CFMI with respect to Products purchased hereunder as set forth in the attached Exhibit D. ARTICLE VI TAXES 1. The selling prices include and CFMI shall be responsible for the payment of any imposts, duties, fees, taxes, dues or any charges whatsoever imposed or levied in connection with Products prior to their delivery. If claim is made against Airline for any such duties, fees, charges, or assessments, Airline shall immediately notify CFMI and, if requested by CFMI, Airline shall not pay except under protest, and if payment be made, shall use all reasonable effort to obtain a refund thereof. If all or any part of any such taxes, duties, fees, charges or assessments be refunded, Airline shall repay to CFMI such part thereof as CFMI shall have paid, together with any interest received by Airline with respect thereto. CFMI shall pay to Airline, upon demand, all expenses (including penalties and interest, other than any such penalties or interest resulting from the failure of Airline seasonably to pay any such taxes, duties, fees, charges or assessments which it has reason to believe are applicable, unless such nonpayment is directed by CFMI) incurred by Airline in protesting payment and in endeavoring to obtain such refund, in each case at CFMI's request. 2. Upon delivery, Airline shall be responsible for the payment of all other imposts, duties, taxes, dues or any other charges whatsoever (including without limitation, sales, use, excise, turnover or value added tax but excluding any taxes in the nature of income taxes) imposed or levied in connection with such Products from and after their delivery and Airline shall pay to CFMI, upon demand, or furnish to CFMI evidence of exemption therefrom, any such items legally assessed or levied by any governmental authority against CFMI or its employees, its subsidiaries or their employees. If claim is made against CFMI for any such duties, fees, charges, or assessments, CFMI shall immediately notify Airline and, if requested by Airline, CFMI shall not pay except under protest, and if payment be made, shall use all reasonable effort to obtain a refund thereof. If all or any part of any such taxes, duties, fees, charges or assessments be refunded, CFMI shall repay to Airline such part thereof as Airline shall have paid, together with any interest === received by CFMI with respect thereto. Airline shall pay to CFMI, upon demand, all expenses (including penalties and interest other than any such penalties or interest resulting from the failure of CFMI seasonably to pay any such taxes, duties, fees, charges or assessments which it has reason to believe are applicable, unless such nonpayment is directed by Airline) incurred by CFMI in protesting payment and in endeavoring to obtain such refund, in each case at Airline's request. ARTICLE VII CFM56 PRODUCT SUPPORT PLAN The CFM56 Product Support Plan for Products, either purchased by Airline from CFMI or installed on Airline's Aircraft as original equipment, and Airline's operation thereof, is set forth in the attached Exhibit B. = ARTICLE VIII EXCUSABLE DELAY CFMI shall not be liable for delays in delivery or failure to deliver due to (1) causes beyond its reasonable control, or (2) acts of God, acts of Airline, acts of civil or military authority, fires, strikes, floods, epidemics, war, civil disorder, riot, delays in transportation, or (3) inability due to causes beyond its reasonable control to obtain necessary labor, material, or components. As used herein, the term "CFMI" shall be deemed to mean CFMI, GE and SNECMA. In the event of any such delay, the date of delivery shall be extended for a period equal to the time lost by reason of the delay. This provision shall not, however, relieve CFMI from using reasonable efforts to continue performance whenever such causes are removed. The final invoice price at the time of delivery following any delay referred to in this Article VIII (other than any such delay caused by Airline) shall be the invoice price at the originally scheduled delivery date set forth in the applicable purchase order. CFMI shall promptly notify Airline when delays occur or impending delays are likely to occur and shall continue to advise it of new shipping schedules and/or changes thereto. In the event an excusable delay continues, or CFMI advises Airline that such a delay is likely to continue for a period of six (6) months or more beyond the scheduled delivery date, Airline may, upon thirty days written notice to CFMI, cancel all or any part of any purchase order so delayed. In the event an excusable delay continues, or CFMI advises Airline that such a delay is likely to continue for a period of twelve (12) months or more beyond the scheduled delivery date, Airline or CFMI may, upon thirty days written notice to the other, cancel all or any part of any purchase order so delayed. Upon any cancellation pursuant to this Article VIII, CFMI shall return to Airline all payments relative to the canceled part of the order. Airline shall pay CFMI its reasonable cancellation charges if the delay arises due to acts of Airline. ARTICLE IX PATENTS A. CFMI hereby indemnifies and agrees to hold Airline harmless from and against, and shall handle all claims and defend any suit or proceeding brought against Airline insofar as based on, any claim that without further combination, any Product furnished under this Agreement constitutes an infringement of any patent of the United States or of any patent of any other country that is signatory to Article 27 of the Convention on International Civil Aviation signed by the United States at Chicago on December 7, 1944, in which Airline is authorized to operate or in which another airline pursuant to lawful interchange, lease or similar arrangement, operates aircraft of Airline. This paragraph shall apply only to any Product manufactured to CFMI's design. B. CFMI's liability hereunder is conditioned upon Airline promptly notifying CFMI in writing and giving CFMI authority, information and assistance (at CFMI's expense) for the defense of any suit or proceeding. In case such Product is held in such suit or proceeding to constitute infringement and/or the use of said Product is enjoined or otherwise prohibited, CFMI shall expeditiously, at its own expense and at its option, either (1) procure for Airline the right to continue using said Product; (2) replace same with satisfactory and noninfringing Product; or (3) modify same so it becomes satisfactory and noninfringing. CFMI shall not be responsible to Airline or to any other airline, for incidental or consequential damages, including, but not limited to, costs, expenses, liabilities and/or loss of profits resulting from loss of use under this Article IX. The foregoing shall constitute the sole remedy of Airline and the sole liability of CFMI for patent infringement. ARTICLE X INFORMATION AND DATA A. All technical information and data (including, but not limited to, designs, drawings, blueprints, tracings, plans, models, layouts, specifications, and memoranda) which may be furnished or made available to Airline directly or indirectly as the result of this Agreement shall remain the property of CFMI, GE or SNECMA as the case may be. This information and data is proprietary to CFMI and shall neither be used by = Airline nor furnished by Airline to any other person, firm or corporation for the design or manufacture of any Product nor permitted out of Airline's possession nor divulged to any other person, firm or corporation, except as required by law or court order (provided Airline shall first give CFMI prompt written notice of any such law or court orders and such notice affords CFMI a reasonable opportunity to object to such disclosure or otherwise seek an appropriate protective order) or as otherwise provided herein or agreed in writing. Nothing in this Agreement shall preclude Airline from using such information and data for modification, overhaul, or maintenance work performed by Airline on Airline's Products; except that all repairs or repair processes that require substantiation (including, but not limited to, high technology repairs) will be the subject of a separate license and substantiated repair agreement between CFMI and Airline. As an alternative to CFMI engine maintenance centers and Airline's own maintenance facilities, CFMI will negotiate in good faith with a third party engine maintenance facility for CFM56 engine overhaul subject to acceptance of CFMI's licensing terms by such third party engine maintenance facility. Airline shall take all steps reasonably necessary to insure compliance by its employees, and agents with this Article X. The instrument by which Airline transfers any Product may permit the use of such information and data by its transferees, subject to the same limitations set forth above. B. Nothing in this Agreement shall convey to Airline the right to reproduce or cause the reproduction of any Product of a design identical or similar to that of the Product purchased hereunder or give to Airline a license under any patents or rights owned or controlled by CFMI, GE or SNECMA. C. If computer software is provided by CFMI to Airline under this Agreement, it is understood that only CFMI owns and/or has the right to license such software product(s) and that Airline shall have no rights in such software; except, as may be explicitly set forth in a separate written agreement between CFMI and Airline. ARTICLE XI FAA AND DGAC CERTIFICATION REQUIREMENTS A. All Products shall, at time of delivery: 1. Conform to a Type Certificate issued by the FAA and DGAC , if applicable; 2. Conform to applicable regulations issued by the FAA and DGAC; and 3. Be delivered with an export certificate of airworthiness , if applicable, for export to the United States. B. If, subsequent to the date of acceptance of the purchase order for such Products but prior to their delivery by CFMI to Airline, the FAA and/or DGAC issue changes in regulations covering Products sold under this Agreement then CFMI will make any modifications necessary to cause such Products to comply with such regulations and all costs associated with such modifications, if any, required as a result thereof, will be shared equally by CFMI and Airline; provided however, that costs associated with any modifications to the airframe required by such Product modifications shall not be borne by CFM. C. Any delay occasioned by complying with such regulations set forth in Paragraph B above shall be deemed an Excusable Delay under Article VIII hereof, and, in addition, appropriate adjustments shall be made in the specifications to reflect the effect of compliance with such regulations. ARTICLE XII TERMINATION FOR INSOLVENCY A. Upon the commencement of any bankruptcy or reorganization proceeding by or against either party hereto (the "Defaulting Party"), the other party hereto may, upon written notice to the Defaulting Party, cease to perform any and all of its obligations under this Agreement and the purchase orders hereunder (including, without limitation, continuing work in progress and making deliveries or progress payments or downpayments) unless the Defaulting Party shall provide adequate assurance, in the opinion of the other party hereto, that the Defaulting Party will continue to perform all of its obligations under this Agreement and the purchase orders hereunder in accordance with the terms hereof, and will promptly compensate the other party hereto for any actual pecuniary loss resulting from the Defaulting Party being unable to perform in full its obligations hereunder and under the purchase orders. If the Defaulting Party or the trustee thereof shall fail to promptly provide such adequate assurance, upon notice to the Defaulting Party by the other party hereto, this Agreement and all purchase orders hereunder shall be canceled, any deposits shall be === promptly returned, and neither party shall have any further obligation to the other hereunder, except such obligations which have accrued prior to such cancellation. B. Either party, at its option, may cancel this Agreement or any purchase order hereunder with respect to any or all of the Products to be furnished hereunder which are undelivered or not furnished on the effective date of such cancellation by giving the other party written notice, as hereinafter provided, at any time after a receiver of the other's assets is appointed on account of insolvency, or the other makes a general assignment for the benefit of its creditors and such appointment of a receiver shall remain in force undismissed, unvacated or unstayed for a period of sixty (60) days thereafter. Such notice of cancellation shall be given thirty (30) days prior to the effective date of cancellation, except that, in the case of a voluntary general assignment for the benefit of creditors, such notice need not precede the effective date of cancellation. ARTICLE XIII WARRANTIES; LIMITATION OF LIABILITY A. CFMI's warranties with respect to Products, either purchased by Airline from CFMI or installed on Airline's Aircraft as original equipment, are set forth in Section II of Exhibit B. B. CFMI warrants to Airline that it will convey good title to any Products sold hereunder, free and clear of any liens, claims or encumbrances whatsoever; provided that CFMI's liability and Airline's remedy under the foregoing warranty are limited to removal of any title defect or, at CFMI's option, replacement of the Product or part thereof having such defect; provided further that Airline's rights and remedies with respect to patent infringement are as set forth in Article IX hereof. C. Except as provided in this Article XIII and in Article IX hereof, the liability of CFMI to Airline arising out of, connected with, or resulting from the manufacture, sale, possession, use or handling of any Product (including Engines installed on Airline's aircraft as original equipment) whether in contract, tort (including negligence) or otherwise, shall be as set forth in the Product Support Plan included in Exhibit B hereof, and shall not in any event exceed *. The foregoing shall constitute the sole remedy of Airline and the sole liability of CFMI. In no event shall CFMI or Airline be liable for special or consequential damages. As used herein, the term "CFMI" shall be deemed to include GE, SNECMA and CFMI. THE WARRANTIES AND GUARANTEES SET FORTH IN THE PRODUCT SUPPORT PLAN ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES AND GUARANTEES WHETHER WRITTEN, STATUTORY, ORAL, OR IMPLIED (INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR PURPOSE). ARTICLE XIV EXPORT SHIPMENT If CFMI agrees in writing upon Airline's written request, to assist Airline to arrange for export shipment of Products, Airline shall pay CFMI for all fees and expenses including, but not limited to, those covering preparation of consular invoices, freight, storage, and Warehouse to Warehouse (including war risk) insurance, upon submission of CFMI's invoices. In such event, CFMI will assist Airline in applying for any required export license and in preparing consular documents according to Airline's instructions or in the absence thereof, according to its best judgment but without liability for error or incorrect declarations including, but not limited to, liability for fines or other charges. ARTICLE XV GOVERNMENTAL AUTHORIZATION CFMI shall be responsible for obtaining any Export Certificate of Airworthiness and any export license required in respect of Products when delivered new to Airline for export to the United States. Airline shall be responsible for obtaining any other required authorization such as any other export license, import license, exchange permit or any other required governmental authorization. Airline shall restrict disclosure of all information and data furnished thereto under this Agreement and shall ship the direct product of such information and data to only those destinations which are authorized by the U.S. and/or French Governments. At the request of Airline, CFMI will provide Airline with a list of such authorized destinations. CFMI shall not be liable if any authorization is delayed, denied, revoked, restricted or not renewed and Airline shall not be relieved of its obligation to pay CFMI. ARTICLE XVI NOTICES Any notices under this Agreement shall become effective upon receipt and shall be in writing and be delivered or sent by mail or electronic transmission to the respective parties at the following addresses, which may be changed by written notice: To: Frontier Airlines, Inc. To: CFM International, Inc. 12015 East 46th Avenue P. O. Box 15514 Suite 200 Cincinnati, Ohio 45215 0514 Denver, CO 80239 3116 Attention: Director, Commercial Contracts Attention: ARTICLE XVII MISCELLANEOUS A. This Agreement may not be assigned, in whole or in part, by either party without the prior written consent of the other party, except that (i) CFMI's consent shall not be required for (a) the substitution of an affiliate of Airline in place of Airline, (b) the assignment by Airline of its rights and obligations hereunder to the surviving or acquiring entity in any merger, consolidation or sale of all or substantially all of its assets, if, immediately following such merger, consolidation or sale, the surviving or acquiring entity is in a financial condition at least equal to that of the Airline at the time immediately prior to such merger, consolidation or sale, and such entity executes an assumption agreement, in form and substance reasonably acceptable to CFMI, agreeing to assume all of Airline's obligations hereunder, or (c) the assignment by Airline of its rights under Section II of Exhibit B hereto to a lender or financier as security for Airline's obligations in connection with any financing of an Engine or an aircraft on which an Engine is installed, and (ii) Airline's consent shall not be required for the substitution of any other company jointly owned by GE and SNECMA in place of CFMI as the contracting party and the recipient of any or all payments and/or for the assignment of CFMI's payment rights to CFMI's suppliers. No assignment by either party shall increase any cost or liability of the other hereunder, or modify in any way such other party's contract rights hereunder, and each party agrees that notwithstanding any such assignment it remains fully and solely responsible in accordance with the terms and obligations of this Agreement for all of its obligations and liabilities hereunder. B. The rights herein granted and this Agreement are for the benefit of the parties hereto and are not for the benefit of any third person, firm or corporation, except as expressly provided herein with respect to GE and SNECMA, and nothing herein contained shall be construed to create any rights in any third parties under, as the result of, or in connection with this Agreement. C. This Agreement contains information specifically for Airline and CFMI and, except as permitted pursuant to Article X hereof, nothing herein contained shall be divulged by Airline or CFMI to any third person, firm or corporation, without the prior written consent of the other party which consent shall not be unreasonably withheld. Notwithstanding the foregoing, Airline may disclose this Agreement (i) to its == agents and professional advisors, (ii) to prospective lenders or financiers with respect to the Engines or an aircraft on which an Engine is installed, (iii) to prospective transferees or operators of the Engines or such aircraft, and (iv) as otherwise required by law (including any governmental agency) or by court order, and all of the persons and entities set forth in (i), (ii) and (iii) above shall agree in writing not to divulge to others without the prior written consent of CFMI. If Airline is required to disclose pursuant to sub paragraph (iv) above, Airline shall first give CFMI written notice of any such law or court order, and such notice shall afford CFMI a reasonable opportunity to object to such disclosure or otherwise seek an appropriate protective order. Airline and CFMI shall also work together to provide to the S.E.C. an agreed to redacted version of the Agreement. D. This Agreement shall be construed, interpreted and applied in accordance with the law of the State of New York. Each of CFMI and Airline (i) hereby irrevocably submits itself to the nonexclusive jurisdiction of the courts of the state of New York, New York County, and of the United States District Court for the Southern District of New York, for the purposes of any suit, action or other proceeding arising out of this Agreement, the subject matter hereof or any of the transactions contemplated hereby brought by any party or parties hereto, and (ii) hereby waives, and agrees not to assert, by way of motion, as a defense or otherwise, in any such suit, action or proceeding, to the extent permitted by applicable law, any defense based on sovereign or other immunity or that the suit , action or proceeding which is referred to in clause (i) above is brought in an inconvenient forum, that the venue of such suit, action or proceeding is improper, or that this Agreement or the subject matter hereof or any of the transactions contemplated hereby may not be enforced in or by these courts. Each party hereby generally consents to service of process by registered mail, return receipt requested, at its address for notice under this Agreement. The United Nations Conference on contracts for the International Sale of Goods shall not apply to this Agreement. E. This Agreement and all Letter Agreements relating hereto contain the entire and only agreement between the parties, and supersede all pre existing agreements between such parties, respecting the subject matter hereof; including General Terms Agreement No. 6 13328, dated November 13, 1995 and any representation, promise or condition in connection therewith not incorporated herein shall not be binding upon either party. No modification, renewal, extension, waiver, or termination by mutual consent of this Agreement or any of the provisions herein contained shall be binding unless it is made in writing and signed on behalf of CFMI and Airline by duly authorized executives. F. Any provision in this Agreement to the contrary notwithstanding (including, in particular the provisions of Exhibit B hereto), the maintenance, removal, repair or replacement of Products, the order and storage thereof, as well as manuals, training and tooling in support thereof shall be controlled by and subject to any applicable law, rule or regulation and to the conditions set forth in any applicable governmental authorization. G. The provisions of Articles IX Patents, X Information and Data, XIII Warranties; Limitation of Liability and XV Governmental Authorization and Paragraph C of Article XVII shall survive any expiration or termination of this Agreement. H. This Agreement shall remain in full force and effect until (1) Airline ceases to operate at least one Aircraft powered by Products set forth herein, (2) less than five aircraft powered by such Products are in commercial airline service, (3) this Agreement is terminated in whole or in part under either the provisions of Article VIII Excusable Delay or Article XII Termination for Insolvency herein, or (4) by mutual consent of the parties, whichever occurs first. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and the year first above written. FRONTIER AIRLINES, INC. CFM INTERNATIONAL, INC. By: By: Typed Name: Typed Name: Title: Title: Date: Date: EXHIBIT A CFM56 SERIES PRODUCTS APPLICABLE TO AIRLINE'S TYPE A319 AND 737 AIRCRAFT I. Model CFM56 5B5/P, CFM56 3 B1, CFM56 3C1 and CFM56 3B2 Turbofan Engines as certified by the U.S. Federal Aviation Administration ("FAA") and French Direction Generale De L'Aviation Civile ("DGAC"). II. Related Optional Equipment for the above Engines. III. Engine Modules A. Fan B. Low Pressure Turbine ("LPT") C Accessory Gearbox D. Core Engine IV. spare Parts. V. Special Tools and Test Equipment including Ground Support Equipment. VI. Other CFM56 products as may be offered for sale by CFMI from time to time. EXHIBIT B CFM56 PRODUCT SUPPORT PLAN SECTION I DEFINITIONS These definitions shall apply for all purposes of this Agreement unless the context otherwise requires. 1. "Aircraft" means each of the aircraft on which an Engine is installed. 2. "Agreement" means the General Terms Agreement No. 6 13616 between CFMI and Airline, to which this Exhibit B is attached. 3. "Engine(s)" means the Engine(s) described in Exhibit A. 4. "Expendable Parts" means those parts which must routinely be replaced during Inspection, repair, or maintenance, whether or not such parts have been damaged, and other parts which are customarily replaced at each such Inspection and maintenance period such as filter inserts and other short lived items which are not dependent on wear out but replaced at predetermined intervals. 5. "Failed Parts" means 6. "Failure" means 7. "Flight Cycle" means the complete running of an Engine from start through any condition of flight and ending at Engine shutdown. A "touch and go landing" used during pilot training shall be considered as a "Flight Cycle." 8. "Flight Hours" means the cumulative number of airborne hours in operation of each Engine computed from the time an aircraft leaves the ground until it touches the ground at the end of a flight. 9. "Foreign Object Damage" means any damage to the Engine caused by objects which are not part of the Engine or engine optional equipment. 10. "Inspection" means the observation of an Engine or Parts thereof, through disassembly or other means, for the purpose of determining serviceability. 11. "Labor Allowance" 12. "Module" means each of the Engine Modules described in Exhibit A. 13. "Part(s)" means only those Engine and Engine Module Parts which have been sold originally to Airline by CFMI for commercial use. The term excludes parts which were furnished on new Engines and Modules but are procured directly from vendors. Such parts are covered by the Vendor Warranty and the CFMI "Vendor Warranty Back Up." Also excluded are Expendable Parts and customary short lived items such as igniters and filter inserts. 14. "Parts Credit Allowance" 15. "Part Cycles" means the total number of Flight Cycles accumulated by a Part. 16. "Parts Repair" means the CFMI recommended rework or restoration of Failed Parts to a serviceable condition, excluding repair of normal wear and tear and deterioration. 17. "Part Time" means the total number of Flight Hours flown by a Part. 18. "Scheduled Inspection" means the inspection of an Engine conducted when an Engine has approximately completed a planned operating interval. 19. "Scrapped Parts" means those Parts determined to be unserviceable and not repairable by virtue of reliability, performance or repair costs. Such Parts shall be considered as scrapped if they bear a scrap tag duly countersigned by a CFMI representative. Such Parts shall be disposed of by Airline unless requested by CFMI for engineering analysis, in which event any handling and shipping shall be at CFMI's expense. 20. "Ultimate Life" of a Part means the approved limitation on use of a Part, in cumulative Flight Hours or Flight Cycles, which either CFMI or a U.S. and/or French Government authority establish as the maximum period of allowed operational time for such Parts in Airline service, with periodic repair and restoration. The term does not include individual Failure from wear and tear or other cause not related to the total usage capability of all such Parts in Airline service. SECTION II WARRANTIES A. New Engine Warranty 1. CFMI warrants each new Engine and Module against Failure for the initial * Flight Hours as follows: * 2. As an alternative to the above allowances, CFMI shall, upon request of Airline: * B. New Parts Warranty * C. Ultimate Life Warranty * D. Campaign Change Warranty * E. Warranty Pass On If requested by Airline and consented to by CFMI in writing which consent will not be unreasonably withheld, CFMI will extend warranty support for Engines sold by Airline to commercial Airline operators, or to other aircraft operators. Such warranty support will be limited to the unexpired portion of the New Engine Warranty, New Parts Warranty, Ultimate Life Warranty and Campaign Change Warranty and will require such operator(s) to agree, in writing, to be bound by, and comply with, all the terms and conditions, including the limitations, applicable to such warranties as set forth in this Agreement. If Airline acquires Products from another Airline or operator of Products, and such Airline or operator has an agreement with CFMI, CFMI will agree to extend the CFMI warranty support, if any, remaining in respect of such Products as extended by CFMI to such Airline or operator. F. Vendor Warranty Back Up 1. CFMI controls and accessories vendors provide a warranty on their products used on CFMI Engines. This warranty applies to controls and accessories sold to CFMI for delivery on installed or spare Engines, and controls and accessories sold by the vendor to the Airlines on a direct purchase basis. In the event the controls and accessories suffer a failure during the vendors warranty period, the Airline will submit a claim directly to the vendor in accordance with the terms and conditions of the vendors warranty. 2. In the event a controls and accessories vendor fails to provide a warranty at least as favorable as the CFMI New Engine Warranty (for complete controls and accessories) or New Parts Warranty (for components thereof), or if provided, rejects a proper claim from the Airline, CFMI will intercede on behalf of the Airline to resolve the claim with the vendor. In the event CFMI is unable to resolve a proper claim with the vendor, CFMI will honor a claim from the Airline under the provisions and limitations of CFMI's New Engine or New Parts Warranty, as applicable. Settlements under this vendor back up warranty will exclude credits for resultant damage to or from controls and accessories procured directly by Airline from vendors. G. Vendor Interface warranty Should any CFMI control or accessory, for which CFMI is responsible, develop a problem due to its environment or interface with other controls and accessories or with the Engine, reverser, or equipment supplied by the aircraft manufacturer, CFMI will be responsible for initiating corrective action. If the vendor disclaims warranty responsibility for parts requiring replacement, CFMI will apply the provisions of its New Parts Warranty to such part whether it was purchased originally from CFMI or directly from the vendor. H. Condition Monitoring Warranty 1. CFMI warrants CFM56 condition monitoring equipment, installed on new Engines, in accordance with the provisions of its New Engine Warranty as heretofore set forth, except that no Labor Allowance will be granted for disassembly and reassembly of any new Engine component due to inoperative or malfunctioning condition monitoring equipment. 2. CFMI warrants CFM56 condition monitoring equipment, purchased as spare Parts, in accordance with = the provisions of its New Parts Warranty as heretofore set forth. I. Special Tools and Test Equipment Warranty 1. CFMI warrants to Airline that special tools and test equipment sold hereunder will, at the time of delivery, be free from defects in material, workmanship, and title. J. Special Guarantees The following special guarantees apply to all of Airline's new CFM56 5B5/P powered A319 Aircraft. The basis and conditions for application of these guarantees are described in Attachment A hereto. 1. In flight shut down ("IFSD") Rate Guarantee * 2. Delay and Cancellation Rate Guarantee * 3. Remote Site Removal Rate Guarantee * 4. Extended New Engine Warranty * THE WARRANTIES AND GUARANTEES SET FORTH IN THIS PRODUCT SUPPORT PLAN ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES AND GUARANTEES, WHETHER WRITTEN, STATUTORY, ORAL, OR IMPLIED (INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR PURPOSE). SECTION III SPARE PARTS PROVISIONING A. Provisioning Data 1. In connection with Airline's initial provisioning of spare Parts, CFMI shall furnish Airline with data in accordance with ATA 2000 Specification using a revision mutually agreed to in writing by CFMI and Airline. 2. It is the intention of the parties hereto to comply with the requirements of the ATA 2000 Specification and any future changes thereto, except that neither party shall deny the other the right to negotiate reasonable changes in the procedures or requirements of the Specification which procedures or requirements, if complied with exactly, would result in an undue operating burden or unnecessary economic penalty. The data to be provided by CFMI to Airline shall encompass all Parts listed in CFMI's Illustrated Parts Catalogs. CFMI further agrees to become total supplier of Initial Provisioning Data for all vendor spare Parts in accordance with Paragraph 1. above. 3. Beginning on a date no no later than twelve (12) months prior to delivery of Airline's first Aircraft, or as mutually agreed, CFMI shall provide to Airline a complete set of Initial Provisioning Data and shall progressively revise this data until ninety (90) days after delivery of the last spare Engine specified in its initial purchase order or as mutually agreed. A status report will be issued periodically. Provisioning data will be reinstituted for subsequent spare Engines reflecting the latest modification status. CFMI will make available a list of major suppliers as requested by Airline. CFMI will provide, or cause to be provided on behalf of its vendors, the same service detailed in this clause. B. Pre Provisioning Conference A pre provisioning conference, attended by CFMI and Airline personnel directly responsible for initial provisioning of spare Parts hereunder, will be held at a mutually agreed time and place prior to the placing by Airline of initial provisioning purchase orders. The purpose of this conference is to discuss systems, procedures and documents available to the Airline for the initial provisioning cycle of the Products. C. Changes CFMI shall have the right to make corrections and changes in the Initial Provisioning Data in accordance with Chapter 2 (Initial Provisioning) of Chapter 1 of ATA 2000 Specification using a revision mutually agreed to in writing by CFMI and Airline. So long as Airline operates one (1) aircraft powered by CFM56 Engines and there are five (5) such aircraft powered by CFM56 Engines in commercial Airline service, CFMI will, at no cost to Airline, progressively revise Airline's Procurement Data tape in accordance with Chapter 3 (Order Administration) of Chapter 2 of ATA 2000 Specification entitled "Integrated Data Processing Supply" using a revision mutually agreed to in writing by CFMI and Airline. D. Return Of Parts Airline shall have the right to return to CFMI, at CFMI's expense, any new or unused Part which has been shipped in excess of the quantity ordered or which is not the part number ordered or which is in a discrepant condition except for damage in transit. E. Parts Buy Back CFMI will agree to repurchase within the first * after delivery of the first Aircraft to Airline, and at the invoiced price, any new and unused initially provisioned spare Parts purchased from CFMI which CFMI recommended that Airline purchase, in the event Airline finds such Parts to be surplus to Airline's needs. Parts which become surplus to Airline's needs by reason of Airline's decision to upgrade or dispose of Products or resulting from a change in the fleet operating conditions supplied by Airline, upon which the CFMI initial provisioning recommendation was established, are excluded from this provision. Shipping costs for parts returned will be paid by Airline. F. Parts of Modified Design 1. CFMI shall have the right to make modifications to design or changes in the spare Parts sold to Airline hereunder. 2. CFMI will from time to time inform Airline in accordance with the means set forth in ATA 2000 Specification, when such spare Parts of modified design become available for shipment hereunder. 3. spare Parts of the modified design will be supplied unless Airline advises CFMI in writing of its contrary desire within ninety (90) days of the issuance of the Service Bulletin specifying the change to the modified Parts. In such event, Airline may negotiate for the continued supply of spare Parts of the premodified design at a rate of delivery and price to be agreed upon. G. Spare Parts Availability 1. CFMI will ship reasonable quantities (defined as three (3) months normal usage) of spare Parts which are included in CFMI's Engine Spare Parts Catalog within a thirty (30) day lead time following receipt of an acceptable purchase order from Airline. Spare Parts and other CFMI furnished material which are not included in the CFM56 Engine Spare Parts Price Catalog and for which lead time has not been quoted will be shipped as quoted by CFMI. 2. CFMI will maintain a stock of spare Parts to cover Airline's emergency needs. For purposes of this Paragraph, emergency is understood by CFMI and Airline to mean the occurrence of any one of the following conditions: AOG Aircraft on Ground Critical Imminent AOG or Work Stoppage Expedite Less than Normal Lead Time Airline will order spare Parts according to lead time as provided in Paragraph 1. above, but should Airline's spare Parts requirements arise as a result of an emergency, Airline can draw such spare Parts from CFMI's stock. A 24 hour telephone service is available to Airline for this purpose. If an emergency does exist, CFMI will ship required spare Part(s) within the time period set forth below following receipt of an acceptable purchase order from Airline. AOG * Critical * Expedite * SECTION IV TECHNICAL DATA A. CFMI shall make available to Airline the technical data, including revisions thereof, at no charge, in the quantities as specified in Exhibit E and at a time and to a location as mutually agreed. Such technical data shall be prepared by CFMI in accordance with the applicable provisions of ATA 100 or 2100 Specification (including necessary deviations) as the same may be revised from time to time. If Airline requires CFMI to furnish the technical data in a form different from that normally furnished by CFMI pursuant to ATA 100 or 2100 Specification, or in quantities greater than those specified in Exhibit E, CFMI will, upon written request from Airline, furnish Airline with a written quotation for furnishing such technical data. Revisions to the above technical data shall be furnished by CFMI to Airline at no charge for quantities equivalent to the quantities specified in Exhibit E for as long as Airline operates one (1) CFM56 powered Aircraft and there is a total of five (5) CFM56 powered aircraft in commercial airline service. Such quantities of revisions may be mutually modified in order to reflect any change in Airline's CFM56 operation. CFMI shall incorporate in the Engine Illustrated Parts Catalog and the Engine Manual all appropriate CFMI Service Bulletins for as long as Airline receives revisions to technical information or data. Premodified and postmodified configurations shall be included by CFMI unless Airline informs CFMI that a configuration is no longer required. B. CFMI will require each vendor to furnish technical data consisting of copies of a component maintenance manual and service bulletins. Such vendor publications shall be furnished by CFMI to Airline in accordance with and subject to the same provisions as those set forth in Paragraph A. above. C. CFMI will also require its ground support equipment vendors, where appropriate, to furnish to Airline, at no charge, technical data determined by CFMI to be necessary for Airline to maintain, overhaul and calibrate special tools and test equipment. Such vendor furnished technical data shall be furnished in accordance with and subject to the same provisions as those set forth in Paragraph A. above, except that the technical data shall be prepared in accordance with the applicable provisions of ATA 101 Specification, as the same may be revised from time to time. D. The following technical data, not covered by ATA Specifications, shall be furnished by CFMI to Airline in the quantities and at a time and to a location as mutually agreed: o Installation Manual (if required) o General Facility Study o Parts serialization records E. Where applicable, technical data as described in the above Paragraphs A., B. and D., furnished by CFMI or by CFMI vendors to Airline hereunder, shall be printed in the simplified English language as defined by AECMA (Association Europeenne des Constructeurs de Material Aerospatial). F. In addition to the above technical data to be furnished by CFMI to Airline, CFMI will have available with its resident representatives, where appropriate, one set of 35MM aperature cards or equivalent of each part and/or assembly drawing. CFM will also supply, on request, in 35MM aperature card format, one (1) copy of each special tool and equipment drawing. G. All technical data furnished herein by CFMI to Airline shall be subject to the provisions of Article X, "Information and Data", of this Agreement. SECTION V TECHNICAL TRAINING 1. General This part describes the current maintenance training to be provided by CFMI at CFMI's training facility in Springdale, Ohio. CFMI will provide at no charge to Airline, except as otherwise provided herein, a number of student days* for maintenance training as defined hereunder: * student days* for the first aircraft ordered * additional student days* for any additional aircraft These days will be selected from the list given in (3), "Standard Maintenance Training" below. Any additional training beyond this threshold shall be at Airline's cost. It is necessary for Airline to use the maintenance training days prior to delivery of the first aircraft, unless the parties have otherwise agreed in writing. All instruction, examinations and materials shall be prepared and presented in the English language and in the units of measure used by CFMI. Airline will provide interpreters, if required, for Airline's personnel. Airline will be responsible for the living and medical expenses of Airline's personnel during maintenance training. For maintenance training provided at Springdale, Ohio, CFMI will assist Airline's personnel in making arrangements for hotels and transportation between selected lodging and the training facility. 2. Maintenance Training Conference No later than twelve months prior to delivery of Airline's first aircraft, CFMI and Airline will conduct a maintenance training conference call in order to schedule and discuss the maintenance training or, Airline is welcome to visit CFMI's training facilities and discuss training. During the maintenance training conference call or visit, Airline will indicate the courses selected and arrange a mutually acceptable schedule. * Student days = # of students X # of class days 3. Standard Maintenance Training Standard Maintenance Training will consist of computer based training or classroom presentations supported by training materials and, when applicable, hands on practice. Training material will be based on ATA104 guidelines. ATA104 Level I General Familiarization ATA104 Level II Ramp and Transit ATA104 Level III Line and Base Maintenance ATA104 Level IV Specialized Training Major Module Replacement Module Replacement Fan Trim Balance Borescope Inspection 4. Optional Maintenance Training Non standard maintenance training courses are described in the current CFMI Training Course Syllabus and CFMI will provide a quote upon request. 5. Training at a Facility Other Than CFMI's If requested prior to the conclusion of the maintenance training planning conference call or visit, CFMI will conduct the classroom training described in (3), "Standard Maintenance Training" at a mutually acceptable alternate training site, subject to the following conditions. 5.1 Airline will be responsible for providing acceptable classroom space and training equipment required to present the CFMI courseware. 5.2 Airline will pay CFMI's travel and living charges for each CFMI instructor for each day, or fraction thereof, such instructor is away from Springdale, Ohio, including travel time. 5.3 Airline will reimburse CFMI for round trip transportation for CFMI's instructors and training materials between Springdale, Ohio and such alternate training site. 5.4 Those portions of the training that require the use of CFMI's training devices shall be conducted at CFMI designated facilities. 6. Supplier Training The standard maintenance training includes sufficient information on the location, operation and servicing of engine equipment, accessories and parts provided by suppliers to support line maintenance functions. If Airline requires additional maintenance training with respect to any supplier provided equipment, accessories or parts, Airline will schedule such training directly with the supplier. 7. Student Training Material 7.1 Manuals When required, CFMI will provide, at the beginning of each maintenance training course, one set of training manuals, or equivalent, for each student attending such course. 7.2 Other Training Material CFMI will provide one set of the following training material, per course, as applicable. Video Tapes CFMI will lend a set of video tapes on3/4inch U matic or1/2inch VHS cassettes in NTSC, PAL or SECAM standard, as selected by Airline. SECTION VI CUSTOMER SERVICE A. CFMI shall assign to Airline at no charge, a Customer Support Manager located at CFMI's factory to provide and coordinate appropriate liaison between the Airline and CFMI's factory personnel. B. CFMI shall also make available to Airline on an as required basis, at no charge, a Field Service Representative as CFMI's representative at Airline's maintenance base plus a Shop Specialist to be assigned by CFMI to the engine shop facility selected by Airline. These specialists will assist Airline in areas of unscheduled maintenance action and scrap approval and will provide rapid communication between Airline's maintenance base and CFMI's factory personnel. SECTION VII PRODUCT SUPPORT ENGINEERING Factory based engineers who are specialized in powerplant engineering problems are available, at no charge to Airline, to make visits to Airline as mutually agreed when problems are encountered. These engineers will coordinate with the CFM56 design engineers and Airline's powerplant engineering group. Where specific design problems require a better understanding of Airline's experience, design engineers will work directly with Airline's powerplant engineering personnel to solve the problem. SECTION VIII OPERATIONS ENGINEERING Operations Engineering survey teams are available, at no charge to Airline, to make surveys of Airline maintenance and operating procedures as mutually agreed by Airline and CFMI. These survey teams will be able to provide service to all Airlines operating CFM56 Engines. This group will include experienced operations engineers who will be available for flying jump seat on CFM56 powered aircraft, and discussing operating procedures with the crews. SECTION IX GROUND SUPPORT EQUIPMENT CFMI will provide to Airline, without charge, maintenance and repair tooling and fixture drawings it has designed for the Engines. Engine maintenance tooling, lifting devices, transportation devices, and accessory or component stands will be offered for sale to Airline by CFMI, and can also be procured from vendors. SECTION X GENERAL CONDITIONS CFM56 PRODUCT SUPPORT PLAN A. Airline will maintain adequate operational and maintenance records and make these available for CFMI inspection. B. The warranty and guarantee provisions of this CFM56 Product Support Plan will not apply to any Product if it has been reasonably determined the Engine or any Parts thereof: o Has not been properly installed or maintained; or o Has been operated contrary to applicable CFMI recommendations as contained in its Manual, Bulletins, or other written instructions delivered to Airline; or o Has been repaired or altered outside of CFMI facilities in such a way as to impair its safety of operation or efficiency; or o Has been subjected to misuse, neglect or accident; or o Has been subjected to Foreign Object Damage; or o Has been subjected to any other defect or cause not within the control of CFMI; or o Has been subjected to the control or use of another engine manufacturer; or o Has not been sold originally by CFMI to Airline for commercial use or installed in aircraft sold by the aircraft manufacturer to Airline. C. The express provisions of this CFM56 Product Support Plan set forth the maximum liability of CFMI with respect to claims of any kind, including negligence, arising out of manufacture, sale, possession, use or handling of the Products or Parts thereof or therefor, and in no case shall CFMI's liability to Airline *. In no event shall CFMI or Airline be liable for incidental or consequential damages. As used herein the term "CFMI" shall be deemed to include GE, SNECMA and CFMI. D. Except as provided in the Vendor Warranty Back up provisions in Paragraph F. of Section II hereof, no Parts Credit Allowance will be granted and no claim for loss or liability will be recognized by CFMI for Parts of the Engine whether original, repair, replacement, or otherwise, unless sold originally by CFMI to Airline for commercial use or installed in aircraft sold by the aircraft manufacturer to Airline. E. Airline shall apprise CFMI of any Failure subject to the conditions of this CFM56 Product Support Plan within sixty (60) days after Airline's discovery of such Failure. Any Part for which a Parts Credit Allowance is requested by Airline shall be returned to CFMI upon specific request by CFMI. Upon return to CFMI, such Part shall become the property of CFMI unless CFMI directs otherwise. Transportation expenses shall be borne by CFMI. F. The warranty applicable to a replacement Part provided under the terms of the New Engine Warranty or New Parts Warranty shall be the same as the warranty on the original Part. The unexpired portion of the applicable warranty will apply to Parts repaired under the terms of such warranty; = G. Airline will cooperate with CFMI in the development of Engine operating practices, repair procedures, and the like with the objective of improving Engine operating costs. H. Except as provided in the Warranty Pass On provisions in Paragraph E. of Section II hereof, this Product Support Plan applies only to the original purchaser of the CFM56 Engine, except that (i) installed Engines supplied to Airline through the aircraft manufacturer shall be considered as original Airline purchases covered by this Product Support Plan, and (ii) the provisions of Section II.J (Special Guarantees) and Section V (Technical Training) shall also apply to Airline's new leased Aircraft; provided that the lessor with respect to such Aircraft agrees to waive any rights it may have to receive similar product support with respect to such Aircraft. I. Airline will provide CFMI a report identifying serialized rotating parts which have been scrapped by Airline. Format and frequency of reporting will be mutually agreed to by Airline and CFMI. ATTACHMENT A BASIS AND CONDITIONS FOR SPECIAL GUARANTEES A. General Conditions The Guarantees offered herein have been developed specifically for Airline's new installed and spare CFM56 5B5/P engines (hereinafter referred to as the "Engine(s)"), whether leased or purchased. They are offered to Airline contingent upon: * B. Exclusions * C. Administration * D. Miscellaneous The General Conditions described in Exhibit B (Product Support Plan) of the General Terms Agreement between CFMI and Airline apply to the guarantees. ATTACHMENT B DEFINITIONS FOR DELAY AND CANCELLATION RATE GUARANTEE * EXHIBIT C ESCALATION * EXHIBIT D PAYMENT TERMS * EXHIBIT E TECHNICAL DATA *

5 (Replace this text with the legend) 0000921929 Frontier Airlines, Inc. 6-MOS MAR-31-2001 APR-01-2000 SEP-30-2000 118,891,103 0 29,095,393 639,321 2,916,390 191,355,185 34,577,438 8,095,257 254,177,086 0 0 0 123,342,072 18,001 120,050,149 254,177,086 243,891,622 243,891,622 0 187,925,146 (3,735,397) 0 34,950 59,666,923 23,025,105 36,641,818 0 0 0 36,641,818 2.06 1.90