<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or l5(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
Commission file number 0-11097
ATLANTIC SOUTHEAST AIRLINES, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Georgia 58-1354495
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Hartsfield Centre Parkway Suite 800, Atlanta, Georgia 30354
----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 766-1400
--------------
Securities registered pursuant to Section 12(b) of the Act:
None None
- ------------------- ---------------------------
(Title of class) (Name of each exchange on
which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $0.10 par value
-----------------------------
(Title of class)
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 preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
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FACING PAGE
Page 2 of 2
As of March 1, 1996, the aggregate market value of voting stock held
by non-affiliates of the Registrant, based on the $25.25 closing sales price of
such stock in the NASDAQ National Market System of the over-the-counter market
on March 1, 1996, was approximately $548,900,000.
As of March 1, 1996, the Registrant had 31,323,570 shares of Common
Stock outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Proxy Statement to be used in connection
with the solicitation of proxies for the Company's annual meeting of
shareholders to be held May 22, 1996, are incorporated by reference into Part
III of this Report on Form 10-K.
<PAGE> 3
PART I
ITEM 1. BUSINESS
General
Atlantic Southeast Airlines, Inc. (the "COMPANY") is a certificated air
carrier providing regularly scheduled, high frequency airline service between
(i) Hartsfield Atlanta International Airport in Atlanta, Georgia (the "ATLANTA
HUB") and 36 other airports in Alabama, Florida, Georgia, Indiana, Kentucky,
Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, Virginia and
West Virginia and (ii) Dallas/Fort Worth International Airport in Dallas, Texas
(the "DALLAS/FORT WORTH HUB") and 24 other airports in Arkansas, Kansas,
Louisiana, Mississippi, Oklahoma and Texas. The Company's flights are utilized
primarily by business and military passengers to make connections with flights
operated by Delta Air Lines, Inc. ("DELTA") and other carriers from the Atlanta
and Dallas/Fort Worth hubs.
As of March 1, 1996, the Company's operating fleet consisted of 75
turboprop airplanes, 12 of which seat 66 passengers and the remaining 63 of
which seat 30 passengers, and 5 jets which seat 88 passengers each. See
"Flight Equipment" below.
On July 15, 1986, ASA Investments, Inc. was incorporated in the State of
Delaware as a wholly-owned subsidiary of the Company. The sole business of ASA
Investments, Inc. has been to invest certain cash assets of the Company. As of
December 31, 1995, ASA Investments, Inc. had total assets of approximately
$143,600,000. All subsequent references herein to the "COMPANY" shall refer
collectively to Atlantic Southeast Airlines, Inc. and ASA Investments, Inc.
Route System
The Company's route system presently includes service between the Atlanta
hub and 36 other airports in Alabama, Florida, Georgia, Indiana, Kentucky,
Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, Virginia and
West Virginia. On December 15, 1986, the Company started a similar hub and
spoke operation in Dallas/Fort Worth, with service currently to 24 airports in
Arkansas, Kansas, Louisiana, Mississippi, Oklahoma and Texas.
The Company's flight schedules are structured to facilitate the connection
of its passengers with flights of Delta at the Atlanta and Dallas/Fort Worth
hubs. Approximately 80% of the Company's passengers made connecting flights to
other destinations, while the remaining 20% originated or terminated their air
travel in Atlanta or Dallas/Fort Worth or connected with other airlines. The
Company periodically reconsiders its route system based on information then
available to the Company.
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The following tables set forth as of March 1, 1996, certain information
with respect to the Company's route system:
ATLANTA HUB
<TABLE>
<CAPTION>
Air Mileage Date Flights
From Atlanta Service Operated
Airport Served Hub Commenced Per Week
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Albany, GA 146 8/1/82 108
Alexandria, LA 485 12/1/95 42
Asheville, NC 164 8/1/82 112
Augusta, GA 143 4/24/83 54
Brunswick, GA 238 6/1/81 68
Charleston, WV 363 2/1/86 82
Charlotte, NC 227 4/1/91 14
Chattanooga, TN 106 6/1/91 126
Columbus, GA 83 6/27/79 138
Columbus, MS 241 12/15/84 82
Dothan, AL 171 10/31/82 122
Evansville, IN 350 6/1/89 66
Fayetteville, NC 331 11/1/85 124
Florence, SC 273 9/11/92 70
Fort Walton Beach, FL 250 11/15/82 122
Gainesville, FL 300 10/1/85 42
Greensboro/High-Point/
Winston-Salem, NC 306 6/1/91 30
Greenville/Spartanburg, SC 153 4/25/82 14
Gulfport/Biloxi, MS 352 3/2/91 108
Jackson, MS 341 4/4/93 14
Jacksonville, NC 399 12/15/92 56
Lafayette, LA 503 12/1/95 42
Lexington, KY 303 12/15/90 42
Louisville, KY 321 4/4/93 14
Lynchburg, VA 389 7/1/94 42
Macon, GA 79 3/20/80 92
Meridian, MS 267 11/1/84 70
Montgomery, AL 147 6/1/82 42
Myrtle Beach, SC 317 9/1/86 124
Panama City, FL 247 3/1/84 124
Pensacola, FL 272 4/1/91 28
Roanoke, VA 357 12/15/85 124
Tallahassee, FL 223 12/15/85 21
Tri-Cities, TN 227 10/31/82 122
Valdosta, GA 208 9/9/81 66
Wilmington, NC 377 9/17/90 110
</TABLE>
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DALLAS/FORT WORTH HUB
<TABLE>
<CAPTION>
Air
Mileage From Date Flights
Dallas/Fort Worth Service Operated
Airport Served Hub Commenced Per Week
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Abilene, TX 158 12/15/86 56
Alexandria, LA 297 10/1/87 42
Amarillo, TX 313 7/1/93 70
Beaumont/Port Arthur, TX 270 2/1/87 56
Columbus, MS 491 12/1/95 42
Corpus Christi, TX 354 6/1/93 70
Fayetteville, AR 270 12/15/86 84
Fort Smith, AR 227 12/15/86 70
Houston, TX (Intercontinental) 224 10/1/93 14
Houston, TX (Hobby) 247 5/1/94 98
Killeen, TX 130 5/1/87 56
Lafayette, LA 351 12/15/87 42
Lawton, OK 140 2/1/87 56
Lubbock, TX 282 7/1/93 70
Meridian, MS 485 12/1/95 42
Monroe, LA 293 9/12/94 14
Oklahoma City, OK 175 7/1/93 98
San Angelo, TX 228 2/1/87 56
San Antonio, TX 247 10/1/93 7
Shreveport, LA 190 12/1/95 14
Texarkana, AR 181 12/15/86 56
Tulsa, OK 237 6/1/93 98
Wichita, KS 328 7/1/93 56
Wichita Falls, TX 113 12/15/86 56
</TABLE>
Regular service is provided on all routes every weekday, with reduced
service on weekends.
On May 1, 1995, the Company replaced Delta's service to Houston
(Hobby), Texas, and Oklahoma City, Oklahoma, from the Dallas/Fort Worth hub,
and discontinued service to Raleigh/Durham, North Carolina, and Savannah,
Georgia, from the Atlanta hub. On December 1, 1995, the Company offered new
direct service between the Atlanta hub and Lafayette and Alexandria, Louisiana;
and terminated service between the Atlanta hub and Huntsville and Mobile,
Alabama; and Nashville, Tennessee. Also, on December 1, 1995, the Company
added service between the Dallas/Fort Worth hub and Shreveport, Louisiana; and
Columbus and Meridian, Mississippi. The Company terminated service between the
Dallas/Fort Worth hub and Tyler, Waco, College Station and Longview, Texas; and
Springfield, Missouri. See "FLIGHT EQUIPMENT" below.
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Fares
The Company derives its revenues primarily from local fares and
through fares. Local fares are those fares for one way and round trips that
are not combined with the fare of another carrier. Through fares apply for
transportation provided jointly by the Company and Delta and are normally less
than the sum of the fares that would otherwise be charged by each carrier for
that portion of the total trip provided by it.
Revenues derived from local fares and through fares are distributed
among the participating carriers using various proration formulas. The most
widely used method of settlement involves a straight rate prorate division,
unless the carriers enter into agreements providing otherwise. The various
pricing structures are presented in the Airline Tariff Publishing Company's
electronic tariff, Passenger Interline Pricing Prorate System (PIPPS).
Flight Equipment
As of March 1, 1996, the age of the Company's operating fleet ranged
from two to 11 years. The following table sets forth as of March 1, 1996,
certain information with respect to the Company's current operating fleet:
<TABLE>
<CAPTION>
Aircraft Aircraft Aircraft Average
Type Owned Leased Age
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ATR-72 Turboprop
(66 passenger capacity) 4 8 2.2 yrs.
Embraer Brasilia Turboprop 59 4 6.8 yrs.
(30 passenger capacity)
BAe 146-200 Jet - 5 8.6 yrs.
(88 passenger capacity)
</TABLE>
The Company's turboprop aircraft are very fuel efficient and, because
of their operating economy, can provide high frequency service in markets with
relatively low volumes of passenger traffic.
The Embraer Brasilia turboprop aircraft operates on mainly medium to
long-haul routes from the Atlanta and Dallas/Fort Worth hubs. These aircraft
are powered by two Pratt & Whitney turboprop engines and accommodate 30
passengers. During fiscal 1995, the Company acquired four additional Brasilias
through operating leases to serve as replacement aircraft for the Company's
Bandeirante fleet which was retired from service on December 1, 1995.
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The Company currently operates 12 ATR-72 turboprop aircraft ("ATRS")
from the Dallas/Fort Worth hub (seven aircraft) and the Atlanta hub (five
aircraft). The ATRs have been used to enter new markets, replace two
Dehavilland DHC-7 aircraft (which were retired in the second quarter of 1994)
and increase capacity in existing markets. The ATRs are 66 passenger aircraft,
powered by two Pratt & Whitney turboprop engines, and are built by Avions de
Transport Regional, a joint enterprise involving Alenia-Aeritalia & Selenia
S.P.A., an Italian aircraft manufacturer, and Aerospatiale Societe Nationale
Industrielle, a French aircraft manufacturer. In 1995, the Company entered
into a permanent lease on each of the eight leased ATRs, which were previously
acquired pursuant to an interim lease. The permanent lease has a seven year
term. The Company accepted delivery of four new ATRs during the second quarter
of 1994. A majority of the purchase price for these four ATRs was provided by
bank financing. The Company also has an option to acquire 16 additional ATRs.
On December 1, 1995, the Company added four previously operated
British Aerospace BAe 146-200 jets ("BAE JETS") to its fleet of aircraft. The
BAe Jets are powered by four Allied Signal high by-pass jet engines. The
airplane features very low noise levels, a wide passenger aisle, ample overhead
storage and five-abreast seating. This aircraft is certified to operate with a
maximum capacity of 108 passengers. However, the Company is operating the
aircraft in an 88-passenger configuration, which provides more spacious seating
for its passengers. A fifth BAe Jet was added to the flight schedule on
February 1, 1996. The BAe Jets have been used to expand service from the
Atlanta hub to Panama City and Fort Walton Beach, Florida; Columbus, Georgia;
Tri-Cities and Chattanooga, Tennessee; Asheville, North Carolina; and Myrtle
Beach, South Carolina. The Company replaced Delta's jet service in all of
these markets except Fort Walton Beach and Myrtle Beach. The Company acquired
these five aircraft under operating leases for a term of five years. In
addition, the Company has secured options to lease up to 15 additional BAe
Jets.
Fifty Brasilia aircraft and four ATRs as well as a significant portion
of the Company's spare parts are pledged to secure long-term indebtedness of
the Company.
Operations
Substantially all phases of the Company's operations, including
ticketing, maintenance, ground and in-flight service, and training are
performed by the Company's employees. As of March 1, 1996, the Company had
approximately 2,346 employees, of which 988 were flight personnel, 947 were
ground service personnel, 300 were maintenance personnel and the remainder were
management, supervisory and clerical employees.
During 1987, the Airline Pilots Association ("ALPA") was certified to
represent the Company's pilots. The Company and ALPA negotiated a three year
collective bargaining agreement which was effective from October 1992 through
October 1995. In September 1988, the Company's flight attendants voted to join
the Association of Flight Attendants ("AFA"). The Company and AFA entered into
a three year collective bargaining agreement which was effective in June 1991.
In June 1994, a letter of agreement was executed which extended this collective
bargaining agreement for another year until June 1995. As indicated, collective
bargaining agreements with both of these unions
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became amendable in 1995 and are currently being renegotiated. There are no
union affiliations with any other groups of the Company's employees. See
"Regulation -- Labor Regulation" below.
The Company is a party to interline passenger, reservation, ticketing
and baggage agreements with each of the major carriers with which the Company
transacts any significant amount of business. These agreements permit each
airline to reserve seats and sell tickets for flights on the other contracting
airlines, provide that each airline will honor ticket forms of the other
airlines and provide for an interline baggage exchange system at airport
terminals.
Although no in-flight food service is provided on any of the Company's
flights, flight attendants offer beverage service on all of the Company's
aircraft.
In addition to carrying passengers, the Company carries mail, freight
and small packages on its flights.
Maintenance
The Company is subject to the jurisdiction of and regulation by the
Federal Aviation Administration ("FAA") with respect to its maintenance and
operations, including equipment, ground facilities, dispatch, communication,
training, weather observation, flight personnel and other matters affecting air
safety. To ensure compliance with its regulations, the FAA requires airlines
to obtain operating, airworthiness and other certificates that are subject to
suspension or revocation for cause. The Company's certificates have never been
suspended, and to the best of the Company's belief, it is in compliance with
all FAA regulations.
The Company provides maintenance for its aircraft using its own
personnel, facilities and parts. The Company employs personnel with
appropriate FAA Airframe and Powerplant licenses to ensure adequate maintenance
of its aircraft. However, Company personnel do not perform engine overhauls.
Major outside repair agencies perform engine overhauls. The Company uses an
FAA approved alternative for overhauls on its three engine types. "On
condition" overhaul intervals are set by engine condition monitoring and
continuous airworthiness maintenance programs. Currently, the types of
engines that the Company uses are as follows:
<TABLE>
<CAPTION>
Aircraft Time Between
Engine Model Type Overhauls
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Pratt & Whitney Brasilia On condition
PW118
Pratt & Whitney ATR-72 On condition
PW127
Allied Signal
ALF502R-5 BAe 146-200 On condition
</TABLE>
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Aviation Fuel
The Company currently obtains approximately 45% of its fuel
requirements from Chevron USA, Inc. at the Atlanta hub and approximately 34% of
its fuel requirements from fuel suppliers at the Dallas/Fort Worth hub.
Marketing
The Company markets its passenger, air freight and small package
services primarily through direct sales activity and advertising programs. The
direct sales activity focuses on high-volume sources of business, such as
travel agencies and ticketing outlets located on major military installations.
The Company uses radio and newspapers to advertise and promote its
services. Cooperative advertising programs with Delta are used to promote the
Company's flights to the Atlanta and Dallas/Fort Worth hubs, and Delta's
services from Atlanta and Dallas/Fort Worth to various long-haul destinations.
In 1984, the Company and Delta implemented a joint marketing program
called the "Delta Connection". Under this marketing program, the Company's
flights are shown under a Delta code designation in the automated reservation
systems and in the Official Airline Guide. The Company is assigned a series of
distinctive Delta flight numbers which travel agents and airline reservation
personnel are able to distinguish as those operated under the "Delta
Connection". Passengers served by the "Delta Connection" are able to take
advantage of the cost savings inherent in through fares and are offered a full
range of promotional fares provided by Delta and the Company. In addition,
passengers of the Company accrue mileage in the Delta Frequent Flyer Program.
In October 1995, the Company began making payments to Delta for Delta frequent
flyer mileage earned by passengers flying on the Company's routes where those
passengers do not connect to Delta flights. The Company does not receive any
payments related to providing carriage to passengers utilizing frequent flyer
mileage earned on Delta flights. The Company expenses, as incurred, all
incremental costs of providing earned free travel awards under the frequent
flyer program. The Company does not accrue liabilities in anticipation of
future travel under the frequent flyer program due to its immaterial nature.
Management believes that award redemptions have not significantly displaced
revenue passengers.
Given the Company's relationship with Delta, the Company's results of
operations and financial condition may be favorably or adversely impacted by
Delta's decisions regarding its flight routes and other operational matters.
The Company has historically benefited from its relationship with Delta but
there can be no assurance that such benefits will occur in the future.
Competition and Industry Considerations
The Company competes primarily with other air carriers and,
particularly with respect to its shorter flights, with ground transportation
such as automobiles and buses. Management of the Company believes that its
services are utilized primarily by business and military travelers. The
ability
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of the Company to compete with ground transportation and these other carriers
depends upon the public acceptability of its aircraft and the provision of
convenient, frequent and reliable service to its markets at reasonable rates.
Delta provides air service from the Atlanta hub to approximately 31%
of the markets served by the Company out of Atlanta. Other airlines provide
limited competition from the Atlanta hub. However, other airlines provide
service connecting most of the Company's markets with cities other than
Atlanta.
The Company competes primarily with American/American Eagle at the
Dallas/Fort Worth hub. Each market currently served by the Company from the
Dallas/Fort Worth hub is also served by American/American Eagle, except for
Columbus and Meridian, Mississippi. Other airlines provide service connecting
approximately 88% of the Company's markets with cities other than Dallas/Fort
Worth.
The airline industry historically has been highly competitive. Some
of the major air carriers with which the Company competes possess far greater
financial and other resources than does the Company.
Economy
The airline industry is a highly volatile industry. The state of the
economy is the primary determinant of the level of passenger travel. Leisure
travel is highly discretionary and can easily be postponed during economic
down-turns or no growth economic periods. While business travel is not as
discretionary, business travel generally diminishes in uncertain times as
business tends to tighten cost controls.
Regulation
Pursuant to the Federal Aviation Act of 1958, as amended (the "1958
ACT"), the FAA and the U. S. Department of Transportation (the "DOT") have
regulatory authority over the operations of all air carriers, including the
Company. The FAA's jurisdiction extends primarily to the safety and
operational provisions of the 1958 Act, while the DOT's responsibility involves
primarily regulation of the economic aspects of airline operation, and includes
determining the fitness of commercial air carriers, enforcement of minimum
standards of customer service, regulation of federal compensation payments for
essential air service, and ownership and control of airlines.
FAA REGULATION. The Company is subject to extensive regulation by the
FAA. As part of its safety and operational regulatory authority, the FAA has
jurisdiction over, among other things, equipment and ground facilities, air
safety and airport access, maintenance, communications and other matters
relating to airline operations, and the training and qualifications of flight,
maintenance and other operational and technical personnel. The Company holds a
valid air carrier operating certificate issued by the FAA.
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On December 9, 1994, the FAA issued an Airworthiness Directive that
prohibited all ATR-42 and ATR-72 aircraft from flight into forecast or reported
"icing conditions" (the "DECEMBER 9, 1994, AIRWORTHINESS DIRECTIVE"). The
Company complied with the December 9, 1994, Airworthiness Directive until the
FAA revised the restrictions in an amendment effective January 11, 1995. The
Company's first quarter 1995 financial performance was adversely affected due
to compliance with these flight restrictions and the adverse publicity that the
regional airline industry received in the fourth quarter of 1994. On March 20,
1995, the FAA approved larger deicing boots for the ATR-72 aircraft, which the
Company installed by the June 1, 1995 deadline. The cost of these larger
deicing boots was borne by the aircraft manufacturer. The FAA issued an
Alternate Means of Compliance in June 1995, that addressed the operational and
flight crew procedures that are used in conjunction with the newly modified
deicing boots.
DOT REGULATIONS. The Company was certificated by the DOT under Part
401 (Certificate of Public Convenience and Necessity) during the first quarter
of 1993. The certificate issued under Part 401 of the 1958 Act requires the
Company to maintain DOT-prescribed minimum levels of insurance and to comply
with all applicable statutes, rules and regulations, and subjects the Company
to expanded reporting requirements. The DOT must issue a 401 certificate to an
air carrier before it will be permitted to operate aircraft with more than 60
seats. The Company initiated the use of larger aircraft having more than 60
seats during the second quarter of 1993.
The DOT has the authority to designate the Company as an "essential
air carrier" in any community in which it is the only carrier providing service
and that is an "essential air service community." An air carrier that serves
an "essential air service community" is required to give advanced notice to the
DOT with regards to service termination. The Company is currently the only air
carrier that provides service between the Atlanta hub and the following
"essential air service communities": Albany, Brunswick, Columbus, Macon and
Valdosta, Georgia; Columbus, Gulfport and Meridian, Mississippi; Asheville,
North Carolina; Dothan, Alabama; Ft. Walton Beach and Panama City, Florida.
The service provided by the Company to these "essential air service
communities" is on an unsubsidized basis.
LABOR REGULATION. The Railway Labor Act ("RLA") governs the
labor relations of employers and employees engaged in the airline industry.
Comprehensive provisions are set forth in the RLA establishing the right of the
airline employees to organize and bargain collectively along craft or class
lines and imposing a duty upon the air carriers and their employees to make
reasonable efforts to maintain collective bargaining agreements. The RLA
provides that collective bargaining agreements become amendable at the end of
their term, and stay in force while a new collective bargaining agreement is
being negotiated. The RLA also contains detailed procedures which must be
exhausted before lawful work stoppages can occur once a collective bargaining
agreement becomes amendable. Pursuant to the RLA, the Company has collective
bargaining agreements with two unions representing its pilots and flight
attendants.
NOISE REGULATIONS. The FAA requires airlines to comply with certain
noise restrictions concerning their aircraft. Existing aircraft are required
to be brought into compliance with these
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regulations by retrofit or engine replacement. The Company's aircraft are in
compliance with these regulations. In addition, several state legislatures and
other governmental administrative bodies have, from time to time, considered
noise reduction measures of various sorts. At the present time, the Company
does not provide service to any airport to which any such noise regulations
apply.
Insurance
In the opinion of management, the Company maintains insurance policies
of types customary in the industry and in amounts it believes, based on
information currently available to it, are adequate to protect it and its
property against material loss. The policies principally provide coverage for
public liability, baggage and cargo liability, property damage, including
coverage for loss or damage to its flight equipment, and workers compensation
insurance. There can be no assurance however, that the amount of insurance
carried by the Company will be sufficient to protect it from material loss.
Seasonality
The Company's operations at the Atlanta and Dallas/Fort Worth hubs are
primarily dependent upon business, government and military related travel and
are not subject to wide seasonal variations. However, some seasonal decline in
business travel does occur at these hubs during holiday periods and during
portions of the winter months (i.e., January and February). The Company
estimates that pleasure travel accounted for approximately 20% of the Company's
passengers during 1995. Pleasure travel generally increases during the summer
months and at holiday periods.
The following chart indicates the number of passengers carried by the
Company by quarter during its last three fiscal years:
<TABLE>
<CAPTION>
Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1995 680,871 808,338 789,681 788,007
1994 714,953 800,161 819,311 785,869
1993 562,665 638,459 700,332 759,930
</TABLE>
Extraordinary Events
On August 21, 1995, the Company suffered a tragic loss when one of its
flights crashed. A number of claims and lawsuits have been filed in connection
with this matter. The cause of the accident is still under investigation by
the National Transportation Safety Board. However, management believes and
preliminary findings indicate that the accident may have been caused by a
fatigue failure in one of the propellers. The propeller manufacturer (through
its insurer) has agreed to address all claims arising from this accident
without acknowledging fault. Management does not believe that the Company has
any liability in this matter, based on information currently available to
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it. In addition, the Company maintains insurance coverage which it believes,
based on information currently available to it, is sufficient to cover claims
associated with this incident if the Company were found to be at fault. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES" below.
ITEM 2. PROPERTIES
The Company has entered into agreements with other airlines under
which ground handling services are provided to the Company in 22 of the cities
it serves. In addition, the Company performs ground handling services at nine
airports for other airlines. The Company maintains ticketing, gate and baggage
claim facilities at each of the other airports it serves under direct leases or
use agreements with local airport authorities or other carriers. Apron, gate,
ticketing and baggage claim facilities for the Company at the Dallas/Fort
Worth hub are leased from Delta pursuant to a Ground Service Agreement. At 15
of the other airports, the Company operates under month-to-month use
agreements. The leases or use agreements at the remaining airports have
remaining terms generally ranging from one month to 15 years.
Substantially all the maintenance and repairs on the Company's aircraft
operating from the Atlanta hub (except for major engine, propeller and component
overhauls) are performed at the Company's 79,000 square foot hangar and
maintenance facility in Macon, Georgia. The hangar facilities are subject to a
30 year lease with renewal options to the year 2028.
The Company also maintains a limited inventory of spare parts and has
maintenance personnel at the Atlanta hub in a facility leased from The City of
Atlanta located near the Company's ramp and gate space.
The Company leases a maintenance facility in Texarkana, Arkansas.
Substantially all the maintenance and repairs on the Company's aircraft
operating from the Dallas/Fort Worth hub is performed at this facility. In
addition, the Company maintains a limited inventory of spare parts and has
maintenance personnel at the Dallas/Fort Worth hub.
By May 1, 1996, the Company plans to have relocated all of its
operations to 15 gates on Concourse C North at the Atlanta hub. The relocation
will significantly enhance the convenience of connections between flights
operated by the Company and Delta at the Atlanta hub.
In April 1992, the Company relocated its principal offices and
training center to approximately 38,000 square feet of office space at 100
Hartsfield Centre Parkway, Suite 800, Atlanta, Georgia, under a lease expiring
in 1999.
The Company's operations control center, located at its principal
offices in Atlanta, provides weather information, fuel information, weight
limitations, routing instructions and other information to the Company's
pilots.
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ITEM 3. LEGAL PROCEEDINGS
Except as described below, there are no material legal proceedings
pending in which the Company is a party or to which any of the Company's
property is subject. In addition, adequate insurance coverage is maintained by
the Company.
On August 21, 1995, the Company suffered a tragic loss when one of its
flights crashed. A number of claims and lawsuits have been filed in connection
with this matter. The cause of the accident is still under investigation by
the National Transportation Safety Board. However, management believes and
preliminary findings indicate that the accident may have been caused by a
fatigue failure in one of the propellers. The propeller manufacturer (through
its insurer) has agreed to address all claims arising from this accident
without acknowledging fault. Management does not believe that the Company has
any liability in this matter, based on information currently available to it.
In addition, the Company maintains insurance coverage which it believes, based
on information currently available to it, is sufficient to cover claims
associated with this incident if the Company were found to be at fault. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES" below.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders of the Company through
the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's common stock, $0.10 par value per share ("COMMON
STOCK"), is traded in the NASDAQ National Market System of the over-the-counter
market under the symbol "ASAI". As of March 1, 1996, there were approximately
1,213 shareholders of record of the Company's Common Stock. As of March 1,
1996, the closing price of the Common Stock was $25.25.
-12-
<PAGE> 15
The following table sets forth the reported high and low closing sales
price for the Common Stock for the fiscal quarters indicated as reported in the
NASDAQ National Market System. The quotations reflect actual sales prices
without retail mark-up, mark-down or commissions.
<TABLE>
<CAPTION>
Fiscal year ended
December 31, 1995 High Low
----------------- ---- ----
<S> <C> <C>
Quarter Ended March 31, 1995 $21.00 $15.25
Quarter Ended June 30, 1995 30.75 18.00
Quarter Ended September 30, 1995 34.25 21.75
Quarter Ended December 31, 1995 27.88 20.75
Fiscal year ended
December 31, 1994 High Low
----------------- ---- ---
Quarter Ended March 31, 1994 $38.75 $31.25
Quarter Ended June 30, 1994 33.00 21.25
Quarter Ended September 30, 1994 30.75 23.00
Quarter Ended December 31, 1994 24.50 12.75
</TABLE>
Dividends
The Company paid cash dividends on its Common Stock of approximately
$.34 per share during 1995 and $.32 per share during 1994. The quarterly cash
dividend was increased to $.095 in the first quarter of 1996, to $.085 per
share in the first quarter of 1995 and to $.08 per share in the first quarter
of 1994. The 1996 increase represented the seventh consecutive annual increase
in cash dividends since dividends were first paid in 1989. The Company expects
to continue the payment of quarterly cash dividends at the rates last approved
by the Board of Directors. However, the Board of Directors reconsiders the
declaration and the amount of cash dividends periodically, in its sole
discretion, and there can be no assurance as to the declaration or the amount
of dividends to be paid in the future. The payment of dividends in the future
may depend upon the results of operations, the financial condition of the
Company and other factors which the Board of Directors deems relevant.
Loan agreements relating to certain indebtedness of the Company
incurred in the acquisition of aircraft (certain of which loans do not mature
until the year 1999) provide certain limitations on the payment of cash
dividends and repurchases of Common Stock by the Company. The credit
agreements allowed for approximately $15,531,000 and $14,240,000 to be used for
stock repurchases and dividend payments in 1995 and 1994, respectively. During
the years ended December 31, 1995 and 1994, respectively, the Company paid
dividends of $11,203,992 and $10,926,232 on its Common Stock, and acquired
approximately $3,329,000 and $2,777,000 of Common Stock under these provisions,
which is held as treasury stock. At its May 1994 meeting, the Board of
Directors
-13-
<PAGE> 16
authorized the Company to repurchase up to an additional $50,000,000 of the
Company's Common Stock on the open market at any time on or before December 31,
1995, which was subsequently consented to by the Company's lenders, as required
by various loan agreements. As of December 31, 1995, the Company had
repurchased approximately $49,295,000 of its Common Stock in conjunction with
this limitation. At its November 1995 meeting, the Board of Directors
authorized the Company to repurchase up to an additional $50,000,000 of the
Company's Common Stock on the open market at any time on or before December 31,
1996, which was subsequently consented to by the Company's lenders, as required
by various loan agreements. As of March 1, 1996, the Company had repurchased
3,063,100 shares of Common Stock at an aggregate cost of approximately
$63,392,000 since May 1994.
-14-
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
ATLANTIC SOUTHEAST AIRLINES, INC.
SELECTED FINANCIAL AND STATISTICAL DATA
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING FINANCIAL DATA
Operating Revenues:
Passenger revenues $318,360 $305,846 $283,410 $230,980 $216,605
Other revenues 10,365 6,244 5,053 4,599 5,311
Total Operating Revenues 328,725 312,090 288,463 235,579 221,916
Operating Expenses:
Depreciation, amortization
and obsolescence 27,695 27,171 24,172 22,046 21,780
Other operating expenses 225,155 200,647 186,671 152,719 147,608
Total Operating Expenses 252,850 227,818 210,843 174,765 169,388
Income from Operations 75,875 84,272 77,620 60,814 52,528
Non-Operating (Income) Expense:
Interest income (11,998) (7,500) (4,970) (4,829) (6,015)
Interest expense, net 7,609 6,199 5,180 6,326 7,013
Other (510) (47) (12) - (66)
Total Non-Operating (Income)
Expense (4,899) (1,348) 198 1,497 932
Income before Taxes and
Accounting Change 80,774 85,620 77,422 59,317 51,596
Income Taxes 29,637 32,964 31,090 22,250 19,093
Cumulative Effect of Accounting
Change - - 4,212 - -
Net Income $ 51,137 $ 52,656 $ 50,544 $ 37,067 $ 32,503
Net Income per Share * $ 1.55 $ 1.54 $ 1.47 $ 1.09 $ 0.95
Average Weighted Shares (000)* 32,964 34,188 34,395 34,165 34,050
Operating Margin 23% 27% 27% 26% 24%
Net Margin 16% 17% 18% 16% 15%
<CAPTION>
1990 1989 1988 1987 1986
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING FINANCIAL DATA
Operating Revenues:
Passenger revenues $184,496 $177,348 $135,320 $116,094 $ 88,591
Other revenues 2,733 2,782 1,824 3,051 3,704
Total Operating Revenues 187,229 180,130 137,144 119,145 92,295
Operating Expenses:
Depreciation, amortization
and obsolescence 19,011 16,304 13,985 9,303 5,025
Other operating expenses 128,352 119,856 103,911 91,198 68,748
Total Operating Expenses 147,363 136,160 117,896 100,501 73,773
Income from Operations 39,866 43,970 19,248 18,644 18,522
Non-Operating (Income) Expense:
Interest income (7,601) (6,326) (3,484) (3,341) (2,073)
Interest expense, net 6,508 5,854 5,302 3,959 2,561
Other (31) (94) (1,152) 15 (302)
Total Non-Operating (Income)
Expense (1,124) (566) 666 633 186
Income before Taxes and
Accounting Change 40,990 44,536 18,582 18,011 18,336
Income Taxes 15,600 16,924 7,065 6,750 7,800
Cumulative Effect of Accounting
Change - - - - -
Net Income $ 25,390 $ 27,612 $ 11,517 $ 11,261 $ 10,536
Net Income per Share * $ 0.73 $ 0.76 $ 0.31 $ 0.28 $ 0.29
Average Weighted Shares (000)* 34,938 36,299 37,743 39,943 36,295
Operating Margin 21% 24% 14% 16% 20%
Net Margin 14% 15% 8% 9% 11%
</TABLE>
* Adjusted for stock splits on November 26, 1991 and February 18, 1993
-15-
<PAGE> 18
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA
Working Capital $141,677 $140,391 $126,975 $ 93,372 $ 78,721
Total Assets $512,699 $519,684 $474,599 $430,752 $377,603
Long-Term Debt $120,210 $152,610 $135,963 $145,804 $139,356
Total Liabilities $259,844 $272,214 $249,512 $252,013 $229,683
Shareholders' Equity $252,855 $247,470 $225,087 $178,738 $147,910
Shareholders' Equity per Share * $ 7.98 $ 7.45 $ 6.55 $ 5.23 $ 4.35
Return on Average Shareholders'
Equity 20% 22% 25% 23% 24%
Shareholders' Equity to Total
Liabilities 1:1 .9:1 .9:1 .7:1 .6:1
Cash Dividends Declared per
Share * 34c. 32c. 28c. 24c. 20c.
Long-Term Debt to Shareholders'
Equity .5:1 .6:1 .6:1 .8:1 .9:1
Shares Outstanding at End of
Year (000) * 31,704 33,224 34,340 34,180 34,034
STATISTICAL DATA
Revenue Passengers Carried (000) 3,067 3,120 2,661 2,417 2,251
Revenue Passenger Miles (000,000) 763 780 641 547 501
Available Seat Miles (000,000) 1,688 1,654 1,367 1,077 1,020
Yield per Revenue Passenger Mile 41.7c. 39.2c. 44.2c. 42.2c. 43.2c.
Operating Cost per Available
Seat Mile 15.0c. 13.8c. 15.4c. 16.2c. 16.6c.
Passenger Load Factor 45.2% 47.2% 46.9% 50.8% 49.2%
Break-Even Load Factor 34.1% 34.2% 34.3% 38.0% 37.7%
Average Passenger Trip Length (miles) 249 250 241 226 223
Flights per Week (end of period) 3,886 4,163 4,087 3,507 3,360
<CAPTION>
1990 1989 1988 1987 1986
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA
Working Capital $ 59,590 $ 55,525 $ 42,011 $ 41,955 $ 49,933
Total Assets $325,311 $287,971 $231,626 $209,906 $144,979
Long-Term Debt $127,724 $111,749 $ 90,109 $ 82,061 $ 40,032
Total Liabilities $204,956 $179,613 $139,958 $124,702 $ 67,908
Shareholders' Equity $120,355 $108,358 $ 91,668 $ 85,204 $ 77,071
Shareholders' Equity per Share * $ 3.57 $ 3.07 $ 2.47 $ 2.20 $ 1.93
Return on Average Shareholders'
Equity 22% 28% 13% 14% 20%
Shareholders' Equity to Total
Liabilities .6:1 .6:1 .7:1 .7:1 1.1:1
Cash Dividends Declared per
Share * 15.9c. 8c. - - -
Long-Term Debt to Shareholders'
Equity 1.1:1 1:1 1:1 1:1 .5:1
Shares Outstanding at End of
Year (000) * 33,750 35,314 37,075 38,762 40,016
STATISTICAL DATA
Revenue Passengers Carried (000) 2,002 2,001 1,586 1,456 1,156
Revenue Passenger Miles (000,000) 427 413 320 290 222
Available Seat Miles (000,000) 856 791 753 678 514
Yield per Revenue Passenger Mile 43.2c. 42.9c. 42.3c. 40.0c. 39.9c.
Operating Cost per Available
Seat Mile 17.2c. 17.2c. 15.7c. 14.8c. 14.3c.
Passenger Load Factor 49.9% 52.3% 42.5% 42.8% 43.1%
Break-Even Load Factor 39.0% 39.3% 36.7% 36.3% 34.6%
Average Passenger Trip Length (miles) 213 207 202 199 192
Flights per Week (end of period) 3,124 3,033 2,827 2,904 2,084
</TABLE>
* Adjusted for stock splits on November 26, 1991 and February 18, 1993
-16-
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company's working capital increased to $141.7 million with a
current ratio of 3.1:1 at December 31, 1995 compared with working capital of
$140.4 million and a current ratio of 3.6:1 at December 31, 1994. Cash, cash
equivalents and investments in marketable securities increased $11.7 million in
1995. Cash provided by operations was $94.7 million and the Company received
$5.2 million in proceeds from disposal of property. These sources of cash were
primarily offset by long-term debt repayments in the amount of $28.3 million,
the purchase of property and equipment in the amount of $13.9 million, $11.2
million of dividends paid and $35.4 million of Common Stock repurchases.
The Company has an unsecured line of credit totaling $8 million with
one of its banks. At December 31, 1995, $.7 million of this line was committed
to support a letter of credit. The remainder is available for general working
capital purposes on an as needed basis. At December 31, 1995, there were no
outstanding amounts against the line of credit.
At December 31, 1995, the Company operated a fleet of 63 owned
aircraft and 16 leased aircraft; and provided service to 36 markets from the
Atlanta hub and to 23 markets from the Dallas/Fort Worth hub. Four of these
markets are served by both hubs.
In June 1995, the Company entered into sublease agreements with the
leasing subsidiary of an aircraft manufacturer for the sublease of eight ATRs
for a term of seven years. These aircraft were delivered to the Company during
1993 and had been subject to an interim lease from 1993 through June 1995.
In May 1995, the Company entered into a settlement agreement with a
supplier for $2 million. This settlement partially offset losses and damages
that the Company incurred as a result of flight restrictions imposed by the FAA
during the fourth quarter of 1994 and the first quarter of 1995. The $2 million
was recorded as other revenue during 1995.
During 1995, the Company executed subleases with a leasing corporation
for four 30-passenger Brasilia aircraft. These aircraft were leased in order
to complete the phase-out, by December 1, 1995 of the 15-passenger Bandeirante
aircraft which operated out of the Dallas/Fort Worth hub. These Brasilia
aircraft are being leased for an initial term of between three and four years.
In July 1995, the Company executed a Memorandum of Understanding with
a subsidiary of an aircraft manufacturer for the lease of five previously
operated BAe 146-200 jet aircraft for a term of five years. In the fourth
quarter of 1995, the Company executed leases for four BAe Jets. In addition,
the Company secured options for the lease of up to 15 additional BAe Jets. This
aircraft is certified to operate with a maximum capacity of 108 passengers.
However, the Company is operating
-17-
<PAGE> 20
the BAe Jets in an 88-passenger configuration, which provides more spacious
seating for its passengers. On December 1, 1995, the Company added the four BAe
Jets to its schedule in order to provide jet service from the Atlanta hub to
Panama City and Fort Walton Beach, Florida; Columbus, Georgia; Asheville, North
Carolina; and Chattanooga and Tri Cities, Tennessee. The Company replaced
Delta's jet service in all of these markets except Fort Walton Beach. In
January 1996, the Company executed a lease for the fifth BAe Jet and added jet
service on February 1 to Myrtle Beach, South Carolina. All "start-up"
expenditures to add the BAe Jets to the fleet were expensed as incurred.
Aircraft lease expense in 1996 compared with 1995 will be higher by
approximately $6.6 million primarily due to the lease of the four Brasilia
aircraft and five BAe Jets.
On May 1, 1995, the Company replaced Delta's service to Houston
(Hobby), Texas and Oklahoma City, Oklahoma from its Dallas/Fort Worth hub. On
the same date, the Company discontinued service to Savannah, Georgia and
Raleigh/Durham, North Carolina from its Atlanta hub. On December 1, 1995, the
Company offered new direct service between its Atlanta hub and Lafayette and
Alexandria, Louisiana, and terminated service between the Atlanta hub and
Huntsville and Mobile, Alabama; and Nashville, Tennessee. Also on December 1,
1995, the Company added service between the Dallas/Fort Worth hub and
Shreveport, Louisiana; and Columbus and Meridian, Mississippi. The Company
terminated service between the Dallas/Fort hub Worth and Tyler, Waco, College
Station and Longview, Texas; and Springfield, Missouri. The Company's flight
schedules are structured to facilitate the connection of its passengers with
Delta flights at the Company's Atlanta and Dallas/Fort Worth hubs. The Company
periodically reconsiders its route system based on information then available
to the Company.
FAA directives required that the Company complete the process of
equipping its aircraft with traffic alert and collision avoidance systems by
December 31, 1995. The Company spent $1.7 million in 1995 on its Brasilia
fleet in connection with these directives. All of these costs were funded with
internally generated funds and were capitalized with the flight equipment.
Current liabilities increased by $15.9 million to $69.1 million at
December 31, 1995 compared with $53.2 million at December 31, 1994. This
increase was primarily due to a $4.1 million reclassification of long-term debt
to current maturities mainly due to the loss of an aircraft, $1.3 million of
additional liability for stock appreciation rights ("SARS"), $4.3 million of
additional accounts payable related to Common Stock repurchases, $.9 million
related to aircraft maintenance reserves and a $1 million increase in taxes
payable due to the amount and timing of property tax payments.
The Company's long-term debt to equity ratio decreased to 0.5:1 at
December 31, 1995 compared with 0.6:1 in 1994. Long-term debt decreased by
$32.4 million due to $28.3 million of scheduled debt payments and an increase
of $4.1 million in current maturities. Fifty Brasilia aircraft and four ATRs,
as well as a significant portion of the Company's spare parts, are pledged to
secure long-term debt.
-18-
<PAGE> 21
Current maturities of long-term debt, aircraft lease payments,
compliance with FAA directives and other capital expenditures were funded from
the Company's cash reserves and internally generated funds during fiscal 1995.
Shareholders' equity per share increased to $7.98 at December 31, 1995
from $7.45 at the end of 1994. Net worth increased $5.4 million in 1995
primarily due to earnings of $51.1 million, the issuance of $.7 million of
Common Stock in connection with SARs exercised, offset by $11.2 million of
dividends paid and $35.4 million of Common Stock repurchases.
The net number of shares of Common Stock outstanding decreased by 1.5
million to 31.7 million primarily due to the repurchase of Common Stock, which
is held as treasury stock. Certain restrictions in the Company's debt agreements
limit the amount of stock repurchases and the payment of dividends generally to
30% of average annual earnings. The credit agreements allowed for approximately
$15,531,000 and $14,240,000 to be used for stock repurchases and dividend
payments in 1995 and 1994, respectively. For the years ended December 31, 1995
and 1994, respectively, the Company paid dividends on its Common Stock in the
amount of $11,203,992 and $10,926,232, and acquired approximately $3,329,000 and
$2,777,000 of Common Stock under these provisions. In May 1994, the Board of
Directors authorized the Company to repurchase an additional $50,000,000 of its
Common Stock on the open market at any time on or before December 31, 1995,
which was subsequently consented to by the Company's lenders as required by
various loan agreements. Through December 31, 1995, the Company repurchased
approximately $49,295,000 of its Common Stock in conjunction with this
limitation. In November 1995, the Board of Directors authorized the Company to
repurchase up to an additional $50 million of its Common Stock on the open
market during 1996, which was also subsequently consented to by the Company's
lenders as required by various loan agreements. The stock repurchased will be
used for general corporate purposes.
On August 21, 1995, the Company suffered a tragic loss when one of its
flights crashed. A number of claims and lawsuits have been filed in connection
with this matter. The cause of the accident is still under investigation by the
National Transportation Safety Board. However, management believes and
preliminary findings indicate that the accident may have been caused by a
fatigue failure in one of the propellers. The propeller manufacturer (through
its insurer) has agreed to address all claims arising from this accident
without acknowledging fault. Management does not believe that the Company has
any liability in this matter, based on information currently available to it.
In addition, the Company maintains insurance coverage which it believes, based
on information currently available to it, is sufficient to cover claims
associated with this incident if the Company were found to be at fault.
Approximately 20% of the Company's workforce are members of the unions
representing the pilots and flight attendants. In 1995, collective bargaining
agreements with both of these unions became amendable and are currently being
renegotiated. See "BUSINESS -- Regulation -- Labor Regulation".
-19-
<PAGE> 22
The Company has negotiated to receive interest rate subsidies on
certain indebtedness through an export support program of the Federative
Republic of Brazil. Outstanding debt aggregating $112,691,092 at December 31,
1995 is subject to subsidy payments which reduce the stated interest rates on
such debt to an average of approximately 3.57%. However, subsidies on
outstanding debt aggregating $105,065,077 are at risk to the Company if the
Federative Republic of Brazil does not meet its obligations under the export
support program. For the remaining debt that is subject to such subsidies, the
lenders have assumed such risk by building such subsidy payments into the
Company's payment obligations. During 1995, 1994 and 1993, the Company reduced
its interest expense by $3,726,620, $3,800,430 and $3,819,418, respectively, as
a result of these interest rate subsidies. The amount of net interest paid
during 1995, 1994 and 1993 was $7,446,255, $4,702,987 and $5,824,753,
respectively. As indicated above, there can be no assurance that the Company
will continue to receive such subsidy payments.
In 1984, the Company and Delta implemented a joint marketing program
called the "Delta Connection". Delta owns approximately 25% of the Company's
outstanding Common Stock, leases reservation equipment and terminal facilities
to the Company, and provides certain services to the Company, including
reservation and ground handling services. Given the Company's relationship with
Delta, the Company's results of operations and financial condition may be
favorably or adversely impacted by Delta's decisions regarding flight routes
and other operational matters. The Company has historically benefited from its
relationship with Delta but there can be no assurance that such benefits will
occur in the future.
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of", which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement 121 also addresses
the accounting for long-lived assets that are expected to be disposed of in the
future. The Company will adopt Statement 121 in the first quarter of 1996 and,
based on current circumstances, does not believe the effect of adoption will be
material.
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation", which encourages
companies to recognize expense for stock-based awards based on their fair value
on the date of grant. At a minimum, Statement 123 will require pro forma
disclosures in the Company's 1996 financial statements. The Company has not
determined if it will adopt the expense recognition provisions of the
Statement. If the expense recognition provisions were to be adopted, the
outcome may be materially different from the results determined by the current
accounting requirements under APB No. 25, "Accounting for Stock Issued to
Employees".
Based on information currently available to it, the Company believes
that available resources will be sufficient to meet its existing expenditure
commitments (including current maturities of long-term debt and aircraft lease
payments) as well as its anticipated capital expenditures and other
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<PAGE> 23
working capital requirements for the foreseeable future. Financial resources
anticipated to be available to the Company for such purposes include existing
cash reserves, internally generated funds, amounts available under the existing
line of credit, and short and long-term financing arrangements that the Company
believes are available to it.
Results of Operations
The Company posted record revenues and earnings per share in 1995.
Operating revenues were $328.7 million in 1995 compared with $312.1 million in
1994 and $288.4 million in 1993. Operating revenues increased 5% in 1995
primarily due to a 6% increase in the average passenger mile yield to 41.7
cents offset by a 2% decrease in revenue passenger miles ("RPMS") flown to 763
million. Operating revenues for 1994 increased 8% over 1993 primarily due to a
22% increase in RPMs offset by an 11% decline in the average passenger mile
yield.
For the year ended December 31, 1995, net income was $51.1 million
compared with $52.7 million for 1994. Net income per share for 1995 increased
to $1.55 on 33.0 million weighted average shares outstanding compared with
$1.54 on 34.2 million weighted average shares outstanding in 1994. The decrease
in the average number of shares outstanding was due to the stock repurchase
program mentioned above in the "LIQUIDITY AND CAPITAL RESOURCES" section. In
1993, net income was $46.3 million or $1.35 per share, before an accounting
change. Including the $4.2 million credit for the cumulative effect of a change
in accounting for income taxes, net income for 1993 was $50.5 million or $1.47
per share.
The Company's average load factor was 45.2% in 1995, down from 47.2%
in 1994 and 46.9% in 1993.
Operating expenses increased 11% in 1995 and 8% in 1994. The Company
experienced a 9% increase in the cost per available seat mile ("ASM") flown to
15.0 cents compared with 13.8 cents in 1994. Capacity (the number of ASMs) was
up 2% in 1995 due to changes in aircraft as described in the "LIQUIDITY AND
CAPITAL RESOURCES" section above. Included in operating expenses for 1995 was
approximately $2.3 million of "start-up" expenses associated with adding the
BAe Jets to the fleet. Operating expenses in 1995 also included $2.4 million of
expense related to the Company's SARs plan due to a 39% increase in the Common
Stock price, while 1994 included a $4.2 million credit associated with SARs due
to a 55% decline in the stock price. Excluding the effect of the BAe Jet
start-up costs and SARs expense, operating expenses would have increased 7% in
1995 compared with 1994. The higher operating expenses in 1994 compared with
1993 were primarily due to a 21% increase in ASMs flown. The Company's cost per
ASM declined 10% to 13.8 cents in 1994.
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<PAGE> 24
The following table compares components of operating cost per ASM for the years
ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Labor and related $.043 $.037 $.050
Fuel .014 .014 .017
Direct maintenance .024 .022 .022
Passenger related .018 .018 .019
Depreciation and aircraft rent .022 .021 .020
Other .029 .026 .026
------ ------ ------
Total operating expense $.150 $.138 $.154
</TABLE>
The following table presents various components of operating expense
as a percentage of total operating expense for the years ended December 31,
1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Labor and related 29% 27% 32%
Fuel 9 10 11
Direct maintenance 16 15 14
Passenger related 12 13 13
Depreciation and aircraft rent 15 16 13
Other 19 19 17
---- ---- ----
Total operating expense 100% 100% 100%
</TABLE>
The Company's break-even load factor was 34.1% in 1995 compared with
34.2% in 1994 and 34.3% in 1993. The slightly lower break-even load factor in
1995 was primarily attributable to a 6% increase in the average passenger yield
offset by a 9% increase in the cost per available seat mile. The lower
break-even load factor in 1994 as compared with 1993 was primarily due to a 10%
decrease in operating cost per ASM offset by an 11% decrease in average
passenger yield.
Labor and related costs were $72 million in 1995, $61 million in 1994
and $68 million in 1993. The average number of employees in 1995 was 2,264, an
increase of 5% over 1994 which contributed to higher labor and related costs.
As mentioned above, 1995 included a $2.4 million expense related to the
Company's SARs plan while 1994 included a $4.2 million credit resulting from a
decline in the Common Stock price and the related reversal of previously
accrued SARs expense. The 10% decrease in labor and related costs for 1994
compared with 1993 was primarily attributable to a $15.9 million decrease in
SARs expense resulting from a decline in the Common Stock price offset by a 4%
increase in the average workforce. Expenses in 1993 included $11.7 million
associated with the Company's SARs plan.
-22-
<PAGE> 25
Fuel expense was $24 million in 1995 and 1994 compared with $23
million in 1993. Fuel consumption increased 2% in 1995 and 13% in 1994, while
the average fuel price per gallon remained constant in 1995 and decreased 8% in
1994. The average price per gallon, including taxes and into plane fees, was
62 cents in 1995 and 1994, and 67 cents in 1993. In August 1993, the United
States increased taxes on fuel, including aircraft fuel, by 4.3 cents per
gallon. Airlines were exempt from this tax increase until October 1995. This
new tax increased the Company's operating expenses by $0.4 million in 1995, and
is expected to increase such expenses by approximately $1.7 million in 1996,
based on the gallons of fuel consumed in 1995.
Direct maintenance expense, excluding labor and related costs,
increased 14% to $40 million in 1995 from $35 million and $30 million in 1994
and 1993, respectively. The increase in 1995 was primarily due to the frequency
of scheduled maintenance inspections and overhauls of time controlled
components. In 1994, maintenance expenses were higher compared to 1993
primarily due to a 9% increase in block hours flown and the timing for
scheduled maintenance inspections and overhauls.
Passenger related expenses were $30 million, $29 million and $26
million in 1995, 1994 and 1993, respectively. Passenger related expenses were
approximately 9% of passenger revenue in each of the three years.
Aircraft rental costs were approximately $10 million in 1995 compared
with $9 million in 1994 and $5 million in 1993. The increased expense in 1995
was primarily attributable to a partial year's rent on the four Brasilia
aircraft and four BAe Jets leased in 1995. The higher expense in 1994 was due
to a full year of rent on the eight ATRs leased in 1993. Depreciation expense
increased to approximately $27 million in 1995, compared with $26 million and
$23 million for 1994 and 1993, respectively. A full year of depreciation for
the four ATRs aircraft purchased in 1994 primarily contributed to the increase
in 1995.
Other expenses increased to $49 million in 1995 compared with $43
million in 1994 and $35 million in 1993. The increases in 1995 and 1994 were
due primarily to higher station rent and security fees, hull and liability
insurance and interrupted trip expense.
Interest expense increased to $8 million in 1995 compared with $6
million in 1994 and $5 million in 1993. The increase in 1995 was attributable
to a full year of interest expense for the four ATRs purchased in 1994 as well
as the upward trend in interest rates in 1995. The increase in interest expense
for 1994 in comparison with 1993 was the result of new aircraft financing and
higher interest rates during 1994. Interest income was $12 million in 1995
compared with $7 million and $5 million in 1994 and 1993, respectively. Higher
average cash available for investment and the rise in interest rates
contributed to this increase in interest income for 1995 and 1994.
-23-
<PAGE> 26
The Company's effective income tax rate differs from the statutory
rate of 35% due to the impact of state income taxes, net of federal tax
benefit, offset by a $1.3 million decrease in deferred tax liabilities and
deferred tax expense due to the resolution of prior years' income tax audits.
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by FASB
Statement No. 109, "Accounting for Income Taxes". The cumulative effect of
adopting Statement No. 109 was to increase net income by $4.2 million.
-24-
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ATLANTIC SOUTHEAST AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1995 1994
---------- ----------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 66,402,694 $ 42,526,882
Marketable securities 121,697,247 133,882,146
Receivables, less allowance for uncollectible
accounts of $266,343 in 1995 and
$280,569 in 1994 - Note J 11,715,607 6,721,146
Expendable parts, less allowance for obsolescence
of $4,048,772 in 1995 and $3,504,113 in 1994 6,439,628 7,626,159
Other current assets 4,487,636 2,851,599
============ ============
210,742,812 193,607,932
Property and Equipment - Note B
Flight equipment 474,188,485 472,354,273
Other property and equipment 8,734,697 7,986,401
Advance payments on property and equipment 88,113 190,444
------------ ------------
483,011,295 480,531,118
Less accumulated depreciation and amortization 190,612,743 163,376,196
------------ ------------
292,398,552 317,154,922
Other Assets 9,558,130 8,921,108
------------ ------------
Total Assets $512,699,494 $519,683,962
============ ============
</TABLE>
See notes to consolidated financial statements.
-25-
<PAGE> 28
ATLANTIC SOUTHEAST AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1995 1994
---------- ------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term debt $ 32,390,437 $ 28,254,410
Accounts payable - Note J 20,945,977 13,398,934
Air traffic liability 1,934,289 1,623,523
Accrued compensation and related expenses 6,697,331 4,517,906
Accrued interest payable 2,941,011 3,136,212
Other accrued expenses 4,156,667 1,043,041
Income taxes payable - 1,243,399
------------ ------------
69,065,712 53,217,425
Long-Term Debt - Note B 120,209,650 152,609,818
Other Non-Current Liabilities 1,369,128 533,746
Deferred Income Taxes - Note E 69,199,527 65,852,722
Commitments and Contingencies - Notes B, C and F
Shareholders' Equity - Notes G and H
Common stock, $.10 par; authorized -
50,000,000 shares; issued - 34,386,670
and 34,363,707 shares, respectively 3,438,667 3,436,371
Capital in excess of par 45,887,347 45,238,051
Retained earnings 258,857,819 218,924,394
Unrealized holding gain (loss) on investments 72,444 (151,377)
------------ ------------
308,256,277 267,447,439
Less treasury stock at cost - 2,683,100
and 1,140,000 shares, respectively 55,400,800 19,977,188
------------ ------------
Total Shareholders' Equity 252,855,477 247,470,251
------------ ------------
Total Liabilities and Shareholders' Equity $512,699,494 $519,683,962
============ ============
</TABLE>
See notes to consolidated financial statements.
-26-
<PAGE> 29
ATLANTIC SOUTHEAST AIRLINES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
REVENUES
Operating Revenues:
Passenger $318,360,153 $305,846,064 $283,409,987
Other 10,365,287 6,243,518 5,053,027
------------ ------------ ------------
Total Operating Revenues 328,725,440 312,089,582 288,463,014
EXPENSES
Operating Expenses:
Flying operations 68,956,898 65,063,156 55,459,500
Maintenance 54,309,317 49,036,093 42,097,046
Passenger service 16,049,620 14,199,904 11,326,358
Aircraft and traffic servicing 40,229,297 36,333,282 30,105,342
Promotion, sales and advertising 32,148,818 30,480,757 28,001,781
General and administrative 13,159,314 5,284,986 19,487,821
Depreciation, amortization and obsolescence 27,695,335 27,170,678 24,172,006
Other 301,734 249,185 192,542
------------ ------------ ------------
Total Operating Expenses 252,850,333 227,818,041 210,842,396
Income from Operations 75,875,107 84,271,541 77,620,618
Non-Operating (Income) Expenses:
Interest:
Income (11,997,712) (7,499,615) (4,969,841)
Expense 7,609,317 6,199,299 5,179,839
Other, net (510,315) (47,891) (11,841)
------------ ------------ ------------
(4,898,710) (1,348,207) 198,157
Income before Income Taxes and Cumulative
Effect of Change in Accounting for Income
Taxes 80,773,817 85,619,748 77,422,461
Income Taxes - Note E:
Current 26,289,595 24,897,824 22,354,500
Deferred 3,346,805 8,066,176 8,735,500
------------ ------------ ------------
29,636,400 32,964,000 31,090,000
Income before Cumulative Effect of
Accounting Change 51,137,417 52,655,748 46,332,461
Cumulative Effect as of January 1, 1993 of
Change in Method of Accounting for Income
Taxes - - 4,212,300
------------ ------------ ------------
Net Income $ 51,137,417 $ 52,655,748 $ 50,544,761
============ ============ ============
Earnings per Share:
Income before cumulative effect of
accounting change $ 1.55 $ 1.54 $ 1.35
Cumulative effect of accounting change - - 0.12
------------ ------------ ------------
Net income $ 1.55 $ 1.54 $ 1.47
============ ============ ============
Weighted Average Number of Shares
Outstanding 32,964,138 34,187,833 34,395,401
</TABLE>
See notes to consolidated financial statements.
-27-
<PAGE> 30
ATLANTIC SOUTHEAST AIRLINES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 51,137,417 $ 52,655,748 $ 50,544,761
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 26,794,942 26,027,910 23,248,594
Amortization and provision for obsolescence 900,393 1,142,768 923,412
Amortization of engine overhauls 7,710,438 6,570,952 5,476,004
Deferred income taxes 3,346,805 8,066,176 4,523,200
Other (174,173) 1,253,601 5,112,417
Changes in Operating Assets and Liabilities:
Receivables (5,014,461) 104,232 (1,165,112)
Expendable parts 640,194 (1,830,457) (1,412,371)
Other assets (3,147,901) 409,523 (2,585,440)
Accrued compensation and related expenses 3,014,807 (4,821,546) 3,364,860
Accrued interest payable (195,201) 1,494,320 (296,360)
Other liabilities 10,971,435 2,041,278 3,117,194
Income taxes payable (1,243,399) (2,998,093) 2,248,110
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 94,741,296 90,116,412 93,099,269
INVESTING ACTIVITIES:
Purchase of Marketable Securities (198,048,934) (186,608,304) (190,199,124)
Proceeds from Sale of Marketable Securities 210,597,389 165,574,532 152,130,056
Purchases of Property and Equipment
including Advance Payments (13,851,990) (67,944,372) (35,837,773)
Other 5,329,796 537,249 584,999
------------- ------------ -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 4,026,261 (88,440,895) (73,321,842)
FINANCING ACTIVITIES:
Proceeds from Long-Term Debt - 43,782,329 16,688,814
Principal Payments on Long-Term Debt (28,264,141) (24,862,330) (32,147,358)
Dividends Paid (11,203,992) (10,926,232) (9,605,629)
Acquisition of Treasury Stock (35,423,612) (19,977,188) -
-------------- ------------ -------------
NET CASH USED IN FINANCING ACTIVITIES (74,891,745) (11,983,421) (25,064,173)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 23,875,812 (10,307,904) (5,286,746)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 42,526,882 52,834,786 58,121,532
------------- ------------ -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 66,402,694 $ 42,526,882 $ 52,834,786
============= ============ =============
</TABLE>
See notes to consolidated financial statements.
-28-
<PAGE> 31
ATLANTIC SOUTHEAST AIRLINES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Capital in Treasury Stock
---------------------- Excess Retained -------------------------
Shares Amount of Par Earnings Other Shares Amount
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 34,179,758 $3,417,976 $39,064,701 $136,255,746 $ - - $ -
Net Income 50,544,761
Dividends Paid (28c. per share) (9,605,629)
Exercise of Stock Appreciation
Rights 160,014 16,001 5,393,547
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 34,339,772 3,433,977 44,458,248 177,194,878 - - -
Net Income 52,655,748
Dividends Paid (32c. per share) (10,926,232)
Exercise of Stock Appreciation
Rights 23,935 2,394 779,803
Unrealized Holding Loss on
Investments, Net (151,377)
Purchase of Treasury Stock (1,140,000) (19,977,188)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 34,363,707 3,436,371 45,238,051 218,924,394 (151,377) (1,140,000) (19,977,188)
NET INCOME 51,137,417
DIVIDENDS PAID (34c. PER SHARE) (11,203,992)
EXERCISE OF STOCK APPRECIATION
RIGHTS 22,963 2,296 649,296
UNREALIZED HOLDING GAIN ON
INVESTMENTS, NET 223,821
PURCHASE OF TREASURY STOCK (1,543,100) (35,423,612)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 34,386,670 $3,438,667 $45,887,347 $258,857,819 $ 72,444 (2,683,100) ($55,400,800)
==================================================================================================================================
See notes to consolidated financial statements.
</TABLE>
-29-
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: The Company operates as a regional air carrier
in the Southeastern and Southwestern United States. The Company and Delta have
entered into a marketing agreement. Under this agreement, the Company's flights
are listed on reservation systems as connecting Delta flights. Delta Air Lines
Holdings, Inc., a subsidiary of Delta, owns approximately 25% of the Company's
Common Stock (See Note J).
Principles of Consolidation: The consolidated financial statements
include the accounts of the Company and its subsidiary, ASA Investments, Inc.
Significant intercompany accounts and transactions have been eliminated.
Use of Estimates: The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results inevitably will
differ from those estimates, and such differences may be material to the
financial statements.
Cash Equivalents: The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents. Such
investments include U.S. Government agency securities, corporate commercial
paper and overnight repurchase agreements. The Company believes that the credit
risk is minimal.
Marketable Securities: The Company's investment in marketable securities
consists of debt instruments of the U.S. Treasury, U.S. Government agencies and
municipal authorities. All such marketable securities have a maturity of less
than one year. These investments are classified as available for sale and
reported at fair market value.
Expendable Parts: Flight equipment expendable parts are valued at average
cost less an allowance for obsolescence. Expendable parts are charged to
maintenance expense as used.
Property, Equipment and Depreciation: Flight equipment and other property
and equipment are stated at cost. Major additions, betterments and renewals
are capitalized. Depreciation of costs less estimated residual values is
computed on the straight-line basis over the estimated useful lives of the
related assets. For income tax purposes, accelerated depreciation methods are
used.
Maintenance: The cost of major engine overhauls for owned aircraft is
capitalized and amortized to maintenance expense over the estimated overhaul
life. Overhaul expense is accrued or amortized for leased aircraft in
accordance with lease provisions.
-30-
<PAGE> 33
Intangibles: Excess of cost over fair value of tangible assets acquired
is being amortized by the straight-line method over a 40-year period. Included
in other assets are deferred financing fees and deferred gate assignment costs.
These costs are being amortized over periods from four to 20 years.
Accumulated amortization at December 31, 1995 and 1994 was $2,462,580 and
$2,506,279, respectively.
Also included in other assets is restricted cash which serves as
collateral for a portion of the Company's financing (See Note B).
The cost of routine development of new or extended routes and the
pre-operating costs incurred in connection with aircraft acquisitions are
charged to expense as incurred.
Passenger Revenue Recognition: The Company issues Delta ticket stock for
passenger sales. Passenger revenues are recognized at the time transportation
is provided. As a "Delta Connection" carrier, the Company participates in
Delta's frequent flyer incentive program. The Company does not accrue for
incremental costs associated with the program's mileage accumulation since the
impact is immaterial. Included in air traffic liability are cargo liabilities
and amounts resulting from timing differences in billings with Delta.
Income Taxes: Deferred income taxes are provided for temporary
differences in the recognition of income and expenses for financial reporting
and income tax reporting.
Earnings per Share: Earnings per share are based on the weighted average
number of shares of Common Stock outstanding and dilutive Common Stock
equivalents (See Notes G and H).
Reclassification: Certain amounts as previously reported have been
reclassified to conform to current year presentation.
Recent Pronouncements: In March 1995, the Financial Accounting Standards
Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of", which requires impairment
losses to be recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. Statement
121 also addresses the accounting for long-lived assets that are expected to be
disposed of in the future. The Company will adopt Statement 121 in the first
quarter of 1996 and, based on current circumstances, does not believe the
effect of adoption will be material.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation", which encourages companies
to recognize expense for stock-based awards based on their fair value on the
date of grant. At a minimum, Statement 123 will require pro forma disclosures
in the Company's 1996 financial statements. The Company has not determined if
it will adopt the expense recognition provisions of Statement 123. If the
expense recognition provisions were to be adopted, the outcome may be
materially different from the results
-31-
<PAGE> 34
determined by the current accounting requirements under APB No. 25,
"Accounting for Stock Issued to Employees".
NOTE B - LONG-TERM DEBT
The Company's long-term debt was as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
------------ ------------
<S> <C> <C>
Notes payable to banks. Aircraft and support equipment
with a net book value of $51,036,898 are pledged as
collateral. Payments are due in semi-annual
installments of $4,455,526 plus interest at 6.5% to
1999. $20,004,170 $28,915,222
Notes payable to banks. Aircraft and support equipment
with a net book value of $22,843,282 are pledged as
collateral. Payments are due in semi-annual installments
of $1,718,711 plus interest at 6.125% to 6.5% to 1999. 10,275,048 13,712,469
Notes payable to banks. Aircraft and support equipment
with a net book value of $7,490,963 are pledged as
collateral. Payments are due in quarterly installments
of $259,662 plus interest at 7% to 1999. 3,894,935 4,933,584
Notes payable to bank. Aircraft and support equipment
with a net book value of $12,386,023 are pledged as
collateral. Payments are due in semi-annual
installments of $788,901 plus interest at 5.35% to
5.7875% to 2000. 7,626,015 9,203,816
Floating rate note payable to bank. Aircraft and
support equipment with a net book value of $4,272,177 are
pledged as collateral. Payments are due in semi-annual
installments of $264,615 plus interest based on
floating six month LIBOR to 2000. Rate at December 31,
1995 was 6.4141%. 2,646,150 3,175,380
Floating rate note payable to bank. Euro-time deposit of
$2,649,263 is pledged as collateral. Payments are due
in semi-annual installments of $264,927 plus interest
based on floating six month LIBOR to 2000. Rate at
December 31, 1995 was 6.6094% . 2,649,263 3,179,116
</TABLE>
-32-
<PAGE> 35
<TABLE>
<S> <C> <C>
Floating rate notes payable to bank. Aircraft and
support equipment with a net book value of $17,560,352
are pledged as collateral. Payments are due in
semi-annual installments of $1,069,328 plus interest
based on floating six month LIBOR to 2001. Rates
at December 31, 1995 were 6.725% - 6.85%. 11,762,599 13,901,254
Floating rate notes payable to bank. Aircraft and
support equipment with a net book value of $18,314,070
are pledged as collateral. Payments are due in
semi-annual installments of $1,051,214 plus interest
based on floating six month LIBOR to 2002. Rates
at December 31, 1995 were 6.8125% - 6.8594%. 12,084,284 14,186,711
Floating rate notes payable to bank. Aircraft and
support equipment with a net book value of $52,954,811
are pledged as collateral. Payments are due in
semi-annual installments of $2,727,240 plus interest
based on floating six month LIBOR to 2003. Rates at
December 31, 1995 were 6.5469% - 6.625%. 41,748,628 47,203,108
Floating rate notes payable to bank. Aircraft and
support equipment with a net book value of $46,731,546
are pledged as collateral. Payments are due in mortgage
style semi-annual installments estimated at $1,246,229
(subject to change) plus interest based on floating six
month LIBOR to 2006. Rates at December 31, 1995
were 6.125% to 6.418%. 39,908,995 42,453,568
------------ ------------
152,600,087 180,864,228
------------ ------------
Less current portion 32,390,437 28,254,410
------------ ------------
$120,209,650 $152,609,818
============ ============
</TABLE>
As of December 31, 1995, maturities on long-term debt were:
<TABLE>
<S> <C>
1996 $ 32,390,437
1997 25,548,292
1998 21,853,112
1999 18,654,087
2000 15,371,102
After 2000 38,783,057
------------
$152,600,087
============
</TABLE>
The Company's loan agreements contain limitations on, among other things,
sale or lease of assets; the acquisition of stock of other entities; ratio of
long-term debt to tangible net worth; ratio of total liabilities to tangible
net worth; maintenance of minimum tangible net worth and funds flow
-33-
<PAGE> 36
coverage; and limitations on the payment of dividends and repurchases of
Common Stock (See Note G).
The Company has negotiated to receive interest rate subsidies on certain
indebtedness through the export support program of the Federative Republic of
Brazil. Outstanding debt aggregating $112,691,092 at December 31, 1995 is
subject to subsidy payments which reduce the stated interest rates on such debt
to an average of approximately 3.57%. However, subsidies on outstanding debt
aggregating $105,065,077 are at risk to the Company if the Federative Republic
of Brazil does not meet its obligations under the export support program. For
the remaining debt that is subject to such subsidies, the lenders assumed such
risk by building such subsidy payments into the Company's payment obligations.
During 1995, 1994 and 1993, the Company reduced its interest expense by
$3,726,620, $3,800,430 and $3,819,418, respectively, as a result of these
interest rate subsidies. The amount of net interest paid during 1995, 1994 and
1993 was $7,446,255, $4,702,987 and $5,824,753, respectively. As indicated
above, the Company is at risk with respect to certain of these subsidy
payments. While the Company has no reason to believe, based on information
currently available to it, that it will not continue to receive such subsidy
payments from the Federative Republic of Brazil in the future, there can be no
assurance that such a default will not occur.
NOTE C - AIRCRAFT COMMITMENTS
As of December 31, 1995, the Company had no aircraft purchase commitments.
In January 1996, the Company acquired one additional BAe Jet under an operating
lease.
NOTE D - LINES OF CREDIT
The Company has an $8,000,000 bank line of credit available at LIBOR plus
.4%. This line of credit expires in February 1997 and is renewed annually. At
December 31, 1995 and 1994, there were $.7 million and $.9 million of this line
committed to support a letter of credit. The remainder is available for
general working capital purposes on an as needed basis. At December 31, 1995
and 1994, there were no outstanding amounts against the line of credit.
NOTE E - INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting
for income taxes from the deferred method to the liability method as required
by FASB Statement No. 109, "Accounting for Income Taxes". As permitted under
the new rules, prior years' financial statements were not restated. The
cumulative effect of adopting Statement No. 109 as of January 1, 1993 was to
increase net income by $4,212,300.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax
-34-
<PAGE> 37
purposes. Significant components of the Company's deferred tax liabilities
and assets as of December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $72,277,493 $68,213,625
Other 172,151 114,419
----------- -----------
Total deferred tax
liabilities 72,449,644 68,328,044
Deferred tax assets:
Asset valuation reserves 1,565,805 1,231,267
Other 1,684,312 1,244,055
----------- -----------
Total deferred tax assets 3,250,117 2,475,322
----------- -----------
Net deferred tax liabilities $69,199,527 $65,852,722
=========== ===========
</TABLE>
For financial reporting purposes, the provision for income taxes includes
the following components for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Federal:
Current $23,397,695 $22,124,324 $19,590,000
Deferred 2,978,705 7,178,897 7,600,000
----------- ----------- -----------
26,376,400 29,303,221 27,190,000
----------- ----------- -----------
State:
Current 2,891,900 2,773,500 2,764,500
Deferred 368,100 887,279 1,135,500
----------- ----------- -----------
3,260,000 3,660,779 3,900,000
----------- ----------- -----------
$29,636,400 $32,964,000 $31,090,000
=========== =========== ===========
</TABLE>
A reconciliation of the provisions for taxes on income at the applicable
federal statutory income tax rate to the income tax expense as reported is as
follows for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Income tax expense at statutory rate $28,270,836 $29,966,912 $27,097,900
State income taxes, net of federal
tax benefit 2,160,835 2,489,421 2,355,200
Adjust deferred tax liability for
1993 income tax rate increase - - 1,398,000
Other (795,271) 507,667 238,900
----------- ----------- -----------
Income tax expense $29,636,400 $32,964,000 $31,090,000
=========== =========== ===========
</TABLE>
-35-
<PAGE> 38
In 1995, prior years' income tax audits were resolved and the Company
reduced its deferred tax liabilities and deferred tax expense by approximately
$1.3 million.
The Company paid income taxes in the amount of $27,259,730 in 1995,
$27,801,152 in 1994 and $20,087,657 in 1993.
NOTE F - COMMITMENTS AND CONTINGENCIES
The Company's current fleet includes the following aircraft under
operating leases:
<TABLE>
<CAPTION>
NON-CANCELLABLE
# OF AIRCRAFT TYPE OF AIRCRAFT LEASE TERM
------------- ---------------- ---------------
<S> <C> <C>
8 ATR-72 7 years
4 EMB-120 3.1 - 4.4 years
4 BAe 146 5 years
</TABLE>
The Company has the option to extend each of the BAe Jet leases, for a
term to be decided, within 12 months of the expiration date of the original
lease term.
The Company leases facilities from local airport authorities or other
carriers as well as office space for its corporate headquarters and hangar
facilities. These leases are operating leases and have terms ranging from one
month to twenty-three years.
Total rental expense on operating leases for the years ended December 31,
1995, 1994 and 1993 was $17,591,292, $14,597,677 and $9,174,944, respectively.
Minimum future lease payments under all non-cancellable operating leases
are as follows:
1996 $ 21,548,230
1997 21,431,839
1998 21,818,548
1999 20,428,632
2000 18,778,345
After 2000 43,206,289
------------
$147,211,883
============
On August 21, 1995, the Company suffered a tragic loss when one of its
flights crashed. A number of claims and lawsuits have been filed in connection
with this matter. The cause of the accident is still under investigation by the
National Transportation Safety Board. However, management believes and
preliminary findings indicate that the accident may have been caused by a
fatigue failure in one of the propellers. The propeller manufacturer (through
its insurer) has agreed
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<PAGE> 39
to address all claims arising from this accident without acknowledging fault.
Management does not believe that the Company has any liability in this matter,
based on information currently available to it. In addition, the Company
maintains insurance coverage which it believes, based on information currently
available to it, is sufficient to cover claims associated with this incident if
the Company were found to be at fault.
Approximately 20% of the Company's workforce are members of the unions
representing the pilots and flight attendants. In 1995, collective bargaining
agreements with both of these unions became amendable and are currently being
renegotiated. The Railway Labor Act, which governs labor relations for these
unions, contains detailed provisions that must be exhausted before work
stoppages can occur once a collective bargaining agreement becomes amendable.
NOTE G - DIVIDENDS AND COMMON STOCK TRANSACTIONS
Certain restrictions in the Company's debt agreements limit the amount of
repurchases of Common Stock and payment of dividends generally to 30% of
average annual earnings as defined (See Note B). The credit agreements allowed
for approximately $15,531,000 and $14,240,000 to be used for stock repurchases
and dividend payments in 1995 and 1994, respectively. For the years ending
December 31, 1995 and 1994, respectively, the Company paid dividends on its
common stock in the amount of $11,203,992 and $10,926,232, and acquired
approximately $3,329,000 and $2,777,000 of treasury stock under these
provisions. In May 1994, the Board of Directors authorized the Company to
repurchase an additional $50,000,000 of its Common Stock on the open market at
any time on or before December 31, 1995, which was subsequently consented to by
the Company's lenders as required by various loan agreements. The Company
repurchased, at December 31, 1995, approximately $49,295,000 of its Common
Stock in conjunction with this limitation. In November 1995, the Board of
Directors authorized the Company to repurchase up to an additional $50,000,000
of its Common Stock on the open market during 1996, which was also subsequently
consented to by the Company's lenders as required by various loan agreements.
In February 1996, the Board of Directors increased the regular quarterly
cash dividend from 8.5 cents to 9.5 cents per share.
NOTE H - STOCK PLANS
The Company has a Stock Appreciation Rights ("SARS") plan which allows for
up to 900,000 shares of the Company's Common Stock to be issued to certain
employees. The plan provides for the appreciation in market value, at the date
of exercise, over the grant price to be issued in shares of Common Stock, cash
or a combination thereof, as determined by the Company's Board of Directors and
set at the time of each SAR grant. SARs outstanding at December 31, 1995 are
exercisable over a period of five years at certain intervals, as provided in
the form of each grant. Grants are made by a committee of the Board of
Directors.
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<PAGE> 40
SARs transactions are as follows:
<TABLE>
<CAPTION>
NUMBER OF SARS GRANT PRICE
-------------- ---------------
<S> <C> <C>
Outstanding at January 1, 1993 528,400 $11.25 - $17.13
Exercised (549,400) 11.25 - 21.13
Granted 437,200 21.13
-------------- ---------------
Outstanding at December 31, 1993 416,200 17.13 - 21.13
Exercised (122,200) 21.13
Granted 235,700 36.75
-------------- ---------------
Outstanding at December 31, 1994 529,700 17.13 - 36.75
Exercised (150,300) 21.13
Granted 411,000 17.13
-------------- ---------------
Outstanding at December 31, 1995 790,400 $17.13-$36.75
-------------- ---------------
</TABLE>
In 1995, the Company incurred approximately $2,416,000 of expense related
to SARs. In 1994, the Company reversed previously accrued expenses associated
with SARs resulting in a credit to expense of approximately $4,198,000 due to
a decline in the Common Stock price. In 1993, SARs increased expense by
$11,662,000. In connection with the exercise of SARs, the Company made cash
payments of $434,445 and issued 22,963 shares of Common Stock in 1995, made
cash payments of $521,529 and issued 23,935 shares of Common Stock in 1994, and
made cash payments of $3,606,677 and issued 160,014 shares of Common Stock in
1993.
NOTE I - EMPLOYEE BENEFIT PLANS
All employees who have completed one year of employment are generally
eligible to participate in the Company's Investment Savings Plan (formerly
called the Thrift Plan). As of January 1, 1995, the revised plan provides
employees with expanded services, more investment options and greater
flexibility. For each dollar of salary reduction elected by an employee (up to
6% of an employee's earnings), the Company has made a matching contribution of
20 cents to 50 cents (depending on the number of years of participation for
each participant). The amounts contributed by the Company for 1995, 1994 and
1993 were approximately $915,000, $820,000 and $691,000, respectively.
The Company has an Executive Deferred Compensation Plan for certain
employees, as designated by a committee of the Board of Directors. The Company
contributes from 10% to 15% of each participant's base salary to the plan.
Approximately $122,000, $100,000 and $113,000 were contributed in 1995, 1994
and 1993, respectively.
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<PAGE> 41
The Company has a Supplemental Executive Retirement Plan ("SERP") which
was approved by the Board of Directors in May 1995. The SERP will provide
supplemental retirement income to certain key executive employees at the time
of their retirement or termination of employment from the Company, on or after
the attainment of age 55. During 1995, the Company incurred expense of $131,040
related to the SERP.
The Company has no material liability for post-retirement or
post-employment benefits under Statements of Financial Accounting Standards
Nos. 106 and 112.
NOTE J - RELATED PARTY TRANSACTIONS
Delta Air Lines Holdings, Inc. (an affiliate of Delta) owns 7,995,000
shares or approximately 25% of the Company's outstanding Common Stock. The
Company leases reservation equipment and certain terminal facilities from Delta
and Delta provides certain services to the Company, including reservation and
ground handling services. Expenses paid to the shareholder under these
agreements were approximately $9,642,000 in 1995, $5,762,000 in 1994 and
$4,174,000 in 1993. Other information related to this shareholder is as
follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Accounts Receivable from Shareholder at December 31: $ 129,000 $ 246,000
Accounts Payable to Shareholder at December 31: $2,275,000 $1,096,000
</TABLE>
Given the Company's relationship with Delta, the Company's results of
operations and financial condition may be favorably or adversely impacted by
Delta's decisions regarding its flight routes and other operational matters.
The Company's flight schedules are structured to facilitate the connection of
its passengers with Delta flights at the Company's Atlanta and Dallas/Fort
Worth hubs. The Company periodically reconsiders it route system based on
information then available to the Company. The Company has historically
benefited from its relationship with Delta but there can be no assurance that
such benefits will occur in the future.
NOTE K - MARKETABLE SECURITIES AND FAIR VALUE INFORMATION
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Marketable securities: In 1994, the Company changed its method of
accounting for its portfolio of marketable securities by adopting Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". Accordingly, such investments are classified as
available for sale and reported at fair value (estimated based on quoted market
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<PAGE> 42
prices). The gross unrealized holding gain of $117,414 as of December 31, 1995
and the $246,142 holding loss as of December 31, 1994 are reflected as
adjustments to shareholders' equity, net of related income taxes. Realized
gains and losses other than interest income were not material.
Long-term debt: The fair values of the Company's long-term debt are
estimated using discounted cash flow analyses, based on the Company's estimate
of current borrowing rates for credit facilities with maturities which
approximate the weighted average maturities for its existing long-term debt.
Off-balance sheet financial instruments: The Company receives interest
rate subsidies on certain long-term debt instruments (See Note B). The fair
values of these off-balance sheet instruments are estimated using discounted
cash flow analyses based on the Company's estimate of current borrowing rates.
The carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
CARRYING AMOUNTS ESTIMATED FAIR VALUE
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 66,402,694 $ 42,526,882 $ 66,402,694 $ 42,526,882
Marketable securities 121,697,247 133,882,146 121,697,247 133,882,146
Total long-term debt
(including current
maturities) (152,600,087) (180,864,228) (152,501,958) (177,799,736)
Off-balance sheet financial
instruments - - 8,305,613 10,470,054
</TABLE>
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<PAGE> 43
ATLANTIC SOUTHEAST AIRLINES, INC.
REPORT OF MANAGEMENT
The management of Atlantic Southeast Airlines, Inc. is responsible for the
preparation, content, integrity and objectivity of the financial statements and
other information presented in this report. The financial statements, which
were prepared in conformity with generally accepted accounting principles
applied on a consistent basis, have been audited by Ernst & Young LLP,
independent auditors.
The Company maintains a system of internal controls that provides
reasonable assurance as to the integrity and reliability of the financial
statements, that its assets are safeguarded against loss or unauthorized use
and that fraudulent financial reporting is prevented and detected.
The Board of Directors pursues its responsibilities through its Audit
Committee composed entirely of directors who are not employees of the Company.
The Audit Committee meets periodically and privately with the Company's
independent auditors and Company management to review accounting, auditing,
internal control and financial reporting matters.
/s/ George F. Pickett
----------------------------
George F. Pickett
Chairman of the Board and
Chief Executive Officer
/s/ Ronald V. Sapp
----------------------------
Ronald V. Sapp
Treasurer, Chief Financial
Officer and Vice
President - Finance
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<PAGE> 44
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
Shareholders and Board of Directors
Atlantic Southeast Airlines, Inc.
We have audited the accompanying consolidated balance sheets of Atlantic
Southeast Airlines, Inc. and subsidiary as of December 31, 1995 and 1994, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Atlantic Southeast Airlines, Inc. and subsidiary at December 31, 1995 and 1994,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in Note K to the consolidated financial statements, in 1994
the Company changed its method of accounting for marketable securities. Also,
as discussed in Note E to the consolidated financial statements, in 1993 the
Company changed its method of accounting for income taxes.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 2, 1996
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<PAGE> 45
ATLANTIC SOUTHEAST AIRLINES, INC.
QUARTERLY FINANCIAL DATA
(In thousands except share and per share data)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH YEAR
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
OPERATING REVENUES $71,891 $90,049 $84,225 $82,560 $328,725
OPERATING INCOME 14,375 23,294 23,108 15,098 75,875
INCOME BEFORE TAXES 15,008 24,258 24,522 16,986 80,774
NET INCOME $ 9,560 $14,967 $15,130 $11,480 $ 51,137
NET INCOME PER SHARE $ 0.29 $ 0.45 $ 0.46 $ 0.35 $ 1.55
AVERAGE WEIGHTED
SHARES OUTSTANDING 33,069 33,113 33,107 32,558 32,964
STOCK PRICE DATA
HIGH $ 21.00 $ 30.75 $ 34.25 $ 27.88 $34.25
LOW $ 15.25 $ 18.00 $ 21.75 $ 20.75 $ 15.25
1994
Operating Revenues $75,019 $82,033 $80,082 $74,956 $312,090
Operating Income 19,841 26,632 20,174 17,625 84,272
Income before Taxes 20,115 27,003 20,376 18,126 85,620
Net Income $12,350 $16,580 $12,511 $11,215 $ 52,656
Net Income per Share $ 0.36 $ 0.48 $ 0.37 $ 0.33 $ 1.54
Average Weighted
Shares Outstanding 34,434 34,383 34,277 33,665 34,188
Stock Price Data
High $ 38.75 $ 33.00 $ 30.75 $ 24.50 $ 38.75
Low $ 31.25 $ 21.25 $ 23.00 $ 12.75 $ 12.75
</TABLE>
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<PAGE> 46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No change in or disagreements with the Company's accountants took place
during the Company's fiscal years ended December 31, 1994 and 1995, or during
the subsequent interim period.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference
to the data under the heading "ELECTION OF DIRECTORS" in the Proxy Statement to
be used in connection with the solicitation of proxies for the Company's annual
meeting of shareholders to be held May 22, 1996, to be filed with the
Securities and Exchange Commission (the "COMMISSION").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference
to the date under the heading "EXECUTIVE COMPENSATION" in the Proxy Statement
to be used in connection with the solicitation of proxies for the Company's
annual meeting of shareholders to be held May 22, 1996, to be filed with the
Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference
to the data under the heading "VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
- -- SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS" in the Proxy
Statement to be used in connection with the solicitation of proxies for the
Company's annual meeting of shareholders to be held May 22, 1996, to be filed
with the Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference
to the data under the heading "ELECTION OF DIRECTORS -- COMPENSATION COMMITTEE
INTERLOCKS AND ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION DECISIONS"
in the Proxy Statement to be used in connection with the solicitation of
proxies for the Company's annual meeting of shareholders to be held May 22,
1996, to be filed with the Commission.
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<PAGE> 47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. The following financial statements of the Registrant required by Item 8
of Form 10-K are included as pages 25 through 40 of this Report on Form 10-K:
Consolidated Balance Sheets as of December 31, 1995 and 1994;
Consolidated Statements of Income for the years ended December 31,
1995, 1994 and 1993;
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993;
Consolidated Statements of Cash Flows for the years ended December
31, 1995, 1994 and 1993; and
Notes to Consolidated Financial Statements.
2. The following financial statement schedule of the Registrant required
by Item 8 and Item 14(d) of Form 10-K is included as page 55 of this Report on
Form 10-K:
Schedule II - Valuation and Qualifying Accounts and Reserves
Schedules other than those listed above have been omitted because they are not
applicable or required under the accounting regulations and related
instructions of the Commission.
3. The following exhibits required by Item 601 of Regulation S-K and by
Item 14(c) of Form 10-K are filed herewith or incorporated by reference as
indicated. Exhibit numbers refer to Item 601 of Regulation S-K:
Exhibit Number and Description
3(a) Amended and Restated Articles of Incorporation (Incorporated by
reference to Exhibit 3(a) to the Registrant's registration statement
on Form S-1, file number 2-277713, filed with the Commission on July
21, 1982).
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<PAGE> 48
3(b) Articles of Amendment dated May 10, 1985. (Incorporated by reference
to Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992, file number 0-11097, filed
with the Commission on March 31, 1992).
3(c) Articles of Amendment dated May 24, 1988. (Incorporated by reference to
Exhibit 19(a) to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1988, file number 0-11097, filed with
the Commission on August 11, 1988).
3(d) Articles of Amendment dated May 25, 1989. (Incorporated by reference to
Exhibit 3(d) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989, file number 0-11097, filed
with the Commission on March 30, 1990).
3(e) By-Laws as amended on October 25, 1985. (Incorporated by reference to
Exhibit 3(e) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990, file number 0-11097, filed
with the Commission on March 29, 1991).
3(f) Amendment to By-Laws adopted on January 29, 1992. (Incorporated by
reference to Exhibit 3(f) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991, file number
0-11097, filed with the Commission on March 27, 1992).
3(g) Restated By-Laws adopted on January 22, 1993. (Incorporated by
reference to Exhibit 3(g) to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1992, file number 0-11097,
filed with the Commission on March 31, 1993).
3(h) Amendment to Bylaws adopted on February 2, 1994. (Incorporated by
reference to Exhibit 3(h) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, file number
0-11097, filed with the Commission on March 31, 1994).
4 Instruments defining the rights of security holders, including
indentures. See Exhibits 3(a), 3(b), 3(c), 3(d), 3(e), 3(f),
3(g) and 3(h).
10(a) Stock Purchase Agreement dated May 28, 1986, between the Registrant and
Delta Air Lines, Inc. (Incorporated by reference to Exhibit 10(e) to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, file number 0-11097, filed with the Commission on
March 29, 1991).
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<PAGE> 49
10(b) Delta Connection Agreement dated July 1, 1986, between the Registrant
and Delta Air Lines, Inc. (Incorporated by reference to Exhibit
10(e) to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991, file number 0-11097, filed with the
Commission on March 27, 1992).
10(c) Credit Agreement dated as of December 24, 1986, among the Registrant,
ASA Investments, Inc., Manufacturers Hanover Leasing International
Corp., American Security Bank, N.A., Barclays Bank PLC, B.S.F.E. -
Banque de la Societe Financiere Europeene, Canadian Imperial Bank of
Commerce, Citizens and Southern National Bank, Continental Illinois
National Bank and Trust Company of Chicago, Kawasaki Lease Financing
Inc., National Bank of Canada, National Bank of Georgia and The Royal
Bank of Canada. (Incorporated by reference to Exhibit 10(f) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991, file number 0-11097, filed with the Commission on
March 27, 1992). Amendment No. 1 dated as of February 20, 1987.
(Incorporated by reference to Exhibit 10(f) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1992, file number 0-11097, filed with the Commission on March 31,
1993). Amendment No. 2 dated as of May 23, 1989. (Incorporated by
reference to Exhibit 19(a) to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1989, file number
0-11097, filed with the Commission on November 11, 1989). Amendment
No. 3 dated as of August 17, 1989. (Incorporated by reference to
Exhibit 19(b) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1989, file number 0-11097, filed with
the Commission on November 11, 1989).
10(d) Single Payment Note, dated January 26, 1987, still in effect evidencing
Registrant's line of credit with Trust Company Bank. (Incorporated by
reference to Exhibit 10(g) to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1991, file number 0-11097,
filed with the Commission on March 27, 1992).
10(e) Credit Agreement dated as of April 23, 1987, among the Registrant, ASA
Investments, Inc., Manufacturers Hanover Leasing International
Corp., Kawasaki Lease Financing, Inc. and Credit Lyonnais, Cayman
Islands Branch. (Incorporated by reference to Exhibit 10(i) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991, file number 0-11097, filed with the Commission on
March 27, 1992). Amendment No. 1 dated as of May 23, 1989.
(Incorporated by reference to Exhibit 19(c) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1989, file number 0-11097, filed with the Commission on November 11,
1989). Second Amendment dated as of October 31, 1989. (Incorporated
by reference to Exhibit 10(s) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1989, file number
0-11097, filed with the Commission on March 30, 1990).
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<PAGE> 50
10(f) Lease Agreement dated April 1, 1988, between the Registrant and Macon -
Bibb County Industrial Authority. (Incorporated by reference
to Exhibit 10(k) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992, file number 0-11097, filed
with the Commission on March 31, 1993).
10(g) 1990 Stock Appreciation Rights Plan approved by Shareholders on May 15,
1990. (Incorporated by reference to Exhibit 19(a) to the Registrant's
Quarterly Report for the quarter ended June 30, 1990, file number
0-11097, filed with the Commission on August 13, 1990). (MANAGEMENT
CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO BE FILED AS
AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM 14(C) OF FORM
10-K).
10(h) Executive Deferred Compensation (Retirement) Plan dated May 15, 1990.
(Incorporated by reference to Exhibit 19(b) to the Registrant's
Quarterly Report for the quarter ended June 30, 1990, file number
0-11097, filed with the Commission on August 13, 1990). First
Amendment to Executive Deferred Compensation (Retirement) Plan dated
December 31, 1992. (Incorporated by reference to Exhibit 10(s) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, file number 0-11097, filed with the Commission on
March 31, 1993). (MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR
ARRANGEMENT REQUIRED TO BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM
10-K PURSUANT TO ITEM 14(C) OF FORM 10-K).
10(i) Founding Officer Agreement dated June 27, 1990, between the Registrant
and George F. Pickett (Incorporated by reference to Exhibit 19(c) to
the Registrant's Quarterly Report for the quarter ended June 30, 1990,
file number 0-11097, filed with the Commission on August 13, 1990).
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K).
10(j) Founding Officer Agreement dated June 27, 1990, between the Registrant
and John W. Beiser. (Incorporated by reference to Exhibit 19(d)
to the Registrant's Quarterly Report for the quarter ended June 30,
1990, file number 0-11097, filed with the Commission on August 13,
1990). (MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT
REQUIRED TO BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K
PURSUANT TO ITEM 14(C) OF FORM 10-K).
10(k) Aircraft Purchase Agreement dated August 27, 1990, between the
Registrant and Embraer - Empresa Brasileira de Aeronautica S.A.
(Incorporated by reference to Exhibit 10(t) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990, file
number 0-11097, filed with the Commission on March 29, 1991).
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<PAGE> 51
10(l) Office Lease Agreement dated December 18, 1991, by and between the
Registrant and Trident Partners. (Incorporated by reference to
Exhibit 10(q) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991, file number 0-11097, filed with
the Commission on March 27, 1992).
10(m) Purchase Agreement Assignment [N630AS] dated June 22, 1995; Purchase
Agreement Assignment [N631AS] dated June 22, 1995; Purchase
Agreement Assignment [N632AS] dated June 22, 1995; Purchase Agreement
Assignment [N633AS] dated June 22, 1995; Purchase Agreement Assignment
[N634AS] dated June 22, 1995; Purchase Agreement Assignment [N635AS]
dated June 22, 1995; Purchase Agreement Assignment [N636AS] dated June
22, 1995; and Purchase Agreement Assignment [N637AS] dated June 22,
1995 all between the Company and First Security Bank of Utah, N.A.
(filed as Exhibit 10(c) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995, file number 0-11097, filed
with the Commission on August 14, 1995). This exhibit relates to the
ATR-72 Purchase Agreement between the Company and Avions de Transport
Regional dated February 10, 1993 and related letter agreements (filed
as Exhibit 10(t) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992); and the related Amendment
No. 1 thereto dated February 21, 1994 (Filed as Exhibit 10(p) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, file number 0-11097, filed with the Commission on
March 31,1994); and effectively terminates the related Purchase
Agreement Assignments Nos. 1-6 between the Company and Antoine Finance
Corporation dated July 21, 1993 (filed as Exhibit 10(e) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1993), and the related Purchase Agreement Assignments Nos. 7-9
between the Company and Antoine Finance Corporation dated September
23, 1993 (Filed as Exhibit 10(b) to the Registrant's Quarterly report
on Form 10-Q for the quarter ended September 30, 1993)
10(n) Aircraft Purchase Agreement dated as of April 15, 1993, between the
Registrant and Embraer - Empresa Brasileira de Aeronautica
S.A., related Letter Agreements (I), (II), and (III) dated as of April
15, 1993, and a Second Amendment dated as of April 15, 1993, to a
Letter Supplement dated as of November 21, 1988. (Incorporated by
reference to Exhibit 10(a) to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993, file number 0-11097,
filed with the Commission on August 16, 1993).
10(o) Participation Agreement dated as of May 1, 1993 between the Company and
Antoine Finance Corporation. (Incorporated by reference to
Exhibit 10(b) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993, file number 0-11097, filed with the
Commission on August 16, 1993).
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<PAGE> 52
10(p) Unconditional Guaranty of Performance between the Company and Avions de
Transport Regional dated as of May 1, 1993 with respect to the
ATR 72 Purchase Agreement between the Company and Avions de Transport
Regional dated February 10, 1993 and related letter agreements.
(Incorporated by reference to Exhibit 10(d) to the Registrant's
quarterly report on Form 10-Q for the quarter ended June 30, 1993,
file number 0-11097, filed with the Commission on August 16, 1993).
10(q) Purchase Agreement Assignment No. 1 dated May 10, 1993, Purchase
Agreement Assignment No. 2 dated May 12, 1993, Purchase Agreement
Assignment No. 3 dated May 26, 1993, Purchase Agreement Assignment
No. 4 dated June 16, 1993, Purchase Agreement Assignment No. 5 dated
June 23, 1993, and Purchase Agreement Assignment No. 6 dated July 21,
1993, all with respect to ATR 72 Purchase Agreement between the
Company and Avions de Transport Regional dated February 10, 1993 and
related letter agreements. (Incorporated by reference to Exhibit
10(e) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993, file number 0-11097, filed with the
Commission on August 16, 1993). Purchase Agreement Assignment No. 7
dated August 25, 1993, Purchase Agreement Assignment No. 8 dated
September 9, 1993, and Purchase Agreement Assignment No. 9 dated
September 23, 1993. (Incorporated by reference to Exhibit 10(b) to
the Registrant's quarterly report on Form 10-Q for the quarter ended
September 30, 1993, file number 0-11097, filed with the Commission on
November 15, 1993).
10(r) Credit Agreement with Trust Company Bank dated as of April 20, 1994
(Incorporated by reference to Exhibit 10(a) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994,
file number 0-11097, filed with the Commission on May 13, 1994).
10(s) Collateral Assignment of Purchase Agreement with Trust Company
Bank dated as of April 20, 1994 with respect to ATR 72 Purchase
Agreement between the Company and Avions de Transport Regional dated
February 10, 1993 (Incorporated by reference to Exhibit 10(b) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1994, file number 0-11097, filed with the Commission on May 13,
1994).
10(t) Sublease Agreement [N630AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N630AS] dated June 22, 1995; Sublease Tax Indemnity
Agreement [N630AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N630AS] dated June 22, 1995 (filed as Exhibit
10(d) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, file number 0-11097, filed with the
Commission on August 14, 1995). Confidential treatment has been
applied for with respect to certain provisions of this Exhibit, which
provisions have been omitted from the Exhibit, marked with an asterisk
(*), and filed separately with the SEC.
-50-
<PAGE> 53
10(u) Sublease Agreement [N631AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N631AS] dated August 22, 1995; Sublease Tax Indemnity
Agreement [N631AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N631AS] dated June 22, 1995 (filed as Exhibit
10(e) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, file number 0-11097, filed with the
Commission on August 14, 1995). Confidential treatment has been
applied for with respect to certain provisions of this Exhibit, which
provisions have been omitted from the Exhibit, marked with an asterisk
(*), and filed separately with the SEC.
10(v) Sublease Agreement [N632AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N632AS] dated June 22, 1995; Sublease Tax Indemnity
Agreement [N632AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N632AS] dated June 22, 1995 (filed as Exhibit
10(f) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, file number 0-11097, filed with the
Commission on August 14, 1995). Confidential treatment has been
applied for with respect to certain provisions of this Exhibit, which
provisions have been omitted from the Exhibit, marked with an asterisk
(*), and filed separately with the SEC.
10(w) Sublease Agreement [N633AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N633AS] dated June 22, 1995; Sublease Tax Indemnity
Agreement [N633AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N633AS] dated June 22, 1995 (filed as Exhibit
10(g) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, file number 0-11097, filed with the
Commission on August 14, 1995). Confidential treatment has been
applied for with respect to certain provisions of this Exhibit, which
provisions have been omitted from the Exhibit, marked with an asterisk
(*), and filed separately with the SEC.
10(x) Sublease Agreement [N634AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N634AS] dated June 22, 1995; Sublease Tax Indemnity
Agreement [N634AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N634AS] dated June 22, 1995 (filed as Exhibit
10(h) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, file number 0-11097, filed with the
Commission on August 14, 1995). Confidential treatment has been
applied for with respect to certain provisions of this Exhibit, which
provisions have been omitted from the Exhibit, marked with an asterisk
(*), and filed separately with the SEC.
-51-
<PAGE> 54
10(y) Sublease Agreement [N635AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N635AS] dated June 22, 1995; Sublease Tax Indemnity
Agreement [N635AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N635AS] dated June 22, 1995 (filed as Exhibit
10(i) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, file number 0-11097, filed with the
Commission on August 14, 1995). Confidential treatment has been
applied for with respect to certain provisions of this Exhibit, which
provisions have been omitted from the Exhibit, marked with an asterisk
(*), and filed separately with the SEC.
10(z) Sublease Agreement [N636AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N636AS] dated June 22, 1995; Sublease Tax Indemnity
Agreement [N636AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N636AS] dated June 22, 1995 (filed as Exhibit
10(j) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, file number 0-11097, filed with the
Commission on August 14, 1995). Confidential treatment has been
applied for with respect to certain provisions of this Exhibit, which
provisions have been omitted from the Exhibit, marked with an asterisk
(*), and filed separately with the SEC.
10(aa) Sublease Agreement [N637AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N637AS] dated June 22, 1995; Sublease Tax Indemnity
Agreement [N637AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N637AS] dated June 22, 1995 (filed as Exhibit
10(k) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, file number 0-11097, filed with the
Commission on August 14, 1995 ). Confidential treatment has been
applied for with respect to certain provisions of this Exhibit, which
provisions have been omitted from the Exhibit, marked with an asterisk
(*), and filed separately with the SEC.
10(ab) Atlantic Southeast Airlines, Inc. Supplemental Executive Retirement
Plan effective May 24, 1995 (filed as Exhibit 10(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1995, file number 0-11097, filed with the Commission on August 14,
1995). (MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT
REQUIRED TO BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-Q
PURSUANT TO ITEM 6(A) OF FORM 10-Q).
10(ac) Agreement to Lease Used British Aerospace 146 Series 200 Aircraft
between British Aerospace Holdings, Inc. Asset Management
Organization and the Company dated as of October 2, 1995. (Attached
as Exhibit 10(ac) hereto.)
-52-
<PAGE> 55
10(ad) JetSpares Agreement, dated as of October 2, 1995, between British
Aerospace Holdings, Inc., Avro International Aerospace Division, and
the Registrant (Attached as Exhibit 10(ad) hereto.)
10(ae) Engine Maintenance Cost Protection Program Agreement between
AlliedSignal, Inc., AlliedSignal Engines and the Company dated
as of October 2, 1995 (Attached as Exhibit 10(ae) hereto.)
10(af) Customer Support Agreement (ALF 502 Series TurboFan Engines) between
AlliedSignal Aerospace-Engine Division and the Company dated as
of October 2, 1995 (Attached as Exhibit 10(af) hereto.)
11 Statement re Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
24 Power of Attorney (Included on the signature page of this Form 10-K).
27 Financial Data Schedule (for SEC use only)
99 Information required by Form 11-K with respect to the Atlantic
Southeast Airlines, Inc. Investment Savings Plan will be filed as an
amendment to this Form 10-K within 180 days after the end of the
fiscal year of the plan as permitted by Rule 15d-21 under the
Securities Exchange Act of 1933.
(b) The Registrant filed no current reports on Form 8-K during the fourth
quarter of 1995.
-53-
<PAGE> 56
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
December 31, 1995
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
-------------- ------------- -------------------------- ---------- ----------
Additions
--------------------------
Balance at Charged to Charged to Balance at
beginning of cost and other accounts Deductions end of
Description period expenses describe describe period
------------ ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 512,914 ($280,000) ($36,944) (A) $ 195,970
Allowance for obsolescence of
expendable parts 2,471,544 487,285 (20,629) (B) 2,938,200
---------- --------- -------- -------- ----------
$2,984,458 $ 207,285 $ 0 ($57,573) $3,134,170
Year ended December 31, 1994:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 195,970 $ 120,000 ($35,401) (A) $ 280,569
Allowance for obsolescence of
expendable parts 2,938,200 565,913 3,504,113
---------- --------- -------- -------- ----------
$3,134,170 $ 685,913 $ 0 ($35,401) $3,784,682
Year ended December 31, 1995:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 280,569 $ 20,000 ($34,226) (A) $ 266,343
Allowance for obsolescence of
expendable parts 3,504,113 546,339 (1,680) (B) 4,048,772
---------- --------- -------- -------- ----------
$3,784,682 $ 566,339 $ 0 ($35,906) $4,315,115
</TABLE>
(A) Uncollectible Accounts charged off during the period.
(B) Obsolete parts charged off during the period.
-54-
<PAGE> 57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ATLANTIC SOUTHEAST AIRLINES, INC.
By: /s/ George F. Pickett
----------------------------------
George F. Pickett
Chairman of the Board and Chief
Executive Officer (Principal
Executive Officer)
Date: March 29, 1996
<PAGE> 58
We, the undersigned officers and directors of Atlantic Southeast Airlines,
Inc., hereby severally constitute George F. Pickett and John W. Beiser and each
of them singly, our true and lawful attorneys with full power to them, and each
of them singly, to sign for us and in our names in the capacities indicated
below, any and all amendments to this report, and generally do all such things
in our name and behalf in such capacities to enable Atlantic Southeast
Airlines, Inc. to comply with the applicable provisions of the Securities Act
of 1933, as amended, and all requirements of the Securities and Exchange
Commission, and we hereby ratify and confirm our signatures as they may be
signed by our said attorneys, or either of them, to any and all such
amendments.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ George F. Pickett March 29, 1996
----------------------------------------
George F. Pickett, Chairman of the Board
and Chief Executive Officer (Principal
Executive Officer) and Director
/s/ John W. Beiser March 29, 1996
----------------------------------------
John W. Beiser, President, Secretary
and Director
/s/ Ronald V. Sapp March 29, 1996
----------------------------------------
Ronald V. Sapp, Vice President Finance
and Treasurer (Principal Financial and
Accounting Officer)
/s/ Julius P. Gwin March 29, 1996
----------------------------------------
Julius P. Gwin, Director
/s/ Jean A. Mori March 29, 1996
----------------------------------------
Jean A. Mori, Director
/s/ Parker H. Petit March 29, 1996
----------------------------------------
Parker H. Petit, Director
/s/ Ralph W. Voorhees March 29, 1996
----------------------------------------
Ralph W. Voorhees, Director
/s/ Alan M. Voorhees March 29, 1996
----------------------------------------
Alan M. Voorhees, Director
<PAGE> 59
EXHIBIT INDEX
EXHIBIT NUMBER AND DESCRIPTION
3(a) Amended and Restated Articles of Incorporation (Incorporated by
reference to Exhibit 3(a) to the Registrant's registration statement
on Form S-1, file number 2-277713, filed with the Commission on July
21, 1982).
3(b) Articles of Amendment dated May 10, 1985. (Incorporated by reference
to Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992, file number 0-11097, filed
with the Commission on March 31, 1992).
3(c) Articles of Amendment dated May 24, 1988. (Incorporated by reference to
Exhibit 19(a) to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1988, file number 0-11097, filed with
the Commission on August 11, 1988).
3(d) Articles of Amendment dated May 25, 1989. (Incorporated by reference to
Exhibit 3(d) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989, file number 0-11097, filed
with the Commission on March 30, 1990).
3(e) By-Laws as amended on October 25, 1985. (Incorporated by reference to
Exhibit 3(e) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990, file number 0-11097, filed
with the Commission on March 29, 1991).
3(f) Amendment to By-Laws adopted on January 29, 1992. (Incorporated by
reference to Exhibit 3(f) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991, file number
0-11097, filed with the Commission on March 27, 1992).
3(g) Restated By-Laws adopted on January 22, 1993. (Incorporated by
reference to Exhibit 3(g) to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1992, file number 0-11097,
filed with the Commission on March 31, 1993).
3(h) Amendment to Bylaws adopted on February 2, 1994. (Incorporated by
reference to Exhibit 3(h) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, file number
0-11097, filed with the Commission on March 31, 1994).
4 Instruments defining the rights of security holders, including
indentures. See Exhibits 3(a), 3(b), 3(c), 3(d), 3(e), 3(f),
3(g) and 3(h).
10(a) Stock Purchase Agreement dated May 28, 1986, between the Registrant and
Delta Air Lines, Inc. (Incorporated by reference to Exhibit 10(e) to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, file number 0-11097, filed with the Commission on
March 29, 1991).
<PAGE> 60
10(b) Delta Connection Agreement dated July 1, 1986, between the Registrant
and Delta Air Lines, Inc. (Incorporated by reference to Exhibit
10(e) to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991, file number 0-11097, filed with the
Commission on March 27, 1992).
10(c) Credit Agreement dated as of December 24, 1986, among the Registrant,
ASA Investments, Inc., Manufacturers Hanover Leasing International
Corp., American Security Bank, N.A., Barclays Bank PLC, B.S.F.E. -
Banque de la Societe Financiere Europeene, Canadian Imperial Bank of
Commerce, Citizens and Southern National Bank, Continental Illinois
National Bank and Trust Company of Chicago, Kawasaki Lease Financing
Inc., National Bank of Canada, National Bank of Georgia and The Royal
Bank of Canada. (Incorporated by reference to Exhibit 10(f) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991, file number 0-11097, filed with the Commission on
March 27, 1992). Amendment No. 1 dated as of February 20, 1987.
(Incorporated by reference to Exhibit 10(f) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1992, file number 0-11097, filed with the Commission on March 31,
1993). Amendment No. 2 dated as of May 23, 1989. (Incorporated by
reference to Exhibit 19(a) to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1989, file number
0-11097, filed with the Commission on November 11, 1989). Amendment
No. 3 dated as of August 17, 1989. (Incorporated by reference to
Exhibit 19(b) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1989, file number 0-11097, filed with
the Commission on November 11, 1989).
10(d) Single Payment Note, dated January 26, 1987, still in effect evidencing
Registrant's line of credit with Trust Company Bank. (Incorporated by
reference to Exhibit 10(g) to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1991, file number 0-11097,
filed with the Commission on March 27, 1992).
10(e) Credit Agreement dated as of April 23, 1987, among the Registrant, ASA
Investments, Inc., Manufacturers Hanover Leasing International
Corp., Kawasaki Lease Financing, Inc. and Credit Lyonnais, Cayman
Islands Branch. (Incorporated by reference to Exhibit 10(i) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991, file number 0-11097, filed with the Commission on
March 27, 1992). Amendment No. 1 dated as of May 23, 1989.
(Incorporated by reference to Exhibit 19(c) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1989, file number 0-11097, filed with the Commission on November 11,
1989). Second Amendment dated as of October 31, 1989. (Incorporated
by reference to Exhibit 10(s) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1989, file number
0-11097, filed with the Commission on March 30, 1990).
<PAGE> 61
10(f) Lease Agreement dated April 1, 1988, between the Registrant and Macon -
Bibb County Industrial Authority. (Incorporated by reference
to Exhibit 10(k) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992, file number 0-11097, filed
with the Commission on March 31, 1993).
10(g) 1990 Stock Appreciation Rights Plan approved by Shareholders on May 15,
1990. (Incorporated by reference to Exhibit 19(a) to the Registrant's
Quarterly Report for the quarter ended June 30, 1990, file number
0-11097, filed with the Commission on August 13, 1990). (MANAGEMENT
CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO BE FILED AS
AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM 14(C) OF FORM
10-K).
10(h) Executive Deferred Compensation (Retirement) Plan dated May 15, 1990.
(Incorporated by reference to Exhibit 19(b) to the Registrant's
Quarterly Report for the quarter ended June 30, 1990, file number
0-11097, filed with the Commission on August 13, 1990). First
Amendment to Executive Deferred Compensation (Retirement) Plan dated
December 31, 1992. (Incorporated by reference to Exhibit 10(s) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, file number 0-11097, filed with the Commission on
March 31, 1993). (MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR
ARRANGEMENT REQUIRED TO BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM
10-K PURSUANT TO ITEM 14(C) OF FORM 10-K).
10(i) Founding Officer Agreement dated June 27, 1990, between the Registrant
and George F. Pickett (Incorporated by reference to Exhibit 19(c) to
the Registrant's Quarterly Report for the quarter ended June 30, 1990,
file number 0-11097, filed with the Commission on August 13, 1990).
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO
BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM
14(C) OF FORM 10-K).
10(j) Founding Officer Agreement dated June 27, 1990, between the Registrant
and John W. Beiser. (Incorporated by reference to Exhibit 19(d)
to the Registrant's Quarterly Report for the quarter ended June 30,
1990, file number 0-11097, filed with the Commission on August 13,
1990). (MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT
REQUIRED TO BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K
PURSUANT TO ITEM 14(C) OF FORM 10-K).
10(k) Aircraft Purchase Agreement dated August 27, 1990, between the
Registrant and Embraer - Empresa Brasileira de Aeronautica S.A.
(Incorporated by reference to Exhibit 10(t) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990, file
number 0-11097, filed with the Commission on March 29, 1991).
<PAGE> 62
10(l) Office Lease Agreement dated December 18, 1991, by and between the
Registrant and Trident Partners. (Incorporated by reference to
Exhibit 10(q) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991, file number 0-11097, filed with
the Commission on March 27, 1992).
10(m) Purchase Agreement Assignment [N630AS] dated June 22, 1995; Purchase
Agreement Assignment [N631AS] dated June 22, 1995; Purchase
Agreement Assignment [N632AS] dated June 22, 1995; Purchase Agreement
Assignment [N633AS] dated June 22, 1995; Purchase Agreement Assignment
[N634AS] dated June 22, 1995; Purchase Agreement Assignment [N635AS]
dated June 22, 1995; Purchase Agreement Assignment [N636AS] dated June
22, 1995; and Purchase Agreement Assignment [N637AS] dated June 22,
1995 all between the Company and First Security Bank of Utah, N.A.
(filed as Exhibit 10(c) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995, file number 0-11097, filed
with the Commission on August 14, 1995). This exhibit relates to the
ATR-72 Purchase Agreement between the Company and Avions de Transport
Regional dated February 10, 1993 and related letter agreements (filed
as Exhibit 10(t) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992); and the related Amendment
No. 1 thereto dated February 21, 1994 (Filed as Exhibit 10(p) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, file number 0-11097, filed with the Commission on
March 31,1994); and effectively terminates the related Purchase
Agreement Assignments Nos. 1-6 between the Company and Antoine Finance
Corporation dated July 21, 1993 (filed as Exhibit 10(e) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1993), and the related Purchase Agreement Assignments Nos. 7-9
between the Company and Antoine Finance Corporation dated September
23, 1993 (Filed as Exhibit 10(b) to the Registrant's Quarterly report
on Form 10-Q for the quarter ended September 30, 1993)
10(n) Aircraft Purchase Agreement dated as of April 15, 1993, between the
Registrant and Embraer - Empresa Brasileira de Aeronautica
S.A., related Letter Agreements (I), (II), and (III) dated as of April
15, 1993, and a Second Amendment dated as of April 15, 1993, to a
Letter Supplement dated as of November 21, 1988. (Incorporated by
reference to Exhibit 10(a) to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993, file number 0-11097,
filed with the Commission on August 16, 1993).
10(o) Participation Agreement dated as of May 1, 1993 between the Company and
Antoine Finance Corporation. (Incorporated by reference to
Exhibit 10(b) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993, file number 0-11097, filed with the
Commission on August 16, 1993).
<PAGE> 63
10(p) Unconditional Guaranty of Performance between the Company and Avions de
Transport Regional dated as of May 1, 1993 with respect to the
ATR 72 Purchase Agreement between the Company and Avions de Transport
Regional dated February 10, 1993 and related letter agreements.
(Incorporated by reference to Exhibit 10(d) to the Registrant's
quarterly report on Form 10-Q for the quarter ended June 30, 1993,
file number 0-11097, filed with the Commission on August 16, 1993).
10(q) Purchase Agreement Assignment No. 1 dated May 10, 1993, Purchase
Agreement Assignment No. 2 dated May 12, 1993, Purchase Agreement
Assignment No. 3 dated May 26, 1993, Purchase Agreement Assignment
No. 4 dated June 16, 1993, Purchase Agreement Assignment No. 5 dated
June 23, 1993, and Purchase Agreement Assignment No. 6 dated July 21,
1993, all with respect to ATR 72 Purchase Agreement between the
Company and Avions de Transport Regional dated February 10, 1993 and
related letter agreements. (Incorporated by reference to Exhibit
10(e) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993, file number 0-11097, filed with the
Commission on August 16, 1993). Purchase Agreement Assignment No. 7
dated August 25, 1993, Purchase Agreement Assignment No. 8 dated
September 9, 1993, and Purchase Agreement Assignment No. 9 dated
September 23, 1993. (Incorporated by reference to Exhibit 10(b) to
the Registrant's quarterly report on Form 10-Q for the quarter ended
September 30, 1993, file number 0-11097, filed with the Commission on
November 15, 1993).
10(r) Credit Agreement with Trust Company Bank dated as of April 20, 1994
(Incorporated by reference to Exhibit 10(a) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994,
file number 0-11097, filed with the Commission on May 13, 1994).
10(s) Collateral Assignment of Purchase Agreement with Trust Company
Bank dated as of April 20, 1994 with respect to ATR 72 Purchase
Agreement between the Company and Avions de Transport Regional dated
February 10, 1993 (Incorporated by reference to Exhibit 10(b) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1994, file number 0-11097, filed with the Commission on May 13,
1994).
10(t) Sublease Agreement [N630AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N630AS] dated June 22, 1995; Sublease Tax Indemnity
Agreement [N630AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N630AS] dated June 22, 1995 (filed as Exhibit
10(d) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, file number 0-11097, filed with the
Commission on August 14, 1995). Confidential treatment has been
applied for with respect to certain provisions of this Exhibit, which
provisions have been omitted from the Exhibit, marked with an asterisk
(*), and filed separately with the SEC.
<PAGE> 64
10(u) Sublease Agreement [N631AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N631AS] dated August 22, 1995; Sublease Tax Indemnity
Agreement [N631AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N631AS] dated June 22, 1995 (filed as Exhibit
10(e) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, file number 0-11097, filed with the
Commission on August 14, 1995). Confidential treatment has been
applied for with respect to certain provisions of this Exhibit, which
provisions have been omitted from the Exhibit, marked with an asterisk
(*), and filed separately with the SEC.
10(v) Sublease Agreement [N632AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N632AS] dated June 22, 1995; Sublease Tax Indemnity
Agreement [N632AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N632AS] dated June 22, 1995 (filed as Exhibit
10(f) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, file number 0-11097, filed with the
Commission on August 14, 1995). Confidential treatment has been
applied for with respect to certain provisions of this Exhibit, which
provisions have been omitted from the Exhibit, marked with an asterisk
(*), and filed separately with the SEC.
10(w) Sublease Agreement [N633AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N633AS] dated June 22, 1995; Sublease Tax Indemnity
Agreement [N633AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N633AS] dated June 22, 1995 (filed as Exhibit
10(g) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, file number 0-11097, filed with the
Commission on August 14, 1995). Confidential treatment has been
applied for with respect to certain provisions of this Exhibit, which
provisions have been omitted from the Exhibit, marked with an asterisk
(*), and filed separately with the SEC.
10(x) Sublease Agreement [N634AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N634AS] dated June 22, 1995; Sublease Tax Indemnity
Agreement [N634AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N634AS] dated June 22, 1995 (filed as Exhibit
10(h) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, file number 0-11097, filed with the
Commission on August 14, 1995). Confidential treatment has been
applied for with respect to certain provisions of this Exhibit, which
provisions have been omitted from the Exhibit, marked with an asterisk
(*), and filed separately with the SEC.
<PAGE> 65
10(y) Sublease Agreement [N635AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N635AS] dated June 22, 1995; Sublease Tax Indemnity
Agreement [N635AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N635AS] dated June 22, 1995 (filed as Exhibit
10(i) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, file number 0-11097, filed with the
Commission on August 14, 1995). Confidential treatment has been
applied for with respect to certain provisions of this Exhibit, which
provisions have been omitted from the Exhibit, marked with an asterisk
(*), and filed separately with the SEC.
10(z) Sublease Agreement [N636AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N636AS] dated June 22, 1995; Sublease Tax Indemnity
Agreement [N636AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N636AS] dated June 22, 1995 (filed as Exhibit
10(j) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, file number 0-11097, filed with the
Commission on August 14, 1995). Confidential treatment has been
applied for with respect to certain provisions of this Exhibit, which
provisions have been omitted from the Exhibit, marked with an asterisk
(*), and filed separately with the SEC.
10(aa) Sublease Agreement [N637AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease
Supplement [N637AS] dated June 22, 1995; Sublease Tax Indemnity
Agreement [N637AS] dated June 22, 1995; and Nondisturbance and
Recognition Agreement [N637AS] dated June 22, 1995 (filed as Exhibit
10(k) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, file number 0-11097, filed with the
Commission on August 14, 1995 ). Confidential treatment has been
applied for with respect to certain provisions of this Exhibit, which
provisions have been omitted from the Exhibit, marked with an asterisk
(*), and filed separately with the SEC.
10(ab) Atlantic Southeast Airlines, Inc. Supplemental Executive Retirement
Plan effective May 24, 1995 (filed as Exhibit 10(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1995, file number 0-11097, filed with the Commission on August 14,
1995). (MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT
REQUIRED TO BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-Q
PURSUANT TO ITEM 6(A) OF FORM 10-Q).
10(ac) Agreement to Lease Used British Aerospace 146 Series 200 Aircraft
between British Aerospace Holdings, Inc. Asset Management
Organization and the Company dated as of October 2, 1995. (Attached
as Exhibit 10(ac) hereto.)
<PAGE> 66
10(ad) JetSpares Agreement, dated as of October 2, 1995, between British
Aerospace Holdings, Inc., Avro International Aerospace Division, and
the Registrant (Attached as Exhibit 10(ad) hereto.)
10(ae) Engine Maintenance Cost Protection Program Agreement between
AlliedSignal, Inc., AlliedSignal Engines and the Company dated
as of October 2, 1995 (Attached as Exhibit 10(ae) hereto.)
10(af) Customer Support Agreement (ALF 502 Series TurboFan Engines) between
AlliedSignal Aerospace-Engine Division and the Company dated as
of October 2, 1995 (Attached as Exhibit 10(af) hereto.)
11 Statement re Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
24 Power of Attorney (Included on the signature page of this Form 10-K).
27 Financial Data Schedule (for SEC use only)
99 Information required by Form 11-K with respect to the Atlantic
Southeast Airlines, Inc. Investment Savings Plan will be filed as an
amendment to this Form 10-K within 180 days after the end of the
fiscal year of the plan as permitted by Rule 15d-21 under the
Securities Exchange Act of 1933.
<PAGE> 1
EXHIBIT 10(ac)
Confidential treatment has been applied for with
respect to certain provisions of this Exhibit, which
provisions have been omitted from this Exhibit,
marked with an asterisk (*) and filed separately with
the SEC.
<PAGE> 2
AGREEMENT TO LEASE
USED BRITISH AEROSPACE 146 SERIES 200 AIRCRAFT
between
BRITISH AEROSPACE HOLDINGS, INC.
ASSET MANAGEMENT ORGANIZATION
and
ATLANTIC SOUTHEAST AIRLINES, INC.
DATED AS OF OCTOBER 2, 1995
<PAGE> 3
AGREEMENT TO LEASE
USED BRITISH AEROSPACE 146 SERIES 200
MODEL AIRCRAFT
THIS AGREEMENT by and between British Aerospace Holdings, Inc., a
Delaware Corporation, acting by and through its Asset Management Organization
("AMO"), and Atlantic Southeast Airlines, Inc. ("ASA"), a Georgia Corporation,
is dated as of October 2, 1995.
WHEREAS AMO is an affiliate of British Aerospace, PLC and the
remarketing agent of certain British Aerospace 146 Series 200 Model Aircraft
previously leased and operated by various operators throughout the world; and
WHEREAS ASA desires to lease or sublease five (5) previously operated
British Aerospace 146 Series 200 Model Aircraft on a net lease basis and obtain
the option to lease or sublease up to an additional fifteen (15) of such
Aircraft on the terms and conditions herein set forth; and
WHEREAS AMO is willing to arrange for the lease or sublease of the
Aircraft to ASA from various owners, lessors, or sublessors, as may be
applicable; and
WHEREAS the parties hereto desire to bind themselves to conclude the
arrangement and transactions contemplated herein pursuant to the covenants,
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants, obligations
and agreements set forth herein, it is mutually agreed as follows:
SECTION 1. AGREEMENT TO LEASE
1.1 Lease: Subject to the terms hereof, AMO, as remarketing agent, agrees
to cause various owners, lessors or sublessors, to either lease or
sublease a total of five (5) British Aerospace 146 Series 200 Model
aircraft (collectively the "Aircraft") including, without limitation,
those Aircraft described in Exhibit A, to ASA and ASA agrees to lease
or sublease, as applicable, from the Aircraft owner, lessor or
sublessor as designated by AMO, each of such Aircraft in accordance
with the terms herein set forth. Notwithstanding anything which may
be to the contrary contained herein, the leasing arrangement for each
Aircraft listed in Exhibit A shall be a sublease agreement between Jet
Acceptance Corporation, a wholly owned subsidiary of British Aerospace
Holdings, Inc., and ASA in the form and substance of the sublease
agreement attached hereto as Exhibit B (each a "Lease"). The
agreement for any Aircraft other than one listed in Exhibit A shall be
lease or sublease agreement, as applicable, in the form and
substance of Exhibit B but containing such changes as are necessary to
meet the requirements of the financing arrangements (parties,
headlease, security agreement, tax indemnity agreement, insurance,
etc.) in place with respect to each such Aircraft and as are mutually
agreeable to AMO and ASA.
<PAGE> 4
1.2 Subordination: It is understood and agreed by ASA that its right
to possession, use and enjoyment of each of the Aircraft shall be
subject and subordinate to the financing arrangement(s) in place for
each of the Aircraft which, in the case of each of the Aircraft
described in Exhibit A, consist of U.S. leveraged leases employing
debt and equity parties and trustees, all as more particularly
described in Section 20(c) of Exhibit B.
SECTION 2. THE AIRCRAFT
2.1 Specification: ASA acknowledges and agrees that each Aircraft has been
previously operated by other airlines and that the Aircraft are therefore
"used" and except as otherwise specifically herein stated, shall be supplied to
ASA for acceptance and lease in a strictly "AS IS" "WHERE IS" condition to the
specification attached hereto as Exhibit C (I)i (the "Base Specification") and
that the Aircraft shall have incorporated certain customer specific changes as
attached hereto as Exhibit C (I)ii (the "Customer Specification") at ASA's
cost, such cost to be paid by ASA to AMO at the time this Agreement is
executed. The Base Specification, as modified by the Customer Specification,
shall be incorporated into the final Aircraft specification set forth in
Exhibit C (II) hereto (the "Conversion Specification Document" or "CSD").
The foregoing not withstanding:
2.1.1 AMO shall, at its cost, apply ASA's livery on each Aircraft.
2.1.2 The Aircraft shall be delivered:
2.1.2.1 with all out of phase maintenance, with the
exception of certain time controlled components
as covered hereunder, cleared for a period of
twelve (12) months/2,000 cycles/1,500 hours;
2.1.2.3 with all time controlled items with a periodicity
of 3,000 cycle/3,000 hours or less delivered with
no less than thirty percent (30%) life remaining;
2.1.2.4 with each of the airframes and rotable components
thereof having been tested and inspected as
necessary to meet the criteria for enrollment on
the Avro JetsSpares Program (as hereinafter
defined);
2.1.2.5 with each of the engines having been tested and
inspected as necessary to meet the criteria for
enrollment on AlliedSignal's Engine Maintenance
Cost Protection Program; and
2.1.2.6 in the condition set out in Exhibit C (III) (the
"Delivery Condition").
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<PAGE> 5
2.1.3 On the Offer Date (as hereinafter defined)
therefor each Aircraft will have United States
registration and a current valid F.A.A.
Certificate of Airworthiness and will be in
compliance with all applicable and issued F.A.A.
airworthiness directives and service bulletins
which are specifically designated by the Aircraft
manufacturer as "Mandatory". The Aircraft shall
comply with current FAA-defined Stage 3 Noise
levels for US and foreign certificated aircraft.
2.1.4 At the time of Aircraft delivery the aircraft records
will be in suitable condition to meet F.A.R. Part 121
requirements.
2.2 THE AIRCRAFT ARE NOT NEW AND ARE BEING LEASED ON A STRICTLY "AS IS,
WHERE IS, ALL FAULTS" BASIS. EXCEPT AS PROVIDED IN SECTIONS 2.1.2 AND
2.1.3 HEREOF AND SUBJECT TO SECTION 2.3 HEREOF, AMO DOES NOT MAKE ANY
WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO THE
AIRCRAFT, ANY PART THEREOF, OR ANY SERVICE, MANUAL OR EQUIPMENT
PROVIDED HEREUNDER OR IN CONNECTION HEREWITH, INCLUDING WITHOUT
LIMITATION ANY WARRANTY OF MERCHANTABILITY OF THE AIRCRAFT OR THE
FITNESS OR THE AIRCRAFT FOR A PARTICULAR PURPOSE AND ASA HEREBY
ACKNOWLEDGES AND AGREES TO THE SAME; PROVIDED HOWEVER ASA DOES NOT
RELEASE OR WAIVE ANY RIGHT IT MAY HAVE AGAINST AMO WITH REGARD TO ANY
PRODUCT LIABILITY AMO MAY HAVE AS A REPAIRER OF THE AIRCRAFT OR ANY
PART THEREOF.
2.3 To the extent assignable, AMO shall assign, or shall cause the
applicable Aircraft lessor or owner to assign to ASA, all existing
manufacturers' warranties, if any, for the Aircraft on delivery
thereof. AMO shall provide ASA with a listing of Aircraft components
and associated vendor warranties at the time of delivery of each
Aircraft.
SECTION 3. OPERATOR FURNISHED EQUIPMENT AND INFORMATION
3.1 Color Schemes: AMO and ASA acknowledge and agree that as of the date
hereof ASA has supplied to AMO the internal and external color schemes
of the Aircraft.
3.2 Operator Furnished Equipment: ASA shall supply to AMO the equipment
listed in Exhibit H hereto (the "Operator Furnished Equipment") for
installation in the Aircraft by the dates indicated in said Exhibit,
and each consignment of Operator Furnished Equipment shall include all
necessary release documentation (including all necessary certificates
of conformity and origin) in respect of the Operator Furnished
Equipment comprised within such consignment. ASA warrants that the
Operator Furnished Equipment shall be suitable for installation in the
Aircraft.
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<PAGE> 6
3.3 Registration Numbers: AMO and ASA acknowledge and agree that as of the
date hereof ASA has supplied to AMO in writing the United States
registration number for the Aircraft.
3.4 Type Certification: Should any of the systems or equipment installed
in the Aircraft by AMO at the specific request of ASA (whether such
systems or equipment be furnished by ASA or AMO for purposes of such
installation) not have a United States type approval, ASA shall
provide to AMO not later than thirty (30) days prior to the Offer Date
for each Aircraft written evidence from the FAA that such system or
equipment is acceptable to it.
3.5 Delivery: ASA shall not be entitled to refuse to accept delivery of
the Aircraft by reason of, and shall have no rights or remedies
whatsoever against AMO in respect of, any defect in the Aircraft or
any qualification or provisos endorsed by the FAA on the Certificate
of Airworthiness in respect of the Aircraft or any absence of a
Certificate of Airworthiness in respect of the Aircraft, if such
defect, qualification or provisions or such absence is caused by:
3.5.1 any material failure by ASA to comply with its obligations
under Sections 3.2, 3.3 or 3.4 hereof; or
3.5.1 any breach of the warranty set out in Section 3.2 hereof.
3.6 If (i) ASA fails to comply with its obligations under Section 3.1,
3.2, 3.3 or 3.4 hereof in any material respect or (ii) any warranty
set out in Section 3.2 hereof proves inaccurate in any material
respect then AMO may be notice in writing to ASA defer its obligation
to deliver the Aircraft to ASA hereunder for the period of delay
actually caused by such failure or inaccuracy. With effect from the
issue by AMO of such notice, the Offer Date for the Aircraft shall be
postponed by a period set forth in the preceding sentence.
SECTION 4. DELIVERY AND ACCEPTANCE
4.1 Offer for Acceptance: Subject to each of the representations and
warranties of ASA set forth in Section 11 hereof being materially true
and correct, each Aircraft shall be offered for acceptance under the
applicable Lease to the specification contained in the Conversion
Specification Document and otherwise in the condition required by this
Agreement for acceptance by ASA, F.O.B., in flying trim at a mutually
agreeable airfield location in the contiguous United States ("Place of
Delivery"), strictly to the schedule set forth in Exhibit D (the
"Offer Date(s)"). TIME SHALL BE OF THE ESSENCE WITH RESPECT TO AMO'S
OBLIGATION TO OFFER AIRCRAFT TO ASA FOR ACCEPTANCE HEREUNDER .
4.1.1 ASA acknowledges and agrees that delivery of the Aircraft for
acceptance on the Offer Dates for the Aircraft as described in
Exhibit D is:
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<PAGE> 7
4.1.1.1 based on timely issuance before the Offer Date
for the first Aircraft of all regulatory
approvals and certifications required of ASA to
operate the Aircraft in the transport category
(Passenger), including, but not limited to, that
of the U.S. Federal Aviation Administration
("Regulatory Approvals") and that any delay in
accomplishing the same may result in one or more
extensions of the Offer Dates set forth in said
Exhibit D; and
4.1.1.2 subject to modification (i) in the event that
after the date hereof ASA or the applicable
regulatory authorities require any change or
modification to the CSD or any additional
refurbishment, repair or overhaul of the Aircraft
or their components or (ii) pursuant to Sections
3.6 or 9 hereof.
4.1.2 In the event that the Offer Date of any Aircraft is extended
pursuant to this Section 4.1, AMO shall provide ASA at least
five (5) business days prior notice of the actual Offer Date
for such Aircraft, such notice to include Place of Delivery
and identification of the Aircraft by serial number.
4.1.3 AMO shall endeavor to complete the required maintenance and
customization programs for the Aircraft in advance of the
scheduled Offer Dates. In the event this is achieved and the
parties agree, the Aircraft shall be offered for acceptance in
advance of the scheduled Offer Dates provided the Regulatory
Approvals have been obtained and the other requirements of
this Section 4 fulfilled.
4.2 Inspection: ASA shall have the right during the four (4) days next
preceding the scheduled Offer Date of each Aircraft to inspect each
Aircraft at the Place of Delivery to enable ASA to ascertain that such
Aircraft is in compliance with the terms and conditions of this
Agreement, including a test flight of each Aircraft not to exceed
three (3) flight hours. AMO shall make available a technical
representative throughout such inspection period. Additionally, AMO
shall have the Aircraft records available for ASA's inspection during
the seven (7) days next preceding the Offer Date of each Aircraft.
4.2.1 In the event following such inspection, ASA ascertains that
any Aircraft is not in compliance with the terms and
conditions of this Agreement, ASA shall immediately notify AMO
in writing of such noncompliance and provide a written
detailed explanation of such perceived noncompliance whereupon
AMO shall investigate the alleged noncompliance to the extent
noted and respond thereto (including a time schedule to remedy
any noncompliance) as soon as reasonably practicable (time
being of the essence to ASA). In the event of any
noncompliance, AMO, if necessary, shall, unless otherwise
provided in Section 4.2.2.2 hereof, rectify or have rectified
the same as soon as commercially and technically practicable
as agreed between the parties and thereafter shall demonstrate
to ASA that the Aircraft meets the terms and conditions of
this Agreement. Upon satisfactory demonstration by AMO that
the Aircraft complies with the terms and conditions of this
Agreement, ASA shall accept the
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<PAGE> 8
Aircraft and execute a Delivery Receipt in respect of that
Aircraft in accordance with Section 4.2.2. The foregoing
provision shall not limit ASA's right to Liquidated Damages
for late delivery as provided in Section 10 hereof.
4.2.2 Upon offer for acceptance of each Aircraft in
compliance with this Agreement, ASA shall:
4.2.2.1 execute and deliver to AMO a Delivery Receipt in
respect of each Aircraft in the form of Exhibit I
hereto;
4.2.2.2 deliver to JACO under the respective Lease all
documentary conditions precedent set out in
Section 2(b) thereof and otherwise perform all
actions required of ASA thereunder necessary to
satisfy the remaining conditions set out in said
Section 2(b); and
4.2.2.3 execute and deliver to JACO under the respective
Lease a sublease acceptance supplement in respect
of the Aircraft as provided therein and
immediately take delivery of the Aircraft
thereunder;
provided that it shall be a condition precedent to ASA's
obligation to take delivery of each Aircraft hereunder and
under its Lease that:
(i) All conditions precedent to ASA's
obligation to take the Aircraft on lease
or sublease from the lessor or sublessor
thereof as set forth in Section 2(c) of
the applicable Lease shall have been
fulfilled to the satisfaction of ASA; and
(ii) [*]
4.2.3 ASA shall not be entitled to refuse to accept any Aircraft by
reason of failure to meet the requirements of the CSD if such
failure does not materially affect the performance or economic
operation or maintenance of the Aircraft; provided however,
AMO agrees to undertake at its expense corrective action for
remedy of such failure by a date to be mutually agreed upon.
-6-
<PAGE> 9
SECTION 5. NET LEASE TERMS
5.1 Lease Term
5.1.1 The base term of the Lease for each Aircraft (the "Base
Term"), subject to the provisions set forth below, shall
commence on the date of acceptance of the Aircraft (the
"Delivery Date") and shall continue for Sixty (60) months
following the First Rental Date (as hereinafter defined).
5.1.2 ASA shall have the option to extend the lease period beyond
the Base Term of any Lease at any time during the Base Term on
terms and conditions to be agreed. Provided, however, that
ASA must give written notice of its intention to exercise any
such lease extension option and execute a Lease extension
agreement for each such Aircraft no later than twelve (12)
months prior to the Base Term expiry date for each such
Aircraft.
5.1.3 ASA, at its sole option, shall have the right to terminate the
Lease of each Aircraft effective the day immediately preceding
the second anniversary of the applicable Delivery Date;
provided, however, that it shall be a condition precedent to
the exercise of such right to terminate that ASA give the
Lessor no less than Ninety (90) days prior written
notification of ASA's intention to terminate each such Lease.
5.2 Rent: The rent payable monthly in advance by ASA for each Aircraft
shall be as follows:
Months 1-12 $[*]
Months 13-24 $[*]
Months 25-36 $[*]
Months 37-48 $[*]
Months 49-60 $[*]
5.2.2 Rentals with respect to each Aircraft shall be payable by ASA
in advance on the Delivery Date (the "First Rental Date") and
monthly thereafter on the first (1st) day of each calendar
month throughout the Lease Term.
5.2.3 In the event that the First Rental Date for any Aircraft is
other than the first (1st) day of any calendar month, the
rental for the first and last month of the Lease terms hall be
prorated on the basis of a 30-day month.
5.2.4 Rental rates are subject to upward adjustment in the event of
any changes made to the Aircraft pursuant to Section 4.1.1
hereof.
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<PAGE> 10
5.3 Maintenance Contributions:
5.3.1 To provide for certain on-going maintenance, ASA shall pay to
Lessor monthly maintenance contributions in the amount (the
"Contribution Rate") of $[*] per flight cycle of each
Aircraft for undercarriage overhaul at the scheduled [*] cycle
interval (including, without limitation, the provision of an
advance exchange or loaner gear) and replacement of engine
life limited parts ("LLP's").
5.3.2 The parties' respective rights and obligations with respect to
such undercarriage overhaul and replacement of engine LLP's
shall be as provided in Section 6(e) of the Leases.
5.3.3 The Contribution Rate referred to in Section 5.3.1 shall be
adjusted in respect of changes in economic conditions between
1st January 1996 and 1st January in each subsequent year. The
Contribution Rate as varied shall be fixed on 1st January each
year for the duration of the Leases. The Contribution Rate
variance shall be escalated (i) at the rate of [*]
per annum or (ii) in accordance with formula set forth in
Exhibit E hereto, whichever is less.
5.4 Damage or Loss: All risk of loss of or damage to each Aircraft shall
pass to ASA upon acceptance by ASA of the Aircraft under the
applicable Lease.
SECTION 6. OPTION AIRCRAFT
AMO hereby grants to ASA an option to lease up to an additional fifteen (15)
BAe 146 Aircraft ("Option Aircraft") generally on the following terms:
6.1 Specifications: The option Aircraft will be configured to a base
specification similar to the Base Specification of the Aircraft.
6.2 Commercial Terms: [*]
6.3 Option Aircraft Leases: It is the intention of the parties that the
content of any Option Aircraft lease shall be substantially similar to
the Leases in respect of the Aircraft.
-8-
<PAGE> 11
6.4 Option Reservation Fee: In order to reserve the Option Aircraft for a
period commencing upon receipt of such fee and continuing up to and
including the respective Final Option Exercise Dates (referred to in
Paragraph 6.2 above), ASA shall pay to AMO a reservation fee of US$
[*] in respect of each Option Aircraft that it wishes to reserve (the
"Option Reservation Fee").
6.5 Exercising the Options: ASA shall have the right to exercise its
option to lease any Option Aircraft at any time from AMO's receipt of
the reservation fee as defined in Paragraph 6.4 above in respect of
that Option Aircraft up to and including the Final Option Exercise
Date in respect of that Option Aircraft by giving written notification
to AMO. AMO shall then procure the leasing to ASA of that Option
Aircraft and the parties hereby agree that they will negotiate in good
faith with a view to executing an aircraft lease agreement in respect
of that Option Aircraft within thirty (30) days from AMO's receipt of
ASA's written notification with respect to that Option Aircraft
incorporating the commercial terms set forth in the applicable Option
MOU. The Option Reservation Fee shall be refunded to ASA should ASA
and AMO fail to agree on the terms and conditions of the respective
Option Aircraft lease.
-9-
<PAGE> 12
SECTION 7. SECURITY
7.1 Reservation Deposit: AMO acknowledges receipt from ASA of a cash
payment in the amount of [*] pursuant to the MOU [*]
to reserve the Aircraft for ASA (the "Reservation Deposit"). Provided that
ASA is not in default of its obligations hereunder, the Reservation
Deposit shall be refunded to ASA in the event ASA fails to accept
Aircraft hereunder if, and only if, the cause of said failure to take
Aircraft is that ASA shall not have entered into the agreements referred
to in clauses (i) and (ii) of Section 4.2.2.3 hereof on or prior to the
date hereof and there is no reasonable likelihood that such agreements
will be executed within a commercially reasonable period of time. The
amount of the refund in the case of the third, fourth and fifth Aircraft
shall be [*] per Aircraft. The
amount of the refund in the case of the first and second Aircraft
shall be [*]
. Except as
otherwise provided in the second, third and fourth sentences of this
Section 7.1 and in Sections 9.4 and 10.2 hereof, the Reservation Deposit
is non-refundable.
Upon acceptance of each Aircraft by ASA pursuant to the relevant Lease,
a pro rata portion of the Reservation Deposit shall be transferred by AMO
to JACO to be held by JACO as security (the "Security Deposit") against
the obligations of ASA under the Lease, such Security Deposit to be held
by JACO for the duration of the relevant Lease. Upon termination of the
Leases, the Security Deposit shall be returned to ASA as provided in the
Lease.
SECTION 8. PRODUCT SUPPORT
8.1 Technical Representative: Upon acceptance of the first Aircraft, AMO
shall furnish ASA with [*] Representative qualified in
technical support matters of the British Aerospace 146 Series 200
Aircraft for [*] months from the Delivery Date of the
first Aircraft. Extension of the service of the Technical Field
Support Representative beyond such [*] month period shall
be subject to the mutual agreement of the parties.
8.1.1 ASA shall provide, at no charge to AMO or its affiliates,
suitable office space and equipment, including, without
limitation, a telephone, desk, chair, personal computer and
free access to facsimile and copier equipment for use by the
Technical Field Support Representative conveniently located
near ASA's principal maintenance facilities.
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<PAGE> 13
8.1.2 AMO shall, except as otherwise provided herein, be responsible
for the costs of providing the Technical Field Support
Representative, including local travel, accommodations and living
expenses; provided however, in the event of ASA required the
representative's services away from ASA's primary maintenance
base, ASA shall bear all travel, accommodations and living
expenses for the representative during the period of such absence.
8.2 Customer Support:
[*]
8.2.1 [*]
8.2.2 [*]
8.2.3 [*]
8.2.4 [*]
8.2.5 [*]
8.2.6 Operations Support. [*]
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<PAGE> 14
The Credit Note shall be used solely to pay for items described herein
and for which proper documentation is submitted and approved by AMO.
Such customer support allowance must be used by ASA before or during
the six (6) month period following the Delivery Date of the fifth
Aircraft. Any unused portion of the Credit Note shall be canceled
following the sixth month and ASA shall have no further claim thereto.
SECTION 9. EXCUSABLE DELAY
9.1 Neither party shall be liable to the other party for any failure or
delay in carrying obligations under this Agreement, including but not
limited to, offer or acceptance Aircraft on or before the scheduled
Offer Date, due to acts of God or public enerr war, insurrection or
riot, fire, flood, explosion, earthquake, accident ep-quarantine
restriction, material change of law or regulation, unforeseeable
govern priority, strike or labor dispute causing cessation, slowdown
or interruption of unforeseeable event adversely affecting equipment,
data or materials from such event beyond the control of the
non-performing party which materially affect party's ability to
perform its obligations hereunder ("Excusable Delay").
9.2 In the event of an Excusable Delay, the obligations of each party
under this Agreement shall be deferred for such period or periods as
may be necessary to perform such obligations and in any event for such
period or periods not less than the aggregate equivalent period or
periods of such Excusable Delay.
9.3 Each party shall notify the other party of any Excusable Delay
immediately following receipt of actual knowledge of such Excusable
Delay and, thereafter, upon written request, shall provide reasonable
updates of its performance, if any, under the Agreement with respect
to such Excusable Delay.
9.4 In the event any Excusable Delay or any combination of Excusable
Delays shall result in the Offer Date of any Aircraft (or, in the case
of an Aircraft which has been lost, destroyed or damaged beyond
repair, any replacement Aircraft) being delayed for more than [*]
months after the Offer Date of the Aircraft as varied under the
provisions of this Agreement other than a variation to said Offer Date
arising by reason of an Excusable Delay, ASA or AMO, in its respective
sole discretion, may terminate this Agreement in respect of the
Aircraft so delayed on giving fifteen (15) days irrevocable notice in
writing to the other party. Notices pursuant to this Section 9.4 may
be given at any time provided that they shall only become effective
upon the expiration of the [*] month period or upon expiration of the
fifteen (15) day notice period, if later. Avro shall refund to ASA
the Reservation Deposit in respect of any Aircraft terminated by ASA
under this Section 9.4
-12-
<PAGE> 15
SECTION 10. LATE DELIVERY
10.1 In the event AMO fails to offer for acceptance to ASA an Aircraft in a
cost which ASA is required by this Agreement to accept delivery within
five (5) Days of the applicable Offer Date as extended by any period
of Excusable Delay other provisions of Section 4.1.1 hereof (the
"Extended Offer Date"), such favor be deemed a breach of this
Agreement by AMO, and ASA shall be entitled to the extent provided
under applicable law. For purposes of this Section 10.1 "Business
Day" shall mean any day other than a Saturday or Sunday.
10.2 In the event an Aircraft is not offered by AMO to ASA for acceptance
in a ____________________ which ASA is required by this Agreement to
accept delivery within [*] days, the Extended Offer Date for
such Aircraft, ASA shall have the right to terminate this Agreement
with respect to such Aircraft and, in its sole discretion, to Aircraft
yet to be delivered hereunder, by providing AMO with fifteen (15) days
irrevocable written notice of its intention to so terminate. In the
event an Aircraft is not offered by AMO to ASA for acceptance in a
condition in which ASA is required by this Agreement to accept
delivery within [*] days of the Extended Offer Date for such
Aircraft, AMO shall have the right to terminate this Agreement with
respect to such Aircraft by providing ASA with fifteen (15) days
irrevocable written notice of its intention to so terminate. Notices
pursuant to this Section 10.2 may be given at any time provided that
they shall only become effective upon the expiration of the [*]
day period (in the case of ASA notices) or [*] day ( in the case of
AMO notices) period or upon expiration of the fifteen (15) day notice
period, if later. In the event of termination of this Agreement with
respect to any Aircraft pursuant to this Section 10.2, AMO shall [*]
.
10.3 ASA shall not be entitled to terminate its obligations to accept any
Aircraft under this Agreement by reason of any delay except as
provided in Section 9.4 hereof and this Section 10.
SECTION 11. REPRESENTATIONS AND WARRANTIES
ASA represents and warrants to AMO that as of the date of this Agreement and as
of the Acceptance Date of each Aircraft:
11.1 ASA is a corporation organized and lawfully existing and in good
standing under the laws of Georgia and has the necessary power to own
its property and to carry on its business as is now being conducted
and is duly qualified to do business and is in good standing in each
jurisdiction in which the character of the properties owned by it
therein or in which the transaction of its business makes such
qualification necessary.
-13-
<PAGE> 16
11.2 ASA has full power and authority to execute, deliver and perform its
obligations under this Agreement, the same having been duly authorized
by all proper and necessary corporate action and no consent or
approval of stockholders or any other person or consent or approval
of, notice to or filing with, any public authorities is required as a
condition to the validity of this Agreement.
11.3 This Agreement constitutes a valid and legally binding obligation of
ASA enforceable in accordance with its terms.
11.4 No proceedings are pending or threatened against ASA or any affiliate
of ASA before any court or administrative agency that, in the opinion
of the executive officers of ASA, will materially adversely affect the
inancial condition or operations of the ASA or the ability of ASA to
perform its obligations under this Agreement or the Leases.
11.5 There is no character, bylaw or preference stock provision of ASA and
no provision of any existing mortgages, debenture, contract or
agreement binding on ASA or effecting its properties that shall
conflict with or, in any way prevent the execution, delivery or
performance of the terms of this Agreement or the Leases by ASA as
contemplated and neither the execution or delivery of this Agreement
nor any Lease contemplated herein will constitute a material default
of any indenture, mortgage, contract or other instrument to which ASA
is a part or by which it or any of its properties are bound.
11.6 The balance sheet of ASA dated as of December 31, 1994 and the
statements of earnings, stockholders' equity and changes in financial
position for the periods then ended delivered to AMO are complete and
correct and fairly represent the financial condition and the results
of its operations and transactions as of the date and for the period
referred to therein and, in all events, have been prepared in
accordance with generally accepted accounting principals applied on a
consistent basis and there are no material liabilities, direct or
indirect, fixed or contingent, actual, anticipated or projected not
reflected therein.
11.7 There is no law or governmental regulation or order that shall be
contravened by the execution, delivery and performance of this
Agreement or the Leases by ASA.
SECTION 12. FURTHER ASSURANCES
12.1 Each party shall execute and deliver to the other party promptly such
other documents and assurances and take such further actions as the
requesting party may reasonably request from time to time in order to
effectively carry out the intent and purposes of this Agreement,
including, without limitation, in the case of ASA, providing AMO
copies of such financial information representing the financial
condition and operations of ASA an any affiliated companies, as
requested by AMO and permitting AMO access to the principal financial
officers of ASA and any affiliated companies to discuss the affairs,
finances and accounts of
-14-
<PAGE> 17
each but in any event only to the extent that such relates to ASA's
ability to meet the payment obligations hereunder or under the Leases.
12.2 ASA shall furnish AMO information concerning the use, operation and
maintenance of the Aircraft as AMO may from time to time reasonably
request, including with respect to utilization outside the United
States, and ASA shall permit AMO or its designee to inspect the
records maintained in connection with the Aircraft; provided however,
such visits do not interfere unreasonably (in ASA's reasonable
opinion) with the operations of ASA for so long as ASA operates the
Aircraft.
12.3 AMO agrees to hold in confidence any information obtained pursuant to
this provision unless such information has been otherwise disseminated
to the public or in the event AMO is required or compelled by law or
by regulatory authorities to disclose the same.
SECTION 13. EVENTS OF DEFAULTS
13.1 This Agreement may be terminated by either party in whole or in part
on notice to the other party if the other party:
13.1.1 in the case of ASA, is in default with respect to its
obligations to accept Aircraft offered to it by AMO
hereunder in accordance with the terms hereof and such
default has not been waived or cured within [*]
days after written notice from AMO specifying the same;
13.1.2 except as otherwise provided in Section 13.1.1 hereof, is
in default with respect to any of its obligations under
this Agreement and such default has not been waived or
cured within [*] days after written notice from the
non-defaulting party to the defaulting party specifying
the same; [*]
13.1.3 is in default with respect to any of its obligations under
any other agreement with the defaulting party and such
default has not been waived or cured within any applicable
grace period;
13.1.4 in the case of ASA, is in default with any Aircraft owner,
lessor or sublessor pursuant to any Lease and such default
has not been waived or cured within any applicable grace
period;
13.1.5 admits in writing its inability to pay its debts as they
become due or makes a general assignment for the benefit
of creditors;
-15-
<PAGE> 18
13.1.6 files a voluntary petition under any state or federal
bankruptcy or insolvency laws;
13.1.7 petitions for, or acquiesces in, the appointment of any
receiver, trustee or similar officer to liquidate or
conserve its business or any substantial part of its
assets;
13.1.8 ceases doing business as a going concern;
13.1.9 commences under the laws of any competent jurisdiction any
proceeding involving its insolvency, readjustment of debt,
dissolution, liquidation or any other similar proceeding
for the relief of financially distressed debtors;
13.1.10 becomes the object of any proceeding or action of the type
described in Subsection 13.1.6 or 13.1.7 above relating to a
substantial part of its assets and such proceeding or action
remains undismissed or unseated for a period of at least sixty
(60) days; or
13.1.11 in the case of ASA, if any material warranty or representation
made or furnished hereunder or under the Leases by or on
behalf of ASA is false when made or furnished.
13.2 Any termination under this Section 13 shall be without prejudice to the
terminating party's rights and remedies for damages under applicable law.
SECTION 14. MISCELLANEOUS
14.1 This Agreement may not be amended or modified except in writing signed
by both parties, or as otherwise provided by this Agreement.
14.2 ASA may not transfer, assign, pledge or hypothecate this Agreement or
any part thereof or interest therein in any way whatsoever, without
the express prior written consent of AMO (which consent shall not be
unreasonably withheld).
14.3 [*] AMO may not assign, pledge or in any
other way transfer its interest in this Agreement either in whole or in
part to any party without the prior written consent of ASA (which consent
shall not be unreasonably withheld).
[*]
-16-
<PAGE> 19
14.3 This Agreement shall in all respects be governed by, and construed in
accordance with the laws of the State of Georgia (without regard to
the conflict of laws provisions of such State), including all matters
of construction, validity and performance, and shall be deemed
delivered in the State of Georgia.
14.3.1 Any judicial proceedings brought against AMO with respect to
this Agreement may be brought in the United States District
Court in the Northern District of Georgia and, by the
execution and delivery of this Agreement, AMO (i) accepts,
generally and unconditionally, the nonexclusive jurisdiction of
such court and any related appellate court, and irrevocably
agrees to be bound by any judgment rendered thereby in
connection with this Agreement, (ii) irrevocably waives any
objection it may now or hereafter have as to the venue of any
such suit, action or proceeding brought in such Court or that
such Court is an inconvenient forum and (iii) irrevocably
waives personal service of process and consents that service of
process upon it may be made by certified or registered mail
return receipt requested, at its address specified or determined
in accordance with Section 14.7 hereof, and service so made
shall be deemed completed on the earlier of (1) actual receipt
thereof or (2) the third Business Day after such service is
deposited in the mail. Nothing herein shall affect the right
to serve process in any manner permitted by law or shall limit
the right of either party to bring any proceedings against the
other party in the courts of any other jurisdiction.
14.4 Section headings used herein are for convenience of reference only and
will not affect or limit the interpretation of this Agreement.
14.5 This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts all of which once
they are executed and delivered shall be deemed to be an original and
all of which taken together shall constitute one and the same
document.
14.6 If any provisions of this Agreement shall be held to be invalid or
unenforceable, the validity and enforceability of the remaining
provisions hereof shall not be affected or impaired in any way.
-17-
<PAGE> 20
14.7 All notices and requests in connection with this Agreement shall be in
writing and may be given by personal delivery, registered or certified
first class mail or facsimile, addressed as follows:
ASA: Atlantic Southeast Airlines, Inc.
100 Hartsfield Centre Parkway
Suite 800
Atlanta, Georgia 30354-1356
Attn: Mr. John Beiser, President
Fax: (404) 209-0162
AMO: Asset Management Organization
British Aerospace Holdings, Inc.
22070 Broderick Drive
Sterling, VA 20166
Attn: Vice President - The Americas
Fax: (703) 406-1213
or to such other address as the party to receive the notice or request
shall designate by written notice to the other. The effective date of
any notice or request given in connection with this Agreement shall be
the date on which it is personally delivered or otherwise actually
received or the date seven (7) business days after deposit in the
first class mail, registered or certified, postage prepaid.
14.8 This Agreement, the Conversion Specification Document and the other
exhibits, schedules, and appendices referenced herein, constitute the
entire agreement of the parties and supersede all proposals, prior
negotiations and other communications (in each case, oral or written)
between AMO and ASA with respect to the Aircraft contained herein.
14.9 AMO and ASA each shall bear and be responsible for its own costs and
expenses associated with the negotiation, preparation and the
execution of this Agreement together with any other agreements or
documents contemplated herein or relating to the delivery of the
Aircraft including the Leases.
14.10 The parties hereto shall abide by the confidentiality requirements set
out below:
14.10.1 ASA HEREBY ACKNOWLEDGES AND AGREES THAT ALL INFORMATION
REGARDING AIRCRAFT, PRICING, TECHNICAL DATA, DOCUMENTS AND
INFORMATION AND THE TERMS AND CONDITIONS CONTAINED IN THIS
AGREEMENT ARE FURNISHED TO ASA AND ARE BEING FURNISHED TO ASA
UNDER AN EXPRESS CLAIM OF CONFIDENTIALITY FOR THE SOLE AND
ABSOLUTE PURPOSE OF PROVIDING ASA WITH AIRCRAFT, THAT
DISCLOSURE
-18-
<PAGE> 21
OF SUCH INFORMATION SHALL LIKELY HAVE AN ADVERSE IMPACT ON THE
COMPETITIVE POSITION OF AMO, ITS PARENT OR ITS AFFILIATED
COMPANIES IN THE AIRCRAFT MANUFACTURING, LEASING OR AIRLINE
INDUSTRY AND THAT, TO THE EXTENT THAT SUCH INFORMATION IS NOT
IN THE PUBLIC RECORD, SUCH INFORMATION SHALL BE HELD IN STRICT
CONFIDENCE BY ASA AND SHALL NOT WITHOUT AMO'S PRIOR WRITTEN
CONSENT BE DISCLOSED BY ASA OTHER THAN TO ASA'S OFFICERS AND
EMPLOYEES STRICTLY ON A NEED-TO-KNOW BASIS OR AS MAY BE
REQUIRED BY APPLICABLE LAW. IN CONNECTION WITH ANY SUCH
DISCLOSURE (INCLUDING A DISCLOSURE REQUIRED BY GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES OR TO THE U.S. SECURITIES AND
EXCHANGE COMMISSION), ASA SHALL REQUEST, AND USE REASONABLE
ENDEAVORS TO OBTAIN, CONFIDENTIAL TREATMENT OF SUCH
INFORMATION TO THE FULL EXTENT PERMITTED BY APPLICABLE LAW.
14.10.2 AMO HEREBY ACKNOWLEDGES AND AGREES THAT ALL INFORMATION
REGARDING ASA'S OPERATION OF AIRCRAFT AND ASA'S FINANCIAL
CONDITION (TO THE EXTENT NOT GENERALLY AVAILABLE TO THE PUBLIC
OR ALREADY IN THE PUBLIC DOMAIN) AND THE TERMS AND CONDITIONS
CONTAINED IN THIS AGREEMENT ARE FURNISHED TO AMO AND ARE BEING
FURNISHED TO AMO UNDER AN EXPRESS CLAIM OF CONFIDENTIALITY FOR
THE SOLE AND ABSOLUTE PURPOSE OF ASA ACQUIRING THE AIRCRAFT,
THAT DISCLOSURE OF SUCH INFORMATION SHALL LIKELY HAVE AN
ADVERSE IMPACT ON THE COMPETITIVE POSITION OF ASA IN THE
AIRLINE INDUSTRY AND THAT, TO THE EXTENT THAT SUCH INFORMATION
IS NOT IN THE PUBLIC RECORD, SUCH INFORMATION SHALL BE HELD IN
STRICT CONFIDENCE BY AMO AND EACH AIRCRAFT OWNER, LESSOR,
SUBLESSOR AND FINANCING PARTY (AS APPLICABLE) AND NOT WITHOUT
ASA'S PRIOR WRITTEN CONSENT BE DISCLOSED BY ANY OF THE
FOREGOING OTHER THAN TO ANY OFFICERS AND EMPLOYEES OF ANY OF
THE FOREGOING STRICTLY ON A NEED-TO-KNOW BASIS OR AS MAY BE
REQUIRED BY APPLICABLE LAW. IN CONNECTION WITH ANY SUCH
DISCLOSURE, AMO SHALL REQUEST, AND USE REASONABLE ENDEAVORS TO
OBTAIN, CONFIDENTIAL TREATMENT OF SUCH INFORMATION TO THE FULL
EXTENT PERMITTED BY APPLICABLE LAW.
14.10.3 Either party may announce the signing of this Agreement by
means of a notice to the press provided that the content of
the notice has been agreed to by the other party.
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<PAGE> 22
14.11 The effective date of this Agreement shall be that date first set
forth in the preamble.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their duly authorized officers.
<TABLE>
<S> <C>
ATLANTIC SOUTHEAST AIRLINES, INC. BRITISH AEROSPACE HOLDINGS, INC.
ASSET MANAGEMENT ORGANIZATION
By: /s/ George F. Pickett By: /s/ Louis E. Emery
------------------------------ --------------------------------
Its: Chairman Its: Vice President - The Americas
----------------------------- -------------------------------
Date: October 2, 1995 Date: October 2, 1995
---------------------------- -------------------------------
</TABLE>
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<PAGE> 23
EXHIBIT A
TO
ASA AGREEMENT TO LEASE
List of
Proposed Aircraft
Aircraft Serial No.
E2062
E2074
E2080
E2084
E2087
<PAGE> 24
EXHIBIT B
TO
ASA AGREEMENT TO LEASE
Sublease
<PAGE> 25
EXHIBIT "B"
2074
----
- -------------------------------------------------------------------------------
SUBLEASE AGREEMENT
dated as of October 2, 1995
between
JET ACCEPTANCE CORPORATION,
Sublessor,
and
ATLANTIC SOUTHEAST AIRLINES, INC.
Sublessee,
Covering One British Aerospace
Model 146-200A Aircraft
Serial Number E2074 Registration Number N881DV
(N812AS Pending)
- -------------------------------------------------------------------------------
The Aircraft covered by this Sublease Agreement is owned by First Security Bank
of Utah, National Association, as trustee (the "Owner-Trustee"), under the
Trust Agreement (146-89-17), dated as of December 1, 1989, and has been leased
to Jet Acceptance Corporation pursuant to the Lease Agreement (146-89-17),
dated as of December 1, 1989, between the Owner-Trustee and Jet Acceptance
Corporation. This Sublease Agreement has been assigned by Jet Acceptance
Corporation, as Sublessor, to, and is subject to a security interest in favor
of, the Owner-Trustee under the Assignment of Sublease and Security Agreement
(146-89-17), dated as of December 1, 1989, (as such Assignment of Sublease and
Security Agreement may be amended or supplemented as permitted thereby). The
Owner-Trustee has further assigned this Sublease Agreement to, and has granted
a security interest in favor of State Street Bank and Trust Company of
Connecticut, National Association, as Security Trustee, under the Security
Agreement-Trust Deed (146-89-17), dated as of December 1, 1989, (as such
Security Agreement-Trust Deed may be amended or supplemented as permitted
thereby), for the benefit of the holders of Secured Notes referred to in such
Security Agreement-Trust Deed. This Sublease Agreement has been executed in
several counterparts. To the extent, if any, that this Sublease Agreement
constitutes chattel paper (as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction), no security interest in this
Sublease Agreement may be created through the transfer of possession of any
counterpart other than the original counterpart that contains the receipt
therefor executed by State Street Bank and Trust Company of Connecticut,
National Association, as Security Trustee, on the signature page thereof. See
Section 18.
<PAGE> 26
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Heading Page
- ------- ------- ----
<S> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. ACCEPTANCE UNDER SUBLEASE AND CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Acceptance under Sublease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Conditions Precedent to Obligations of Sublessor . . . . . . . . . . . . . . . . . . . . . . . 7
(c) Conditions Precedent to Obligations of Sublessee . . . . . . . . . . . . . . . . . . . . . . . 8
3. TERM AND RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Basic Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(c) Supplemental Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(d) Manner of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(e) Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(f) Early Termination by Sublessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4. NET SUBLEASE, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5. DISCLAIMER OF WARRANTIES AND WARRANTIES; QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . 12
(a) Disclaimer of Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(b) Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(c) Benefit of Certain Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6. POSSESSION; OPERATION AND USE; MAINTENANCE; INSIGNIA; MAINTENANCE COST CONTRIBUTIONS . . . . . . . . 13
(a) Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(b) Operation and Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(c) Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(d) Insignia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(e) Maintenance Cost Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
xxiv
<PAGE> 27
<TABLE>
<CAPTION>
Section Heading Page
- ------- ------- ----
<S> <C> <C>
7. INSPECTION AND CERTAIN NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(a) Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(b) Certain Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8. REPLACEMENT AND POOLING OF PARTS; ALTERATIONS, MODIFICATIONS AND ADDITIONS . . . . . . . . . . . . . 18
(a) Replacement of Parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(b) Title to Parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(c) Pooling or Parts Leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(d) Alterations, Modifications and Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9. RISK, LOSS, DESTRUCTION OR REQUISITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(a) Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(b) Event of Loss with Respect to the Airframe . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(c) Event of Loss with Respect to the Engine . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(d) Payments from Governmental Authorities for Requisition
of Title or Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(e) Application of Payments During Existence of Default . . . . . . . . . . . . . . . . . . . . . . 23
10. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(a) Third Party Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(b) Insurance Against Loss or Damage to the Aircraft . . . . . . . . . . . . . . . . . . . . . . . 23
(c) Additional Insureds; Loss Payee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(d) Deductible and Self-Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(e) Application of Hull Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(f) Insurance for Own Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(g) Reports, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11. LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
12. TITLE; REGISTRATION; RECORDATION AND FURTHER
ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(a) Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(b) Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(c) FAA Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(d) Recordation of Sublease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
xxv
<PAGE> 28
<TABLE>
<CAPTION>
Section Heading Page
- ------- ------- ----
<S> <C> <C>
(e) Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
13. RETURN OF AIRCRAFT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(a) Return of Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(b) Redelivery Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(c) Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(d) Final Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(e) Failure to Comply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
14. GENERAL AND SPECIAL TAX INDEMNITIES; GENERAL INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . 28
14.1 General Tax Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(a) Indemnification of Indemnified Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(b) Reports and Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(c) Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(d) Refund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
14.2 Special Tax Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(a) Representations, Warranties and Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . 30
(b) Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(c) Refund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
14.3 Tax Indemnification Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(a) Amount of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(b) Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
14.4 "Trustor" and "Sublessor" to Include Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 32
14.5 General Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(a) Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(b) Exclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(c) Tax Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(d) Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(e) Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(f) Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
xxvi
<PAGE> 29
<TABLE>
<CAPTION>
Section Heading Page
- ------- ------- ----
<S> <C> <C>
15. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
16. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
17. SUBLESSOR'S RIGHT TO PERFORM FOR SUBLESSEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
18. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
19. ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
20. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(a) Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(b) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(c) Assignment of Sublease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(d) Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(e) Waivers, Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(f) Judicial Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(g) Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(h) Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
21. REPRESENTATIONS, WARRANTIES AND ASSURANCES OF SUBLESSEE . . . . . . . . . . . . . . . . . . . . . . 40
22. GENERAL UNDERTAKINGS OF SUBLESSEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(a) Operation of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(b) Financial Statements and Operational Reports . . . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
Signatures
Attachments:
Exhibit A - Form of Sublease Acceptance Supplement
Schedule 1 - Description of Equipment
Schedule 2 - Schedule of Rental Payments
Schedule 3 - Schedule of Stipulated Loss Values
Exhibit B-1 - Opinion of Sublessee's Counsel
Exhibit B-2 - Opinion of Sublessor's Counsel
Exhibit C - Redelivery Conditions
Exhibit D - Undercarriage Life Limited Parts
Exhibit E - Engine Life Limited Parts
<PAGE> 30
SUBLEASE AGREEMENT
Sublease Agreement, dated as of October 2, 1995, between Jet
Acceptance Corporation, a Delaware Corporation, having its principal place of
business at 22070 Broderick Drive, Sterling, Virginia 20166 ("Sublessor"), and
Atlantic Southeast Airlines, Inc., a Georgia corporation, having its principal
place of business at 100 Hartsfield Centre Parkway, Suite 800, Atlanta, Georgia
30354-1356 ("Sublessee").
In consideration of the mutual covenant and agreements contained herein,
Sublessor and Sublessee agree as follows:
SECTION 1. DEFINITIONS
The following terms shall have the following meanings for all purposes
of this Sublease, unless otherwise defined in this Sublease. References to
agreements shall be deemed to mean and include such agreements as the same may
be amended and supplemented from time to time, and references to parties to
agreements shall be deemed to include the successors and permitted assigns of
such parties.
"Additional Aircraft" shall mean each British Aerosapce Model 146-200
aircraft other than the Aircraft which may from time to time be leased and/or
subleased to Sublessee pursuant to the Agreement to Lease.
"Affiliate" of any Person shall mean any corporation, entity or
individual which, directly or indirectly, controls, or is controlled by or is
under common control with, such Person. For purposes of this definition,
"control" (including "controlled by" and "under common control with") shall
mean the power, directly or indirectly, to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
"Agreement to Lease" shall mean the Agreement to Lease Used British
Aerospace 146 Series 200 Aircraft between British Aerospace Holdings, Inc.,
Asset Management Organisation and Sublessee dated as of October 2, 1995.
"Aircraft" shall mean the Airframe subleased and delivered under this
Sublease and the Engines initially installed on such Airframe on the Delivery
Date, or any engine substituted for any of said Engines under this Sublease,
whether or not any of said initial or substitute Engines may from time to time
be installed on such Airframe.
"Airframe" shall mean and include: (i) the Aircraft (except Engines)
subleased by Sublessor to Sublessee, which Aircraft has the United States
Registration Number and
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<PAGE> 31
Manufacturer's serial number specified in the Initial Sublease Acceptance
Supplement and (ii) any and all Parts so long as the same shall be incorporated
or installed in or attached to such Airframe, or, so long as the same shall be
subleased hereunder, in accordance with the terms of Section 8 of this
Sublease, after removal from such Airframe.
"Allied Signal Agreement" shall mean the agreement between Sublessee
and Allied Signal Engines, a unit of Allied Signal Aerospace ("Allied Signal")
or Sublessee and another vendor supplying equivalent services and products
under an agreement approved by Sublessor with respect to the matters covered
under the EMCPP referred to in Section 2(c)(v) hereof.
"Applicable Law" shall mean all applicable laws, statutes, treaties,
judgments, decrees, injunctions, writs and orders of any court, governmental
agency or authority and applicable rules, regulations, orders, directives,
licenses and permits of any governmental body, instrumentality, agency or
authority.
"Assignment of Sublease" shall mean the Assignment of Sublease and
Security Agreement (146-89-17), dated as of December 1, 1989, between the
Lessee, as debtor, and the Owner-Trustee, as secured party.
"Avro JetSpares Agreement" shall mean the agreement between Sublessee
and British Aerospace, Inc., acting by and through its Avro International
Aerospace Division ("Avro") or Sublessee and another vendor supplying
equivalent services and products under an agreement approved by Sublessor with
respect to the matters covered under the Avro JetSpares Program referred to in
Section 2(c)(iv) hereof.
"Basic Rent" shall mean all rent payable pursuant to Section 3(b)
hereof for the Term.
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which banks in the States of North Carolina or Georgia are authorized or
permitted to be closed.
"Certified Air Carrier" shall mean an air carrier duly certificated or
licensed by the governmental authority of the United States.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Contribution Rate" shall mean the amount set out as such in Schedule
2 of the Initial Sublease Acceptance Supplement, as adjusted in accordance with
the provisions of Section 6(e) hereof.
"Cycle" shall mean one take-off and landing of the Aircraft.
"Default" shall mean any event with the passage of time or the giving
of notice, or both, shall constitute an Event of Default under this Sublease.
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<PAGE> 32
"Delivery Date" shall mean the date on which the Aircraft is delivered
to Sublessee under this Sublease, which date shall be set forth in the Initial
Sublease Acceptance Supplement.
"Dollars" and "$" shall each mean lawful currency of the United States
of America.
"Engine" shall mean and include: (i) each of the four Allied Signal
engines initially installed on the Airframe on the Delivery Date and listed by
manufacturer's model and serial number in the Initial Sublease Acceptance
Supplement, whether or not from time to time thereafter installed on the
Airframe; (ii) any engine which may at any time be conveyed to Sublessor or its
nominee pursuant to Section 9(c) hereof in replacement for an Engine subleased
hereunder; and (iii) any and all Parts, so long as the same shall be
incorporated or installed in or attached to any Engine subject to this
Sublease, or, so long as the same shall be subleased hereunder, in accordance
with the terms of Section 8 hereof, after removal from such Engine.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, or any successor law.
"Event of Default" under this Sublease is defined in Section 15
hereof.
"Event of Loss" with respect to the Airframe or any Engine shall mean
any of the following events: (i) loss of the Airframe or an Engine or the use
thereof due to theft, hijacking or disappearance for a period in excess of 30
days; (ii) damage to or destruction of the Airframe or an Engine beyond
economic repair or rendition of such Airframe or Engine permanently unfit for
normal use; (iii) any damage to the Airframe or an Engine which results in an
insurance settlement with respect to such item on the basis of an actual or
constructive total loss or (iv) if with respect to the Aircraft or the
Airframe, (a) the condemnation, confiscation, requisition or taking of title or
(b) the condemnation, confiscation, requisition or taking of use for a period
in excess of 6 consecutive months by any foreign government or instrumentality
or agency thereof, in each case only to the extent that such condemnation,
confiscation, requisition or taking of title or use is covered by the war risk
and allied perils insurance coverage, if any, required by Section 10 hereof; or
(v) with respect to an Engine, the confiscation, requisition or taking of title
or use by any government. An Event of Loss with respect to the Airframe shall
constitute an Event of Loss with respect to the Aircraft.
"Expiry Date" shall mean the day immediately preceding the day which
is the fifth anniversary of the Delivery Date.
"Federal Aviation Administration" or "FAA" shall mean the Federal
Aviation Administration or any other governmental body or authority of the
United States succeeding to the functions and authority thereof.
"Federal Aviation Act" shall mean Title 49 of the United States Code,
as amended.
4
<PAGE> 33
"Initial Sublease Acceptance Certificate" shall mean the Sublease
Acceptance Certificate delivered on the Delivery Date.
"Insured Parties" and "Financing Parties" shall each mean the
Sublessor, the Participants, the Owner-Trustee (both in its individual capacity
and as Owner-Trustee) and the Security Trustee.
"Lease" or "Lease Agreement" shall mean the Lease Agreement
(146-89-17) dated as of December 1, 1989, between the Owner-Trustee, as lessor,
and the Lessee, as lessee.
"Lease Event of Default" shall mean an Event of Default under the
Lease.
"Lease Operative Agreements" shall mean and include the Trust
Agreement, the Participation Agreement, the Lease, the Assignment of Sublease,
the P.L.C. Agreement, the Notes outstanding at the time of reference, the
Security Agreement and the Tax Indemnity Agreement.
"Lessor" and "Owner-Trustee" shall mean First Security Bank of Utah,
National Association in its capacity as trustee under the Trust Agreement and
its successors in trust thereunder.
"Lien" shall mean any mortgage, pledge, security interest, lien,
encumbrance or other charge of any kind with respect to property (real,
personal or mixed, tangible or intangible).
"Maintenance Cost Contributions" shall mean amounts payable to
Sublessor in respect of certain maintenance of the Aircraft based on Cycle
utilization and calculated and payable as provided in Section 6(e) hereof and
Schedule 2 of the Initial Sublease Acceptance Supplement.
"Manufacturer" shall mean British Aerospace (Commercial Aircraft)
Limited, a company organized under the laws of England, any corporation which
succeeds thereto by merger or consolidation or which acquires all or
substantially all of the assets thereof.
"Noteholder" shall mean the holder of any Note issued and outstanding
under the Security Agreement.
"Note Purchaser" shall mean each of the Note Purchasers named in the
Participation Agreement and their respective successors and assigns, including
successive holders of the Notes.
"Notes" shall mean the Secured Notes of the Owner-Trustee issued under
and pursuant to the Security Agreement.
"Other Subleases" shall mean the other lease and/or sublease
agreements entered into from time to time by Sublessee with respect to the
Additional Aircraft.
5
<PAGE> 34
"Overdue Rate" shall mean the lesser of the maximum rate permitted by
Applicable Law and the rate per annum equal to the sum of one and one-half
percentage points (1 1/2%) plus the Prime Rate. For purposes of this
definition "Prime Rate" shall mean the rate from time to time published in The
Wall Street Journal under the caption "Money Rates" as the prime rate.
"P.L.C. Agreement" shall mean the P.L.C. Agreement (146-89-17) dated
as of December 1, 1989, among British Aerospace Public Limited Company (an
Affiliate of the Manufacturer and the Seller), the Trustor, the Owner-Trustee,
the Note Purchasers and the Security Trustee.
"Participants" shall mean the Note Purchasers and the Trustor.
"Participation Agreement" shall mean the Participation Agreement
(146-89-17) dated as of December 1, 1989, among the Lessee, the Owner-Trustee,
the Participants and the Security Trustee.
"Parts" shall mean any and all appliances, parts, instruments,
appurtenances, accessories, furnishings, seats, and other equipment of whatever
nature (other than Engines or engines and temporary replacement parts as
provided in Section 8 of this Sublease), which may from time to time be
incorporated or installed in or attached to the Airframe or any Engine.
"Permitted Liens" shall have the meaning assigned thereto in Section
11 hereof.
"Person" shall mean an individual, partnership, corporation, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Rent" shall mean all Basic Rent and Supplemental Rent hereunder.
"Rent Dates" shall mean the Delivery Date and the first day of each
month occurring thereafter throughout the Term, all as set out in Schedule 2 of
the Initial Sublease Acceptance Supplement.
"Rental Period" shall mean the period from and including any Rent Date
to and including the day preceding the next Rent Date or in the case of the
last Rental Period, the Expiry Date.
"Replacement Engine" shall mean any engine conveyed to Sublessor or
its nominee pursuant to Section 9(c) hereof in replacement of an Engine
subleased hereunder.
"Security Agreement" shall mean the Security Agreement-Trust Deed
(146-89-17) dated as of December 1, 1989, between the Owner-Trustee, as debtor,
and the Security Trustee, as secured party.
6
<PAGE> 35
"Security Trustee" shall mean State Street Bank and Trust Company of
Connecticut, National Association and its successors in trust as security
trustee under the Security Agreement.
"Seller" means British Aerospace Holdings, Inc., successor in interest
to British Aerospace, Inc.
"Stipulated Loss Value" shall mean the amount determined in accordance
with Schedule 3 to the Initial Sublease Acceptance Supplement.
"Sublease Acceptance Supplement" shall mean a Sublease Acceptance
Supplement, substantially in the form of Exhibit A hereto, entered into on the
acceptance of the Aircraft subleased hereunder and any subsequent Sublease
Acceptance Supplement entered into pursuant to Section 9(c) hereof or
otherwise.
"Sublessor" shall mean Jet Acceptance Corporation, a Delaware
corporation, and any permitted assigns pursuant to Section 19 hereof.
"Sublessor Lien" shall mean any Lien or disposition of title affecting
the Aircraft, the Airframe, any Engine or any Part arising as a result of (i)
claims against Sublessor or any Financing Party not related to the transactions
contemplated by this Sublease, (ii) any act or omission of Sublessor or any
Financing Party which is not related to the transactions contemplated by this
Sublease or is violation of any of the terms of this Sublease, (iii) claims
against Sublessor or any Financing Parties with respect to Taxes or Expenses
against which Sublessee is not required to indemnify Sublessor, (iv) claims
against Sublessor or any Financing Parties arising out of any voluntary
transfer by Sublessor or any Financing Parties in the Aircraft, the Lease
Operative Agreements or this Sublease, other than a transfer of the Aircraft or
any interest therein pursuant to Sections 8 or 9 or pursuant to the exercise of
the remedies set forth in Section 16 hereof or (v) Liens existing on or prior
to the Delivery Date.
"Supplemental Rent" shall mean all amounts, liabilities and
obligations (other than Basic Rent) which the Sublessee is obligated to pay
hereunder, including, without limitation, Maintenance Cost Contributions and
Stipulated Loss Value payments.
"Tax" shall mean all license and registration fees and all taxes,
levies, imposts, duties, charges or assessments of any nature whatsoever
together with any penalties, additions to tax, fines or interest thereon.
"Tax Indemnity Agreement" shall mean the Tax Indemnity Agreement
(146-89-17) dated as of December 1, 1989, between the Lessee and the Trustor.
"Term" shall have the meaning specified in Section 3(a) hereof.
7
<PAGE> 36
"Trust Agreement" shall mean the Trust Agreement (146-89-17) dated as
of December 1, 1989, between the Trustor and First Security Bank of Utah,
National Association, as Owner-Trustee.
"Trust Estate" shall mean all the estate, right, title and interest of
the Owner-Trustee in, to and under the Airframe and Engines and the Operative
Agreements, including, without limitation, all funds advanced to the Owner-
Trustee by the Trustor, all proceeds from the sale of the Notes, all
installments and other payments of Rent (including, without limitation,
Stipulated Loss Values), insurance proceeds, condemnation awards, purchase
price and sale proceeds, and all other proceeds of any kind for or with respect
to the Airframe and Engines and the Operative Agreements.
"Trustor" shall mean Emerson Capital Corporation, a Delaware
corporation, and its successors and permitted assigns as trustor under the
Trust Agreement.
"United States" shall mean the United States of America.
SECTION 2. ACCEPTANCE UNDER SUBLEASE AND CONDITIONS PRECEDENT.
(a) Acceptance under Sublease. On the Delivery Date, Sublessor
shall sublease to Sublessee, and Sublessee shall accept and sublease from
Sublessor, the Aircraft on the terms and conditions set forth herein, such
subleasing to be evidenced by the execution and delivery on the Delivery Date
of a Sublease Acceptance Supplement.
(b) Conditions Precedent to Obligations of Sublessor. Sublessor's
obligation to sublease the Aircraft to Sublessee is subject to the fulfillment
of the following conditions to the satisfaction of Sublessor on or before the
Delivery Date:
(i) Representations and Warranties. The representations,
warranties and assurances of the Sublessee set forth in Section 21
hereof shall be true on the Delivery Date, and no Default or Event of
Default shall have occurred and be continuing and Sublessee shall have
furnished to Sublessor a certificate of an officer of Sublessee to
such effect dated the Delivery Date confirming such facts;
(ii) No Change in Applicable Law. No change shall have
occurred after the date of execution and delivery of this Sublease in
Applicable Law or interpretation thereof by appropriate regulatory
authorities which, in the reasonable opinion of Sublessor or its
counsel, would make it illegal or the probability of illegality for
Sublessor to enter into, or to perform any of its obligations under,
this Sublease is substantial and such illegality or probable
illegality is not due to any act or omission of Sublessor.
8
<PAGE> 37
(iii) No Material Adverse Change. There shall not have
been any material adverse change in the business, assets, liabilities,
financial condition, results, operations or business prospects of
Sublessee.
(iv) Sublessee Documents. Sublessee shall have furnished
to Sublessor the following documents in form and substance reasonably
satisfactory to Sublessor:
(A) A certified copy of the resolution(s) adopted by
Sublessee's Board of Directors (or appropriate committee
thereof) authorizing the execution and performance of this
Sublease and each agreement contemplated hereunder;
(B) An incumbency certificate setting out the names
and the signatures of the officers of Sublessee authorized to
sign this Sublease, the Initial Sublease Acceptance Supplement
and any other documents provided for herein or contemplated
hereby;
(C) Certificates of insurance coverage required by
Section 10 hereof, as well as a broker's letter, all issued in
the form and substance required under said Section 10;
(D) An opinion in the form of Exhibit B-1 hereto
issued to Sublessor by legal counsel of Sublessee;
(E) Evidence that all regulatory approvals and
certifications required by Sublessee to operate the Aircraft
in the transport category (Passenger), including, but not
limited to, that of the FAA have been obtained.
(v) Other Agreements. Sublessor shall have received
copies of the Avro JetSpares Agreement and the Allied Signal Agreement
duly executed by each of the parties thereto;
(vi) Opinion of FAA Counsel. Sublessor shall have
received from Daugherty, Fowler & Peregrin, special FAA counsel, an
opinion as to the eligibility of this Sublease for recordation at the
FAA and the due filing thereof for recordation at the FAA.
(c) Conditions Precedent to Obligations of Sublessee. Sublessee's
obligation to sublease the Aircraft from Sublessor is subject to the
fulfillment of the following conditions to the satisfaction of
Sublessee on or before the Delivery Date:
(i) No Change in Applicable Law. No change shall have
occurred after the date of execution and delivery of this Sublease in
Applicable Law or interpretation thereof by appropriate regulatory
authorities which, in the reasonable opinion of Sublessee or its
9
<PAGE> 38
counsel, would make it illegal or the probability of illegality for
Sublessee to enter into, or to perform any of its obligations under,
this Sublease is substantial and such illegality or probable
illegality is not due to any act or omission of Sublessee.
(ii) Condition of Aircraft. Aircraft is equipped and
is delivered in the condition as required by Section 2.1 of the
Agreement to Lease.
(iii) Avro JetSpares Program. Sublessee shall have
entered into an agreement with Avro for a BAe 146 Airframe JetSpares
Program ("Avro JetSpares Program"), such agreement to contain
commercial terms substantially similar to those set forth in Appendix
2 to the Memorandum of Understanding dated July 6, 1995 between AMO
and Sublessee (the "MOU") and otherwise reasonably acceptable to
Sublessee;
(iv) EMCPP. ASA shall have entered into an agreement
with Allied Signal for a BAe 146 Engine Maintenance Cost Protection
Program ("EMCPP") covering the Engines on the Aircraft, such agreement
to contain commercial terms substantially similar to those set forth
in Appendix 3 to the MOU and otherwise reasonably acceptable to
Sublessee; and
(v) Sublessor Documents. Sublessor shall have furnished to
Sublessee the following documents in form and substance reasonably
satisfactory to Sublessee.
(A) A certified copy of the resolution(s) adopted by
Sublessor's Board of Directors (or appropriate committee
thereof) authorizing the execution and performance of this
Sublease and each agreement contemplated hereunder;
(B) An incumbency certificate setting out the names
and the signatures of the officers of Sublessor authorized to
sign this Sublease, the Initial Sublease Acceptance Supplement
and any other documents provided for herein or contemplated
hereby;
(C) The instrument and legal opinion which is
required to be delivered by Section 4.2.2 of the Agreement to
Lease shall have been delivered to Sublessee; and
(D) An opinion in the form of Exhibit B-2 hereto
issued to Sublessee by legal counsel of Sublessor.
SECTION 3. TERM AND RENT.
(a) Term. Unless sooner terminated by the terms of this Sublease
or by agreement in writing, the term (the "Term") shall commence on the
Delivery Date and shall continue until the Expiry Date.
10
<PAGE> 39
(b) Basic Rent. Sublessee agrees to pay Basic Rent for the
Aircraft on the Rent Dates and in the amounts set out in Schedule 2 of the
Initial Sublease Acceptance Supplement.
(c) Supplemental Rent. Sublessee also agrees to pay to Sublessor,
or to whomever shall be entitled thereto, any and all Supplemental Rent when
the same shall become due and owing, and in the event of any failure on the
part of Sublessee to pay any Supplemental Rent, Sublessor shall have all
rights, powers and remedies provided for herein or by law or equity in the case
of nonpayment of Basic Rent. Sublessee shall also pay, on demand, as
Supplemental Rent, interest at the Overdue Rate on any part of any installment
of Basic Rent not paid when due for any period for which the same shall be
overdue and, to the extent permitted by Applicable Law, on any payment of
Supplemental Rent not paid when due for the period until the same shall be
paid.
(d) Manner of Payment. All Rent shall be paid by Sublessee to
Sublessor at its address referred to in Section 20 hereof, or as Sublessor may
otherwise direct in writing to Sublessee at least 5 Business Days prior to the
next Rent Date, in immediately available funds consisting of lawful currency of
the United States, so that Sublessor receives the full amount of such payment
by close of its business on the due dates thereof. If any Rent is due on a day
which is not a Business Day, such Rent shall be paid on the next succeeding
Business Day, and no interest shall accrue with respect to such payment of Rent
if such payment is made on such next succeeding Business Day.
(e) Security Deposit. On the Delivery Date a deposit shall be
established in the amount and as otherwise provided in Section 7.1 of the
Agreement to Lease as security for the performance by Sublessee of its
obligations hereunder (the "Security Deposit"). If any Default or Event of
Default has occurred and has not been cured within the applicable notice and
cure period and is continuing under this Sublease or under any Other Sublease,
Sublessor may apply such portion of the Security Deposit as may be necessary to
satisfy Sublessee's obligations to pay Sublessor any sums due and payable by
Sublessee to Sublessor (including any sums advanced or expended by Sublessor to
perform, or cause to be performed, the obligations of Sublessee to which such
Default or Event of Default relates). If Sublessor so applies all or any
portion of the Security Deposit, Sublessee shall, immediately upon written
demand of Sublessor, provide to Sublessor for restoration of the Security
Deposit additional security in the form of cash in an amount equal to the
amount of the Security Deposit so applied by Sublessor so as to restore the
Security Deposit to the original amount thereof as of the Delivery Date.
Provided that Sublessee shall on such date have complied with all the
provisions of this Sublease and each of the Other Subleases which it is obliged
to observe or perform and no Default or Event of Default shall exist which has
not been cured within the applicable notice and cure period and shall be
continuing hereunder or thereunder, Sublessor will pay to Sublessee an amount
equal to the then existing amount of the Security Deposit held by Sublessor on
the date which is five (5) Business Days after the expiry or termination of
this Sublease and the return of the Aircraft to Sublessor in accordance with
the provisions of Section 13 hereof.
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(f) Early Termination by Sublessee.
(i) In the event that:
(A) as a result of any rule, regulation, order or other action
by the Federal Aviation Administration, the normal use of the Aircraft
by Sublessee shall have been prohibited for a period of more than 3
consecutive months and such prohibition is not due to any act or
failure to act of Sublessee; or
(B) as a result of the occurrence of any condemnation,
confiscation, requisition or taking of title or use of the Aircraft or
the Airframe not constituting an Event of Loss, the normal use of the
Aircraft by Sublessee shall have been prevent for a period of more
than 30 consecutive days and such condemnation, confiscation,
requisition or taking of title or use is not due to any act or failure
to act of Sublessee;
then Sublessee may at any time, at its option, terminate this Sublease, and the
termination date shall be the date Sublessee gives notice of such termination
("Termination Date A"); provided, however, additionally, Sublessee's obligation
to pay rent shall abate after 30 consecutive days with regard to a prohibition
to which Section 3(f)(i)(A) shall be applicable. In connection with any
termination of this Sublease pursuant to this Section 3(f)(i), Sublessee shall
return the Aircraft in accordance with the provisions of Section 13 hereof
unless it is not possible or practicable for Sublessee to comply with the
provisions of such Section because of the occurrence of such events. Upon such
delivery of the Aircraft and upon payment of all amounts due and payable and/or
accrued under this Sublease as of Termination Date A, this Sublease shall
terminate (except for such liabilities and obligations of Sublessee or
Sublessor which expressly survive termination of this Sublease pursuant to the
terms hereof).
(ii) Sublessee shall have the absolute right to terminate this
Sublease on the second anniversary of the Delivery Date ("Termination Date B")
provided that Sublessee has given Sublessor at least 90 days written notice of
its intent to so terminate this Sublease . On Termination Date B Sublessee
shall return the Aircraft to Sublessor in accordance with the terms of Section
13 hereof and pay to Sublessor an amount equal to the sum of all Rent due and
payable and/or accrued on or prior to such Termination Date B. Upon the return
of the Aircraft as provided above and the payment in full of all Rent payable
as provided in this paragraph (ii), this Sublease (except for such liabilities
and obligations of Sublessee which expressly survive termination of this
Sublease pursuant to Section 14 hereof) shall terminate.
SECTION 4. NET SUBLEASE, ETC.
Except as otherwise provided in Section 6(e) hereof, this Sublease is
a net sublease. Sublessee acknowledges and agrees that its obligations to pay
all Rent due and owing under the terms hereof shall be absolute and
unconditional and shall not be affected by any circumstances
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<PAGE> 41
whatsoever, including, without limitation (a) any setoff, counterclaim,
recoupment, defense or other right which Sublessee may have against the
Sublessor or any other Person for any reason whatsoever, (b) any defect in
airworthiness, eligibility for registration under the Federal Aviation Act,
condition, design, operation or fitness for use of, or any damage to or loss or
destruction of, the Aircraft, or any interference, interruption or cessation in
or prohibition of the use or possession thereof by Sublessee for any reason
whatsoever, including, without limitation, any such interference, interruption,
cessation or prohibition resulting from the act of any governmental authority,
(c) any Liens, encumbrances or rights of others with respect to the Aircraft
other than any Sublessor Lien which interrupts Sublessee's possession of the
Aircraft, (d) the invalidity or unenforceability or lack of due authorization
or other infirmity of this Sublease or any lack of right, power or authority of
Sublessor or Sublessee to enter into this Sublease, (e) any insolvency,
bankruptcy, reorganization or similar proceedings by or against Sublessee, or
any other Person, or (f) any other cause whether similar or dissimilar to the
foregoing, any present or future law notwithstanding, it being the intention of
the parties hereto that all Rent being payable by Sublessee hereunder shall
continue to be payable in all such events in the manner and at the time
provided herein. Such Rent shall not be subject to any abatement and the
payments thereof shall not be subject to any setoff or reduction for any reason
whatsoever, including any present or future claims of Sublessee against
Sublessor under this Sublease or otherwise. To the extent permitted by
Applicable Law, Sublessee hereby waives any rights which it may now have or
which may be conferred upon it, by statute or otherwise, to terminate, cancel,
quit or surrender this Sublease except in accordance with the terms hereof.
Nothing contained in this Section 4 shall be construed to limit the right of
Sublessee to make any claim it might have at law or in equity against Sublessor
or any other Person (including, without limitation, that Rent payments paid by
Sublessee were erroneous) or to pursue such claim in such manner as Sublessee
shall deem appropriate.
SECTION 5. DISCLAIMER OF REPRESENTATIONS AND WARRANTIES; QUIET ENJOYMENT.
(a) Disclaimer of Warranties. EXCEPT AS EXPRESSLY SET FORTH BELOW
WITH RESPECT TO SUBLESSOR, SUBLESSOR SUBLEASES THE AIRCRAFT HEREUNDER "AS-IS"
AND NEITHER SUBLESSOR, LESSOR (IN ITS INDIVIDUAL CAPACITY OR OTHERWISE) NOR THE
TRUSTOR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, AS TO THE TITLE, AIRWORTHINESS, CONDITION, VALUE, DESIGN, OPERATION,
MERCHANTABILITY OR FITNESS FOR USE OF THE AIRCRAFT, AS TO THE ABSENCE OF LATENT
OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF ANY
INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF
OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, OR AS TO THE QUALITY OF THE
MATERIAL OR WORKMANSHIP OF THE AIRCRAFT OR (EXCEPT AS SET FORTH BELOW) ANY
OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE
AIRCRAFT. Nothing in this Section 5(a) shall be
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<PAGE> 42
deemed to modify or otherwise affect any warranties or other obligations of the
Manufacturer or any other manufacturer, subcontractor or supplier to Sublessee
with respect to the Airframe or any Engine or Part.
(b) Quiet Enjoyment. Sublessor hereby represents and warrants
that it has a valid and enforceable leasehold interest in the Aircraft subject
to the right of the Financing Parties under the Lease Operative Agreements.
Sublessor covenants and agrees to make all payments require to be made by it
under the Lease Operative Agreements and to take all actions required of it
under the Lease Operative Agreements in order for its leasehold interest in the
Aircraft to be undisturbed and to cause the Lease to remain in full force and
effect in accordance with its terms throughout the Term. During the Term, as
long as no Event of Default has occurred and has not been cured within the
applicable notice and cure period and is continuing under this Sublease,
Sublessor covenants and agrees that Sublessee's right to complete peaceful and
quiet possession and use of the Aircraft shall not be interrupted by Sublessor,
any Financing Party, or anyone claiming solely through or under Sublessor or
any Financing Party.
(c) Benefit of Certain Warranties. Sublessor agrees to, and
authorizes Sublessee to, exercise during the Term such rights as Sublessor or
Lessor may have under any warranty, express or implied, with respect to the
Aircraft made by any manufacturer, supplier or subcontractor, to the extent the
same may be assignable or made available to Sublessee, and Sublessor agrees
that upon Sublessee's request Sublessor shall use all reasonable efforts to
enforce such rights as Sublessor may have with respect thereto for the benefit
of Sublessee (including, without limitation, in those situations in which such
rights are not assignable to Sublessee).
SECTION 6. POSSESSION; OPERATION AND USE; MAINTENANCE; INSIGNIA;
MAINTENANCE COST CONTRIBUTIONS.
(a) Possession. Sublessee shall not sub-sublease or otherwise in
any manner deliver, relinquish or transfer possession of the Airframe or any
Engine subleased hereunder to any Person or install any Engine, or permit any
Engine to be installed, on any airframe other than the Airframe during the Term
without the prior written consent of Sublessor, provided, however, that so long
as (1) no Default or Event of Default shall have occurred and be continuing at
the time of such delivery, relinquishment or transfer of possession and (2)
Sublessee shall comply with the provisions of Section 10 hereof, Sublessee may,
without the prior written consent of Sublessor:
(i) deliver possession of the Airframe or any Engine to the
manufacturer thereof for testing or other similar purposes or to any
organization for service, repair, maintenance or overhaul work on the
Airframe or such Engine or for alterations or modifications in or
additions to the Airframe or such Engine to the extent required by the
terms of this Sublease;
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<PAGE> 43
(ii) subject the Aircraft or Airframe or any Engine to
normal interchange agreements or to normal pooling agreements or
arrangements with any Certified Air Carrier, in each case customary in
the airline industry and entered into by Sublessee in the ordinary
course of its business, provided, that no transfer of the registration
of the Aircraft shall be effected in connection therewith, and
provided further, that (A) no such agreement or arrangement
contemplates or requires the transfer of title to the Airframe or
Engines and (B) if Lessor's title to the Airframe or any Engine shall
be divested under any such agreement or arrangement, such divestiture
shall be deemed to be an Event of Loss with respect to such Airframe
or Engine and Sublessee shall comply with Section 9 hereof in respect
thereof, Sublessor not intending hereby to waive any right or interest
it may have in or to the Aircraft, Airframe or any Engine under
Applicable Law until compliance by Sublessee with such Section 9;
(iii) install an Engine on an airframe owned by
Sublessee free and clear of all Liens, except (A) Permitted Liens, (B)
those which apply (and upon such installation shall continue to apply)
only to the engines (other than Engines), appliances, parts,
instruments, appurtenances, accessories, furnishings and other
equipment (other than Parts) installed on such airframe (but not to
the airframe as an entirety) and (C) those created by the rights of
other Certified Air Carriers under normal interchange agreements
customary in the airline industry which do no contemplate, permit or
require the transfer of title to the airframe or engines installed
thereon;
(iv) install an Engine on an airframe leased to
Sublessee or purchased by Sublessee subject to a conditional sale or
other security agreement, provided that (A) such airframe is free and
clear of all Liens except (x) the rights of the parties to the lease,
conditional sale or other security agreement and (y) Liens of the type
permitted by clause (iii) above, and (B) such lease, conditional sale
or other security agreement effectively provided that such Engine
shall not become subject to the lien of such lease, conditional sale
or other security agreement, notwithstanding the installation thereof
on such airframe;
(v) install an Engine on an airframe owned by Sublessee,
leased by Sublessee or purchased by Sublessee subject to a conditional
sale or other security agreement under circumstances where neither
clause (iii) nor clause (iv) above is applicable, provided that such
installation shall be deemed an Event of Loss with respect to such
Engine and Sublessee shall comply with Section 9 hereof, Sublessor not
intending hereby to waive any right or interest it may have in or to
such Engine under Applicable Law until compliance by Sublessee with
such Section 9;
Sublessee agrees that the rights of any transferee who receives
possession by reason of a transfer permitted by this Section 6(a) (other than
by a transfer of the Airframe or an Engine which is deemed an Event of Loss as
to which Sublessee is complying with the provisions of Section 9 hereof) shall
be subject and subordinate to all of the terms of this Sublease, the Lease and
the Security Agreement. Notwithstanding any transfer pursuant to this Section
6(a), Sublessee
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shall remain primarily liable hereunder for the performance of all of the terms
of this Sublease to the same extent as if such transfer of possession had not
occurred. Sublessee shall give prompt written notice to Sublessor of any
transfer of possession of the Airframe and/or any Engine permitted under this
Section 6(a) of more than six consecutive months.
In the event Sublessor shall have received from the lessor or secured
party of any airframe or engine leased to Sublessee or purchased by Sublessee
subject to a conditional sale or other security agreement a written agreement
which provides that the lessor or secured party under such agreement shall not
acquire or claim any right, title or interest in any Engine and the lease or
conditional sale or other security agreement covering such airframe also covers
engines or engines owned by the lessor under such lease or subject to a
security interest in favor of the secured party under such conditional sale or
other security agreement, Sublessor hereby agrees for the benefit of such
lessor or secured party that Sublessor will not acquire or claim, as against
such lessor or secured party, any right, title or interest in any such engine
as the result of such engine being installed on the Airframe at any time while
such engine is owned by such lessor or is subject to such conditional sale or
other security agreement or security interest in favor of such secured party.
The existence of a clause substantially similar to the foregoing in such lease,
conditional sale or other security agreement whereby the lessor or secured
party, as the case may be, is substituted for Sublessor, shall suffice as the
required written agreement.
(b) Operation and Use. Sublessee agrees not to (i) operate the Airframe or
any Engine or permit the Airframe or any Engine to be operated except in a
passenger configuration, in commercial or other operations for which Sublessee
is duly authorized by the FAA or other governmental authority having
jurisdiction over such Airframe or Engine; (ii) use or permit the Aircraft to be
used for a purpose for which the Aircraft is not designed or reasonably
suitable; (iii) base the Aircraft outside the United States or operate, use or
locate the Airframe or any Engine, or suffer the Airframe or such Engine to be
operated, used or located (A) in any area excluded from coverage by any
insurance required by the terms of Section 10 hereof, (B) outside the United
States or (C) in any recognized or threatened area of hostilities. Sublessee
will not permit the Aircraft or any Engine to be maintained, used or operated
during the Term in violation of any Applicable Law or, for matters not covered
by Applicable Law, contrary to any manufacturer's operating manuals or
instructions. Sublessee agrees not to operate the Aircraft, or suffer the
Aircraft to be operated during the Term (i) unless the Aircraft is covered by
insurance as required by the provisions of Section 10 hereof, or (ii) contrary
to the terms of such insurance.
(c) Maintenance. Sublessee, at its own cost and expense, shall
service, repair, maintain and overhaul, test or cause the same to be done to
the Airframe and each Engine during the Term (i) so as to keep such Airframe
and Engine in as good operating condition and appearance as when delivered to
Sublessee by Sublessor hereunder, ordinary wear and tear excepted, (ii) so as
to keep such Airframe and Engine in such operating condition as may be
necessary to enable the airworthiness certification of the Aircraft to be
maintained in good standing at all times under the applicable rules and
regulations of the FAA; (iii) in the same manner and with the same care as used
with the same or similar aircraft and/or engines owned or
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operated by Sublessee; (iv) in accordance with Sublessee's FAA-approved
maintenance program; and (v) in accordance with all Airworthiness Directives
and Service Bulletins designated by the Manufacturer as "Mandatory", in each
case having a compliance date during the Term. Sublessee shall maintain all
records, logs and other materials required by the Department of Transportation
or the FAA to be maintained in respect of the Aircraft and shall promptly
furnish to Sublessor or Lessor upon request such information as may be
necessary to file any reports required to be filed by Sublessor or Lessor with
any governmental authority because of Sublessee's use or operation of the
Aircraft.
(d) Insignia. On the Delivery Date for the Airframe, Sublessor
shall have placed in the cockpit of the Airframe in a location reasonably
adjacent to the airworthiness certificate of the Aircraft, and on each Engine,
a metal nameplate identifying the leasehold interest of Sublessor, the
ownership interest of the Lessor in the Aircraft and the security interest of
the Security Trustee in the Aircraft, as follows:
"FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION,
Owner-Trustee, Owner and Lessor
Leased to JET ACCEPTANCE CORPORATION,
Lessee and Sublessor"
"STATE STREET BANK AND
TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION,
Security Trustee and Mortgagee
Sublessee will not allow the name of any Person other than Sublessor, Lessor or
the Security Trustee, or their respective successors or assigns, to be placed
on the Aircraft or any Engine as a designation that might be interpreted as a
claim of ownership or of any interest therein, provided, however, that
Sublessee may operate the Aircraft in its livery, including its name and logo.
(e) Maintenance Cost Contributions.
(i) In addition to Basic Rent, Sublessee shall pay to
Sublessor in relation to each Rental Period (including without
limitation the last Rental Period of the Term), on the 15th day
following the end of such Rental Period, Maintenance Cost
Contributions at the Contribution Rate for each Cycle of operation of
the Airframe during such Rental Period. Concurrently with the payment
of Maintenance Cost Contributions, Sublessee shall report to Sublessor
the number of Cycles accumulated on the Airframe undercarriage and
each Engine in respect of the period for which payment is being made.
Sublessee acknowledges and agrees that it shall have no right or
interest in Maintenance Cost Contributions or in any interest earned
by Sublessor thereon.
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(ii) Upon submission by Sublessee to Sublessor of
invoices or receipts (in form and substance reasonably satisfactory to
Sublessor) evidencing the performance in accordance with the
provisions hereof by or at the direction of Sublessee of:
(A) with respect to the Airframe undercarriage, the
repair or overhaul, in accordance with Sublessee's
FAA-approved maintenance program, of the flight cycle or time
life limited parts listed in Exhibit D hereto (the
"Undercarriage Life Limited Parts"); and
(B) with respect to any Engine, the replacement, in
accordance with Sublessee's FAA-approved maintenance program,
of the flight cycle or time life limited parts listed in
Exhibit E hereto (the "Engine Life Limited Parts");
Sublessor shall, provided that no Default or Event of Default under
Section 15(a) hereof has occurred and has not been cured within the
applicable notice and cure period and is continuing or no event of
default under any Other Sublease has occurred and has not been cured
within the applicable notice and cure period and is continuing,
subject to Section 6(e)(iii) hereof, pay to Sublessee an amount equal
to the respective costs incurred by Sublessee as evidenced by such
invoices and receipts for (x) repair or overhaul of Undercarriage Life
Limited Parts and (y) replacement Engine Life Limited Parts. Costs in
respect of the items covered under Section 6(e) in excess of the
amounts held in the maintenance contribution account during the term
of this Sublease and at the return of the Aircraft upon termination of
the Sublease shall be for the account of the Sublessor.
(iii) Sublessor shall not be obliged to make any
payment to Sublessee in respect of day to day line maintenance, labor
to remove and install rotable components, transportation of parts
to/from vendors for repair/overhaul, import/export duties, taxes and
other levies, consumable or expendable parts or costs in respect of
maintenance or repair required because of premature failure of items
under warranty, no fault found items, ingestion of foreign object,
faulty maintenance or repair, improper operation, misuse, neglect,
accidental cause or in respect of maintenance or repair to the extent
that the cost of the same is recoverable under the insurance coverages
required pursuant to Section 10 hereof;
(iv) The Contribution Rate shall be adjusted as
provided in Section 5.3.3 and Exhibit E of the Agreement to Lease.
Additionally, in the event that the annual utilization of the Aircraft
falls below the lower of 1500 Cycles and 1500 Flight Hours, Sublessor
may adjust the Contribution Rate (including the basis upon which it is
calculated or payable), such that the Contribution Rate reasonably
reflects the actual annual utilization of the Aircraft.
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<PAGE> 47
(v) In the event of one or more disputes between Sublessor and
Sublessee in respect of payments to be made by Sublessor under Section
6(e)(ii) hereof and the aggregate amount of such dispute(s) is at
least $50,000 but not more than $1,000,000, then, following exhaustion
of all good faith attempts to resolve the dispute(s) by negotiation
directly between Sublessor and Sublessee, Sublessor and Sublessee
agree to submit such dispute(s) to final and binding arbitration to an
arbitration panel of three arbitrators pursuant to the Commercial
Arbitration Rules of the American Arbitration Association, such panel
to sit in a neutral venue.
SECTION 7. INSPECTION AND CERTAIN NOTICES.
(a) Inspection. Sublessee shall, with reasonable promptness,
furnish to Sublessor such information concerning the location, condition, use
and operation, or other matters relating to, the Aircraft as Sublessor may
reasonably request, and Sublessee, at such times as Sublessor may reasonably
request during normal business hours, upon reasonable advance written notice,
and in accordance with the Aircraft's operating schedule, shall permit any
person or persons designated by Sublessor (and reasonably acceptable to
Sublessee with regard to any inspection agents designated by Sublessor) to
inspect the Aircraft, its condition, use and operation, and the inspection,
modification, overhaul and other records maintained in connection therewith,
and to obtain copies of such records, at such person's or persons' expense and
risk.
(b) Certain Notices. As soon as possible and in any event within
10 days after the occurrence of any Default or Event of Default which is
continuing, Sublessee shall notify Sublessor of such Default or Event of
Default, setting forth in detail the nature of such Default or Event of Default
and the action which Sublessee proposes to take with respect thereto.
Sublessee shall as soon as reasonably practicable notify Sublessor of any
"aircraft accident" as defined in 49 CFR Part 830 with respect to the Airframe
or any Engine, which notice shall indicate the time, place and nature of the
accident, the damage caused to property and the names and addresses of any
persons injured.
SECTION 8. REPLACEMENT AND POOLING OF PARTS; ALTERATIONS,
MODIFICATIONS AND ADDITIONS.
(a) Replacement of Parts. Sublessee, at its own cost and expense,
will during the Term promptly replace all Parts that may from time to time
become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond
repair or permanently rendered unfit for use for any reason whatsoever. In
addition, in the ordinary course of maintenance, service, repair, overhaul or
testing, Sublessee may remove any Parts from the Airframe or any Engine,
whether or not worn out, lost, stolen, destroyed, seized, confiscated, damaged
beyond repair or permanently rendered unfit for use, provided that Sublessee
shall replace such Parts as promptly as practicable with replacement Parts or
temporary replacement parts as provided in Section 8(c) hereof. All
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<PAGE> 48
replacement Parts (other than temporary replacement parts installed pursuant to
Section 8(c)) shall be free and clear of all Liens except Permitted Liens and
shall be in as good operating condition as, and shall have a value, utility and
remaining useful life at least equal to, the Part replaced assuming such
replaced Part was in the condition and repair required to be maintained by the
terms hereof.
(b) Title to Parts. All Parts at any time removed from the
Airframe or any Engine shall remain the property of the Lessor and subject to
this Sublease, no matter where located, until such time as such Parts shall be
replaced by parts that have been incorporated or installed in or attached to
the Airframe or such Engine and that meet the requirements for replacement
Parts specified above. Immediately upon any replacement Part becoming
incorporated or installed in or attached to the Airframe or any Engine as above
provided, without further act, (i) title to such replacement Part shall
thereupon immediately vest in Lessor; (ii) Sublessor shall cause title to the
replaced Part to be vested in Sublessee free and clear of all Sublessor Liens
and all rights of the Financing Parties and the replaced Part shall no longer
be deemed a Part hereunder; and (iii) such replacement Part shall become
subject to this Sublease, the Lease and the Lien of the Security Agreement and
be deemed part of the Airframe or such Engine, as the case may be, for all
purposes hereof to the same extent as the Parts originally incorporated or
installed in or attached to the Airframe of such Engine.
(c) Pooling or Parts Leasing. Any Part removed from the Airframe
or any Engine as provided in Section 8(a) hereof may be subjected by Sublessee
to a normal pooling arrangement customary in the airline industry entered into
in the ordinary course of Sublessee's business with any Certified Air Carrier,
provided the part replacing such removed Part shall be incorporated or
installed in or attached to the Airframe or such Engine in accordance with
Sections 8(a) and 8(b) as promptly as possible after removal of such removed
Part. In addition, any temporary replacement part when incorporated or
installed in or attached to the Airframe or any Engine in accordance with
Section 8(a) hereof may be owned by another airline or vendor as customary in
the airline industry, subject to such a normal pooling or leasing arrangement,
provided Sublessee, at its expense, as promptly thereafter as possible, either
(i) causes title to such temporary replacement part to vest in Lessor in
accordance with Section 8(b) hereof by Sublessee acquiring title thereto for
the benefit of Lessor free and clear of all Liens except Permitted Liens, at
which time such temporary replacement part shall become a Part and become
subject to this Sublease, the Lease and the Lien of the Security Agreement; or
(ii) replaces such temporary replacement part by incorporating or installing in
or attaching to the Airframe or such Engine a further replacement Part owned by
Sublessee free and clear of all Liens except Permitted Liens, and by causing
title to such further replacement Part to vest in Lessor in accordance with
Section 8(b) hereof.
(d) Alterations, Modifications and Additions. Sublessee, at its
own expense, shall make or cause to be made such alterations and modifications
in and additions to the Airframe or any Engine as may be required to be made
from time to time during the Term by Applicable Law regardless upon whom such
requirements are, by their terms, nominally imposed. Should
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<PAGE> 49
Sublessee make any such alterations, modifications, or additions to the
Airframe or any Engine, at the termination of this Sublease, Sublessor shall
pay to Sublessee the "unamortized portion" of the cost of such alteration,
modification or addition to the Aircraft covered by this Sublease provided that
such unamortized portion of the cost when added to the unamortized portion of
the cost of a like alteration, modification or addition to an aircraft
subleased under any Other Sublease, exceeds Forty Thousand and No/100
($40,000.00). The term "unamortized portion" shall mean a fraction, (i) the
numerator of Dollars which shall be the number derived by subtracting from 180
the number of whole months such alteration, modification or addition was
installed in the Airframe or any Engine which is the subject of this Sublease
prior to Expiry Date, as same may be modified and (ii) the denominator of which
shall be 180; provided, however, should Sublessor present to Sublessee facts
which clearly and convincingly establish that the useful life of such
alteration, modification or addition is less than 180 months, then based on
such facts the foregoing reference to 180 shall be changed to the number of
months of useful life of the subject alteration, modification or addition.
Title to all Parts incorporated or installed in or attached or added to the
Airframe or any Engine as the result of any such alteration, modification or
addition required by the preceding sentence shall vest without further act in
Lessor and become subject to this Sublease, the Lease and the Lien of the
Security Agreement.
SECTION 9. RISK, LOSS, DESTRUCTION OR REQUISITION.
(a) Risk. From Sublessee's acceptance of the Aircraft on the
Delivery Date and throughout the Term until redelivery in accordance with
Section 13 hereof, Sublessee shall bear all risk of loss, theft, damage and
destruction of or to the Aircraft and every part thereof, and no such loss,
theft, damage or destruction, nor any other event or circumstance of any nature
whatsoever, shall impair or frustrate any obligation of Sublessee under this
Sublease (including without limitation as to the payment of Rent or other
payments) so that all such obligations shall continue in full force and effect.
(b) Event of Loss With Respect to the Airframe. Upon the
occurrence of an Event of Loss with respect to the Aircraft during the Term,
Sublessee shall forthwith (and in any event within 7 days after such
occurrence) give Sublessor written notice of such Event of Loss. On the date
which is the first Rent Date occurring not less than 60 days after such Event
of Loss (the "Casualty Termination Date"), the Sublessee shall pay Sublessor an
amount equal to the sum of (i) the Stipulated Loss Value of such Aircraft as of
the Casualty Termination Date, plus (ii) all other Rent due and payable and/or
accrued on or prior to such Casualty Termination Date. Notwithstanding such
Event of Loss, the Sublessee's obligation to pay Basic Rent hereunder up to and
on such Casualty Termination Date shall continue, such Basic Rent to be payable
on the Rent Date therefor.
Upon payment in full of the Stipulated Loss Value for the Aircraft and
other Rent payable as provided in the immediately preceding paragraph, (xx)
this Sublease (except for Supplemental Rent obligations surviving pursuant to
Section 14 hereof) shall terminate; (yy) the then existing
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Security Deposit and any remaining insurance proceeds (other than proceeds of
policies maintained by Sublessor or any Financing Party for its own account)
shall be promptly paid over to Sublessee; and (zz) Sublessor shall cause title
to such Airframe and Engines to be conveyed to Sublessee or its designee,
as-is, where-is, without recourse or warranty, express or implied, except for a
warranty from Sublessor against Sublessor Liens, in and to the Airframe and
Engines and shall cause the release of the Lien of the Security Agreement and
Sublessee shall be subrogated to all claims of Sublessor against third parties
for damage to or loss of the Aircraft subject to such Event of Loss (unless any
insurance carrier requires that such Airframe and Engines and/or claims be
conveyed or assigned, as the case may be, to it).
(c) Event of Loss With Respect to an Engine. Upon the occurrence
during the Term of an Event of Loss with respect to an Engine not involving an
Event of Loss with respect to the Airframe, Sublessee shall give Sublessor
prompt written notice thereof and Sublessee shall replace, at its sole cost,
such Engine as soon as reasonably practicable but in no event later than 60
days after the occurrence of such Event of Loss by duly conveying to Sublessor
or its nominee as a replacement for said Engine, title to a Replacement Engine
of the type specified in the Initial Sublease Acceptance Supplement or an
engine of the same or another manufacturer and of the same or a comparable or
improved model and suitable for installation and use on the Airframe and
compatible for use with the other Engines which engine shall be free and clear
of all Liens and shall have a value and utility at least equal to, and be in as
good operating condition as, the Engine with respect to which such Event of
Loss occurred, assuming such Engine was of the value and utility and in the
condition and repair required by the terms hereof immediately prior to the
occurrence of such Event of Loss. Sublessee agrees that, on the date that the
Replacement Engine is delivered, the following documents, at Sublessee's sole
cost and expense, shall have been duly authorized, executed and delivered by
the respective party or parties thereto and shall be in full force and effect,
and Sublessee shall deliver or cause to be delivered an executed counterpart of
each thereof (or, in the case of the Bill of Sale referred to below, a
photocopy thereof) to Sublessor, the Lessor and the Security Trustee:
(A) a Sublease Acceptance Supplement covering the Replacement
Engine; and
(B) a full warranty Bill of Sale (as to title), in form and
substance reasonably satisfactory to Sublessor, covering the
Replacement Engine,
and to deliver an officer's certificate of Sublessee certifying that such
Replacement Engine complies with this Section 9(c). Sublessee agrees to take
such further action as Sublessor may reasonably request with respect to such
Replacement Engine including, without limitation, any actions required to be
taken by Sublessor under the Lease with respect to the interests of Lessor and
Security Trustee in the Replacement Engine. Such Replacement Engine, upon
being titled in the name of Sublessor or its nominee free of all Liens, shall
be deemed an "Engine" as defined herein for all purposes hereof. Upon full
compliance with this Section 9(c), Sublessor shall cause title in and to the
Engine which suffered such Event of Loss to be conveyed to Sublessee, as-is,
where-is, without recourse or warranty, express or implied, except for a
warranty from Sublessor
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<PAGE> 51
against Sublessor Liens, and shall cause the release of the Lien of the
Security Agreement with respect to the Engine and Sublessee shall be subrogated
to all claims of Sublessor against third parties for damage to or loss of the
Engine being replaced (unless any insurance carrier requires that such Engine
and/or claims be conveyed, or assigned, as the case may be, to it). No Event
of Loss with respect to an Engine under the circumstances contemplated by the
terms of this Section 9(c) shall result in any reduction in Rent or Sublessee's
obligation to pay Basic Rent hereunder. Sublessee agrees that it shall at all
time during the Term maintain on each Airframe four Engines or other engines
suitable for use on such Airframe.
(d) Payments as a Result of an Event of Loss from Governmental
Authorities for Requisition of Title or Use. (i) Any payments on account of
an Event of Loss (other than insurance proceeds or other payments the
application of which is provided for in this Sublease) received at any time by
Lessor, the Security Trustee, Sublessor or by Sublessee from any governmental
authority or other Person will be applied as follows:
(A) if such payments are received with respect to the
Airframe or the Airframe and one or more Engines attached
thereto, so much of such payments as shall not exceed the
Stipulated Loss Value required to be paid by Sublessee
pursuant to Section 9(b) hereof, shall be applied in reduction
of Sublessee's obligation to pay such Stipulated Loss Value,
to the extent not already paid by Sublessee, and, to the
extent already paid by Sublessee, shall be applied to
reimburse Sublessee for its payment of such Stipulated Loss
Value, and the balance, if any, of such payment remaining
thereafter shall be paid to or retained by Sublessee; and
(B) if such payments are received with respect to an
Engine under the circumstances contemplated by Section 9(c)
hereof, such payments shall be paid over to, or retained by,
Sublessee, provided that Sublessee shall have fully performed
the terms of Section 9(c) hereof with respect to the Event of
Loss for which payments are made.
(ii) In the event of a requisition for use by any government,
so long as it does not constitute an Event of Loss, of the Aircraft
during the Term, Sublessee shall promptly notify Sublessor of such
requisition and except as provided in Section 3(f) all Sublessee's
obligations under this Sublease shall continue to the same extent as
if such requisition had not occurred except to the extent that any
failure or delay in performance or observance of each obligation by
Sublessee shall have been prevented or delayed by such requisition,
provided that Sublessee's obligations for the payment of money and
under Section 10 hereof shall in no way be affected, reduced or
delayed by such requisition. Any payments received by Sublessor,
Lessor or Security Trustee or Sublessee from such government with
respect to such requisition shall be paid over to or retained by
Sublessee.
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<PAGE> 52
(iii) In the event of the requisition for use by a
government of any Engine (but not the Airframe), Sublessee will
replace such Engine hereunder by complying with the terms of Section
9(c) hereof to the same extent as if an Event of Loss had occurred
with respect to such Engine, and any payments received by Lessor,
Security Trustee or Sublessor from such government with respect to
such requisition shall, upon Sublessee's compliance with Section 9(c)
hereof, be paid over to or retained by Sublessee.
(e) Application of Payments During Existence of Default. Any
amount referred to in this Section 9 or Section 10 hereof which is payable to
Sublessee shall not be paid to Sublessee, or, if it has been previously paid
directly to Sublessee, shall not be retained by Sublessee and shall promptly
paid over to Sublessor, if at the time of such payment a Default or Event of
Default shall have occurred and not cured within the applicable notice and
grace period and be continuing (or, so long as the Lien of the Security
Agreement shall not have been discharged, to the Security Trustee, or, so long
as the Lien of the Security Agreement shall have been discharged and the Lien
of the Assignment of Sublease shall not have been discharged, to the
Owner-Trustee) as security for the obligations of Sublessee under this
Sublease, and at such time as there shall not be continuing any such Default or
Event of Default such amount shall be paid over to Sublessee.
SECTION 10. INSURANCE
(a) Third Party Liability. Sublessee shall, without expense to
any Insured Party, maintain or cause to be maintained in effect, at all time
during the Term, with insurers of internationally recognized responsibility,
aircraft and general comprehensive liability insurance against third party
bodily injury or property damage (including without limitation contractual
liability, cargo liability, passenger legal liability and property damage
including war risk and allied perils as Clause AV52 (all paragraphs deleted
except B) (or any replacement clause therefor) with respect to the Aircraft in
an amount not less than a $250,000,000 combined single limit, or such greater
amounts as Sublessee may carry from time to time on other similar aircraft
owned or operated by Sublessee and operated in similar circumstances as the
Aircraft. Without limiting the foregoing requirements, such insurance shall be
of the type usually carried by corporations engaged in the same or a similar
business, similarly situated with Sublessee and owning and operating similar
aircraft and engines, and covering such other risks as are customarily insured
against by such corporations.
(b) Insurance Against Loss or Damage to the Aircraft. Sublessee
shall, without expense to any Insured Party, maintain or cause to be maintained
in effect, at all times during the Term, with insurers of internationally
recognized responsibility, all-risk, agreed value ground and flight hull
insurance and unless the Aircraft is located or operated outside the United
States, excluding war risks and allied perils (but including extended coverage
against the type of risks excluded by clauses (c), (e) and (g) of the War,
Hijacking and Other Perils Exclusion Clause (AVN 48B)) (or any replacement
clause therefor), covering the Aircraft in respect of a total loss of such
Aircraft in an amount not less than the Stipulated Loss Value thereof from time
to time.
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Such hull insurance shall cover Engines or engines and Parts temporarily
removed from the Airframe pending replacement by installation of the same or
similar Engines, engines or Parts on the Airframe. Without limiting the
foregoing requirements, such insurance shall be of the type usually carried by
corporations engaged in the same or a similar business, similarly situated with
Sublessee and owning and operating similar aircraft and engines, and covering
such other risks as are customarily insured against by such corporations. If
and to the extent that Sublessee maintains war risk insurance (including
governmental confiscation insurance) in effect with respect to other similar
owned or leased aircraft in its fleet and used in similar operations or if the
custom of the industry is to carry such insurance with respect to aircraft
operated on the same or similar routes on which the Aircraft is operated,
Sublessee shall maintain or cause to be maintained such insurance in effect
with respect to the Aircraft in an amount in respect of the Aircraft not less
that the Stipulated Loss Value of the Aircraft from time to time.
(c) Additional Insureds; Loss Payee. All insurance carried in
accordance with this Section 10 shall be in full force and effect throughout
any geographical areas at any time traversed by the Aircraft and shall be
payable in Dollars in the United States. Sublessee shall cause all policies of
insurance carried in accordance with this Section 10 to name the Insured
Parties as additional insureds as their respective interests may appear. Such
policies shall provide with respect to such additional insureds that (i) none
of their respective interests in such policies shall be invalidated by any act
or omission or breach of warranty of Sublessee or any other named insured; (ii)
no cancellation or lapse of coverage for nonpayment of premium or otherwise,
and no material change of coverage which adversely affects the interests of
such additional insureds, shall be effective as to such additional insureds
until 30 days (or such lesser period as may be customary in the case of the
non-payment of any premium or any war risk coverage) after receipt by such
additional insureds of written notice from the insurers of such cancellation,
lapse or change; (iii) they shall have no liability for premiums or commissions
with respect to such policies; (iv) the liability policies will be primary
without any right of contribution from any other insurance carried by such
additional insureds; and (v) the insurers waive any rights of set-off,
counterclaim, deduction or subrogation against such additional insureds. Each
liability policy shall provide that all the provisions thereof, except the
limits of liability, shall operate in the same manner as if there were a
separate policy covering each insured. Each hull policy shall provide that, so
long as the insurers shall not have received written notice that an Event of
Default has occurred and is continuing, any proceeds of $2,500,000 or less
shall be payable to Sublessee; and any proceeds in excess of $2,500,000, and
any proceeds in respect of a total loss, or if the insurers shall have received
written notice that a Lease Event of Default has occurred and is continuing,
any single loss, regardless of the amount, shall be payable to the Security
Trustee so long as the Security Agreement is in effect and to Lessor after the
Lien of the Security Agreement shall have been discharged and that any such
loss shall be adjusted with Sublessor, subject to the approval of Lessor (which
approval Sublessor shall use commercially reasonable efforts to obtain).
(d) Deductible and Self Insurance. Sublessee may from time to
time self-insure, by way of deductible or premiums adjustment provisions in
insurance policies, the risks required to be insured against pursuant to this
Section 10 in such reasonable amounts as are then applicable
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<PAGE> 54
to similar owned or leased aircraft in Sublessee's fleet but in no case shall
such self-insurance exceed an aggregate hull and liability self-insurance
retention of $500,000 per Aircraft per occurrence (or in the case of hull
insurance such greater amount as may from time to time be customary in the
United States Aviation Insurance Industry for BAe Model 146-200A aircraft).
(e) Application of Hull Insurance Proceeds. Any payments received
by Sublessor, Lessor or Security Trustee under policies of hull insurance
required to be maintained by Sublessee pursuant to this Section 10, shall be
applied as follows:
(i) if such payments are received with respect to loss or
damage (including an Event of Loss with respect to an Engine) not
constituting an Event of Loss with respect to the Airframe, such
payments shall be paid over to or retained by Sublessee upon, or at
Sublessor's option in conjunction with, Sublessee's performance of its
repair or replacement obligations under this Sublease; and
(ii) if such payments are received with respect to an Event
of Loss with respect to the Airframe, so much of such payments as
shall not exceed the amount required to be paid by Sublessee pursuant
to Section 9(b) hereof shall be applied in reduction of Sublessee's
obligations to pay such amount if not already paid by Sublessee, and
to reimburse Sublessee if it shall have paid all or part of such
amount, and the balance , if any, of such payments shall be promptly
paid over to, or retained by, Sublessee.
(f) Insurance for Own Account. Nothing in this Section 10 shall
prohibit Sublessor, Lessor or Trustor from obtaining insurance for its own
account, and any proceeds payable thereunder shall be payable as provided in
the insurance policy relating thereto, provided that no such insurance may be
obtained which would limit or otherwise adversely affect the coverage or
payment of insurance required to be obtained or maintained pursuant to this
Section 10.
(g) Reports, Etc. On the Delivery Date Sublessee, shall furnish
to the Insured Parties a report (together with all applicable certificates of
insurance) signed by a firm of independent aircraft insurance brokers,
appointed by Sublessee and reasonably satisfactory to Sublessor, with respect
to insurance then carried and maintained on the Aircraft, which report shall
state that such insurance complies with the terms hereof, and during the Term
Sublessee will also furnish to the Insured Parties, (i) evidence of renewal of
the insurance policies in satisfactory form required pursuant to this Section
10 prior to the cancellation, lapse or expiration of such insurance policies
and (ii) on the renewal dates of the insurance policies carried by Sublessee
pursuant to this Section 10, a report (together with all applicable
certificates of insurance) signed by such firm with respect to the insurance
then carried and maintained on the Aircraft, which report shall state that such
insurance complies with the terms hereof. Sublessee shall cause such firm to
advise each Insured Party in writing promptly of any default in the payment of
premium and of any other act or omission on the part of Sublessee of which they
have knowledge and which would in such firm's opinion invalidate or render
unenforceable, in whole or in material part, any insurance on the Aircraft.
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SECTION 11. LIENS.
Sublessee shall not, during the Term, directly or indirectly create,
incur, assume or suffer to exist any Lien on or with respect to the Airframe or
any Engine or title thereto or any interest therein, or in this Sublease except
(a) the respective rights of Sublessor and Sublessee as provided herein, the
respective rights of the Lessor and the Sublessor as provided in the Lease, the
Lien of the Security Agreement and the rights of the parties to the other Lease
Operative Agreements in respect of the Lease Operative Agreements; (b) the
rights of others under agreements or arrangements to the extent expressly
permitted in Sections 6(a) and 8(c) hereof; (c) Liens for Taxes either not yet
due or being contested in good faith (and for the payment of which adequate
reserves have been provided) by appropriate proceedings so long as such
proceedings do not involve any material danger of the sale, forfeiture or loss
of the Airframe or any Engine; (d) material suppliers', mechanics', workers',
repairers', employees', or other like liens arising in the ordinary course of
business and for amounts the payment of which is either not yet delinquent or
is being contested in good faith (and for the payment of which adequate
reserves have been provided) by appropriate proceedings, and so long as such
proceedings do not involve a material danger of the sale, forfeiture or loss of
the Airframe or any Engine; (e) Liens arising out of judgments or awards
against Sublessee with respect to which at the time an appeal or proceeding for
review is being prosecuted in good faith and there shall have been secured a
stay of execution pending an appeal or proceeding for review; and (f) Sublessor
Liens; provided that the aggregate amount of Liens permitted by clauses (c),
(d), and (e) shall not exceed $500,000 without the prior written consent of
Sublessor (Liens described in clauses (a) through (f) above (and to the extent
approved to be outstanding in the case of clauses (c), (d) and (e) are referred
to as "Permitted Liens"). Sublessee shall promptly, at its own expense, take
such action as may be necessary to duly discharge any such Lien not excepted
above if the same shall arise at any time.
SECTION 12. TITLE; REGISTRATION; RECORDATION AND FURTHER ASSURANCES.
(a) Title. Legal title to the Aircraft shall at all times be
vested in Lessor exclusively. This Sublease shall constitute an agreement of
sublease, and nothing contained herein shall be construed as conveying to
Sublessee any right, title or interest in the Aircraft except as sublessee
only.
(b) Registration. On the Delivery Date the Aircraft shall be
registered in the name of the Lessor in the United States, and Sublessee shall
take no action or allow any event within its control to occur which might
jeopardize such registration.
(c) FAA Regulations. Sublessee shall comply at all time with all
FAA regulations and other requirements of the FAA during the Term that are in
the control of Sublessee and are
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required to maintain the FAA Type Certificate and a valid current United States
Standard Airworthiness Certificate on the Aircraft.
(d) Recordation of Sublease. Sublessee shall cooperate and take
no action inconsistent with the actions of Sublessor to cause this Sublease,
all attachments thereto, any Sublease Acceptance Supplements and any and all
additional instruments which shall be executed pursuant to the terms hereof
(or, in each case, financing statements or similar notices to the extent
permitted) so far as permitted by Applicable Law, to be kept, filed and
recorded and to be re-executed, re-filed and re-recorded at all times during
the Term in the office of the FAA pursuant to the Federal Aviation Act and in
such other places or with such other governmental authority as Sublessor may
reasonably request to perfect and preserve Sublessor's rights hereunder.
(e) Further Assurances. Sublessee shall promptly and duly execute
and deliver to Sublessor such further documents and assurances and take such
further action as Sublessor may from time to time during the Term reasonably
request in order to more effectively carry out the intent and purpose of this
Sublease and to establish and protect the rights and remedies created or
intended to be created in favor of Sublessor hereunder, including, without
limitation, if requested by Sublessor, the execution and delivery of
supplements or amendments hereto, in recordable form, subjecting any
replacement or substituted engine to this Sublease and the recording and filing
of counterparts hereof, or of financing statements with respect thereto, in
accordance with the laws of such jurisdiction as Sublessor may reasonably deem
advisable. The cost of any of the foregoing shall be borne by Sublessor unless
the event resulting in such expense was caused by Sublessee or was requested by
Sublessee.
SECTION 13. RETURN OF AIRCRAFT.
(a) Return of Aircraft. At the expiration of the Term, or upon
the earlier termination of this Sublease pursuant to Section 16 hereof,
Sublessee, at its own expense, shall, except as otherwise provided in Section
16 hereof, return the Aircraft by delivering the same to Sublessor at Macon,
Georgia or such other location agreeable to the parties, with the Aircraft
fully equipped with four Engines.
(b) Redelivery Condition. Sublessee shall return the Aircraft
free and clear of all Liens and rights of others except Sublessor Liens and the
rights under the Lease Operative Agreements of the parties thereto and in full
compliance with Sublessee's then current FAA-approved maintenance program and
Exhibit C hereto.
(c) Fuel. Upon return of the Aircraft, the Aircraft's fuel tanks
shall contain the same quantities of fuel as were contained therein when the
Aircraft was delivered to Sublessee on the Delivery Date (or, in the case of
differences in such quantities, appropriate adjustments will be made by
payment at then market prices).
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(d) Final Inspection. Immediately prior to redelivery of the
Aircraft, Sublessee, at its expense, shall make the Aircraft available at the
place of redelivery for inspection (the "Final Inspection"), including, at
Sublessee's expense, an operational test flight or flights of a total duration
not exceeding 3 hours with Sublessor's representatives as observers, in order
to certify that the condition of the Aircraft complies with the provisions of
this Section 13 and Exhibit C hereto. The extent of such Final Inspection
shall be governed by the first sentence of this Section 13(d) and the terms of
Exhibit C hereto. Sublessee shall maintain adequate insurance coverage for
operational test flights which are the subject of this Section 13(d) in
accordance with the terms of Section 10 hereof and such additional coverage, if
any, as Sublessor may reasonably request. Except as otherwise provided herein,
all tests shall be at Sublessor's expense.
(e) Failure to Comply. In the event that on expiration or earlier
termination of the Term of this Sublease, Sublessee does not return the
Aircraft in the condition required by this Section 13 and Exhibit C hereto, the
terms and provisions of paragraph 7 of Exhibit C shall apply.
SECTION 14. GENERAL AND SPECIAL TAX INDEMNITIES; GENERAL
INDEMNIFICATION.
14.1 General Tax Indemnity.
(a) Identification of Indemnified Taxes. Sublessee agrees to pay
and indemnify, defend and hold harmless the Sublessor against any and all
amounts incurred during the Term (and not before or after) in connection with
the following:
(i) any tax in the nature of ad valorem taxes assessed by
jurisdictions in which Sublessee conducts its business or uses the
Aircraft against the Aircraft, the Airframe, the Engines, the Parts or
any part of the foregoing;
(ii) any tax in the nature of sales and use taxes
(including any gross receipts or gross income tax in the nature of
sales and use taxes and imposed in lieu thereof) assessed by
jurisdictions in which Sublessee conducts its business or uses the
Aircraft against delivery to Sublessee or Sublessee's leasing,
possession, use, operation, return, storage, acceptance or other
disposition of or act or failure to act with respect to the Aircraft,
the Airframe, the Engines, the Parts, or any part of the foregoing or
against the rentals or gross receipts arising from Sublessee's
leasing, possession, use or operation of the Aircraft, the Airframe,
the Engines, the Parts, or any part of any of the foregoing; or
(iii) any license or registration fees imposed in
jurisdictions in which Sublessee conducts its business or uses the
Aircraft during the Term on Sublessee's business or on the Aircraft,
the Airframe, the Engines, the Parts, or any part of any of the
foregoing as a result of Sublessee's use, operation, storage or
disposition of the Aircraft, the Airframe, the Engines, the Parts, of
any part of the foregoing in such jurisdictions.
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The foregoing taxes, together with any penalties, additions to tax, fines, or
interest thereon howsoever imposed (whether imposed upon the Lessor, the
Sublessor or the Sublessee, all or any part of the Aircraft, or otherwise), by
any Federal, or applicable state or local government, political subdivision, or
taxing authority in the United States, or by any applicable government or
taxing authority of or in a foreign country or of or in a territory or
possession of the United States, or by any applicable international authority,
are referred to herein as an "Indemnified Tax" or "Indemnified Taxes".
Indemnified Taxes shall not include any taxes of any nature attributable to the
Lessor's or Sublessor's acts or failures to act unrelated to this Sublease or
to the Aircraft, Airframe, Engines, Parts or any part of the foregoing, which
acts or failures to act are the sole basis of such jurisdiction asserting
authority over the Lessor or Sublessor.
(b) Reports and Returns. In case any report or return is required
to be made with respect to any Indemnified Tax, Sublessee, at its own expense,
will either make such report or return in such manner as will show the
leasehold interest of the Sublessor and the ownership interest of the Aircraft
in the Lessor and shall send a copy of the applicable portion of such report or
return to the Sublessor and the Lessor or, where Sublessee is not permitted to
file such report or return, will notify the Sublessor of such requirement and
prepare and deliver such report or return, together with funds in the amount
required to be submitted and any additional information and records that
Sublessor may reasonably request, to the Sublessor in such manner as shall be
satisfactory to the Sublessor and the Lessor within forty (40) days prior to
the time such report or return is to be filed. Sublessee shall maintain
adequate records and shall make available such records and other information
regarding the use of the Aircraft in any taxing jurisdiction. If, as a result
of an audit, the Sublessor or Lessor requests additional information, Sublessee
shall make available such other information and records as may reasonably be
requested.
(c) Procedures. Any amount payable to the Sublessor pursuant to
this Section 14.1 shall be paid within twenty (20) days after receipt of a
written demand therefor from the Sublessor accompanied by a written statement
describing in a reasonable detail the basis for such indemnity and the
computation of the amount so payable, provided that such amount need not be
paid prior to the time such Indemnified Taxes (or indemnification under the
relevant Lease Operative Agreement(s)) are paid.
(d) Refund. Upon receipt by the Sublessor of a refund or credit
of all or a part of any Indemnified Taxes which Sublessee shall have paid for
the Sublessor or for which Sublessee shall have reimbursed or indemnified the
Sublessor under Section 14.1 (and which refund or credit has not already been
included in the computation under Section 14.3(a)), and provided there shall
not have occurred any material and uncured Default or Event of Default, the
Sublessor shall pay to Sublessee an amount which, after subtraction of the
amount of any further net tax savings (or addition of the amount of any further
net tax detriment), if any, realized by the Sublessor as a result of the
receipt thereof and payment under this paragraph, is equal to the amount of
such refund and any interest received by the Sublessor on such refund;
provided, however, that such amount shall not be payable (i) before such time
as Sublessee shall have made all payments of indemnities then due and payable
to the Sublessor under Sections 14.1 and 14.2 hereof and under
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any other provision of the Sublease or (ii) to the extent that the amount of
such payment would exceed (A) the amount of all prior payments (other than
amounts attributable to interest) by Sublessee to the Sublessor with respect to
such Indemnified Taxes less (B) the amounts of all prior payments (other than
amounts to interest) by the Sublessor to Sublessee with respect to such
Indemnified Taxes. The Sublessee shall indemnify Sublessor pursuant to this
Section 14.1 if such refund is subsequently disallowed or the benefits thereof
are disallowed, reduced or lost, in whole or in part.
14.2 Special Tax Indemnity.
(a) Representations, Warranties and Certain Covenants. Sublessee
hereby represents and warrant to, and covenants with Sublessor as follows:
(i) Throughout the Term of this Sublease, the Sublessee shall
commit no act or failure to act which would cause the Aircraft to fail
to constitute "7-year property" (within the meaning of Section 168(e)
of the Internal Revenue Code of 1986, as amended (the "Code")) and
Trustor to lose any entitlement it may have to Depreciation Deductions
(as defined in the following sentence) with respect to its basis in
the Aircraft in accordance with Sections 168(a), (b), (c) and (d) of
the Code. "Depreciation Deductions" shall mean the maximum
depreciation deductions available to the Trustor with respect to its
basis in the Aircraft in accordance with Sections 168(a), (b), (c) and
(d) of the Code.
(ii) During the Term of this Sublease, Sublessee will not use
the Aircraft or any Engine or any Part outside the continental United
States and Sublessee will not commit any act or failure to act that
would cause the Aircraft or any Engine or any Part to constitute "tax
exempt use property" within the meaning of Section 168(h) of the Code.
The representations, warranties and covenants set for this in the Section 14.2
are made solely in connection with the federal income tax indemnity set forth
below and any breach of or inaccuracy in such representations, warranties, or
covenants shall not constitute an Event of Default.
(b) Indemnification. If as a result of (i) any act or failure to
act of Sublessee or any other user of the Aircraft, any Engine or any Part
thereof during the Term, (ii) the inaccuracy of any representation or warranty
or the breach of any covenant of Sublessee in this Sublease (and not merely
those in (a) above) or in any agreement entered into or certificate delivered
in connection with this Sublease, or (iii) any material uncured Default or
Event of Default by Sublessee, Trustor shall lose, or lose the right to claim,
or there shall be disallowed or recaptured all or any portion of, the
Depreciation Deductions [or the California Depreciation Deductions] (any such
loss, disallowance, reduction or recapture being called a "Tax Loss"), then
ten (10) days after written notice to Sublessee by Sublessor that any Tax Loss
has occurred, Sublessee shall pay to Sublessor, as an indemnity payment, a lump
sum amount which, after deduction of all federal, state and local taxes
required to be paid by Trustor and Sublessor in respect of the receipt of such
payment, shall provide Trustor with no less than the same net after-tax return
that Trustor
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would have realized if such Tax Loss had not occurred, including any interest,
additions to tax, penalties and expenses payable or incurred by Trustor
attributable to such Tax Loss, and which shall make Sublessor whole on an
after-basis. For the purpose of the preceding sentence, "expenses" shall
include reasonable legal fees and other expenses incurred to contest the Tax
Loss which are required to be indemnified by Sublessor under the Lease, but
only if Sublessee requested or consented to such contest after reasonable
notice and opportunity to review the proposed tax adjustments. If Sublessee
does not request or consent to such contest and a contest is conducted that
results in the reduction or elimination of a Tax Loss, then the amount of the
Tax Loss that the Sublessee is required to indemnify under this section 14.2(b)
shall be the lesser of (iv) the Tax Loss that the Trustor would have incurred
without the contest or (v) in the sum of the Tax Loss that the Trustor incurred
after the contest plus legal fees incurred in the contest. Sublessor shall
provide Sublessee with a computation of the amount to be indemnified, including
the assumptions used in the calculation.
(c) Refund. Upon receipt by the Sublessor from the Trustor
pursuant to the Lease Operative Agreements of a refund or credit arising from a
Tax Loss which Sublessee shall have paid for the Sublessor or for which
Sublessee shall have reimbursed or indemnified the Sublessor under Section 14.2
(and which refund or credit has not already been included in the computation
under Section 14.3 (a)), and provided there shall not have occurred any
material and uncured Default or Event of Default, the Sublessor shall pay to
Sublessee an amount which, after subtraction of the amount of any further net
tax savings (or addition of the amount of any further net tax detriment), if
any, realized by the Sublessor as a result of the receipt thereof and payment
under this paragraph, is equal to the amount of such refund and any interest
received by the Sublessor on such refund; provided, however, that such amount
shall not be payable (i) before such time as Sublessee shall have made all
payments on indemnities then due and payable to the Sublessor under Sections
14.1 and 14.2 and under any other provision of the Sublease or (ii) to the
extent that the amount of such payment would exceed (A) the amount of all prior
payments (other than amounts attributable to interest) by Sublessee to the
Sublessor with respect to such Tax Loss less (B) the amounts of all prior
payments (other than amounts attributable to interest) by the Sublessor to
Sublessee with respect to such Tax Loss.
14.3 Tax Indemnification Procedures.
(a) Amounts of Payment. The amount Sublessee shall be required to
pay with respect to any Indemnified Tax or Tax Loss shall be an amount
sufficient to restore the Sublessor (and, in the case of a Tax Loss or an
Indemnified Tax imposed upon the Lessor, the Lessor) to the same after-tax
position it (or they) would have been in had such Indemnified Tax or Tax Loss
not been incurred or paid. In the case of an Indemnified Tax which the
Sublessee must indemnify under Section 14.1, or in the case of a Tax Loss for
which the Sublessee must indemnify under Section 14.2, the Sublessor shall
provide the Sublessee with a computation of the amount of the indemnity,
including gross-up amounts for the Lessor. The amount of the indemnity to be
paid by Sublessee shall be further adjusted to any amount which (after taking
into account all taxes, whether imposed by Federal, applicable state or local
government, political subdivision, or taxing
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authority in the United States, by any applicable government or taxing
authority of or in a foreign country or of or in a territory or possession of
the United States or by any applicable international authority on the Sublessor
and the anticipated realization by the Lessor or Sublessor of tax benefits
resulting from the transaction to which such indemnity is related, and the
present value of any anticipated future tax benefits to be realized by the
Lessor or Sublessor as a result of deducting or crediting such Indemnified Tax
or Tax Loss or as a result of the matters immediately giving rise thereto) will
be sufficient to place Sublessor in the same position as Sublessor would have
been in had such Indemnified Tax or Tax Loss not been imposed or paid. All
computations for the purposes hereof shall be based on tax rates in effect on
the date payment pursuant to Sections 14.1 and 14.2 hereof is made. For
purposes of the gross-up required by this Section 14.3(a), it shall be assumed
that any payment made to the Lessor and Sublessor shall be taxable to them at
their highest Federal, applicable state or local rates in effect for the
taxable year for which the computation is made.
(b) Survival. The indemnification obligations under Sections 14.1
and 14.2 hereof shall survive the assignment, expiration, or other termination
of this Sublease.
14.4 "Trustor" and "Sublessor" to Include Affiliates. In
determining the occurrence of a Tax Loss and the amount of timing of any
payment required under Section 14.2 hereof in connection therewith, the terms
"Trustor" and "Sublessor" shall be deemed to include every member of the
affiliated group (within the meaning of Section 1504 of the Code) of which
Trustor or the Sublessor, respectively, is or becomes a member if such group
files consolidated returns for Federal income tax purposes, and every member of
any consolidated or combined group of which the Trustor or the Sublessor,
respectively, is or becomes a member for state or local income tax purposes.
14.5 General Indemnification.
(a) Indemnity. Subject to the provision of Section 14.5(b) below,
Sublessee shall indemnify Sublessor and save, protect, defend and hold
Sublessor and its employees and agents harmless from any and all liability,
loss, damage, expense (including legal expense and reasonable attorneys' fees
actually incurred), causes of action, suits, claims (including claims based on
strict liability in tort) or judgments arising from injury to person or
property, in any way relating to or resulting or based upon (i) this Sublease,
(ii) Sublessee's leasing of the Aircraft, or the control, use, operation,
maintenance, possession, delivery or transportation of the Aircraft or its
location or condition occurring during the term or pursuant to the provisions
of this Sublease (collectively the "Indemnity Claims"); and shall, at
Sublessee's own cost and expense defend any and all suits which may be brought
against Sublessor, either alone or in conjunction with others, upon such
Indemnity Claims. Sublessee shall satisfy, pay and discharge any and all
judgments and fines that may be recovered against Sublessor under any such
Indemnity Claim.
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(b) Exclusions. Without in any way expanding the liability or
obligations of the Sublessee under Section 14.5(a), the indemnity obligations
of the Sublessee set forth in Section 14.5(a) shall not require the Sublessee
to pay or indemnify Sublessor: (i) for any Indemnity Claims not resulting from
any willful misconduct or negligent action or inaction of the Sublessee; (ii)
for any Indemnity Claim to the extent resulting from Sublessor's gross
negligence or willful misconduct; (iii) for any Indemnity Claim which Sublessor
incurs to the extent resulting from Sublessor's breach of any of its
representations, warranties, or covenants contained in this Sublease; or (iv)
any Indemnity Claim arising from the Manufacturer's or any Affiliate thereof's
product liability.
(c) Tax Liabilities. Sublessee's indemnification responsibility
to Sublessor or Lessor for Taxes is exclusively covered under Sections 14.1 and
14.2 of this Sublease.
(d) Notice. If Sublessor obtains knowledge of the existence of
any actual or potential Indemnity Claim, Sublessor shall promptly give
Sublessee written notice of such Indemnity Claim. Failure by Sublessor to give
such notice, however, shall not limit Sublessee's obligations hereunder, unless
(and only to the extent that) Sublessee has been damaged by such failure to
give notice. So long as no Event of Default exists, the Sublessee may assume
control of the defense of any Indemnity Claim which the Sublessee agrees that
it would be required to indemnify Sublessor under this Section 14.5 with
counsel selected by the Sublessee and reasonably satisfactory to Sublessor.
Sublessor shall use all reasonably commercial efforts to obtain the consent of
the Lessor should such consent be required under the Lease Operative Agreements
in order for Sublessee to assume control of such defense of any Indemnity
Claim. Sublessor cannot absolutely assure Sublessee that such Lessor consent
will be obtained.
(e) Subrogation. Upon the payment in full of any indemnities due
and owing by Sublessee to Sublessor under this Section 14.5, the Sublessee
shall be subrogated to any right of the Sublessor in respect of the matter
against which such indemnity has been given.
(f) Survival. The provisions of this Section 14.5 shall survive
the termination of this Sublease.
SECTION 15. EVENTS OF DEFAULT.
The following events shall constitute Events of Default (whether any
such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body);
(a) The Sublessee shall fail to make any payment of Rent when
due, and such failure continues for at least five (5) Business Days
after written notice of nonpayment; or
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<PAGE> 63
(b) There shall occur any failure of Sublessee to procure any
of the insurance coverage required by Section 10 hereof or such
insurance shall cease to be in full force and effect; or
(c) Sublessee shall fail to perform or observe any other
covenant or condition to be performed or observed by it hereunder
other than as set forth in subsections (a) and (b) above, and such
failure shall continue for a period of 30 days after written notice
thereof from Sublessor; or
(d) Any representation or warranty made by Sublessee herein
or in any document or certificate furnished Sublessor pursuant hereto
shall prove to have been incorrect in any material respect when made
and shall remain incorrect and material; or
(e) Sublessee shall consent to the appointment of or taking
possession by a receiver, assignee, custodian, sequestrator, trustee
or liquidator (or other similar official) of itself or of a
substantial part of its property, or Sublessee shall fail to pay its
debts generally as they come due (as provided in 11 U.S.C. 303(h)(1)
or any similar or successor statute), or shall make a general
assignment for the benefit of its creditors, or Sublessee shall
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts
under the Federal bankruptcy laws, as now or hereafter constituted or
any other applicable bankruptcy, insolvency or other similar law or
shall consent to the entry of an order for relief in an involuntary
case under any such law or Sublessee shall file an answer admitting
the material allegations of a petition filed against Sublessor in any
such proceeding, or otherwise seek relief under the provisions of any
now existing or future bankruptcy, insolvency or other similar law
providing for the reorganization or winding-up of corporations, or
providing for an agreement, composition, extension or adjustment with
its creditors; or
(f) An order, judgment or decree shall be entered in any
proceedings by any court of competent jurisdiction appointing, without
the consent of Sublessee, a receiver, trustee or liquidator of
Sublessee or of any substantial part of its property, or any
substantial part of the property of Sublessee shall be sequestered,
and any such order, judgment or decree or appointment or sequestration
shall remain in force undismissed, unstayed or unvacated for a period
of 60 days after the date of entry thereof; or
(g) A petition against Sublessee in a proceeding or case
under the bankruptcy laws or insolvency laws (as now or hereafter in
effect) shall be filed and shall not be withdrawn or dismissed within
60 days thereafter, or, in case the approval of such petition by a
court of competent jurisdiction is required, the petition as filed or
amended shall be approved by such a court as properly filed and such
approval shall not be withdrawn or the proceeding dismissed within 60
days thereafter, or a decree or order for relief in respect of
Sublessee shall be entered by a court of competent jurisdiction in an
involuntary case
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under the Federal bankruptcy laws, as now or hereafter constituted, or
any other applicable bankruptcy, insolvency or other similar law, as
now or hereafter constituted, and such decree or order shall remain
unstayed in effect for a period of 60 days, or if, under the
provisions of any law providing for reorganization or winding-up of
corporations which may apply to Sublessee, any court of competent
jurisdiction shall assume jurisdiction, custody or control of
Sublessee or of any substantial part of its property and such
jurisdiction, custody or control shall remain in force unrelinquished,
unstayed or unterminated for a period of 60 days; or
(h) Any final judgment(s), after all appeals, for the payment
of money aggregating in excess of $1,000,000 (except as covered by
valid insurance payable to satisfy such judgment(s) and insurer has
not disclaimed coverage) shall be rendered against Sublessee and the
same shall remain outstanding and unstayed or undischarged for a
period of 60 consecutive days thereafter, provided, however, that any
final judgment(s) not covered by insurance aforesaid as aforesaid
which, in the reasonable opinion of Sublessor, involves any risk of
the sale, forfeiture or loss of the Aircraft shall result in an
immediate Event of Default; or
(i) Sublessee shall be in breach of any of its obligations
under any Other Sublease.
SECTION 16. REMEDIES.
Upon the occurrence of any Event of Default and at any time thereafter
so long as the same shall be continuing, Sublessor may, at its option, declare
this Sublease to be in default; and at any time thereafter so long as Sublessee
shall not have remedied all outstanding Events of Default , Sublessor may do,
and Sublessee shall comply with, one or more of the following with respect to
the Airframe or any Engine as Sublessor in its sole discretion shall elect, to
the extent permitted by, and subject to compliance with any mandatory
requirements of, Applicable Law then in effect:
(a) Cause Sublessee, upon the written demand of Sublessor and
at Sublessee's expense, to, and Sublessee shall, promptly return the
Airframe or any Engine as Sublessor may demand to Sublessor at such
location in the continental United States as selected by Sublessor
pursuant to, in the manner and condition required by, and otherwise in
accordance with all of the provisions of, Section 13 hereof as if such
Airframe or Engine were being returned at the end of the Term; or
Sublessor, at its option, may enter upon the premises where the
Airframe or Engine is located or believed to be located and take
immediate possession of and remove such Airframe or Engine without the
necessity of first instituting proceedings, or by summary proceedings
or otherwise, and Sublessee shall comply therewith, all without
liability to Sublessor for or by reason of such entry or taking of
possession, whether for the restoration of damage to property caused
by such taking or otherwise;
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(b) Hold, use, operate, sublease to others or keep idle all
or any part of the Airframe or Engine as Sublessor, in its sole
discretion, may determine, in any such case free and clear of any
rights of Sublessee and without any duty to account to Sublessee with
respect to such action or inaction or for any proceeds with respect
thereto;
(c) Rescind this Sublease as to the Airframe or any Engine; or
(d) Exercise any other right or remedy which may be available
under Applicable Law or proceed by appropriate court action to enforce
the terms hereof or to recover damages for the breach hereof.
In addition, Sublessee shall be liable for any and all Supplemental Rent due
hereunder before and after any termination hereof, including all costs and
expenses (including reasonable attorney's fees and disbursements) incurred by
reason of the occurrence of any Event of Default or the exercise of Sublessor's
remedies with respect thereto including all costs and expenses incurred in
connection with the return of the Airframe of any Engine in accordance with the
terms of Section 13 hereof. No remedy referred to in this Section 16 is
intended to be exclusive, but each shall be cumulative and in addition to any
other remedy referred to above or otherwise available to Sublessor at law or in
equity; and the exercise or beginning of exercise by Sublessor of any one or
more of such remedies shall not preclude the simultaneous or later exercise by
Sublessor of any or all such other remedies. No express or implied waiver by
Sublessor of any Event of Default hereunder shall in any way be or be construed
to be, a waiver of any future or subsequent Event of Default.
SECTION 17. SUBLESSOR'S RIGHT TO PERFORM FOR SUBLESSEE.
If Sublessee fails to make any payment of Rent required to be made by
it hereunder or fails to perform or comply with any of its agreements contained
herein, Sublessor may itself make such payment or perform or comply with such
agreement, and the amount of such payment and the amount of the reasonable
expenses of Sublessor incurred in connection with such payment or the
performance of or compliance with such agreement, as the case may be, together
with interest thereon at the Overdue Rate, shall be an amount owing by
Sublessee to Sublessor as Supplemental Rent, payable by Sublessee upon demand.
No such action shall be deemed a repossession of the Airframe or any Engine,
and no such payment or performance or other act shall be deemed to relieve the
Sublessee from any default hereunder.
SECTION 18. COUNTERPARTS.
This Sublease may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall, subject to
the next sentence and the legends appearing on the cover and signature page
hereof, be an original, but all such counterparts shall
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together constitute but one and the same instrument. To the extent, if any,
that this Sublease constitutes chattel paper (as the term is defined in the
Uniform Commercial Code as in effect in any applicable jurisdiction), no
security interest in this Sublease may be created through the transfer or
possession of any counterpart other than the "original" counterpart which shall
be identified as the counterpart containing the receipt therefor executed by
the Security Trustee on the signature page thereof.
SECTION 19. ASSIGNMENT.
Sublessee may not transfer, assign, pledge or hypothecate this
Sublease or any part thereof or interest therein in any way whatsoever, without
the express prior written consent of Sublessor (which consent shall not be
unreasonably withheld). Except as provided in the immediately following
sentence, Sublessor may not assign, pledge or in any other way transfer its
interest in this Sublease either in whole or in part to any party without the
prior written consent of Sublessee (which consent shall not be unreasonably
withheld). Sublessor may, without Sublessee's prior written consent, assign,
pledge or in any other way transfer its interest in this Sublease either in
whole or in part to any affiliate of Sublessor which is wholly owned, directly
or through a subsidiary thereof, by British Aerospace Public Limited Company.
The terms and provisions of this Sublease shall inure to the benefit of and be
binding on Sublessor and Sublessee and their respective successors and
permitted assigns.
SECTION 20. MISCELLANEOUS.
(a) Applicable Law. This Sublease shall in all respects be
governed by, and construed in accordance with, the laws of the State of Georgia
(without regard to the conflict of laws provisions of such State), including
all matters of construction, validity and performance, and shall be deemed
delivered in the State of Georgia. This Sublease shall be effective for all
purposes as of the date first above written.
(b) Notices. Unless otherwise specifically provided herein, all
notices required or permitted by the terms hereof shall be in writing and shall
be deemed to have been duly given when delivered personally or otherwise
actually received or 5 days after being deposited in the United States mail,
registered, postage prepaid, addressed as follows:
If to the Sublessee : Atlantic Southeast Airlines, Inc.
100 Hartsfield Centre Parkway,
Suite 800
Atlanta, Georgia 30354-1356
Attention: Ronald Sapp
Chief Financial Officer
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If to the Sublessor : Jet Acceptance Corporation
c/o British Aerospace Holdings, Inc.
22070 Broderick Drive
Sterling, Virginia 20166
Attention: Asset Management
Organisation
If to the Lessor : First Security Bank of Utah,
National Association, as Trustee
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust
If to the Trustor : Emerson Finance Co.
8000 W. Florissant Avenue
St. Louis, Missouri 63136
Attention: Chairman
If to the Security Trustee : State Street Bank and Trust Company
of Connecticut, National Association
750 Main Street
Hartford, Connecticut 06103
Attention: Corporate Trust
If to the Noteholders : Aetna Life Insurance Company
City Place
Hartford, Connecticut 06156
Attention: Bond Investments
Principal Mutual Life Insurance
Company
711 High Street
Des Moines, Iowa 50392-0800
Sun Life Assurance Company of
Canada
One Sun Life Executive Park
Wellesley Hills, Massachusetts 02181
Attention: Investment Division
or at such other place as any such party may designate by notice given in
accordance with this Section.
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(c) Assignment of Sublease. Anything in this Sublease to the
contrary notwithstanding, Sublessee's rights hereunder to the possession, use
and enjoyment of the Aircraft otherwise than in accordance with the terms
hereof shall be subject to the rights of the Lessor under the Lease in and to
the Aircraft and the rights of the Security Trustee and Lessor in respect of
the Aircraft, and Sublessee confirms and agrees that its rights and interests
under this Sublease are in all events subject and junior to the rights and
interests of Lessor and the Security Trustee. Upon notice to Sublessee by
Lessor or the Security Trustee that an Event of Default has occurred and is
continuing under the Lease, the Lessor or the Security Trustee may require that
all rentals and other sums due hereunder in respect of the Aircraft shall
thereafter be paid directly to the Lessor or the Security Trustee (in each
case, without further liability to make such payments to Sublessor) and that in
the event the Lease shall have been terminated pursuant to Section 18 thereof,
the Lessor or the Security Trustee may, at its option, by written notice to
Sublessee after the date of such termination:
(i) require Sublessee to enter into an agreement in form and
substance reasonably satisfactory to the Lessor or Security Trustee,
and its counsel, attorning to and recognizing the Lessor or Security
Trustee as the Sublessor hereunder and reconfirming all of the
obligations of Sublessee hereunder; or
(ii) terminate this Sublease and require prompt delivery by
Sublessee of the Aircraft to the Lessor or the Security Trustee, in
accordance with the provisions of Section 13 hereof, upon which event
Sublessee's obligations hereunder shall terminate.
Unless and until Sublessee shall have received any such written notice from
Lessor or the Security Trustee requiring attornment or terminating this
Sublease, Sublessee shall be and remain fully obligated hereunder
notwithstanding the continuance of any Event of Default under the Lease or the
termination thereof pursuant to Section 18 thereof.
Sublessee hereby acknowledges notice of, and hereby consents to, the assignment
of this Sublease to Lessor pursuant to the terms of the Assignment of Sublease
and from Lessor to the Security Trustee pursuant to the terms of the Security
Agreement.
The foregoing provisions of this Section 20(c) shall not relieve Sublessor of
its obligations and responsibilities to Sublessee under Section 5 hereof.
(d) Set-Off. Except for maintenance payments due from Sublessor,
Sublessor shall be entitled to set-off or withhold from any amount due and
payable by Sublessor to Sublessee hereunder any amounts from time to time due
and payable by Sublessee to Sublessor under this Sublease or any Other
Subleases which are not paid in accordance with the terms and conditions of
this Sublease or the Other Subleases.
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(e) Waivers, Headings. No term or provision of this Sublease may
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which the enforcement of the change,
waiver, discharge or termination is sought. The section and paragraph headings
in this Sublease and the table of contents are for convenience of reference
only and shall not modify, define, expand or limit any of the terms or
provisions hereof and all references herein to numbered sections, unless
otherwise indicated, are to sections of this Sublease.
(f) Judicial Proceedings. The parties hereto hereby agree that,
to the extent permitted by Applicable Law, any judicial proceeding brought with
respect to this Sublease in the State of Georgia shall be brought in the United
States District Court for the Northern District of Georgia.
(g) Severability. Any provision of this Sublease which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(h) Confidentiality.
(i) Sublessee acknowledges that the terms and conditions of
this Sublease and the commercial and financial arrangements evidenced
by this Sublease are considered by Sublessor as confidential.
Sublessee agrees that, to the extent such information is not in the
public record, it shall treat such information as confidential and
will not without the prior written consent of Sublessor disclose such
information to any Person except to its professional advisers or as
may be required by Applicable Law. In connection with any such
disclosure, Sublessee shall request, and use reasonable endeavors to
obtain, confidential treatment of such information.
(ii) Sublessor acknowledges that the terms and conditions of
this Sublease, the commercial and financial arrangements evidenced by
this Sublease and the financial and operational information with
respect to Sublessee to be provided to Sublessor hereunder are
considered by Sublessee as confidential information. Accordingly,
Sublessor agrees that, to the extent such information is not in the
public record, it shall treat such information as confidential and
will not without the prior written consent of Sublessee disclose such
information to any Person except the Financing Parties, their
respective professional advisers or as may be required by Applicable
Law. In connection with any such disclosure, Sublessor shall request,
and use reasonable endeavors to obtain, confidential treatment of such
information.
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SECTION 21. REPRESENTATIONS, WARRANTIES AND ASSURANCES OF SUBLESSEE.
Sublessee hereby makes the following representation and warranties:
(a) Sublessee is a corporation duly organized under the laws of
the State of Georgia, validly existing and in good standing under the laws of
said State and is duly qualified and authorized to do business as a foreign
corporation wherever the nature of its activities requires such qualification
and authorization.
(b) Sublessee has full power and authority to execute, deliver and
perform its obligations under this Sublease, the Initial Sublease Acceptance
Supplement and all supporting documents, the same having been duly authorized
by all necessary corporate action of Sublessee and duly executed and delivered
by the authorized officers of Sublessee and constitute legal, valid and binding
obligations of Sublessee and are enforceable in accordance with such terms,
except as enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally as well as by general principles of
equity regardless of whether enforcement is sought in a proceeding in equity or
at law.
(c) The execution and delivery of this Sublease, the Initial
Sublease Acceptance Supplement, and all supporting documents and the
performance by Sublessee of is obligations under this Sublease, the Initial
Sublease Acceptance Supplement, and all supporting documents will not be
inconsistent with its charter or by-laws, do not contravene any presently
existing law, governmental rule or regulation, judgment or order applicable or
binding on Sublessee, and do not contravene any provision of, or constitute a
default or result in the creation of any Lien with respect to this Sublease or
the Aircraft under any presently existing indenture, mortgage, contract or
other instrument to which Sublessee is a party or by which it or any of its
properties is bound.
(d) No consent of shareholders of Sublessee or of any trustee or
holders of any presently existing indebtedness or obligations of Sublessee or
of any other Person and no consent or approval of, giving notice to, or any
filing or registration with any governmental authority, body, commission or
agency is or will be required as a condition to the validity of this Sublease
or as a condition to or in connection with the authorization, execution,
delivery or performance hereof by Sublessee except those which have been duly
made or obtained, certified copies of which have been or will be delivered to
Sublessor prior to delivery of the Aircraft to Sublessee. This Sublease and
its performance do not and will not violate or contravene any law, regulation,
order, judgment or other similar obligation imposed on Sublessee by any
government or regulatory agency, court, administrative or legislative body.
(e) There is no action, suit or proceeding pending or threatened
against or affecting Sublessee or any of its Affiliates before any court or
before any governmental commission, arbitrator, board, authority or
administrative agency which is probable to result in any material
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adverse effect on the ability of Sublessee or any of its Affiliates to perform
its obligations under this Sublease, the Initial Sublease Acceptance Supplement
or any related documents, or upon assets, liabilities, business, prospects,
profit, condition or operations, financial or otherwise, of Sublessee or any of
its Affiliates.
(f) Sublessee is fully familiar with all the covenants, terms and
conditions of this Sublease and is not in default with respect thereto.
(g) All financial statements that have heretofore been provided to
Sublessor in conjunction with this transaction have been prepared in accordance
with generally accepted accounting principles consistently applied and fairly
represent the financial condition and income of Sublessee as of the dates given
and as of the date hereof and as of such date such financial statements do not
contain any untrue statements of a material fact, nor do they omit to state a
material fact required to be stated therein or necessary in order to prevent
such financial statements from being misleading; and there is no fact,
situation or event which, so far as can be foreseen by Sublessee, will
materially adversely affect the properties, business, assets, income, prospects
or conditions, financial or otherwise, of Sublessee.
(h) All Federal, state and local tax returns required to be filed
by Sublessee have, in fact, been filed, and all Taxes which are shown to be due
and payable in such returns have been paid. No material controversy in respect
of additional income taxes due is pending or to the knowledge of Sublessee
threatened, which controversy if determined adversely would materially and
adversely affect Sublessee's ability to perform its obligations hereunder. The
provision for Taxes on the books of Sublessee is adequate for all open years
and for its current fiscal period.
(i) Sublessee is not engaged in any transaction in connection with
which it could be subjected to either a civil penalty assessed pursuant to
Section 502(c) of ERISA or any tax imposed by Section 4975 of the Code; no
material liability of the Pension Benefit Guaranty Corporation has been or is
expected by Sublessee to be incurred with respect to any employee pension
benefit plan (as defined in Section 3 of ERISA). There is no event of
termination of any such employee pension benefit plan by the Pension Benefit
Guaranty Corporation; and no accumulated funding deficiency (as defined in
Section 302 of ERISA or Section 412 of the Code), whether or not waived, exists
with respect to any such pension benefit plan.
(j) Sublessee is not in default under any indenture, mortgage,
loan agreement or other agreement or instrument, in each case of a material
nature, to which Sublessee is a party or by which it or any of its properties
is bound; nor is Sublessee in violation of any law, order, injunction, decree,
rule or regulation applicable to Sublessee of any court or administrative body,
which violation could materially and adversely affect the business, property or
assets, operations or condition, financial or otherwise, of Sublessee; and no
event has occurred and is continuing which, under the provisions of any
material indenture, mortgage, loan agreement or other agreement or instrument
to which Sublessee is a party, with the lapse of time or the giving of notice,
or both, would constitute a default thereunder.
43
<PAGE> 72
(k) No Default or Event of Default has occurred and is continuing.
SECTION 22. GENERAL UNDERTAKINGS OF SUBLESSEE.
Sublessee covenants with Sublessor that from the date of this Sublease
until all its liabilities under this Sublease have been fully discharged it
will do the following:
(a) Operation of Business. Sublessee will remain in and continue
to operate the business of providing commercial air transportation services
possessing all necessary consents, licenses and authorizations required under
Applicable Law, preserve its corporate existence, and conduct its business in
an orderly and efficient manner, satisfy its debts and obligations as they fall
due and keep and maintain all of its assets in good working order and
condition.
(b) Financial Statements and Operational Reports. Sublessee will
submit to Sublessor, at the times indicated, the following:
(i) within 90 days after the end of each fiscal year, a
consolidated balance sheet and consolidated statements of income and
cash flow for said fiscal year, audited by an independent accounting
firm and without qualification as to scope of the audit or as to
generally accepted accounting principles;
(ii) at the time of filing or delivery to third
parties, copies of all financial statements, proxy statements, notices
and reports as it shall send to its security holders and all
registration statements (without exhibits) which it files with the
Securities and Exchange Commission or any securities exchange;
(iii) within 45 days after the end of each calendar
quarter, reports of BAe-146 aircraft summary statistics for that
quarter, including passengers enplaned, ASMs, RPMs, load factor,
direct operating cost per ASM, block hours, direct operating cost per
block hour, number of aircraft in revenue service, cities served,
daily utilization, departures scheduled, departures completed, average
stage length, average passenger haul, and average flight hours per
cycle; and
(iv) within 45 days after the end of each calendar
month, a copy of Sublessee's aircraft reliability report applicable to
British Aerospace Model 146-200A aircraft ("BAe Aircraft") together
with a detailed listing of all unscheduled component removals by BAe
Aircraft, part number, serial number and position, a complete listing
of all PIREPs by BAe Aircraft and ATA Chapter and MIS and FAA BAe
Aircraft and engine utilization reports;
(v) within 45 days after the end of each calendar
[month/quarter], a copy of Sublessee's Aircraft Maintenance Records
Master Listing for each of the BAe Aircraft; and
44
<PAGE> 73
(vi) with reasonable promptness, such other
information and date with respect to the financial condition of
Sublessee or the BAe Aircraft as Sublessor may reasonably request.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
45
<PAGE> 74
IN WITNESS WHEREOF, Sublessor and Sublessee have each caused this
Sublease to be duly executed by their authorized officers as of the day and
year first above written.
SUBLESSOR:
JET ACCEPTANCE CORPORATION
By:
----------------------------
Its:
---------------------------
SUBLESSEE:
ATLANTIC SOUTHEAST AIRLINES, INC.
By:
----------------------------
Its:
---------------------------
<PAGE> 75
Receipt of this original counterpart of the foregoing Sublease
is hereby acknowledged on this day of , 1994.
---- ---------------
STATE STREET BANK AND TRUST
COMPANY OF CONNECTICUT,
NATIONAL ASSOCIATION, Security Trustee
By:
-------------------------
Title:
----------------------
<PAGE> 76
EXHIBIT A
Atlantic Southeast Airlines, Inc.
British Aerospace Model 146-200A Aircraft
S/N E2 , Reg. N
--- -----
Sublease Agreement Dated as of , 1995
----------------
SUBLEASE ACCEPTANCE SUPPLEMENT
THIS SUBLEASE ACCEPTANCE SUPPLEMENT, dated ______________, 199_ is
executed and agreed by and between Jet Acceptance Corporation, a Delaware
corporation (hereinafter referred to as "Sublessor") and Atlantic Southeast
Airlines, Inc., a Georgia corporation (hereinafter referred to as "Sublessee").
W I T N E S S E T H:
1. Sublessor and Sublessee have heretofore entered into a Sublease
Agreement dated as of ____________, 199__, (the "Sublease") providing for the
execution and delivery of this Sublease Acceptance Supplement. The terms
defined in the Sublease shall have the same meanings when used herein.
2. Sublessor hereby subleases to Sublessee, and Sublessee hereby leases
from Sublessor, the Aircraft described in Schedule 1 hereto and made a part
hereof (the "Aircraft"). Sublessee hereby acknowledges and agrees, respecting
the Aircraft:
(a) That Sublessee has inspected the Aircraft fully and completely
as to size, model, function and conformity to the specification;
(b) That the Aircraft is of a size, design, function and
manufacture selected by Sublessee;
(c) That Sublessee is satisfied that the same is suitable for its
intended purpose and any special purposes of Sublessee;
(d) NEITHER LESSOR NOR SUBLESSOR IS A MANUFACTURER OF THE AIRCRAFT OR
A DEALER IN SIMILAR AIRCRAFT AND NONE OF THEM HAS INSPECTED THE AIRCRAFT PRIOR
TO DELIVERY AND ACCEPTANCE BY SUBLESSEE; EXCEPT AS DESCRIBED IN THE SUBLEASE
WITH RESPECT TO THE SUBLESSOR, NEITHER LESSOR NOR SUBLESSOR HAS MADE OR DOES
MAKE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE
AIRWORTHINESS, DESIGN, OPERATION, CONDITION, QUALITY, DURABILITY, SUITABILITY,
MERCHANTABILITY OR FITNESS FOR USE OR FITNESS FOR A PARTICULAR PURPOSE, ABSENCE
OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, ABSENCE OF ANY
INFRINGEMENT OF ANY PATENT,
<PAGE> 77
TRADEMARK OR COPYRIGHT, OR AS TO ANY OTHER WARRANTY WHATSOEVER, EXPRESS OR
IMPLIED, WITH RESPECT TO THE AIRCRAFT; [*]
(e) the Aircraft has been delivered to, is now in the possession
of, and is acceptable to Sublessee.
3. Sublessee hereby agrees to pay to Sublessor as Basic Rent for, and
Maintenance Cost Contributions with respect to, the Aircraft the respective
amounts set forth in Schedule 2 attached hereto and made a part hereof.
4. In addition Sublessee agrees to pay to Sublessor, when required by the
Sublease, the Stipulated Loss Value payments in the amounts set forth in
Schedule 3 attached hereto and made a part hereof.
5. The date of delivery and acceptance of the Aircraft (the "Delivery
Date") is the date of this Sublease Acceptance Supplement set forth in the
opening paragraph hereof.
6. All of the rights and obligations hereunder, including matters of
construction, validity and performance shall be governed in the same manner and
under the same circumstances as the Sublease.
IN WITNESS WHEREOF, the parties have set their hands and seals on the
first day written above.
SUBLESSOR
JET ACCEPTANCE CORPORATION
By:
-------------------------
Title:
----------------------
<PAGE> 78
SUBLESSEE
ATLANTIC SOUTHEAST AIRLINES, INC.
By:
-------------------------
Title:
----------------------
<PAGE> 79
SCHEDULE ONE TO SUBLEASE ACCEPTANCE SUPPLEMENT
Atlantic Southeast Airlines, Inc.
British Aerospace Model 146-200A Aircraft
S/N E2___, Reg. N_____
Sublease Agreement Dated as of ____________, 1995
DESCRIPTION OF EQUIPMENT
A. AIRFRAME
1. Make and Model
British Aerospace BAe 146 Series 200
2. FAA Number: N_____
3. Manufacturer's Serial Number: E2___
B. ENGINES
1. Make and Model
Allied Signal ALF 502R-5
2. Manufacturer's Serial Numbers:
LFO-5___
LFO-5___
LFO-5___
LFO-5___
Each of said Engines being 750 or more rated takeoff horsepower or its
equivalent.
<PAGE> 80
SCHEDULE TWO TO SUBLEASE ACCEPTANCE SUPPLEMENT
Atlantic Southeast Airlines, Inc.
British Aerospace Model 146-200A Aircraft
S/N E2___, Reg. N_____
Sublease Agreement Dated as of ____________, 1995
SCHEDULE OF BASIC RENT PAYMENTS
<TABLE>
<CAPTION>
Due Date Amount
- -------- ------
<S> <C>
On [Delivery Date]
(for the period [Delivery Date] $ ___,___
through and including
_________, 199_)
On __________ 1, 199_ and monthly
on the first day of each month $ [*]
thereafter through and including
___________ 1, 199_
On _________ 1, 199_
(for the period _____________ $ ___,___
through and including
_________, 199_)
On __________ 1, 199_ and monthly
on the first day of each month $ [*]
thereafter through and including
___________ 1, 199_
On _________ 1, 199_
(for the period _____________ $ ___,___
through and including
_________, 199_)
On __________ 1, 199_ and monthly
on the first day of each month $ [*]
thereafter through and including
___________ 1, 199_
</TABLE>
<PAGE> 81
SCHEDULE TWO TO SUBLEASE ACCEPTANCE SUPPLEMENT
<TABLE>
<CAPTION>
Due Date Amount
- -------- ------
<S> <C>
On ________ 1, 199_
(for the period ____________ $ ___,___
through and including
__________, 199_)
On ________ 1, 199_ and monthly
on the first day of each month $ [*]
thereafter through and including
__________1, 199_
On __________ 1, 199_
(for the period __________ 1, 199_ $ ___,___
through and including
__________ __, 199_)
On __________ 1, 199_/2000 and monthly
on the first day of each month $ [*]
thereafter through and including
__________ 1, 199_/2000
On __________ 1, 2000
(for the period __________ 1, 2000 $ ___,___
through and including
_______ __, 2000)
</TABLE>
SCHEDULE OF CONTRIBUTION RATES
<TABLE>
<CAPTION>
Contribution
Type Rate
---- ----
<S> <C>
Undercarriage Overhaul and $[*] per Cycle of Airframe
Replacement of Engine Life Operation
Limited Parts
</TABLE>
<PAGE> 82
2-2
SCHEDULE THREE TO SUBLEASE ACCEPTANCE SUPPLEMENT
Atlantic Southeast Airlines, Inc.
British Aerospace Model 146-200A Aircraft
S/N E2___, Reg. N_____
Sublease Agreement Dated as of ____________, 1995
SCHEDULE OF STIPULATED LOSS VALUES
Month in Which Amount of Stipulated
Payment is Made Loss Value
--------------- --------------------
[TO BE PROVIDED]
<PAGE> 83
EXHIBIT B-1
[*]
<PAGE> 84
EXHIBIT B-2
[*]
<PAGE> 85
EXHIBIT C
REDELIVERY CONDITIONS
Upon the Expiry Date or at the point of redelivery the Aircraft shall,
subject to fair wear and tear and except as otherwise herein provided for,
comply with the following conditions and be accompanied by the documents
specified in paragraphs 4 and 5 hereof:
1. General Conditions
(a) The Aircraft shall be in the Delivery Conditions specified in
Section 2.1.2.6 of the Agreement to Lease, be clean by good
airline standards and fit for the immediate carriage of fare
paying passengers; provided the OFE shall be in an "as is
where is" condition.
(b) The Aircraft shall have installed the full complement of
Engines, Parts and loose equipment as would remain installed
in such Aircraft and shall be in a condition suitable for
operation in commercial passenger aviation service under FAR
Part 121.
(c) The Aircraft shall have in existence a valid and current FAA
Certificate of Airworthiness.
(d) The Aircraft shall comply with the specifications set forth in
Exhibit C(II) of the Agreement to Lease, including any
revisions thereto agreed to by Sublessor as of the Expiry
Date.
2. Maintenance Condition
(a) The Aircraft maintenance accomplished shall be current to the
requirements of the Sublessee's FAA approved BAe 146
Maintenance Schedule then in force. In the event that
Sublessee's Maintenance Program deviates from that recommended
by the Manufacturer, Sublessee shall provide Sublessor a copy
of Sublessee's FAA Operations Specifications to reference the
deviations.
(b) If requested, Sublessee shall provide a copy of the
appropriate sections of Sublessee's General Maintenance Manual
which relate to the maintenance and records practices for the
Aircraft.
(c) The Aircraft shall be free from all known defects (including
deferred) and discrepancies other than those items noted on
the Delivery Receipt for the Aircraft executed pursuant to
Section 4.2.2 of the Agreement to Lease ("Delivery Receipt");
provided, however, all such maintenance defects (including
deferred) and discrepancies which are the subject of this
paragraph 2(c) shall be governed, and Sublessee's sole
responsibility with respect to such defects and discrepancies
shall be determined as follows:
<PAGE> 86
(i) [*]
(ii) [*]
(iii) [*]
(d) The Aircraft shall have embodied all applicable FAA mandatory
provisions and Manufacturer's mandatory service bulletins
which become due for compliance prior to redelivery with the
proviso that if inspection programs are FAA permitted
alternatives to modifications, then such inspection programs
may be used by Sublessee as alternative compliance to these
requirements.
(e) The Aircraft shall have installed or there shall be returned
to Lessor all applicable vendors' and manufacturers' service
bulletin kits that have an effect on maintenance and
reliability theretofore provided by manufacturer to Sublessee
on a free of charge basis and that are appropriate for the
Aircraft, and, to the extent not installed, such kits shall be
returned free of charge with the Aircraft.
(f) The following maintenance conditions shall have been met on
the Aircraft as defined in the Sublessee's FAA approved BAe
146 Maintenance Schedule then in force:
- [*]
- [*]
- [*]
(g) [*]
<PAGE> 87
[*]
(h) [*]
(i) [*]
<PAGE> 88
[*]
(j) [*]
<PAGE> 89
[*]
(k) [*]
(l) [*]
<PAGE> 90
[*]
(m) [*]
<PAGE> 91
3. Exterior
The exterior of the Aircraft shall be in good condition and freshly
painted all white in accordance with the Manufacturer's processes with
all Sublessee's markings removed.
4. Aircraft Documents
All Aircraft Documents shall be in accordance with all applicable
rules and regulations of the FAA and the BAe 146 maintenance schedule
and shall be complete and current and in the English language and
shall be released to the Sublessor concurrent with redelivery of the
Aircraft. The Sublessee may, if required, take copies of the original
documentation for its own recording processes. All log books,
including Engine/APU, shall be complete, certified and released.
5. Aircraft Manuals
All operations and maintenance manuals (as originally supplied with
the Aircraft) shall be complete and have all revisions issued to the
Sublessee incorporated and signed off by the Sublessee or its
designated approved organization and shall be released to the
Sublessor concurrent with redelivery of the Aircraft.
6. These provisions are subject to the following conditions:
(a) Notwithstanding any provisions which may exist within the
Sublessee's approved BAe 146 Maintenance Schedule for short
term escalation of any interval, limit or time that applies
herein, such short term escalation may not be used by
Sublessee as a means of avoiding compliance of any of the
requirements herein.
(b) If Sublessee is relying on a prior compliance to satisfy the
return requirements herein, such prior compliance shall only
be considered acceptable if full documentation to the
requirements of the FAA demonstrating such compliance is
presented by Sublessee together with reasonable detail of the
required work undertaken, the inspection findings and the
required corrective action taken.
7. Failure to Comply
In the event that on expiration or earlier termination of the Term of
the Sublease, Sublessee does not return the Aircraft in the condition
required by Section 13 and this Exhibit C, Sublessor shall be entitled
to require Sublessee at Sublessee's expense to remedy any defects or
deficiencies in the Aircraft and Sublessee shall promptly comply with
such requirement, and in the event Sublessee fails to comply,
Sublessor shall, without prejudice to its other rights under Section
16 of the Sublease, be entitled to remedy such defects and
deficiencies and to recover on demand from Sublessee the costs so
incurred, together with interest at the Overdue Rate from the date of
expenditure by Sublessor of the relevant cost until reimbursement by
Sublessee (both before and after any relevant judgment).
<PAGE> 92
EXHIBIT D
SCHEDULE OF UNDERCARRIAGE FLIGHT CYCLE OR
TIME LIFE LIMITED PARTS
BAe 146 Landing Gear
Description
1. Main Landing Gear
(Main Fitting)
2. Main Landing Gear
3. Main Landing Gear
4. Sidestay
5. Nose Landing Gear
Dowty Rotol
(Main Fitting)
6. Selector Valve-
Landing Gear
<PAGE> 93
EXHIBIT E
SCHEDULE OF ENGINE FLIGHT CYCLE OR
TIME LIFE LIMITED COMPONENTS
ALF 502 - R5 Engine Life Limited Parts
Description
1. Disc - Fan
2. Disc - Supercharger
3. Disc - 1st Compressor
4. Disc - 2nd Compressor
5. Spacer - 1st Compressor
6. Disc - 3rd Compressor
7. Disc - 4th Compressor
8. Spacer - 3rd Compressor
9. Spacer - 4th Compressor
10. Spacer - 5th Compressor
11. Disc - 5th Compressor
12. Disc - 6th Compressor
13 Disc - 7th Compressor
14 Spacer - 6th Compressor
15. Impeller
16. Shaft - Compressor
17. Seal Plate - 1st Turbine
18. Disc - 1st Turbine
19. Spacer - Turbine
20. Disc - 2nd Turbine
21. 3rd Turbine and Shaft
22. Disc - 4th Turbine
<PAGE> 94
EXHIBIT C (I)
TO
ASA AGREEMENT TO LEASE
Contract Specification of Aircraft and Associated Loose Equipment
i. Base Specificaiton
It is understood that the five (5)BAe 146 Series 200 Aircraft with
manufacturer's serial numbers E2062, E2074, E2080, E2084 will be
supplied in an "as is" condition with the following specification
changes as outlined below undertaken by BAe at no additional cost to
ASA:
Item
(a) Standardization of interior configuration, including 88
passenger seats of a specific-to-type design providing 19"
wide seatbacks, as per the attached layout.
(b) Cabin Interior Decor Upgrade
- Incorporate ASA Furnished Equipment ("LFE") as outlined
below;
- Replace vestibule and toilet floor covering;
- Cosmetic defect rectification.
(c) Refurbish cabin seats;
(d) Deep clean;
(e) ASA livery;
(f) Fresh from 'C' Check and in compliance with ASA's FAA approved
maintenance program
(g) Current valid FAA Certificate of Airwothiness and in
compliance with all applicable and issued FAA airworthiness
directives and service bulletins which are specifically
designated by the Aircraft manufacturer as Mandatory";
(h) Incorporation of TCAS and Mode S Transponder;
(i) Incorporation of Windshear;
(j) Common standard of emergency equipment;
(k) Fit new ownership nameplates;
(l) Free of all liens (other than permitted liens)
(m) Aircraft shall be in good operating order, repair, condition
and appearance and free of fuel and hydraulic leaks;
(n) Engines shall have been tested, inspected and meet the
criteria for enrollment on AlliedSignal's Engine Maintenance
Cost Protection Program.
(o) Airframe shall have been tested, inspected and meet the
criteria for enrollment on the Avro JetSpares Program;
(p) APUs to be upgraded to GTPC 36-150M configuration.
In addition, as part of the Base Specification, BAe will provide ASA with, or
procure a provision of, a comprehensive set of technical manuals for
the Aircraft in accordance with ATA 200 format (General Revision 20)
which will include a free of charge revision service for the first two
(2) years of the Aircraft's operation. These will be supplied at the
time of acceptance of the Aircraft in hard copy in the English
language. The detailed qualities supplied will be agreed
<PAGE> 95
as part of the Conversion Specification Document 4. A revision
service for each set of manuals beyond the first two (2) years of the
Aircraft's operation will be available from Avro upon terms to be
agreed between ASA and Avro.
The LFE will be substantially limited to the provision of:
(a) ASA standard seat covers;
(b) ASA standard soft trim;
(c) ASA standard carpet;
(d) Any emergency equipment and/or loose equipment particular to ASA
operation;
(e) Galley inserts;
which will be provided free of charge to BAe by ASA, at a timescale to be
agreed to by the parties.
ii. Customer Specification
BAe will incorporate or procure the incorporation of the following change to
the Base Specification of the Aircraft in order to comply with the
requirements of ASA:
The ASA specific Emergency Equipment identified in paragraph 2 of
Conversion Specification Document BS146/0060, page 8.
and ASA shall pay for such change in accordance with the provisions of said
paragraph 2.
<PAGE> 96
EXHIBIT C(II)
TO
ASA AGREEMENT TO LEASE
ASSET
MANAGEMENT ORGANISATION
[LOGO]
BUSINESS SUPPORT
CONVERSION SPECIFICATION
FOR
FIVE BRITISH AEROSPACE 200 SERIES
PASSENGER AIRCRAFT
FOR
ATLANTIC SOUTHEAST AIRLINES
Model Number : 146-200
Specification Number : 0060
Date : 12th September 1995
Amendment : 2
<PAGE> 97
<TABLE>
<CAPTION>
ASSET MANAGEMENT ORGANIZATION Spec No. BS146/0060
No 1 Bishop Square, St. Albans Rd West.
Page: 2 of 15
Hatfield, Herts AL10 9NE
Amendment: 2
AIRCRAFT REFURBISHMENT GROUP
Date: 12th September 1995
WORK PACKAGE SPECIFICATION CHANGES
CUSTOMER: ATLANTIC AIRCRAFT TYPE: 146 SERIAL NO: E2062, E2074
SOUTHEAST AIRLINES E2080, E2084 & E2087
<S> <C> <C> <C> <C>
Amd Page Index Of Specification Changes Status
No.
2 3 MAINTENANCE AND MANDATORY REQUIREMENTS ACCEPTED
2 4 ACCEPTED
AIRCRAFT CLEANING
2 5 ACCEPTED
INTERIOR LAYOUT
2 6 ACCEPTED
STOWAGE AT 4R
2 7 ACCEPTED
INTERIOR DECOR
2 8 ACCEPTED
EMERGENCY EQUIPMENT
2 9 ACCEPTED
TCAS, MODES, & WINDSHEAR
2 10 ACCEPTED
2 11 ACCEPTED
ALLIEDSIGNAL GTCP36-150 APU
2 12 ACCEPTED
BATTERIES
2 13 ACCEPTED
OPERATING WEIGHTS
2 14 ACCEPTED
APPROVED OIL PLACARDS
2 15 ACCEPTED
EXTERIOR LIVERY
ACCEPTED
MANUALS
</TABLE>
Approved on behalf /s/ N. P. Jennett
of Business Support. -----------------
N.P. JENNETT
<PAGE> 98
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ASSET MANAGEMENT ORGANIZATION Spec No. BS146/0060
No 1 Bishop Square, St. Albans Rd West. Page: 3 of 15
-----------------------------------------------------------------
Amendment: 2
Hatfield, Herts AL10 9NE
-----------------------------------------------------------------
AIRCRAFT REFURBISHMENT GROUP
Date: 12th September 1995
WORK PACKAGE SPECIFICATION CHANGES -----------------------------------------------------------------
CUSTOMER: ATLANTIC AIRCRAFT TYPE: 146 SERIAL NO: E2062, E2074
SOUTHEAST AIRLINES E2080, E2084 & E2087
- ----------------------------------------------------------------------------------------------------------------------------------
TITLE: MAINTENANCE AND MANDATORY REQUIREMENTS
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF CHANGE:
<S> <C>
1. The aircraft shall be delivered fresh from a '1C' Check.
2. All Out of Phase maintenance, with the exception of certain time controlled components
as covered hereunder, shall be cleared for a period of 12 months/2000 cycles/1500 hours.
3. All time controlled items with a periodicity of 3000 cycles/3000 cycles/3000 hours or
less shall be delivered with not less than thirty percent life remaining.
4. Each of the engines shall have been tested and inspected as necessary to meet the
criteria for enrollment on the AlliedSignal's Engine Maintenance Cost Protection Plan
(EMCPP).
5. Each of the airframes shall have been tested and inspected as necessary to meet the
criteria for enrollment on the Avro Jetspares Programme.
- -----------------------------------------------------------------------------------------------------------------------------------
APPLICABILITY:
E2062, E2074, E2080, E2084, & E2087
- -----------------------------------------------------------------------------------------------------------------------------------
REMARKS/RESPONSE
- -----------------------------------------------------------------------------------------------------------------------------------
MOD.NOS: (Where applicable) SERVICE BULLETIN NOS: (Where applicable) STATUS:
ACCEPTED
- -----------------------------------------------------------------------------------------------------------------------------------
Approved on behalf Approved on behalf
of Business Support....../s/ N. P. Jennett of the Customer..................
-----------------
N.P. JENNETT
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This specification may be amended at any time without notice
<PAGE> 99
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ASSET MANAGEMENT ORGANIZATION Spec No. BS146/0060
No 1 Bishop Square, St. Albans Rd West. Page: 4 of 15
-----------------------------------------------------------------
Amendment: 2
Hatfield, Herts AL10 9NE
-----------------------------------------------------------------
AIRCRAFT REFURBISHMENT GROUP
Date: 12th September 1995
WORK PACKAGE SPECIFICATION CHANGES -----------------------------------------------------------------
CUSTOMER: ATLANTIC AIRCRAFT TYPE: 146 SERIAL NO: E2062, E2074
SOUTHEAST AIRLINES E2080, E2084 & E2087
- ----------------------------------------------------------------------------------------------------------------------------------
TITLE: AIRCRAFT CLEANING
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF CHANGE:
<S> <C>
1. The aircraft shall be deep cleaned throughout including flightdeck, cabin sidewalls,
luggage bins inside and out, PSU's, roof panels, and forward and rear vestibules.
2. All galley compartments and surfaces shall be cleaned thoroughly.
3. All cabin soft trim areas not affected by retrimming, shall be cleaned thoroughly.
4. All freight bays, under floor equipment bays and ECS bays shall be cleaned and clear of
FOD.
- -----------------------------------------------------------------------------------------------------------------------------------
APPLICABILITY:
E2062, E2074, E2080, E2084, & E2087
- -----------------------------------------------------------------------------------------------------------------------------------
REMARKS/RESPONSE
- -----------------------------------------------------------------------------------------------------------------------------------
MOD.NOS: (Where applicable) SERVICE BULLETIN NOS: (Where applicable) STATUS:
ACCEPTED
- -----------------------------------------------------------------------------------------------------------------------------------
Approved on behalf Approved on behalf
of Business Support....../s/ N. P. Jennett of the Customer..................
-----------------
N.P. JENNETT
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This specification may be amended at any time without notice
<PAGE> 100
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ASSET MANAGEMENT ORGANIZATION Spec No. BS146/0060
No 1 Bishop Square, St. Albans Rd West. Page: 5 of 15
-----------------------------------------------------------------
Amendment: 2
Hatfield, Herts AL10 9NE
-----------------------------------------------------------------
AIRCRAFT REFURBISHMENT GROUP
Date: 12th September 1995
WORK PACKAGE SPECIFICATION CHANGES -----------------------------------------------------------------
CUSTOMER: ATLANTIC AIRCRAFT TYPE: 146 SERIAL NO: E2062, E2074
SOUTHEAST AIRLINES E2080, E2084 & E2087
- ----------------------------------------------------------------------------------------------------------------------------------
TITLE: INTERIOR LAYOUT
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF CHANGE:
<S> <C>
1. The aircraft shall have an 88 seat 5 abreast configuration generally in accordance with
the attached sketch AMS 0055.
2. The seats are to be refurbished with new cushions, plastic trim materials and arm
cappings.
3. Seat covers to be ASA Furnished Equipment.
4. Seat row labeling to omit row 13.
- -----------------------------------------------------------------------------------------------------------------------------------
APPLICABILITY:
E2062, E2074, E2080, E2084, & E2087
- -----------------------------------------------------------------------------------------------------------------------------------
REMARKS/RESPONSE
- -----------------------------------------------------------------------------------------------------------------------------------
MOD.NOS: (Where applicable) SERVICE BULLETIN NOS: (Where applicable) STATUS:
ACCEPTED
- -----------------------------------------------------------------------------------------------------------------------------------
Approved on behalf Approved on behalf
of Business Support....../s/ N. P. Jennett of the Customer..................
-----------------
N.P. JENNETT
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This specification may be amended at any time without notice
<PAGE> 101
[PASSENGER CABIN LAYOUT GRAPHIC NOT REPRODUCEABLE]
<PAGE> 102
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ASSET MANAGEMENT ORGANIZATION Spec No. BS146/0060
No 1 Bishop Square, St. Albans Rd West. Page: 6 of 15
-----------------------------------------------------------------
Amendment: 2
Hatfield, Herts AL10 9NE
-----------------------------------------------------------------
AIRCRAFT REFURBISHMENT GROUP
Date: 12th September 1995
WORK PACKAGE SPECIFICATION CHANGES -----------------------------------------------------------------
CUSTOMER: ATLANTIC AIRCRAFT TYPE: 146 SERIAL NO: E2062, E2074
SOUTHEAST AIRLINES E2080, E2084 & E2087
- ----------------------------------------------------------------------------------------------------------------------------------
TITLE: STOWAGE AT 4R
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF CHANGE:
<S> <C>
1. The aircraft shall be equipped with a stowage at position 4R generally in accordance
with the attached sketch CES 04-0086.
- -----------------------------------------------------------------------------------------------------------------------------------
APPLICABILITY:
E2062, E2074, E2080, E2084, & E2087
- -----------------------------------------------------------------------------------------------------------------------------------
REMARKS/RESPONSE
- -----------------------------------------------------------------------------------------------------------------------------------
MOD.NOS: (Where applicable) SERVICE BULLETIN NOS: (Where applicable) STATUS:
ACCEPTED
- -----------------------------------------------------------------------------------------------------------------------------------
Approved on behalf Approved on behalf
of Business Support....../s/ N. P. Jennett of the Customer..................
-----------------
N.P. JENNETT
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This specification may be amended at any time without notice
<PAGE> 103
[Aircraft Stowage sketch not reproduceable]
<PAGE> 104
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ASSET MANAGEMENT ORGANIZATION Spec No. BS146/0060
No 1 Bishop Square, St. Albans Rd West. Page: 7 of 15
-----------------------------------------------------------------
Amendment: 2
Hatfield, Herts AL10 9NE
-----------------------------------------------------------------
AIRCRAFT REFURBISHMENT GROUP
Date: 12th September 1995
WORK PACKAGE SPECIFICATION CHANGES -----------------------------------------------------------------
CUSTOMER: ATLANTIC AIRCRAFT TYPE: 146 SERIAL NO: E2062, E2074
SOUTHEAST AIRLINES E2080, E2084 & E2087
- ----------------------------------------------------------------------------------------------------------------------------------
TITLE: INTERIOR DECOR
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF CHANGE:
<S> <C>
1. The cabin carpet shall be ASA Furnished Equipment...
2. The soft trim material for finishing dado panels and cabin bulkheads shall be ASA
Furnished Equipment. ASA have selected the Blue Tapis material currently fitted to
aircraft E2062 and E2074, and accept the material currently fitted to these two aircraft
as suitable for delivery. It is agreed that the additional Blue Tapis material required
to complete retrimming of all aircraft is to be procured by AMO and invoiced to ASA.
3. All cabin sidewall panels are to be painted in a neutral solid color to complement
existing overhead panel trim materials.
4. Vestibule and toilet floor covering shall be replaced with AMO supplied blue coindot
material. This material to replace any carpet in the rear vestibule area in any of the
aircraft.
5. Galley facings in aircraft E2080, E2084 and E2087 shall be painted grey to match the
existing trim in aircraft E2062 and E2074.
- -----------------------------------------------------------------------------------------------------------------------------------
APPLICABILITY:
E2062, E2074, E2080, E2084, & E2087
- -----------------------------------------------------------------------------------------------------------------------------------
REMARKS/RESPONSE
- -----------------------------------------------------------------------------------------------------------------------------------
MOD.NOS: (Where applicable) SERVICE BULLETIN NOS: (Where applicable) STATUS:
ACCEPTED
- -----------------------------------------------------------------------------------------------------------------------------------
Approved on behalf Approved on behalf
of Business Support....../s/ N. P. Jennett of the Customer..................
-----------------
N.P. JENNETT
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This specification may be amended at any time without notice
<PAGE> 105
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ASSET MANAGEMENT ORGANIZATION Spec No. BS146/0060
No 1 Bishop Square, St. Albans Rd West. Page: 8 of 15
-----------------------------------------------------------------
Amendment: 2
Hatfield, Herts AL10 9NE
-----------------------------------------------------------------
AIRCRAFT REFURBISHMENT GROUP
Date: 12th September 1995
WORK PACKAGE SPECIFICATION CHANGES -----------------------------------------------------------------
CUSTOMER: ATLANTIC AIRCRAFT TYPE: 146 SERIAL NO: E2062, E2074
SOUTHEAST AIRLINES E2080, E2084 & E2087
- ----------------------------------------------------------------------------------------------------------------------------------
TITLE: EMERGENCY EQUIPMENT
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF CHANGE:
<S> <C>
1. FAA approved Emergency Equipment shall be standardized to the items and locations shown
on drawing AMO-25-60-9509-15 a copy of which is attached.
2. ASA have elected to use smoke hoods (PBEs) not currently fitted to any of the aircraft.
It is agreed that AMO will procure the smoke hoods and invoice ASA for 50% of their
cost, based on ASA available pricing.
- -----------------------------------------------------------------------------------------------------------------------------------
APPLICABILITY:
E2062, E2074, E2080, E2084, & E2087
- -----------------------------------------------------------------------------------------------------------------------------------
REMARKS/RESPONSE
- -----------------------------------------------------------------------------------------------------------------------------------
MOD.NOS: (Where applicable) SERVICE BULLETIN NOS: (Where applicable) STATUS:
ACCEPTED
- -----------------------------------------------------------------------------------------------------------------------------------
Approved on behalf Approved on behalf
of Business Support....../s/ N. P. Jennett of the Customer..................
-----------------
N.P. JENNETT
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This specification may be amended at any time without notice
<PAGE> 106
[Emergency equipment drawings not reproduceable]
<PAGE> 107
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ASSET MANAGEMENT ORGANIZATION Spec No. BS146/0060
No 1 Bishop Square, St. Albans Rd West. Page: 9 of 15
-----------------------------------------------------------------
Amendment: 2
Hatfield, Herts AL10 9NE
-----------------------------------------------------------------
AIRCRAFT REFURBISHMENT GROUP
Date: 12th September 1995
WORK PACKAGE SPECIFICATION CHANGES -----------------------------------------------------------------
CUSTOMER: ATLANTIC AIRCRAFT TYPE: 146 SERIAL NO: E2062, E2074
SOUTHEAST AIRLINES E2080, E2084 & E2087
- ----------------------------------------------------------------------------------------------------------------------------------
TITLE: TCAS, MODES AND WINDSHEAR
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF CHANGE:
<S> <C>
1. Install a Collins Traffic alert and Collision Avoidance System and Mode S transponder.
Item Vendor Model Part No:
---- ------ ----- --------
TCAS Processor Collins TTR920 622-8971-020
TCAS IVSI Sextant 457400GA1311
Control Head Collins TTC920 622-9288-007
Transponder Collins TPR720 622-7878-201
Antenna Collins TRE920 622-8973-001
2. Install a Safeflight Windshear detection and recovery guidance system.
- -----------------------------------------------------------------------------------------------------------------------------------
APPLICABILITY:
E2062, E2074, E2080, E2084, & E2087
- -----------------------------------------------------------------------------------------------------------------------------------
REMARKS/RESPONSE
- -----------------------------------------------------------------------------------------------------------------------------------
MOD.NOS: (Where applicable) SERVICE BULLETIN NOS: (Where applicable) STATUS:
ACCEPTED
- -----------------------------------------------------------------------------------------------------------------------------------
Approved on behalf Approved on behalf
of Business Support....../s/ N. P. Jennett of the Customer..................
-----------------
N.P. JENNETT
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This specification may be amended at any time without notice
<PAGE> 108
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ASSET MANAGEMENT ORGANIZATION Spec No. BS146/0060
No 1 Bishop Square, St. Albans Rd West. Page:10 of 15
-----------------------------------------------------------------
Amendment: 2
Hatfield, Herts AL10 9NE
-----------------------------------------------------------------
AIRCRAFT REFURBISHMENT GROUP
Date: 12th September 1995
WORK PACKAGE SPECIFICATION CHANGES -----------------------------------------------------------------
CUSTOMER: ATLANTIC AIRCRAFT TYPE: 146 SERIAL NO: E2062, E2074
SOUTHEAST AIRLINES E2080, E2084 & E2087
- ----------------------------------------------------------------------------------------------------------------------------------
TITLE: ALLIEDSIGNAL GTCP 36-150 APU
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF CHANGE:
<S> <C>
1. Replace the existing AlliedSignal GTCP36-100M APU with AlliedSignal GTCP36-150M APU.
2. Any such replacement that cannot be completed before aircraft delivery is to be
accomplished on a retrofit basis to a mutually agreed programme. Said programme to
protect ASA's operating cost exposure to that equivalent to operating an all GTCP30-150M
fleet.
- -----------------------------------------------------------------------------------------------------------------------------------
APPLICABILITY:
E2062, E2074, E2080, E2084, & E2087
- -----------------------------------------------------------------------------------------------------------------------------------
REMARKS/RESPONSE
- -----------------------------------------------------------------------------------------------------------------------------------
MOD.NOS: (Where applicable) SERVICE BULLETIN NOS: (Where applicable) STATUS:
ACCEPTED
- -----------------------------------------------------------------------------------------------------------------------------------
Approved on behalf Approved on behalf
of Business Support....../s/ N. P. Jennett of the Customer..................
-----------------
N.P. JENNETT
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This specification may be amended at any time without notice
<PAGE> 109
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ASSET MANAGEMENT ORGANIZATION Spec No. BS146/0060
No 1 Bishop Square, St. Albans Rd West. Page:11 of 15
-----------------------------------------------------------------
Amendment: 2
Hatfield, Herts AL10 9NE
-----------------------------------------------------------------
AIRCRAFT REFURBISHMENT GROUP
Date: 12th September 1995
WORK PACKAGE SPECIFICATION CHANGES -----------------------------------------------------------------
CUSTOMER: ATLANTIC AIRCRAFT TYPE: 146 SERIAL NO: E2062, E2074
SOUTHEAST AIRLINES E2080, E2084 & E2087
- ----------------------------------------------------------------------------------------------------------------------------------
TITLE: BATTERIES
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF CHANGE:
<S> <C>
1. Aircraft battery installation shall be standardized to single Hawker Energy Products
sealed lead-acid.
- -----------------------------------------------------------------------------------------------------------------------------------
APPLICABILITY:
E2062, E2074, E2080, E2084, & E2087
- -----------------------------------------------------------------------------------------------------------------------------------
REMARKS/RESPONSE
- -----------------------------------------------------------------------------------------------------------------------------------
MOD.NOS: (Where applicable) SERVICE BULLETIN NOS: (Where applicable) STATUS:
ACCEPTED
- -----------------------------------------------------------------------------------------------------------------------------------
Approved on behalf Approved on behalf
of Business Support....../s/ N. P. Jennett of the Customer..................
-----------------
N.P. JENNETT
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This specification may be amended at any time without notice
<PAGE> 110
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ASSET MANAGEMENT ORGANIZATION Spec No. BS146/0060
No 1 Bishop Square, St. Albans Rd West. Page:12 of 15
-----------------------------------------------------------------
Amendment: 2
Hatfield, Herts AL10 9NE
-----------------------------------------------------------------
AIRCRAFT REFURBISHMENT GROUP
Date: 12th September 1995
WORK PACKAGE SPECIFICATION CHANGES -----------------------------------------------------------------
CUSTOMER: ATLANTIC AIRCRAFT TYPE: 146 SERIAL NO: E2062, E2074
SOUTHEAST AIRLINES E2080, E2084 & E2087
- ----------------------------------------------------------------------------------------------------------------------------------
TITLE: OPERATING WEIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF CHANGE:
<S> <C>
1. Aircraft operating weights to be standardized to the following limitations:
Maximum Ramp Weight 93,500 lbs
Maximum Take Off Weight 93,000 lbs
Maximum Landing Weight 81,000 lbs
Maximum Zero Fuel Weight 73,500 lbs
- -----------------------------------------------------------------------------------------------------------------------------------
APPLICABILITY:
E2062, E2074, E2080, E2084, & E2087
- -----------------------------------------------------------------------------------------------------------------------------------
REMARKS/RESPONSE
- -----------------------------------------------------------------------------------------------------------------------------------
MOD.NOS: (Where applicable) SERVICE BULLETIN NOS: (Where applicable) STATUS:
ACCEPTED
- -----------------------------------------------------------------------------------------------------------------------------------
Approved on behalf Approved on behalf
of Business Support....../s/ N. P. Jennett of the Customer..................
-----------------
N.P. JENNETT
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This specification may be amended at any time without notice
<PAGE> 111
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ASSET MANAGEMENT ORGANIZATION Spec No. BS146/0060
No 1 Bishop Square, St. Albans Rd West. Page:13 of 15
-----------------------------------------------------------------
Amendment: 2
Hatfield, Herts AL10 9NE
-----------------------------------------------------------------
AIRCRAFT REFURBISHMENT GROUP
Date: 12th September 1995
WORK PACKAGE SPECIFICATION CHANGES -----------------------------------------------------------------
CUSTOMER: ATLANTIC AIRCRAFT TYPE: 146 SERIAL NO: E2062, E2074
SOUTHEAST AIRLINES E2080, E2084 & E2087
- ----------------------------------------------------------------------------------------------------------------------------------
TITLE: APPROVED OIL PLACARDS
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF CHANGE:
<S> <C>
1. Exxon 2380 is to be placarded as the approved oil for engines, engine starters, IDGs,
APU and APU generator gearbox per Chapter 11 of the Aircraft Maintenance Manual.
- -----------------------------------------------------------------------------------------------------------------------------------
APPLICABILITY:
E2062, E2074, E2080, E2084, & E2087
- -----------------------------------------------------------------------------------------------------------------------------------
REMARKS/RESPONSE
- -----------------------------------------------------------------------------------------------------------------------------------
MOD.NOS: (Where applicable) SERVICE BULLETIN NOS: (Where applicable) STATUS:
ACCEPTED
- -----------------------------------------------------------------------------------------------------------------------------------
Approved on behalf Approved on behalf
of Business Support....../s/ N. P. Jennett of the Customer..................
-----------------
N.P. JENNETT
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This specification may be amended at any time without notice
<PAGE> 112
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ASSET MANAGEMENT ORGANIZATION Spec No. BS146/0060
No 1 Bishop Square, St. Albans Rd West. Page:14 of 15
-----------------------------------------------------------------
Amendment: 2
Hatfield, Herts AL10 9NE
-----------------------------------------------------------------
AIRCRAFT REFURBISHMENT GROUP
Date: 12th September 1995
WORK PACKAGE SPECIFICATION CHANGES -----------------------------------------------------------------
CUSTOMER: ATLANTIC AIRCRAFT TYPE: 146 SERIAL NO: E2062, E2074
SOUTHEAST AIRLINES E2080, E2084 & E2087
- ----------------------------------------------------------------------------------------------------------------------------------
TITLE: EXTERIOR LIVERY
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF CHANGE:
<S> <C>
1. The aircraft is to be painted in Atlantic Southeast Airlines livery in accordance with
drawing 0-11-B100-0972 at Issue 2, a reduced copy of which is attached.
- -----------------------------------------------------------------------------------------------------------------------------------
APPLICABILITY:
E2062, E2074, E2080, E2084, & E2087
- -----------------------------------------------------------------------------------------------------------------------------------
REMARKS/RESPONSE
- -----------------------------------------------------------------------------------------------------------------------------------
MOD.NOS: (Where applicable) SERVICE BULLETIN NOS: (Where applicable) STATUS:
ACCEPTED
- -----------------------------------------------------------------------------------------------------------------------------------
Approved on behalf Approved on behalf
of Business Support....../s/ N. P. Jennett of the Customer..................
-----------------
N.P. JENNETT
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This specification may be amended at any time without notice
<PAGE> 113
[PAINTING DRAWING NOT REPRODUCEABLE]
<PAGE> 114
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ASSET MANAGEMENT ORGANIZATION Spec No. BS146/0060
No 1 Bishop Square, St. Albans Rd West. Page:15 of 15
-----------------------------------------------------------------
Amendment: 2
Hatfield, Herts AL10 9NE
-----------------------------------------------------------------
AIRCRAFT REFURBISHMENT GROUP
Date: 12th September 1995
WORK PACKAGE SPECIFICATION CHANGES -----------------------------------------------------------------
CUSTOMER: ATLANTIC AIRCRAFT TYPE: 146 SERIAL NO: E2062, E2074
SOUTHEAST AIRLINES E2080, E2084 & E2087
- ----------------------------------------------------------------------------------------------------------------------------------
TITLE: MANUALS
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF CHANGE:
<S> <C>
1. Manuals to be supplied are as per the attached list ASAMANR1.
2. Manuals revisions are to be [*] for a period of [*] from initial
delivery.
- -----------------------------------------------------------------------------------------------------------------------------------
APPLICABILITY:
E2062, E2074, E2080, E2084, & E2087
- -----------------------------------------------------------------------------------------------------------------------------------
REMARKS/RESPONSE
- -----------------------------------------------------------------------------------------------------------------------------------
MOD.NOS: (Where applicable) SERVICE BULLETIN NOS: (Where applicable) STATUS:
ACCEPTED
- -----------------------------------------------------------------------------------------------------------------------------------
Approved on behalf Approved on behalf
of Business Support....../s/ N. P. Jennett of the Customer..................
-----------------
N.P. JENNETT
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This specification may be amended at any time without notice
<PAGE> 115
ASAMANR1.XLS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
MANUAL ASA FAA TOTAL YEARS FOC
- --------------------------------------------------------------------------------------------------------
QTY. QTY. QTY. REVISIONS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A/C MAINT. MANUAL 4 4 2
A/C CHARACTERISTICS FOR AIRPORT PLANNING 1 1 2
BAe PROCESS SPECS. 2
BAe MATERIALS SPECS. 2
BULK CONSUMABLES 2
COMPONENT MAINTENANCE MANUAL (AIRFRAME) 1 1 2
COMP. MAINT. STD. PRACTICES-CHAPTER 20 1 1 2
CORROSION CONTROL 2 2 2
DISPATCH DEV. GUIDE 3 1 4 2
ENGINEERING STANDARDS (ELECTRICAL) 2
FLIGHT MANUAL (SPECIMEN - E2087) 3 1 4 2
ILLUST. PARTS CATALOG (AIRFRAME) 5 5 2
ILLUST. TOOL AND EQUIP. MANUAL (INC. GSE) 1 1 2
MAINT. PLANNING DOCUMENT 1 1 2
MAINT. REVIEW BOARD DOCUMENT 1 1 2 2
MANUAL STATUS INDEX 1 1 2
MANUFACT. OPS. MANUAL VOL 1 3 3 2
MANUFACT. OPS. MANUAL VOL 2 3 3 2
MANUFACT. OPS. MANUAL VOL 3 (PT.1) 3 3 2
MANUFACT. OPS. MANUAL VOL 3 (PT.2) 8 8 2
MANUFACT. OPS. MANUAL VOL 3 (PT.3) 3 3 2
MANUFACT. OPS. MANUAL VOL 4 2 2 2
MASTER MINIMUM EQUIP. LIST 2
MOD./INSPECTION S/B INDEX (AIRFRAME) 1 1 2
NDT MANUAL 1 1 2
POWER PLANT BUILD MANUAL 4 4 2
RELEVANT SERVICE BULLETINS (AIRFRAME) 4 4 2
SCHEMATIC WIRING MANUALS 4 4 2
SERVICE INFO. LEAFLETS 2 2 2
SPEED CARDS (OPS. SUPPORT) 12 12 2
STRUCTURAL REPAIR MANUAL 4 4 2
TROUBLESHOOTING MANUAL 4 4 2
VENDOR INFO. MANUAL 1 1 2
VENDOR S/B INDEX 1 1 2
VENDOR MOD INDEX 1 1 2
WEIGHT & BALANCE MANUAL (SPECIMEN-E2087) 2 1 3 2
WIRING MANUAL 3 3 2
WIRING MANL. STANDARD PRACTICES 1 1 2
WORK CARDS 1 1 2
TOTALS
- --------------------------------------------------------------------------------------------------------
MANUALS TO BE SUPPLIED BY VENDORS:
MAINT. MANUAL (ENGINE) TBD TBD
COMPONENT MAINT. MANUAL (ENGINE) TBD
GSE MANUAL (ENGINES) TBD
ILLUST. PARTS CATALOG (ENGINES) TBD TBD
COMPONENT MAINT. MANUALS (VENDORS) TBD TBD
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 116
EXHIBIT C (III)
TO
ASA AGREEMENT TO LEASE
Delivery Condition
1. Fuselage, Windows and Doors
(a) The fuselage shall be free of major dents and abrasions, scab
patches, temporary repairs and loose or pulled rivets to
the extent that the same are outside the prescribed limits
as defined in the FAA approved BAe 146 Structural Repair
Manual ("Structural Repair Manual") and/or the FAA
approved BAe 146 Maintenance Manual ("Maintenance
Manual"). All repairs shall have proper documentation
with Structural Repair Manual references and/or
engineering repair drawings and test piece results, as
applicable, and shall have been carried out in accordance
with FAA requirements.
(b) Windows shall be fully serviceable and in accordance with the
aircraft Maintenance Manual limitations. Visibility
through windows shall meet aircraft Maintenance Manual
requirements.
(c) Doors shall be free moving, correctly rigged and be fitted
with serviceable seals.
2. Wings and Empennage
(a) All leading edges shall be free from damage and shall not have
any repairs outside the prescribed limits referred to in
the Structural Repair Manual and/or the Maintenance
Manual.
(b) All control surfaces shall be washed and clean.
(c) All unpainted cowlings and fairings shall be washed and clean.
(d) Wings shall be free of fuel leaks outside the limits set out
in the Maintenance Manual or other relevant documentation.
3. Interior
(a) Ceiling, sidewalls and bulkhead panels shall be clean and free
of cracks and stains and meet applicable FAA fire
resistance regulations.
(b) All floor coverings and seat covers provided by the Lessor, if
any, shall be in good condition, clean and stain free and
meet applicable FAA fire resistance regulations.
(c) All seats shall be serviceable and in good condition.
(d) All signs and decals shall be clean, secure and legible.
<PAGE> 117
(e) All calendar lifed emergency equipment shall have a minimum of
one year life remaining.
(f) Toilet and galley areas shall be clean and fully serviceable.
(g) Floor panels shall be in good condition, free of soft spots
and delamination.
(h) All passenger service units shall be free of cracks and in
good working condition.
(i) Floor coverings shall be effectively sealed in the galley,
toilet and airstairs area.
(j) Loose equipment, as inventoried, shall be complete and fully
certified.
4. Cockpit
(a) All decals shall be clean, secure and legible.
(b) All fairing panels shall be free of stains and cracks and
shall be clean and secure.
(c) Floor covering shall be clean and effectively sealed.
(d) Seat covers shall be in good condition, clean and shall
conform to applicable FAA fire resistance regulation.
(e) Seats shall be fully serviceable and in good condition.
5. Cargo Compartments
(a) All panels shall be in good condition and effectively sealed.
All repairs shall be permanent repairs, in accordance with
the Structural Repair Manual and Maintenance Manual.
(b) All nets shall be fully serviceable.
6. Landing Gear
The landing gear, brakes, wheels and landing gear bays shall be clean,
free from leaks and in good repair as necessary. All decals
shall be clear, secure and legible.
7. Corrosion
(a) The airframe shall have been treated for corrosion in
accordance with the Maintenance Manual and the Structural
Repair Manual and an approved prevention program shall be
in operation.
(b) Fuel tanks shall be free from contamination and corrosion and
shall have been treated in accordance with an approved
prevention program and a tank treatment program shall be
in operation in accordance with the Maintenance Manual.
<PAGE> 118
EXHIBIT D
TO
ASA AGREEMENT TO LEASE
Scheduled Offer Dates
Aircraft Date
-------- ----
First Aircraft October 15, 1995
Second Aircraft October 31, 1995
Third Aircraft November 15, 1995
Fourth Aircraft November 28, 1995
Fifth Aircraft January 15, 1996
<PAGE> 119
EXHIBIT E
TO
ASA AGREEMENT TO LEASE
Maintenance Contribution Rate Escalation Formulation
P = Po ([*] BW + [*] BM + [*] AW + [*] AM)
-- -- -- --
Bwo Bmo Awo Amo
where
P = Maintenance Contribution rate as varied
Po = Maintenance Contribution rate
BWo = the UK Earnings Index, averaged for 3 months up to and
including January 1, 1996
BW = the revised UK Earnings Index
BMo = the UK Materials Index, averaged for 3 months up to and
including January 1, 1996
BM = the revised UK Materials Index
AWo = the US Earnings Index, averaged for 3 months up to and
including January 1, 1996
AW = the revised US Labour Index
AMo = the US Materials Index, averaged for 3 months up to and
including January 1, 1996
AM = the revised US Materials Index
For the purpose of this formula the following definitions shall apply:
The UK Earning Index is the Index of "Average Earnings - All employees,
Manufacturing Industries", published in Table 5.1 of the United Kingdom
Government Department of Employment publication "Employment Gazette".
The UK Materials Index is the Index of "Materials and Fuels (Aerospace
Industry)", published in Table 3 (SIC 3640) of the United Kingdom Government
Department of Trade Industry publication "British Business".
The US Earnings Index is the Index of "Average Hourly Earnings, Aircraft and
Parts" as published in Table C2, (SIC 372, of the United States Department of
Labour publication "Employment and Earnings".
The US Materials Index is the Index of "Metals and meat Products" as published
in Table 6 (Code 10) of the United States Department of Labour publication
"Producer Prices and Prices Indexes".
<PAGE> 120
The revised index referred to above shall mean the average of the appropriate
index numbers for the three months up to and including the sixth month
preceding 1st January each year.
In the event of a radical revision in the structure of or discontinuance of any
of the Indices referred to above, British Aerospace and ASA shall mutually
select as a substitute for the revised or discontinued Index, a comparable
Index published by any other US or British Government agency or, if no such
Index shall be available, the comparable Index published by a major bank or
other financial institution or by a university or a recognized financial or
trade publication.
<PAGE> 121
EXHIBIT F-1
TO
ASA AGREEMENT TO LEASE
[*]
<PAGE> 122
EXHIBIT F-2
TO
ASA AGREEMENT TO LEASE
[*]
<PAGE> 123
EXHIBIT G-1
TO
ASA AGREEMENT TO LEASE
[*]
<PAGE> 124
EXHIBIT G-2
TO
ASA AGREEMENT TO LEASE
[*]
<PAGE> 125
EXHIBIT H
TO
ASA AGREEMENT TO LEASE
The following items of Operator Furnished Equipment shall be supplied by
ASA to AMO at Appleton, Wisconsin in the case of the first, second and fifth
Aircraft and Nashville, Tennessee in the case of the third and fourth Aircraft
by the dates set out below, for fitment to the Aircraft:
<TABLE>
<CAPTION>
DESCRIPTION QUANTITY DATE OF SUPPLY(1)
-----------
(per Aircraft)
--------------
<S> <C> <C>
ASA Standard Seat Covers 88 7 days
ASA Standard Soft Trim 60 sq. yds. Already supplied for first and
second Aircraft. 30 days for
third, fourth and fifth Aircraft.
ASA Standard Carpet Already received for all
Aircraft.
</TABLE>
ASA and AMO acknowledge and agree that all Galley Inserts shall be the sole
responsibility of ASA and are not required
to be fitted to the Aircraft prior to delivery.
- ----------------------------------
(1)Dates of Supply are quoted in days prior to the Offer Date of the relevant
Aircraft.
<PAGE> 126
EXHIBIT I
TO
ASA AGREEMENT TO LEASE
DELIVERY RECEIPT
Atlantic Southeast Airlines, Inc. under the Agreement to Lease Used
British Aerospace 146 Series 200 Aircraft dated as of October 2, 1995 with
British Aerospace Holdings, Inc., acting by and through its Asset Management
Organization, ("AMO"), hereby accepts and acknowledges receipt from AMO in
accordance with the terms and conditions of said Agreement to Lease, of one (1)
British Aerospace 146 Series 200 Aircraft, having Manufacturer's Serial Number
E2____ and United States Registration Number N _________, together with the
following installed thereon or attached thereto:
(i) four (4) Allied Signal ALF502R-5 engines bearing
Manufacturer's Serial Numbers LFO _______, LFO _______ _, LFO
________ and LFO __________, respectively; and
(ii) all other equipment or property as set forth in Appendix 1
hereto.
ATLANTIC SOUTHEAST AIRLINES, INC.
By:
------------------------------
Title:
---------------------------
Date:
----------------------------
Place of
Delivery:
------------------------
Fuel on Board at Time of Aircraft Delivery:
------------------------------
Attachments:
Appendix 1 (List of Loose Equipment )
Appendix 2 (Aircraft Audit)
Appendix 3 (Reservations List, if required)
<PAGE> 1
EXHIBIT 10(ad)
Confidential treatment has been applied for with
respect to certain provisions of this Exhibit, which
provisions have been omitted from this Exhibit,
marked with an asterisk (*) and filed separately with
the SEC.
<PAGE> 2
JETSPARES AGREEMENT
Dated as of October 2, 1995
BETWEEN
(1) BRITISH AEROSPACE HOLDINGS, INC.
AVRO INTERNATIONAL AEROSPACE DIVISION
AND
(2) ATLANTIC SOUTHEAST AIRLINES, INC.
<PAGE> 3
This Agreement is made as of the 2nd day of October, 1995.
BETWEEN
1) BRITISH AEROSPACE HOLDINGS, INC., a Delaware corporation, acting by
and through its Avro International Aerospace Division having its
principal place of business at 22070 Broderick Drive, Sterling,
Virginia 20166 ("Avro"); and
2) ATLANTIC SOUTHEAST AIRLINES, INC., a Georgia corporation, and having
its principal place of business at 100 Hartsfield Centre Parkway,
Suite 800, Atlanta, Georgia 30354-1356 ("ASA").
WHEREAS:
A. Concurrently with the execution of this Agreement, ASA has entered
into an Agreement to Lease Used British Aerospace 146 Series 200
Aircraft with British Aerospace Holdings, Inc. Asset Management
Organization (the "Agreement to Lease") whereby ASA will lease five
(5) previously operated British Aerospace 146 Series 200 Model
Aircraft (the "Applicable Aircraft") under a leasing arrangement
encompassing the terms and provisions of the Agreement to Lease and
five separate Sublease Agreements the form of which is attached as
Exhibit B to the Agreement to Lease (the "Subleases").
B. The Agreement to Lease and the Subleases are collectively referred to
herein as the "Sublease Agreements."
C. ASA has not previously operated the British Aerospace 146 Series 200
Model Aircraft in its commercial airline operations.
D. [*]
E. Avro has agreed to provide to ASA the Rotable Parts and other Supplied
Parts covered by this Agreement under the JetSpares program described
in this Agreement in support of the Applicable Aircraft to be operated
by ASA.
F. This Agreement sets out the terms and conditions upon which Avro shall
provide the Supplied Parts to ASA to cover the purposes identified in
Whereas Clause D. above.
<PAGE> 4
IT IS NOW THEREFORE AGREED as follows:
1. DEFINITIONS AND INTERPRETATIONS
1.1 Definitions
"Agreement" shall mean this Agreement as originally executed and as
varied, amended, supplemented or modified from time to time in a
writing signed by Avro and ASA.
"Applicable Aircraft" shall mean the 5 (five) BAe 146-200 Series
aircraft subleased by ASA under the Sublease Agreements with
manufacturer's serial numbers E2062, E2074, E2080, E2084 and E2087 so
long as any of these aircraft continue to be operated by ASA.
"Avro's Account" shall mean the account of Avro designated as "BAe
III," Account No. 8732071614 with Wachovia Bank of North Carolina,
Winston-Salem, North Carolina (ABA 053100494) or such other commercial
bank and/or account as Avro may from time to time notify to ASA in
writing.
"Avro Spares Price" shall mean the lowest price Avro shall provide the
various spares covered by this Agreement to its customers from time to
time.
"Business Banking Day" shall mean any day other than a Saturday,
Sunday or a day on which banks in the States of Georgia and North
Carolina are authorized or permitted to be closed.
"CAA" shall mean the Civil Aviation Authority of the United Kingdom
and any successor thereto.
"Commencement Date" shall mean the date that ASA takes delivery of the
first Applicable Aircraft.
"Default Rate" shall mean the lesser of the maximum rate permitted by
applicable Law and the rate per annum equal to [*]
percentage points plus the Prime Rate. For purposes of this
definition "Prime Rate" shall mean the rate from time to time
published in the Wall Street Journal under the caption "Money Rate" as
the prime rate.
"Dollars" and "$" shall each mean lawful currency of the United States
of America.
"Engines" shall mean the Allied Signal ALF502R5 powerplants as
standard fit for the Applicable Aircraft.
<PAGE> 5
"FAA" shall mean the Federal Aviation Administration of the United
States of America and any successor thereto.
"Flight Cycle" shall mean one take-off and landing of an Applicable
Aircraft.
"Flight Hour" shall mean each hour or part thereof elapsing from the
moment at which the wheels of an Applicable Aircraft leave the ground
on the take-off of the relevant Applicable Aircraft until the wheels
of the relevant Applicable Aircraft touch the ground on the next
landing of the relevant Applicable Aircraft. For the purpose of all
calculations under this Agreement measured in Flight Hours, such
hours, including fractions thereof measured in minutes, shall be
accumulated throughout each month.
"Force Majeure" shall mean acts of God or public enemy, civil war,
insurrection or riot, fire, flood, explosion, earthquake, accident,
epidemic, quarantine restriction, material change of Law or
regulation, unforeseeable governmental priority, strike or labor
dispute causing cessation, slowdown or interruption of work,
unforeseeable event adversely affecting equipment data and materials
from suppliers or any other unforeseeable event beyond the control of
a party to this Agreement which materially adversely affects the
party's ability to perform such party's obligations (other than the
payment of money) under this Agreement.
"Government Entity" shall mean (i) any national government, political
subdivision thereof, or local jurisdiction therein, (ii) any
instrumentality, board, commission, court or any agency of any thereof
and (iii) any association, organization or institution directly or
indirectly controlled by any of the above whose actions have the force
of Law.
"JetSpares Program" shall have the meaning set out in Clause 3.
"JetSpares Rate" shall have the meaning set out in Clause 3.12 hereof.
"Law" shall mean and includes (i) any common or customary law; (ii)
any statute, decree, constitution, judicial decision, legislation,
ordinance, regulation, order or other legislative measure of any
Government Entity; (iii) any present or future directive, regulation,
request or requirement (in each case, whether or not having the force
of law but, if not having the force of law, the compliance with which
is in accordance with the general practice of persons to whom such
directive, regulation, requirement or request is addressed); and (iv)
any treaty pact, compact, or other agreement to which any Governmental
Entity is a signatory or party.
"MRB Report" shall mean the CAA/FAA approved Maintenance Review Board
Report for the BAe 146 aircraft.
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<PAGE> 6
"MSG3" shall mean the Maintenance Steering Group process regulated by
the CAA/FAA which determines the minimum scheduled maintenance
requirements for the BAe 146 aircraft to be specified in the MRB
Report.
"On-site Stock" shall mean Avro owned Supplied Parts as listed in
Appendix 1 hereto, as same may be modified from time to time, which
form part of the JetSpares Program in accordance with Clause 3, which
shall be positioned at the On-site Store.
"On-site Store" shall have the meaning set out in Clause 5.3 hereof.
"Operator" shall mean any individual or organization that is
commercially operating a BAe 146 or an Avro RJ Avroliner series
aircraft.
"Replacement Rotable Part" shall mean a serviceable new or used
Rotable Part listed in Appendix 2 hereto as same may be modified from
time to time, with at least [*] percent of its useful life
remaining on any Rotable Parts, which under ASA's Maintenance Program
is time controlled, conforming to all FAA guidelines, including but
not limited to the provisions of Clause 3.4 hereof which Avro supplies
to ASA to replace an Unserviceable Rotable Part on the Applicable
Aircraft under the terms of this Agreement; provided, however, with
ASA's consent, a supplied time controlled Replacement Rotable Part may
have less than [*] percent of its useful life remaining provided
Avro in a commercially reasonable time provides a substitute
Replacement Rotable Part which comports with the [*] percent
requirement.
"Rotable Part" shall mean a BAe 146 airframe rotable part listed in
Appendix 2 hereto (excluding Engines and any part thereof) that is of
the type installed in or attached to the Applicable Aircraft as at any
time during the term of this Agreement.
"Spares Store" shall mean ASA's usual place of aircraft spares storage
or any other storage place agreed between ASA and Avro from time to
time.
"Sublessor" shall in respect of each of the Applicable Aircraft have
the meaning set out in the relevant Sublease.
"Supplied Parts" shall mean Replacement Rotable Parts and such ground
support equipment and QEC kits supplied to ASA by Avro under this
Agreement.
"Unserviceable Rotable Part" shall mean a Rotable Part that has become
unserviceable or requires overhaul whilst installed in or attached to
the Applicable Aircraft.
1.2 References in this Agreement to:
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<PAGE> 7
a) "Avro" includes an assignee of the same or any person to which
this Agreement may be novated pursuant to Clause 15 and "Avro"
and "ASA" includes any successor in title to either thereof;
and
b) Clauses are, unless otherwise specified, references to
clauses of this Agreement.
1.3 Clause headings are for ease of reference only and shall have no
contractual effect.
1.4 Where the context so admits, words imparting the singular number only
shall include the plural and vice versa and words imparting neuter
gender shall include the masculine or feminine gender.
2. DURATION
2.1 Avro's obligation to provide ASA with the JetSpares Program in
accordance with the terms hereof shall commence on the Commencement
Date and shall continue until:
a) the return and acceptance by the Sublessor of all of the
Applicable Aircraft by ASA in accordance with the Sublease
Agreements (without regard to any extensions); or
b) the Applicable Aircraft cease to be operated by ASA; or
c) termination of this Agreement pursuant to Clause 10
whichever shall occur earlier.
3. JETSPARES PROGRAM
The following services shall form the "JetSpares Program" provided by
this Agreement to ASA by Avro:
3.1 Avro shall provide and keep at the On-site Store the quantities of
Supplied Parts identified on Appendix 1 hereto. Avro shall supply
Replacement Rotable Parts to the On-site Store upon written notice
from ASA that a like Rotable Part is unserviceable. [*]
5
<PAGE> 8
[*]
3.2 In addition to supplying Replacement Rotable Parts necessary to
replenish the quantities of On-site stock at the On-site Store, Avro
shall supply Replacement Rotable Parts directly from approved
manufacturers or repair facilities or from its main parts depot
currently located in Sterling, Virginia or one or more remote parts
depot locations to replace any Unserviceable Rotable Part on any
Applicable Aircraft in accordance with the provisions of this
Agreement. The parties agree to modify Appendix 2, from time to time,
to include reference to a part installed on the Applicable Aircraft
which should be characterized as a Rotable Part but which has not been
previously identified as a Rotable Part on Appendix 2.
3.3 Avro shall use its best efforts to ensure the delivery to ASA at the
On-site Store of (i) the replenishment of On-site Stock in a non-AOG
condition within [*] , (ii) any Replacement
Rotable Part listed in Appendix 2 which is not part of the On-site
Stock in a non-AOG condition within [*]
, and (iii) any Replacement Rotable Part required in an AOG
condition [*] , after receipt of notice by
ASA of the need for any such Replacement Rotable Part under subclause
(i), (ii) or (iii) above. Avro acknowledges that the essence of the
procurement of Replacement Rotable Parts for ASA under this Agreement
shall be accomplished under an "advance exchange" whereby Avro shall
fulfill ASA's needs for any Replacement Rotable Part prior to receipt
of the replaced Unserviceable Rotable Part.
3.4 Avro shall determine the work required to repair and overhaul
Unserviceable Rotable Parts and shall pay the cost of the repair and
overhaul of Unserviceable Rotable Parts. Avro shall ensure that all
Rotable Parts being overhauled or repaired for delivery to ASA and all
other Rotable Parts delivered to ASA shall be in airworthy condition
at time of delivery and shall be manufactured, overhauled, or repaired
by an FAA approved manufacturer or repair facility with all
outstanding mandatory service bulletins incorporated therein. Avro
shall supply all necessary documentation to support the foregoing
including (i) for all Replacement Rotable Parts that have been
repaired or overhauled, Avro shall ensure that such Replacement
Rotable Part will bear a serviceable tag from an approved FAA repair
station and (ii) for all Replacement Rotable Parts that are new, Avro
shall ensure that such Replacement Rotable Part will be accompanied by
an appropriate Certificate of Conformance namely a JA Form One issued
by Avro. Additionally, with respect to the overhaul or repair of
Unserviceable Rotable Parts, Avro
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<PAGE> 9
shall ensure that all Strip Reports/Shop Findings are supplied to ASA
within thirty (30) days receipt of the Unserviceable Rotable Parts
from ASA in order that ASA can comply with applicable FAA approved
reliability program requirements. Avro shall maintain at all times
through the term of this Agreement a vendor audit program in
accordance with FAA guidelines which shall be auditable by ASA.
3.5 Avro shall deliver to ASA a written certificate that it accepts the
Applicable Aircraft for the JetSpares Program prior to ASA's
acceptance of such Aircraft under the applicable Sublease Agreements.
3.6 The ordering procedure covering the provision of Replacement Rotable
Parts by Avro to ASA, and the procedure covering the return of
Unserviceable Rotable Parts by ASA to Avro are specified in Appendix
4.
3.7 ASA shall, at its own expense, repair and overhaul (or replace if
necessary) in accordance with the FAA maintenance requirements any
Rotable Part which:
(a) is unserviceable as a result of ingestion, foreign object
damage, non-mandatory service bulletins implemented at the
election of ASA after the Commencement Date or repairs and
overhaul covered by non-mandatory service bulletins
implemented after the Commencement Date at the election and
under the direction of ASA;
(b) is unserviceable as a result of improper fault diagnosis
techniques, improper installation, loss, misuse, abuse,
neglect, and accidental damage but excluding corrosion and
erosion which is attributable to fair wear and tear;
(c) is unserviceable due to errors, failure or non compliance with
the BAe 146 maintenance procedures which are CAA/FAA approved
(as detailed in the relevant BAe 146 MRB Report of relevant
procedures or) on the part of ASA or any of its affiliates or
its representatives or contractors or third parties carrying
out repairs or overhaul work at the direction of ASA or any of
its affiliates;
(d) is lost, or damaged due to inadequate packaging or while in
transit between ASA and Avro in Sterling, Virginia;
(e) has not been acquired from or obtained from Avro as part of
the JetSpares Programme and/or purchased from Avro,
[*]
;
provided always that should Avro agree to assume responsibility for
procuring the repair, overhaul or replacement of an Unserviceable
Rotable Part which has become
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<PAGE> 10
unserviceable as a result of the circumstances set forth in this
Clause 3.7 then ASA shall be liable to Avro for the reasonable and
customary costs of repair, overhaul or replacement.
3.8 ASA shall upon removal of the relevant Unserviceable Rotable Part
notify Avro in writing and shall return the Unserviceable Rotable Part
to Avro within ten (10) Business Banking Days. In the event of
persistent late returns by ASA to Avro, Avro shall notify ASA of this
problem and ASA shall have a commercially reasonable period of time to
remedy the problem. If the problem is not remedied by ASA, then Avro
may levy a late return fee to ASA. [*]
3.9 Such costs associated with the transportation of Rotable Parts
supplied to or returned by ASA under the terms of this Agreement
between ASA's facilities and Sterling, Virginia shall be borne by ASA
and are excluded from the JetSpares Rate. All additional
transportation costs and fees, including import duties, taxes and fees
involved in the supply to or return of Rotable Parts under this
Agreement [*]
. If required, ASA shall assist Avro
in obtaining all necessary customs clearance documents for the
importation of such Rotable Parts into the United States of America.
3.10 Except as necessary to meet the return provisions under the Sublease
Agreements, ASA shall ensure that Rotable Parts with specific overhaul
interval or life limits shall only be removed while in service at such
time as not less than [*] percent of the BAe 146 MRB
component limits or other life limits imposed by the FAA have been
accrued on such Rotable Parts unless specific dispensation is given in
writing by Avro.
3.11 Where a Rotable Part is returned to Avro by ASA as an Unserviceable
Rotable Part and such Rotable Part is sent for repair and overhaul and
found to be "without faults" by an independent repair agency or vendor
reasonably acceptable to ASA then ASA shall pay the costs including
all vendor charges and Avro's costs of handling (approximately [*]
per transaction), and transport arising therefrom [*]
In the event of repetitive
"without faults" on the same Rotable Part which is then subsequently
found to have a fault, Avro shall use reasonable endeavors to obtain
from the appropriate vendor a credit for previous "without faults"
vendor charges and Avro's charges for handling, and transport in
respect of the relevant Rotable Part, subject to the provision of
evidence by ASA, demonstrating such repetitive "without faults."
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<PAGE> 11
3.12 The JetSpares Rate shall be the rate specified as such in Appendix 3.
3.13 ASA shall advise Avro of the monthly utilization of the Applicable
Aircraft no later than the fifteenth (15th) day of each month for the
previous month's utilization. This shall be written and communicated
either by facsimile, telex, mail or SITA to Avro.
3.14 By the sixteenth (16th) day of each month ASA shall remit to Avro's
Account the applicable JetSpares Rate and Avro shall in turn provide
ASA with an "advice only" invoice for the amount received.
3.15 The JetSpares Rate specified in Clause 3.9 does not include the
following:
(a) All costs and expenses incurred as a result of removal of
Unserviceable Rotable Part from or reinstallation of
Replacement Rotable Parts in Applicable Aircraft including
direct or indirect labor, overheads and associated expendable
and consumable materials.
(b) All Engine and Engine related parts including life limited
parts, hot section inspection and unscheduled shop visits.
(c) All ongoing expendables, repairables, consumables,
ground support equipment and test equipment.
(d) All expenses associated with and including the removal, repair
and replacement of wheels, tires and brakes.
(e) Any and all costs and expenses relating to the undercarriage
or flying control surfaces of each Applicable Aircraft.
3.16 ASA shall purchase from Avro all expendable and consumable items
normally supplied by Avro to other customers which are not covered by
the JetSpares Program [*].
3.17 [*]
3.18 The JetSpares Rate shall be subject to escalation from January 1, 1996
in accordance with the formula (the "Escalation Formula") specified in
Appendix 3. [*]
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<PAGE> 12
[*]
4. REPORTING PROCEDURE
ASA shall provide to Avro at the address provided in Clause 5.4, on a
weekly basis a written report containing information regarding the
part numbers and serial numbers of any Unserviceable Rotable Part
removed from any of the Applicable Aircraft together with the part
numbers and serial numbers for any corresponding Replacement Rotable
Part fitted and such other relevant information as Avro may reasonably
require in relation to this Agreement.
5. PROVISION OF ON-SITE STOCK AND AIR CARRIER CERTIFICATION
5.1 Avro shall use its best effort to provide to ASA the On-site Stock
concurrently with the delivery of the first Applicable Aircraft.
5.2 ASA agrees to maintain the On-site Stock and provide adequate storage
for the On-site Stock at the Spares Store and to undertake
responsibilities in respect of the On-site Stock as hereinafter
defined. Such storage areas within the Spares Store in this Agreement
shall be referred to as the "On-site Store."
5.3 The On-site Store shall be located, and unless otherwise agreed by
Avro in writing, remain at the Spares Store at one of the following
addresses:
Atlantic Southeast Airlines Maintenance Facility
Middle Georgia Regional Airport
P.O. Box 10216
Macon, Georgia 31297-0216
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<PAGE> 13
Hartsfield Atlanta International Airport
Atlantic Southeast Airlines, Inc.
Concourse D
Atlanta, Georgia 30354
5.4 Upon receipt of each Rotable Part, ASA shall inspect such part and
either accept or reject such part in writing, the form of which to be
mutually agreeable, to Avro as follows:
Director - Spares Operations
British Aerospace Holdings, Inc.
Avro International Aerospace Division
22070 Broderick Drive
Sterling, Virginia 20166
5.5 ASA certifies that it is an air carrier holding certificates issued
under Sections 41102(a) and 44705 of Title 49 of the United States
Code.
6. STORAGE AND HANDLING
6.1 ASA shall store and maintain the On-site Stock in the On-site Store at
no charge to Avro.
6.2 The On-site Store shall be a suitably secure, segregated area,
reasonably approved by Avro which shall be clearly posted as
containing BAe 146 aircraft spares and spare parts as follows:
Property of -
British Aerospace Holdings, Inc.
Avro International Aerospace Division
22070 Broderick Drive
Sterling, Virginia 20166
6.3 The On-site Stock and any other parts supplied by Avro under this
agreement shall not be mingled with spare parts or other property not
owned by Avro and shall not be removed from the On-site Store unless
or until;
(a) Dispatched at ASA's request to replace an Unserviceable
Rotable Part from an Applicable Aircraft;
(b) For modifications, changes, rework pursuant to Clause 7 of
this Agreement; or
(c) With ASA's prior permission obtained, to Avro in support of an
operator other than ASA.
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<PAGE> 14
6.4 The On-site Stock shall at all times be stored and maintained by ASA
in a commercially reasonable manner to prevent damage or deterioration
and in accordance with FAA Regulations.
6.5 Avro shall not have any liability or responsibility for costs or
expenses of whatever nature and howsoever arising in connection with
the On-site Store or other premises owned or operated by ASA,
including without limitation the initial transportation of the On-site
Stock from Sterling, Virginia to the On-site Store and operation or
maintenance of the On-site Store.
6.6 ASA shall at Avro's request execute and deliver to Avro UCC-1
financing statements (and continuations thereof) with respect to the
On-site Stock naming AVRO as consignor and ASA as consignee for filing
in such places as is appropriate in order to protect Avro's ownership
interest in the On-site Stock and two (2) copies of this Agreement for
filing recordation with the FAA.
7. MODIFICATIONS, CHANGES AND REWORK
7.1 Avro shall be responsible for the prompt incorporation in the On-site
Stock of any modifications, changes and rework which either results
from a mandatory requirement of the FAA or the manufacturer, or as may
be required by Avro and which become effective during the term of the
Agreement.
7.2 ASA may, at its discretion, at the request of Avro incorporate any
modifications, changes and rework pursuant to Clause 7.1 above that
are within ASA's capability provided that Avro pays for any reasonable
costs incurred by ASA, in carrying out such modifications, changes or
rework.
7.3 Modification kits required for the said modifications, changes and
rework and any special jigs or tooling as may have been furnished by
Avro for ASA's use shall, at Avro's request, be returned to Avro. Any
reasonable costs incurred by ASA in returning the special jigs or
tooling to Avro shall be reimbursed to ASA by Avro.
8. ADMINISTRATION
8.1 ASA shall maintain and preserve in respect of the On-site Stock such
records as may be mutually agreed by the parties.
8.2 Upon giving prior written notice to ASA, Avro or its agent shall have
the right to inspect the On-site Stock and to audit any records
relating thereto at any reasonable time.
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<PAGE> 15
8.3 At such times as is mutually agreeable by the parties, and upon prior
written notification from Avro, Avro or its agent (reasonably
acceptable to ASA) shall have the right to audit, inspect Applicable
Aircraft logbooks for rectification of monthly utilizations at any
reasonable time.
9. WARRANTIES FROM VENDORS
ASA shall cooperate with Avro in a commercially reasonable manner so
that the benefit of all available warranties, if any, relating to
Rotable Parts insofar as the same are held by ASA shall be assigned to
Avro or should assignment not be possible are enforced by ASA on
behalf of Avro. This Clause 9 does not apply to any components of the
wheels, tires or brakes fitted to the Applicable Aircraft nor to any
other part of the Applicable Aircraft not included in the JetSpares
Program.
10. TERMINATION OF THE AGREEMENT AND RETURN OF THE ON-SITE STOCK TO AVRO
10.1 At such time as ASA has returned all of the Applicable Aircraft to the
Sublessor then this Agreement shall automatically terminate.
10.2 Either party shall be entitled forthwith to terminate this Agreement
by written notice to the other if:
10.2.1 that other party commits a breach of any material provision of
this Agreement and such breach is not cured within fifteen
(15) days from the date of written notice of such breach from
the nondefaulting party to the defaulting party;
10.2.2 that other party (i) begins or consents in any manner to any
proceeding or arrangement for its liquidation in whole or in
part or any other proceeding or arrangement whereby its
properties or revenues are subject generally to the payment of
its liabilities or whereby any receiver, trustee, liquidator,
or the like is appointed for it or any substantial part of its
properties or revenues, (ii) fails to obtain the dismissal or
stay on appeal of any such proceeding or arrangement with 60
(sixty) days of the commencement thereof against it or (iii)
begins any other procedure for the relief of financially
distressed debtors, or such procedure has been commenced
against it, voluntarily or involuntarily; or
10.2.3 that other party ceases to carry on its business.
10.3 Expiration or termination of this Agreement shall not affect any
obligations set down in Clause 8 and 13 or any other obligations of
the parties which by their nature are implicitly
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<PAGE> 16
intended to survive any expiration or termination and all such
obligations shall survive any expiration or termination.
10.4 At the termination of this Agreement other than as a result of a
default by Avro, at Avro's request and ASA's expense, ASA shall return
to Avro the On-Site Stock, complete with all necessary documentation,
including repackaging the On-site Stock into any reusable containers
used in delivery of the On-site Stock, to Avro in Sterling, Virginia,
or such other location mutually agreeable to the parties. Avro shall
be entitled to inspect all of the On-site Stock to determine that it
is complete and in the same or substantially the same condition and
quality as at the time of its original delivery to ASA, natural wear
and tear excepted. In the event that such inspection reveals a
material disparity in the said condition or quality, Avro shall notify
ASA in writing and ASA shall at its cost carry out such remedial
action as is commercially reasonably necessary.
10.5 After termination of this Agreement, should ASA with Avro's written
agreement retain any of the On-site Stock for any reason Avro shall be
entitled to charge normal line and usage charges for the relevant
On-site Stock until such time as they arrive back at Avro's premises
in Sterling, Virginia and invoice ASA accordingly. Payment of such
invoice shall be due in accordance with current Avro Spares Price
Book.
11. PAYMENT TERMS
11.1 All amounts payable by ASA under this Agreement shall be paid in same
day funds for value on the due date by wire transfer by noon
(Sterling, Virginia time) to Avro's Account.
11.2 [*]
11.3 If any amount payable by ASA under this Agreement is not paid or
discharged on or before ten (10) days after the due date for payment,
ASA shall pay to Avro interest (after as well as before judgement) on
such amount, at the Default Rate from and including the due date for
payment to the date of payment in full. Such interest shall accrue on
a day to day basis and be compounded on a per monthly basis. All
amounts of interest payable hereunder shall be calculated on the basis
of the actual number of days elapsed and a 365 day year.
11.4 If any payment hereunder would otherwise be due on a day which is not
a Business Banking Day it shall be due on the following Business
Banking Day.
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12. [*]
13. TITLE TO PROPERTY AND RISK OF LOSS OR PHYSICAL DAMAGE
13.1 Title to all Supplied Parts shall at all times remain with Avro until
such time as such Replacement Rotable Part or QEC kit is fitted to the
Applicable Aircraft whereupon title to the Unserviceable Rotable Part
or QEC kit removed from the Applicable Aircraft passes to Avro and
title to the Replacement Rotable Part passes to the owner of the
Applicable Aircraft.
13.2 Save as provided in Clause 13.1 hereof, ASA shall not, without Avro's
prior written consent, sell, assign, lease, transfer possession or in
any way dispose of any On-site Stock nor permit any lien or
encumbrance to be imposed upon the On-site Stock or any part thereof.
13.3 From the time of receipt of On-site Stock at the On-site Store until
the time On-site Stock is returned to Avro, ASA shall bear all risk of
loss or physical damage to such On-site Stock. ASA shall promptly
notify Avro and reimburse Avro for, any loss of or damage to On-site
Stock while such On-site Stock is located at the On-site Store.
13.4 ASA shall at its own expense procure and maintain third party
liability and loss and physical damage insurance policies covering all
of the On-site Stock for, in the case of loss and physical damage
insurance, the full replacement value as contained in the Avro Spares
Price Book current at that time, and shall furnish Avro with copies of
such certificates of insurance.
13.5 ASA's insurance policies shall be effective from the time of receipt
of the On-site Stock at the On-site Store and remain in full force and
effect until such time as the On-site Stock is returned in full to
Avro.
13.6 Such Certificates of insurance shall name Avro as an additional named
insured on all property damage and general liability policies.
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13.7 In the event of loss ASA shall co-operate fully with Avro to ensure
payment is made to Avro or to ASA for payment to Avro of any insurance
proceeds with respect to the On-site Stock. Any claim for loss of or
physical damage to any of the On-site Stock not fully covered by ASA's
insurance arrangements shall be reimbursed to Avro by ASA.
14. TAXES AND LICENSES
The fees, charges and other amounts payable by ASA under this
Agreement exclusive of any sales or use tax or similar tax which may
from time to time be payable in respect thereof. If any such taxes
are or become payable, the relevant fees, charges and other amounts
shall be increased by an amount equal to the amount of taxes so
payable.
15. ASSIGNMENT
This Agreement shall inure to the benefit of and be binding upon each
of the parties hereto and their respective successors and assignees
but neither the rights nor the duties of either party may be
voluntarily assigned in whole or in part by either party without the
prior written consent of the other party (which consent shall not be
unreasonably withheld or delayed), [*]
16. ALTERATIONS TO THE AGREEMENT
No alterations of the terms of this Agreement shall be effective
unless contained in a written document signed by authorized
representatives of both parties.
17. NOTICES
All notices relating to this Agreement shall be in writing and in
English and shall not be effective unless given by personal delivery,
mail or facsimile transmission to the respective addresses stated
below in this Clause 17 or to such other address as the recipient may
have notified to the other party in writing and in the case of mailing
any such notice shall be deemed duly served at the expiration of three
(3) Business Banking Days after the time of mailing and in the case of
personal delivery or facsimile transmission on the date of delivery or
transmission.
16
<PAGE> 19
Avro: Avro International Aerospace Division,
British Aerospace Holdings, Inc.
22070 Broderick Drive
Sterling, Virginia 20166
Attention: Manager - Customer Support
Facsimile: (703) 406-1494
ASA; Atlantic Southeast Airlines, Inc.
100 Hartsfield Centre Parkway
Suite 800
Atlanta, Georgia 30354-1356
Attention: Ronald V. Sapp
Facsimile: (404) 209-0162
18. CONFIDENTIALITY
The parties acknowledge that the terms and conditions of this
Agreement and the commercial and financial arrangements evidenced by
this Agreement are considered as confidential information.
Accordingly, they agree that they shall treat such information as
confidential and will not without prior written consent of each other
disclose such information to any person except to professional
advisors or as may be required by an applicable Law (including
specifically SEC reporting requirements applicable to ASA) or court or
tribunal. In connection with any such disclosure, either party, shall
request, and use reasonable endeavors to obtain, confidential
treatment of such information.
19. FORCE MAJEURE
In the event that any party is prevented from carrying out any of its
obligations hereunder by reason of Force Majeure then such party shall
not be deemed in breach of those obligations and the performance of
those obligations shall be deferred as necessary but in no event by a
period or periods more than the delay caused by the event of Force
Majeure.
20. LIMITATION OF LIABILITY
20.1 ALL REPLACEMENT ROTABLE PARTS SUPPLIED TO ASA BY AVRO SHALL BE OF
MERCHANTABLE AIRWORTHY QUALITY. EXCEPT AS PROVIDED IN THE FOREGOING
FIRST SENTENCE OR AS OTHERWISE PROVIDED HEREIN AVRO MAKES NO
REPRESENTATION OR WARRANTY TO ASA, EXPRESS OR
17
<PAGE> 20
IMPLIED, WITH RESPECT TO ANY ROTABLE PART OR ANY SERVICE, MANUAL OR
EQUIPMENT PROVIDED TO ASA HEREUNDER, INCLUDING WITHOUT LIMITATION, ANY
ADDITIONAL WARRANTY OF MERCHANTABILITY OR THE FITNESS OF ANY PART FOR
ANY PARTICULAR PURPOSE AND ASA ACKNOWLEDGES AND AGREES TO THE SAME AND
HEREBY WAIVES, RELEASES AND RENOUNCES ALL SUCH OTHER WARRANTIES,
GUARANTIES OBLIGATIONS, RIGHTS AND REMEDIES AGAINST AVRO (IN TORT,
CONTRACT OR OTHERWISE), EXPRESS OR IMPLIED, ARISING BY LAW OR
OTHERWISE, INCLUDING, BUT NOT LIMITED TO, STRICT LIABILITY IN TORT,
NEGLIGENCE, ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE,
DEALING OR USAGE OF TRADE, AND ANY IMPLIED WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE; [*]
20.2 ASA ACKNOWLEDGES AND AGREES THAT NEITHER AVRO NOR ITS RESPECTIVE
OFFICERS OR EMPLOYEES SHALL IN ANY EVENT BE LIABLE TO ASA PURSUANT TO
THIS AGREEMENT OR WITH RESPECT TO ANY ROTABLE PART OR ANY SERVICE,
MANUAL OR EQUIPMENT PROVIDED TO ASA HEREUNDER FOR SPECIAL, INCIDENTAL
OR CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION, LOSS OF USE OF
ANY AIRCRAFT, LOSS OF REVENUES, LOSS OF PROFIT; PROVIDED, HOWEVER,
THAT NOTHING CONTAINED HEREIN SHALL CONSTITUTE A WAIVER OF ANY
OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OR DAMAGE
RESULTING FROM THE WILLFUL MISCONDUCT OF AVRO OR ITS RESPECTIVE
OFFICERS OR EMPLOYEES.
21. ENTIRE AGREEMENT
This Agreement represents the entire agreement and understanding
between Avro and ASA in relation to the subject matter hereof and
supersedes all previous agreements and understandings (whether written
or oral) in relation to the same.
22. APPLICABLE LAW
22.1 This Agreement shall in all aspects be governed by, and construed in
accordance with, the laws of the [*] (without regard to the
conflict of laws provisions of the [*] , including all
matters of construction, validity and performance, and shall be
18
<PAGE> 21
deemed delivered in the [*] . This Agreement
shall be effective for all purposes as of the date first above
written.
22.2 Any judicial proceedings brought against either party with respect to
this Agreement may be brought in any Federal or state court of
competent jurisdiction sitting in the [*]
and, by execution and delivery of this Agreement each party (i)
accepts, generally and unconditionally, the nonexclusive jurisdiction
of such courts and any related appellate court, and irrevocably agrees
to be bound by any judgement rendered thereby in connection with this
Agreement, (ii) irrevocably waives any objection it may now or
hereafter have as to the venue of any such suit, action or proceeding
brought in a court located in the [*] of that such
court is an inconvenient forum and (iii) irrevocably waives
personal service of process and consents that service of process upon
it may be made by certified or registered mail return receipt
requested, at its address specified or determined in accordance with
Clause 17, and service so made shall be deemed completed on the
earlier of (1) actual receipt thereof or (2) the third (3rd) Business
Banking Day after such service is deposited in the mail. Nothing
herein shall affect the right to serve process in any manner permitted
by Law or shall limit the right of any party to bring any proceedings
against the other in the courts of any other jurisdiction.
22.3 Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
19
<PAGE> 22
IN WITNESS whereof the parties have executed this Agreement the day and year
first herein written.
Signed on behalf of
BRITISH AEROSPACE HOLDINGS, INC.
By: /s/ Louis E. Emery
-----------------------------------
Its: Vice President - The Americas
----------------------------------
Signed on behalf of
ATLANTIC SOUTHEAST AIRLINES, INC.
By: /s/ George F. Pickett, Jr.
-----------------------------------
Its: Chairman
----------------------------------
20
<PAGE> 23
APPENDIX 1
[*]
21
<PAGE> 24
APPENDIX 2
ROTABLES CONTAINED IN JETSPARES POOL
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
======================================================================================================
<S> <C> <C> <C> <C> <C>
0101KPR1 Fuel Preselector (KGS) K5294 28.2124 1
0101KPR2 Fuel Preselector (LBS) K5294 28.2124 1 Alt
0101KPU2 Fuel Processor, Main K5294 28.4124 3
0102KPU2 Fuel Processor , Collector K5294 28.4121 2
066-01127-1101 Transponder Mode-S TRA-67A 22373 34.5215 2 Opt
066-50000-0102 TCAS Computer TPA-61A 22373 34.4413 1 Opt
071-50001-8102 Mode-S Antenna ANT-81A 22373 34.5000 2 Opt
0733040 Water Drain Valve, Wing U1918 28.1127 8
0733050 Water Drain Valve, Wing U1918 28.1124 2
0826KEL03-143 Computer K5294 31.3110 1 Repl
0826KEL03-144 Computer K5294 31.3110 1 Repl
0826KEL03-146 Computer K5294 31.3110 1 Repl
0826KEL03-147 Computer K5294 31.3110 1 Repl
0826KEL04-146 Engine Life Computer Kg K5294 31.3110 1 Opt
0826KEL04-147 Engine Life Computer LBS K5294 31.3110 1 Opt
10050-4-4A2220 GNS500 Computer, SRS4 51752 34.5620 1 Opt
10060 Press Switch Avionics K0100 21.2214 1
10061 Press Switch Q Feel K0100 27.2119 2
10063 Press Switch Cabin Altitude K0100 21.3027 1
101-17 Heated Water Drain Mast K5912 30.7111 2
10124 Altitude Switch, APU K0100 34.1131 1
10125 Altitude Switch, Engine K0100 34.1133 1
10164 Airspeed SW 160KTS, Q Limiter K0100 27.2123 1 Repl
10181 Airspeed Switch K0100 32.6001 1 Alt
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
=====================================================================================================
<S> <C> <C> <C> <C> <C>
10224-1 HYD Pressure Transmitter K0100 29.3114 6
102EL2BH TAT (True Air Temp) Sensor K5459 34.1217 2
102LAA2 YAW Actuator K5294 22.1314 2
104273007 Valve K0654 32.5003 1
104275001 MLG Uplock Jack K0654 32.3113 4
104624001 Assistor Jack, MLG K0654 32.3411 2
104625003 Jack, Downlock LH K0654 32.1019 2
104625004 Jack Downlock RH K0654 32.1019 2
104626002 NLG Retraction Jack K0654 32.3211 1
104627003 Jack, Oleo Lock K0654 32.3114 2
104628003 Main Landing Gear Jack K0654 32.3121 2
104733003 Valve Shut Off K0654 32.3214 1
10600-2-211 GNS 500 Optional Equip Unit 51752 34.5605 1 Opt
110RAA2 Servo Motor, Auto Pilot K5294 22.1029 3
110RAA3 Servo Motor, Pitch, not 100/200 K5294 22.1029 1 Alt
110RAA4 Servo Motor Auto Pilot, not 100/200 K5294 22.1029 1 Alt
114-054 Ammeter DC, TRU K0100 24.3311 2
114-056 Ammeter AC, ENG/APU GEN K0100 24.2517 3
114-058 Fuel Temp Indicator K0100 28.4511 1
114-059 Duct Temp Indicator K0100 21.6014 2
114-060 Disch V Indicator K0100 21.3021 2 Alt
114-062 Ammeter, Battery K0100 24.3314 1
114-158 Roll Spoiler Indicator K0100 27.6227 2
115-024 Cabin Temp Indicator K0100 21.6017 1
115-026 Hyd Press Indicator K0100 29.3111 2
115-033 Voltmeter DC K0100 24.3317 1
115-035 Frequency Meter K0100 24.2511 1
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
======================================================================================================
<S> <C> <C> <C> <C> <C>
115-221 HYD Contents Indicator K0100 29.3201 2
115-250 Voltmeter AC K0100 24.2514 1
11555-6 GNS 500 Display Unit, SRS 4 51752 34.5613 1 Opt
11-5900-5 Printed Circuit Board OBYW8 25.0000 32
124-152-3 Oil Press/Temp Indicator K0100 31.1303 4 Opt
124-181-1 Twin Brake Press Indicator K0100 32.4134 2
124-183 Oat Indicator K0100 34.1611 1
124-593-2 Flap Indicator K0100 27.5067 1
124-620-1 APU EGT Indicator, -100M K0100 49.7011 1 Alt
1295R000 Aileron Disconnect Unit U1605 27.1134 1
1344D000 Cold Air Unit U1605 21.5014 2
150706002 Selector, Airstairs K0654 52.6111 1
160052-1 IDG Panel, Oil Cooler 70210 24.1114 4
1703-12 Airflow Angle Sensor 83326 27.3337 2
183661 Motor, Wscreen Wipe LH U1607 30.4224 1 Repl
183662 Motor, Wscreen Wipe RH U1607 30.4224 1 Repl
185-102-1 Oil Temp/Qty/Press Indicator K0100 31.1301 4
189810 Trim Jack Rudder U1607 27.0000 1
19100-0101 Global Positioning System Unit 51752 1 Opt
1U453-001 VHF Comm Controller 86887 23.1105 2 Repl
1U453-002 VHF Comm Controller PRE Ph2 86887 23.1105 2
1U454-001 VHF NAV Controller 86887 34.5505 1 Alt
1U456-001 ADF Controller, Single Sys 86887 34.5353 1 Opt
1U457-001 ADF Controller, Dual System 86887 34.5323 1
1U458-001 ATC Controller, Mode A-C 86887 34.5203 1 Alt
1U459-001 HF Comms Controller 628T-1 86887 23.1215 2 Opt
1U460-001 Audio Selector 86887 23.5113 3 Alt
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
======================================================================================================
<S> <C> <C> <C> <C> <C>
1U461-001 NAV Controller with DME tuning 86887 34.5105 2 Opt
1U462-001 DME Controller 86887 34.5105 2 Opt
1U471-001 Audio Selector 86887 23.5113 3
1V20161 Autopilot Disengage Unit K0400 22.1041 1 Opt
200102 Inverter, Static 07181 24.2414 1
200662002 Differential Box, NLG K0654 32.2012 1
200885001 L.H. MLG Uplock K0654 32.3111 1
200885002 R.H. MLG Uplock K0654 32.3112 1
200898001 L.H. Door Uplock K0654 32.3124 1
200898002 R.H. Door Uplock K0654 32.3125 1
2-013-000-12 Engine Jet/Exhaust Pipe K4342 78.1001 4 Repl
2-013-000-20 Engine Jet/Exhaust Pipe K4342 78.1001 4 Repl
2-013-000-25 Engine Jet/Exhaust Pipe K4342 78.1001 4
2022550-5-1 TMS Actuator 70210 76.1201 4 Repl
2022550-5-3 TMS Actuator 70210 76.1201 4
203SUM1 Height Sensor K5294 22.1025 1
204-1217-0414 Weather Radar TX/RX 77820 34.4157 1 BendWR
204-1222-0435 Weather Radar Indicator 77820 34.4155 1 BendWR
204-1445-0403 W/Radar Phased Array REA-4A 77820 34.4160 1 Opt
2067631-5133 Radio Altitude Transceiver 77820 34.4233 1 Opt
2070058-0701 Radio Altimeter Antenna 77820 34.4231 2 Opt
207-06 W/S Wash Pump, motor K5788 30.4314 1 Repl
209RAA5-10BAF Servo Mount, Elev Trim 100/200 Sr K5294 27.3224 1
209RAA6-135CAF Servo Mount, Elev/Trim K5294 27.1141 1
209RAA6-175ABC Servo Mount, Elevator, 300 Srs K5294 27.1141 2 Alt
209RAA6-8CEF Servo Mount, Aileron K5294 27.1141 1
2117576-3 TMS Display 70210 76.1207 1
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
======================================================================================================
<S> <C> <C> <C> <C> <C>
2117576-4 TMS Display for LF507-1H PPL 70210 76.1207 1 Opt
2117578-10 TMS Computer LF507-1H PPL 70210 76.1204 1 Opt
2117578-7 TMS Computer 70210 76.1204 1 Repl
2117578-9 TMS Computer ALF502R5 PPL 70210 76.1204 1 Repl
2117578-9SRS2 TMS Computer 70210 76.1204 1
2117608-1 TMS Altitude Sensor 70210 76.1211 1
21B107-6A Stby Gen Controller 83298 24.2321 1
22504-13 Oxy Barometric Valve 53655 35.2011 1
2313M158-1 W/S/Wiper Motor LH K5459 30.4224 1
2313M158-2 W/S/Wiper Motor RH K5459 30.4224 1
2351A000 Anti-Ice V., Intake U1605 30.2117 4
24188 Engine Vibration Indicator K7688 31.1301 1
2587335-114 Vertical Gyro 59495 34.2314 2
2588317-925 Instrument Comparitor 59495 34.2327 1
2589419-901 Flux Valve 59495 34.2124 2
2591200-901 Compensator 59495 34.2111 2
2591201-903 Compass Coupler 59495 34.2117 2
2594661-803 RMI 59495 34.5507 2 Opt
2594860-901 Directional Gyro 59495 34.2121 2
2764A000 Discharge Valve U1605 21.3131 2
2766A000 Altitude Limiter, 31,000 ft U1605 21.3130 2
2767A000 Cabin Press Controller, MB. U1605 21.3117 1
2783A000 Cabin Press Controller, IN. U1605 21.3117 1 Alt
2900A000 Cabin Press Cotnroller, IN./MB U1605 21.3117 1 Alt
29-1997-1 Check Valve, Freight Door 91763 52.3126 2 Frt
29-1998-1 Valve Plunger, Freight Door 91763 52.3125 1 Frt
2920A000 Transducer U1605
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
======================================================================================================
<S> <C> <C> <C> <C> <C>
29B33-23A Standby Generator (Sund) 77820 24.0000 1 Alt
3001-01-111 Triaxial Accellrometer, FDR +1597 31.3111 1
30-0837-27 Beacon Assy, Red Upper 0BYW8 33.4511 1
30-0837-45 Beacon Assy, White 0BYW8 33.4511 1 Alt
30-1401-13 Beacon Assy, Red, Lower 0BYW8 33.4511 1
30-1579-1 Strobe, FIN 0BYW8 33.4516 1
3015B000 Non Return Valve U1605 21.5114 2
30-1780-1 Lamp 0BYW8 33.4601 1
30-1780-2 Lamp 0BYW8 33.4602 1
30-1809-1 Strobe, Wing Tip. 0BYW8 33.4514 2
301ADAFA1 Acceleration Detector K5294 22.1321 2
304ADA1 Vertical Accelerometer K5294 22.1023 1
3081B000 Non Return Valve U1605 21.5054 2
3335B000 Non Return Valve U1605 36.1214 2
35008-13 Wing O/Heat Control Unit 73168 26.1411 1
3502B000 Flow Control Valve U1605 21.1011 2
3503B000 Recirculation Valve, Cabin U1605 21.5061 1
3508000-282 Inbd Magnetic Level Indic. U1918 28.4211 2
3508000-283 Outbd Magnetic Level Indic. U1918 28.4214 2
3515000-237 Hydraulic Tank Level Switch U1918 29.3200 2
3515000-241 Fuel Level Switch U1918 28.2137 9
3536B000 Fresh Air Valve U1605 21.5024 2
3537B000 Mode Selector Valve U1605 21.5057 1
3545H7 Rudder Servo Actuator K0659 27.2134 2
3550B000 Relief Valve U1605 36.1144 2
3559B000 Non Return Valve U1605 21.5027 2
361-4071-0401 W/Radar Scanner 77820 34.4159 1 BendWR
</TABLE>
27
<PAGE> 30
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
======================================================================================================
<S> <C> <C> <C> <C> <C>
3706270 Valve, W/S/W, Stick Push U1918 30.4317 2
3779H1 Airbrake Valve K0659 27.6314 1
3807H2 Airbrake Actuator K0659 27.6311 1
3862200-1 Fan Assy (150M & 100M) 59364 49.2011 1 Alt
3862200-2 Fan Assy (150M & 100M) 59364 49.2011 1 Gar
3862200-3 Fan Assy (150M only) 59364 49.2011 1 Alt
4019700-902 A.D.I. K1488 34.2317 2
401RGUFA2 Rate Sensor, Autopilot K5294 22.1317 2
4030-03-2 Computer Baro/Alt/Rate (GPW) 52013 34.4605 1 Alt
4034559-901 D.B.I. 59495 34.5508 2
4037539-906 HSI, RD700D 07187 34.2324 2 Alt
4045147-906 HSI, RD700M 59495 34.2324 2 Alt
4066453-902 Clutch, Pitch Trim Corrctn Srs 300 58960 27.3225 1 Alt
407-1-32460-000 Transformer K1659 24.2121 3
4101H2 Roll Spoiler Servo K0659 27.6211 2
4204001 Power Transfer Unit D0079 29.2017 1
4325C000 Temperature Controller U1605 21.6011 2 Repl
4325C000-002 Temperature Controller U1605 21.6011 2
4353C000 Pre-Cooler, Pylon U1605 36.1114 4
448D100-1 Handset, Cabin, Din Plug 78711 23.5121 2 Alt
448D300-1 Handset, Cabin, Jack Plug 78711 23.5121 2
453627 Pump K4413 29.1017 2 Alt
46546-507-0 Printed Circuit Board K8081 31.5111 1 Repl
46546-509-0 Printed Circuit Board K8081 31.5111 1
46546-510-0 Printed Circuit Board K8081 31.5111 1
46546-511-0 Printed Circuit Board K8081 31.5111 1 Repl
46546-512-0 Printed Circuit Board K8081 31.5111 1 Repl
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
======================================================================================================
<S> <C> <C> <C> <C> <C>
46546-512-0M0D8 PCB, type WS3A65-04 MWS K8081 31.5111 1
46546-513-0 PCB, type WS3A65-05 MWS input K8081 31.5111 4
46546-514-0 PCB, type WS3A65-06 MWS K8081 31.5111 5
46546-515-0 Printed Circuit Board K8081 31.5111 1 Repl
46546-517-0 Printed Circuit Board K8081 31.5111 1
46546-518-0 Printed Circuit Board K8081 31.5111 1
46546-523-0 Printed Circuit Board K0574 31.5111 1 Repl
46546-524-0 Printed Circuit Board K8081 31.5111 1
4676C000 ECS Pack U1605 21.5011 2
4679C000 Temp, Control Valve U1605 21.6041 2
4684C000 Condenser U1605 21.5017 2 Alt
4727C000 Temperature Sensor U1605 21.5041 2
4747C000 Valve U1605 21.1011 2 Alt
48351-101-0 Audible Warning System U1611 31.5214 1
48351-301-0 Panel, CWS, CAA K8081 31.5117 1 Alt
48351-302-0 Panel, CWS, FAA K8081 31.5117 1 Alt
48351-303-0 Panel, Central Warning, CAA K8081 31.5117 1 Alt
48351-304-0 Panel, Central Warning, FAA K8081 31.5117 1 Alt
48351-308-0 Panel, FAA K8081 31.5117 1 Alt
48351-309-0 Panel, CAA K8081 31.5117 1 Alt
48351-310-0 Panel, CAA K8081 31.5117 1 Alt
48351-311-0 Panel, FAA K8081 31.5117 1 Alt
48351-312-0 Panel K8081 31.5117 1 Alt
48351-313-0 Panel K8081 31.5117 1 Alt
48351-314-0 Panel K8081 31.5117 1 Alt
48351-315-0 Panel K8081 31.5117 1 Alt
48351-316-0 Panel, SRS 200 Only K8081 31.5117 1 Alt
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
======================================================================================================
<S> <C> <C> <C> <C> <C>
48351-323-0 Panel, FRT Non-FAA K8081 31.5117 1 Alt
48351-324-0 Panel, CAA K8081 31.5117 1
48351-325-0 Panel, FAA K8081 31.5117 1 Alt
48351-330-0 Panel, FRT Non-FAA K8081 31.5117 1 Alt
48351-331-0 Panel, FRT Non-FAA K8081 31.5117 1 Frt
501-1-13775-006 Starter Motor, Engine K7033 80.1011 4
503-1-06680-003 Generator K7033 24.2117 3
503-1-06710-000 I.D.G. (Intergrated Drive Gen.) K1659 24.0000 2 Alt
503-1-06955-000 Generator + APU Gearbox K1659 49.0000 1 Alt
50652-1 HYD Pressure TX K0100 29.3114 6 Repl
509-1-02530-001 Transformer Rectifier Unit K7033 24.3217 2
513-24660-501 TAS/SAT/TAT Indicator 03025 34.1214 1
515CUF2 Altitude Selector K5294 22.1022 1 Repl
515CUF3 Altitude Selector K5294 22.1022 1
516CUF1 Navigation Selector K5294 34.5509 1
520696 PTU K4413 29.2017 1 Alt
520827 STBY Gen. Controller (Vickers) K4413 24.2321 1
520831 Pump K4413 29.2011 1 Alt
520833 AC Hydraulic Pump LRU K4413 29.2011 1
522-1936-049 Indicator 4V792 2
522-2615-006 ADF Loop Antenna 4V792 34.5301 2
522-2996-011 Marker Receiver 4V792 34.3315 1
522-3443-000 HF Coupler, type 490T1 4V792 23.1223 2 RC
5234-02 PCB, Fire Detection 25693 26.1111 1
544654-6 Actuator, ECS Temp Ctrl Valve 70210 25.6024 2
568-1-25663-001 Hydraulic Fuel Pump K7033 28.1324 2
568-1-25665-001 Fuel Boost Pump K7033 28.2221 4
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
======================================================================================================
<S> <C> <C> <C> <C> <C>
5688C000 Solenoid U1605 30.2117 4 Alt
57333-012 Fire Extinguisher Engine K1536 26.2011 9
60-2388-101 Drive Pack, Tail Strobe 0BYW8 33.4517 1
60-3550-1 Power Unit, Emergency Lights 0BYW8 33.5021 6
612-1-43044 FLT Data Recorder Panel K6036 31.3114 1
622-1181-001 VHF Transceiver 4V792 23.1115 2 Alt
622-1181-002 Transceiver 4V792 23.1115 2 Opt
622-1181-003 Transceiver 4V792 23.1115 2 Opt
622-1396-101 VHF Comms TX/RX 4V792 23.1115 2
622-2224-001 ATC Transponder Mode A-C 4V792 34.5215 2 Alt
622-2921-002 DME Interrogator 4V792 34.5113 2
622-3255-001 VHF Nav RX 4V792 34.5515 2
622-3257-001 VHF Navigation RX 4V792 34.5515 2 Alt
622-3371-001 HF Transceiver Type 628T1 4V792 23.1217 2 Alt
622-3890-002 RAD Alt TX/RX 4V792 34.4223 1
622-4096-002 PAX Address Amplifier 4V792 23.3113 1 RC
622-4160-015 RAD Alt Indicator 4V792 34.4217 2
622-5272-001 HF Transceiver, HFS 700 Analoque 4V792 23.1217 1 Alt
622-5377-001 HF Transceiver, type 628T-2A 4V792 23.1217 2 Opt
622-6827-002 HF Comms Controller 4V792 23.1238 1 Alt
622-7878-201 Transponder Mode "S" with TCAS 4V792 34.5215 2 RC
622-8971-012 TCAS Computer 4V792 34.4413 1 Repl
622-8971-020 TCAS Computer 4V792 34.4413 1 Opt
635012 Actuator Latch, Freight Door 91763 52.3141 8 Frt
635013 Actuator Lock, Freight Door 91763 52.3140 1 Frt
64-66350 Standby Altitude Indicator K0663 34.2411 1 Alt
650-1-14040-009 Flight Data Recorder K6036 31.3127 1 Repl
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
=======================================================================================================
<S> <C> <C> <C> <C> <C>
650-1-14040-012 Flight Data Recorder K6036 31.3127 1 Repl
650-1-14040-109 Flight Data Recorder K6036 31.3127 1 Repl
650-1-14040-112 Flight Data Recorder K6036 31.3127 1
650-1-14040-209 Flight Data Recorder K6036 31.3127 1 Alt
6508-4 Windshear Computer 83326 34.2553 1 Opt
65-56298-1 Actuator Main, Freight Door 91763 52.3131 2 Frt
658SUE5 Monitor Computer, CAT 2 K5294 22.1017 1 Repl
658SUE6 Monitor Computer, CAT II K5294 22.1017 1
6610M43 Conditioner K7688 77.3200 1 Repl
6610M44 Signal Conditioner K7688 77.3200 1
6711-02100 Dimmer, Cockpit Lights K0653 33.1214 2
6711-02200 Dimmer, Cockpit Lights K0653 33.1215 5
6711-02300 Dimmer, Cockpit Lights K0653 33.1216 1
676001003 Flap Screw Jack K0654 27.5034 2
676001004 Flap Screw Jack K0654 27.5044 2
676101005 Flap Hyd Control Unit K0654 27.5021 1
676201010 Torque Limiter, Flaps K0654 27.5041 1 Alt
676201011 Torque Limiter, Flaps K0654 27.5031 2 Alt
676201012 Torque Limiter, Flaps K0654 27.5041 1 Alt
676201013 Torque Limiter, Flaps K0654 27.5041 1
676201014 Torque Limiter, Flaps K0654 27.5031 2
676201015 Torque Limiter, Flaps K0654 27.5041 1
676301003 Gear Unit K0654 27.5049 1
676301004 Gear Unit K0654 27.5049 1
676501001 Pitch Trim Correction Unit (Srs 300) K0654 27.5024 1
676601003 Asymetry Brake, Flaps K0654 27.5051 1
676601004 Asymetry Brake, Flaps K0654 27.5052 1
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
======================================================================================================
<S> <C> <C> <C> <C> <C>
676801007 Flap Electronic Controller K0654 27.5017 1
676801008 Controller K0654 27.5017 1 Alt
676901002 Pilots Command Signal Unit K0648 27.5014 1
697902E Press S/W APU G/Box 728403 97896 24.1312 1
700-1-22490-400 Generator Control Unit K7033 24.2114 3 Repl
700-1-22490-420 Generator Control Unit K7033 24.2114 3 Alt
700-1-22490-500 Generator Control Unit K7033 24.2114 3 Repl
700-1-22490-520 Generator Control Unit K7033 24.2114 3
710-13300-2146 Cabin Press Controller, MB. U1585 21.3117 1 Repl
710-13300-2246 Cabin Press Controller, IN. U1585 21.3117 1 Repl
71149-3 Selector Valve, Stby Gen (Vickers) K4413 24.2331 1
715745 Full Flow Relief Valve K4413 29.1021 2
715750 Pump, DC (Bare) K4413 29.0000 1 Alt
715776 Pump, AC Hydraulic K4413 29.2011 1 Repl
715873A Pump, AC Hydraulic 99167 24.2324 1 Repl
715874A Standby Generator Assy 99166 24.2324 1
716853 PTU K4413 29.2017 1 Repl
716884 Thermal Relief Valve K4413 29.1022 1
716946 Power Transfer Unit LRU K4413 29.2017 1 Repl
716951 DC Hydraulic Pump LRU K4413 29.0000 1
716988 Hydraulic Pump Assy K4413 29.1017 2
720-15900-906 Cabin Pressure Indicator 03025 21.3011 1
72-130003-001 Avionics Smoke Detector 15801 26.1322 1
728403B Adaptor Assy APU Gearbox 99166 24.1300 1 Repl
728403C APU Generator Gearbox 99166 24.1300 1 Gar
728471A Unit - Constant Speed Drive 99167 24.1117 2 Repl
728471B Constant Speed Drive (CSD) 99167 24.1117 2
</TABLE>
33
<PAGE> 36
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
=======================================================================================================
<S> <C> <C> <C> <C> <C>
740SUE10-8 Auto Pilot Computer SRS 100/200 K5294 22.1011 1
740SUE8-6 AP Computer SRS 100/200 K5294 22.1011 1 Alt
740SUE9-7 Auto-Pilot Computer SRS 300 K5294 22.1011 1 Alt
741SUE3 YAW Computer K5294 22.1311 2
77-000-001 Damper Rudder & Elevator Trim K5078 27.1201 2
772-5005-005 ADI, 329B-8J 4V792 34.2317 2 Alt
777-1397-010 H.S.I. 4V792 34.2325 2
777-1492-004 ADF Receiver 4V792 34.5315 2
7913003K LP Valve, Fuel U1918 28.1344 10
7940005H Valve, Water U1918 38.1014 1
7940023F Valve U1918 38.1011 2 Repl
7940066F Valve, Water U1918 38.1011 3
80-10-0976PORT Navigation Light Assy +0111 33.4210 1
80-10-0976STBD Navigation Light Assy +0111 33.4210 1
801CUF3 Autopilot Controller K5294 22.1015 1
801CUF4 Autopilot Controller K5294 22.1015 1 Alt
8056014-0401 WR Check List Controller 77820 34.4100 1 BendWR
8-060-02 PCB, L/Gear Etc 08748 39.7001 18
823CUF2 Autopilot Mode Selector K5294 22.1019 1
83-000-002 Damper Elevator K5078 27.3124 1
9-127-48 Fuel Flowmeter TX 08748 71.0010 4
915-8D52 Hand Pump, Freight Door 86768 29.0000 1 Frt
9201000-226 Oil Contents TX U1918 79.3301 4
9201000-243 Hydraulics Contents TX U1918 29.3202 2
9-328-19 Fuel Flow Indicator, KGS 08748 31.1301 4
9-328-20 Fuel F/MTR Indicator, LBS 08748 31.1301 4 Alt
93A100-30 Cockpit Voice Recorder 03003 23.7115 1
</TABLE>
34
<PAGE> 37
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
=======================================================================================================
<S> <C> <C> <C> <C> <C>
93A100-80 Cockpit Voice Recorder (CVR) 06141 23.7115 1 Alt
93A151-20 CVR Controller 03003 23.7111 1
9594-614-01306 Ground Proximity Warning (GPW) F6170 34.4617 1 Alt
9599-607-14916 RAD Alt Transceiver F6170 34.4213 2 Opt
9599-607-14931 Radio Altimeter TX/RX F6170 34.4213 2 Opt
965-0412-002 Computer Baro/Alt/Rate 97896 34.4605 1
965-0476-088 Ground Prox Warning Computer 99166 34.4617 1
971-4193-001 Accelerometer 99167 31.3111 1 Repl
980-6005-076 CVR 97896 23.7115 1 Alt
9840074K Fuel Non Return Valve U1918 28.1334 7
9843043H Fuel Non Return Valve U1918 28.1317 10
A14631 W/S Panel C Damper Strut U1918 56.1032 2
A31-2286-01-140 ADF Coupler K0668 34.5305 1
A31-2288-01-576 ADF Equaliser, 100/200 Srs K0668 34.5309 1
A31-2288-01-624 ADF Equaliser, 300 Srs K0668 34.5309 1 Alt
A62080-1 Valve, Freight Door 81982 52.3124 2 Frt
A62080-6 Valve, Freight Door 81982 52.3123 1 Frt
A703CS Contactor 74063 80.1014 5 Repl
A703CSM Contactor, Starter 74063 80.1014 5
A712RS Contactor, External DC 74063 80.1017 3
A848MLS Contactor, APU 74063 49.4000 1
A957CS Contactor 74063 24.3214 5 Repl
A957CSD Contactor 74063 24.3214 5
AA15504-11-005 Central Audio Unit K0668 23.5117 1
AC65180 Pressure Regulating Valve K1037 36.1137 2
AC65184 Pressure Regulating Valve K1037 38.4011 1
AC65716 Solenoid Valve K1037 32.4121 1
</TABLE>
35
<PAGE> 38
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
=======================================================================================================
<S> <C> <C> <C> <C> <C>
AC65718 Solenoid V. Brakes K1037 32.4124 3
AC67070 Brake Temperature Indicator K1037 32.4411 1
AC67650 Dual Adaptive Valve, Brakes K1037 32.4117 4
AC67652 Anti-Skid Controller K1037 32.4147 1 Repl
AC67726 Brake Control Valve K1037 32.4114 2
AC67728 Brake Control Valve K1037 32.4115 2
AC67764 P.R.V. - Stick Push K1037 27.3354 1
AC69076 Door Damper, FWD K1037 52.4014 2
AC69078 Valve K1037 38.4011 Opt
AC69096 Anti-Skid Controller K1037 32.4147 1 Repl
AC69138 Door Damper, Rear K1037 52.4024 2
ACA1316 Stock Pusher Ram K1037 27.3317 1
ACM28076 Wheelspeed Transducer K1037 32.4144 4
ACM28248 Shuttle Valve, Water System K1037 36.1141 1
ACM29100 Fuse Hydraulic K1037 32.4141 10 Alt
ACM30336 Rudder Compensator Damper K1037 27.2141 1
ACM30506 Hydraulic Fuse K1037 32.4141 10
AE20556 Anti-Skid Control Box K1037 32.4147 1 Alt
AE20558 Anti-Skid Control Box K1037 32.4147 1
AHM8077 Motor, Brake Fan K1037 32.4314 4
AIR91652-0 Selector Valve, Emerg. L/G K0667 32.3311 2
AIR91654-0 Non Return Valve K0667 29.0971 6
AIR91656-0 Non Return Valve (100/200 only) K0667 29.0972 9
AIR91658-0 Non Return Valve K0667 29.0974 3
AIR91660-0 Non Return Valve K0667 29.0973 2
AIR91662-2 PNEU. Relief V. Hyd Tank K0667 29.1111 2
AIR91666-0 Accumulator, Airstairs K0667 29.2021 2
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
=======================================================================================================
<S> <C> <C> <C> <C> <C>
AIR91712-0 Actuator, Stby Gen H/EX K0667 24.2311 1
AIR91748-1 Lift Spoiler Valve K0667 27.6117 2
AIR91762-0 Flow Control Valve, PTU K0667 29.2024 1 Repl
AIR91762-1 Flow Control Valve, PTU K0667 29.2024 1
AL00103 Linear Actuator, Stage Two Baul K0023 76.1001 1
BOOA213146 Cabin Press Controller, In. U1585 21.3117 1 Alt
BOOA213147 Cabin Press Controller, Mb. U1585 21.3117 1 Alt
BOOA214268A Pressure Reducing Valve U1585 36.1111 4 Repl
BOOA214269A Temperature Control Valve U1585 36.1117 4
BOOA214275A Valve, Discharge, 31,000ft U1585 21.3031 2 Alt
BO1A214271A Duct Relief Valve U1585 36.1131 4
BO1A214272A Airframe Anti-Ice Valve U1585 30.1117 6 Repl
BO3A2-14267A Discharge Valve K1110 21.3031 2 Repl
BO4A213099A Control Panel, Pressurisation U1585 21.3014 1 Repl
BO4A218021A Temperature Sensor U1585 36.1121 4
BO5A213099A Control Panel, Pressurisation U1585 21.3014 1 Alt
B1620MK19 Stick Shaker Motor K5288 27.3311 2
B345LS Contactor for Switching Generators 74063 24.2111 5
B92881 Fan K7776 21.2211 1 Repl
C201-1500-1 Solenoid Valve, Rain Repel K7243 30.4517 2
C81506-2 Signal Summing Unit Warning 100 83326 27.3324 2 Alt
C81506-3 Signal Summing Unit Warning 200 83326 27.3324 2
C81506-4 Signal Summing Unit Warning 300 83326 27.3324 2 Alt
C81606-2 SSU - Stall Ident 100 srs 83326 27.3341 2 Alt
C81606-5 SSU - Stall Ident 200 srs 83326 27.3341 2
C81606-6 SSU - Stall Ident 300 srs 83326 27.3341 2 Alt
CG7PT2 Smoke Detector, Toilet +0225 26.1313 2
</TABLE>
37
<PAGE> 40
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
======================================================================================================
<S> <C> <C> <C> <C> <C>
D103549 Fan, AC Pump H/Exchanger K7776 29.2007 1
D104219 Fan, Avionics Cooling K7776 21.2211 1
D1150-10A Heat Exch., Stby Gen. U1603 24.2327 1
D1151-10A Heat Exch., AC Pump U1603 29.2014 1
D11842 Airspeed Transducer K1474 31.3117 1
D11852 Altitude Transducer K1474 31.3121 1 Alt
D11975 Air Data Unit K5294 22.2011 2 Repl
D11986 Airspeed Sensor, Stall K1474 27.3367 2
D17862-105 Valve/CYC Assy, Slide 70167 21.6041 4
D183661 Motor, Wscreen Wipe LH U1607 30.4224 1 Repl
D183662 Motor, Wscreen Wipe RH U1607 30.4224 1 Repl
D30603-103 Slide/Raft Assembly 70167 25.6024 4 Opt
D31050-101 Evacuation Slide Assy 70167 25.6024 4 Repl
D31050-103 Evacuation Slide Assy 70167 25.6024 4
D5342 Solenoid, Flap Baulk K0642 76.1111 3
D60151 Air Data Unit K5294 22.2011 2
D60299 Altitude Transducer (012 FDR) K1474 31.3121 1
D7BS Contactor 74063 24.2317 3
D92098 Fan, Cabin Louvre K7776 21.2111 1
D93641 Fan, AC Pump H/Exchanger K7776 29.2007 1 Repl
DMELT8-1 Emergency Locator TX 85226 25.6131 1 Opt
E327AD External Power Monitor 74063 24.4011 1
E327Y External Power Monitor 74063 24.4011 1 Repl
E37040D Detector K5459 30.3111 1
E37040S Detector AC, Stall Ident K5459 30.3114 7
ES113-03 Valve, Stall K0414 27.3334 2
F103823 Avionics Cooling Fan K7776 21.2211 1 Repl
</TABLE>
38
<PAGE> 41
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
=======================================================================================================
<S> <C> <C> <C> <C> <C>
FC129MK2 Coupling K0279 28.2117 1 Repl
FCMX129MK2 Coupling, Refuel K0279 28.2117 1
FR2213 Light/Smoke Detector +2030 26.1321 7 Frt
G6124 ADF Controller, Dual Sys 99837 34.5316 2 Opt
G6481-01 VHF Nav/Dme Controller 99837 34.5105 2
G6990-13 ATC Cont., Mode 's' with TCAS 99837 34.5203 Opt
H301BDM1 Stby Altitude Indic. F6306 34.2412 1
HC271H0027-018 Compensator, Aileron L/H K0400 27.1114 1
HC271H0027-020 Compensator, Aileron R/H K0400 27.1114 1
HC271H0196-006 Trim Jack, Aileron K0400 27.0000 2
HC271H0196-008 Trim Jack, Elevator LH K0400 27.0000 1
HC271H0196-010 Trim Jack, Elevator RH K0400 27.0000 1
HC271H0267-008 Gear K0400 27.0000 1 Repl
HC271H0267-009 Gear K0400 27.0000 1
HC271H0267-010 Gear K0400 27.0000 1 Repl
HC271H0267-011 Gear K0400 27.0000 1
HC272H0045-006 QPOT, Elevator K0400 27.3111 1
HC272H0118-000 Gearbox, Rudder Trim K0400 27.2211 1
HC272H0220-006 QPOT Assembly Rudder K0400 27.2117 1 Repl
HC272H0220-010 QPOT Assembly Rudder K0400 27.2117 1
HC272H0380-004 Trim Jack Rudder K0400 27.0000 1 Repl
HC273H0548-000 Gearbox Elevator trim 100/200 Srs K0400 27.3211 1
HC273H0548-004 Gearbox Elevator trim 100/200 Srs K0400 27.3211 1 Alt
HC273H0608-000 Gearbox Elevator Diff 300 Srs K0400 27.3211 1 Alt
HC273H0615-000 Gearbox Elevator 300 Srs K0400 27.3211 1 Alt
HC273H0615-004 Gearbox Elevator 300 Srs K0400 27.3211 1
HC273H0639-000 Elevator Spring Strut K0400 27.0000 1 Alt
</TABLE>
39
<PAGE> 42
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
=======================================================================================================
<S> <C> <C> <C> <C> <C>
HC273H0639-002 Elevator Spring Strut K0400 27.0000 1
HC275H0148-000 Pitch Trim Correction Unit Srs 300 00000 27.5024 1 Alt
HC275H0157-000 PTCU Angle Drive Srs 300 K0400 27.0000 1 Alt
HC396H0480-000 Printed Circuit Board K0400 1
HC396H0481-000 Printed Circuit Board S300 K2448 27.0000 1 Alt
HC396H0481-002 Printed Circuit Board S100/200 K2448 1
HC396H0482-000 P.C.B. Starter Motor latching K2448 31.0000 1 Opt
HC396H0491-000 P.C.B. MWS Inhibit K2448 31.0000 2
HC396H0494-000 PCB: CAT3 Logic For 75ft DH. K2448 39.0000 1 Opt
HC396H0540-002 Printed Circuit Board K0400 24.0000 4
HC396H0542-000 Printed Circuit Board K2448 39.6029 1 Frt
HC396H0544-002 Printed Circuit Board K2448 31.5112 1
HC396H0545-000 Printed Circuit Board Srs 300 K0400 31.5113 1
HC396H0547-000 Printed Circuit Board Srs 300 K0400 31.5275 1
HC396H0548-000 Printed Circuit Board Srs 300 K0400 31.5275 1
HC761C0015-000 Compensator, 100/200 Srs K0400 76.1105 4 Repl
HC761C0015-002 Compensator, 100/200 Srs K0400 76.1105 4 Repl
HC761H0307-002 Compensator, 100/200 Srs K0400 76.0000 4
HC921H0448-000 PCB, Auto Lift Spoilers K2448 39.6001 1 Alt
HC921H0448-002 PCB, Auto Lift Spoilers K0400 39.6001 1
HC921H0449-004 P.C.B. Crew Call Logic K0400 39.6002 2 Alt
HC921H0449-008 Printed Circuit Board K0400 39.6002 1
HC921H0449-010 Printed Circuit Board K0400 39.6002 2
HC921H0450-000 P.C.B. Airbrake Control Amplifier K0400 39.6003 1 Repl
HC921H0450-002 P.C.B. Airbrake Control Amplifier K0400 39.6003 1
HC921H0451-006 PCB, Airbrake Control K2448 39.6004 1 Repl
HC921H0451-009 PCB, Airbrake Control K2448 39.6004 1 Repl
</TABLE>
40
<PAGE> 43
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
======================================================================================================
<S> <C> <C> <C> <C> <C>
HC921H0451-010 PCB, Airbrake Control K2448 39.6004 1
HC921H0453-000 Printed Circuit Board K0400 39.6012 2
HC921H0454-000 P.C.B. Catt II Logic K0400 39.6005 1 Repl
HC921H0454-002 P.C.B. Cat II Logic K0400 39.6005 1
HC921H0455-000 P.C.B. Marker Lamp Driver K0400 39.6006 1 Repl
HC921H0455-002 P.C.B. Marker Lamp Driver K0400 39.6006 1
HC921H0456-000 Printed Circuit Board K0400 31.0000 1
HC921H0457-000 Printed Circuit Board K0400 31.0000 2
HC921H0458-000 P.C.B. Fligh Annunciators K0400 39.6009 Alt
HC921H0458-002 P.C.B. Fligh Annunciators K0400 39.6009 8
HC921H0460-000 Printed Circuit Board K0400 31.0000 2
HC921H0461-004 P.C.B. A.D.I. K0400 24.0000 2 Repl
HC921H0461-006 P.C.B. A.D.I. K0400 24.0000 2
HC921H0461-008 P.C.B. A.D.I. (with Windshear) K0400 31.0000 2 Opt
HC921H0462-002 Printed Circuit Board K0400 39.6012 5
HC921H0463-000 Printed Circuit Board K0400 39.6013 1
HC921H0464-000 Printed Circuit Board K0400 39.6014 1
HC921H0467-000 PCB, (QPA = 3 Pre CIII) K0400 31.5115 6
HC921H0469-002 Printed Circuit Board - datanav K0400 39.6000 1 Repl
HC921H0469-003 Printed Circuit Board - datanav K0400 39.6000 1 Opt
HC921H0469-004 Printed Circuit Board - datanav K0400 39.6000 1 Alt
HC921H0470-000 Printed Circuit Board K0400 39.6019 1
HC921H0471-000 Printed Circuit Board K0400 31.0000 1
HC921H0472-004 P.C.B. Stall Ident comparitor K0400 39.6016 2 Repl
HC921H0472-006 P.C.B. Stall Ident comparitor K0400 39.6016 2
HC921H0472-008 P.C.B. Stall Ident comparitor K0400 39.6016 2 Alt
HC921H0473-000 PCB, numerous warnings K0400 39.6017 9
</TABLE>
41
<PAGE> 44
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
=======================================================================================================
<S> <C> <C> <C> <C> <C>
HC921H0476-000 PCB, Flt Idle Baulk K0400 39.6018 1 Repl
HC921H0476-002 PCB, Flt Idle Baulk K0400 39.6108 1 Opt
HC921H0478-000 Printed Circuit Board K0400 39.6020 1
HC921H0595-006 Printed Circuit Board K0400 39.6015 2 Alt
HC921H0595-008 Printed Circuit Board K0400 39.6015 1 Alt
HC921H0595-010 Printed Circuit Board K0400 39.6015 2
HC921H1782-000 Transformer (TQF) K0400 25.0000 1 Opt
HE71053 Heater, Water K1785 38.1027 2
HP1138200-1 Selector Valve, Stanby Generator 84685 24.2331 1 Alt
HTE1451-1 Actuator, Double, Fuel X-Feed K2617 39.4012 1
HTE210014 Actuator, Single, (HYD) K2617 39.4011 7
HTE250034 Flight Deck Boost Valve K2617 21.5071 1
HTE250076 Valve, Anti-ice K2617 30.1117 6
HTE365-4 NRV, APU Air to ECS Pack K2617 49.5041 1
HTE4344-1 NRV, Stall Sys Toilet Flush K2617 38.4017 6
HTE4345-1 NRV, Hyd Tanks, Stall Sys K2617 29.1117 4 Repl
HTE 4345-2 NRV, Hyd Tanks, Stall Sys K2617 29.1117 4
HTE4373-1 NRV, Engine Bleed Air U1585 36.1134 4 Repl
HTE4373-2 NRV, Engine Bleed Air U1585 36.1134 4
HTE4855-1 NRV, Air Release K2617 28.2224 1
HTE530004-1 Toilet Flushing Valve K2617 38.3231 2
HTE9082-1 Actuator, Single, (Fuel/Water) K2617 39.4011 7
HTE9084 Actuator K2617 30.1117 6
HTE9181-1 Valve Assy, Ram Air K2617 21.5111 1
HTE920026 Valve Assy Stall Warn K2617 29.2027 1
HTE9479-2 Valve Assy, Stby Generator K2617 29.2031 1 Repl
HTE9479-3 Valve Assy, Stby Generator K2617 29.2031 1
</TABLE>
42
<PAGE> 45
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
=======================================================================================================
<S> <C> <C> <C> <C> <C>
HTE9490-3 Valve Assy, Selector MLG K2617 32.3017 1 Alt
HTE9490-4 Valve Assy, Selector MLG K2617 32.3017 1
HTE9526 Valve, Pneumatic Relief K2617 1
HTE9531-2 Valve Assy, EDP Isolating K2617 29.1014 2 Alt
HTE9531-3 Valve Assy, EDP Isolating K2617 29.1014 2
HTE9635-2 Valve Assy, Park Brake, PTU K2617 29.2027 3 Repl
HTE9635-3 Valve Assy, Park Brake, PTU K2617 29.2027 3
HTE9783-1 Valve K2617 38.3221 1
K95677 Indicator, Pax Supply (man sys) U1936 35.2014 Alt
KCA0105W Standby Compass K5294 34.2211 1
MAP903-001 Pressure Reducing Valve U1585 36.1111 4
MC10-06-100 Crew Mask F5431 35.1037 2
MC10-06-120 Crew Mask F5431 35.1037 3 Alt
M1585161-2 Radar RX/TX 58960 34.4121 1 HIWR
M1585162-2 Radar Indicator 58960 34.4127 1 HIWR
M1585164 Radar Antenna 58960 34.4111 1 HIWR
M1585397-55 Computer, Datanav III 59495 34.4134 1 Opt
M1585399-2 Controller, Datanav III 58960 34.4137 1 Opt
NA138-714A Selcal +2436 23.2215 1 Alt
NA138714B Selcal +2436 23.2215 1 Alt
NF0075-1705MK3 Ice Detector K0672 30.8111 1
NF0075-2600 W/S Heat Control PCB K0672 30.4111 4 Repl
NF0075-3600 W/S Heat Control PCB K0672 30.4111 4
NF20216-151 Windscreen Panel B LH K0672 56.1021 1 Repl
NF20216-152 Windscreen Panel B RH K0672 56.1021 1 Repl
NF20216-155 Windscreen Panel C LH K0672 56.1031 1
NF20216-156 Windscreen Panel C RH K0672 56.1031 1
</TABLE>
43
<PAGE> 46
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
=======================================================================================================
<S> <C> <C> <C> <C> <C>
NF20216-245 Windscreen Panel A LH K0672 56.1011 1
NF20216-246 Windscreen Panel A RH K0672 56.1011 1
NF20216-401 Windscreen Panel B LH K0672 56.1021 1
NF20216-402 Windscreen Panel B RH K0672 56.1021 1
NF20216-95 Windscreen Panel C LH K0672 56.1031 1 Repl
NF20216-96 Windscreen Panel C RH K0672 56.1031 1 Repl
P###-##-#### Jack, Lift Spoiler K0648 27.6111 6 Repl
P###-##-#### Jack, Lift Spoiler K0648 27.6111 6
P###-##-#### Damper, Elevator K0648 27.7014 2
P###-##-#### Damper, Aileron K0648 27.7011 2
QP122A Q Pitot Head U1746 27.2121 1 Repl
QP122B Q Pitot Head U1746 27.2121 1
SC2253A Selcal F6168 23.2215 1
SLZ7003A Vertical Speed Indicator 10639 34.1511 2
WKA36680-1 Cylinder, Oxy. 1870 LT U1936 35.1011 1 Repl
WKA36682-1 Oxygen Charge Valve K1536 35.1017 1
WKA36684-1 Oxygen Isolation Valve K1536 35.1027 1 Repl
WKA36684-2 Oxygen Isolation Valve K1536 35.1027 1
WKA36685 Oxy. Pressure Relief Valve U1936 35.1034 1
WKA36686 Oxygen Isolation Valve K1536 35.2011 2
WKA36692-1 Cabin Oxygen Bottle U1936 35.3014 2
WKA36693-1 Cylinder, Oxy, 3200 LT U1936 35.1012 2 Repl
WKA36693-2 Cylinder, Oxy, 3200 LT U1936 35.1012 2
WKA37577 Oxygen Non Return Valve U1936 35.0917 1
WL0101KID1 Fuel Indicator, KG, Collector Tank K5294 28.4114 4
WL0101KID2 Fuel Indicator, LBS, Collector Tank K5294 28.4114 4 Alt
WL0201KID1 Fuel Indicator, KG, Wing, PE K5294 28.4111 4
</TABLE>
44
<PAGE> 47
<TABLE>
<CAPTION>
Part Description Vendor ATA QPA Comments
======================================================================================================
<S> <C> <C> <C> <C> <C>
WL0201KID2 Fuel Ind, KG, Main/Refuel Panels, P K5294 28.4112 2
WL0201KID3 Fuel Indicator, LBS, Wing, PE K5294 28.4111 4 Alt
WL0201KID4 Fuel Ind, LBS, Main/Refuel Panels K5294 28.4112 2 Alt
WL106AMA20 Air Speed Indicator K5294 34.1411 2 Repl
WL106AMA7 Air Speed Indicator Analogue K5294 34.1411 2 Alt
WL1107AMMS4 Servo Altimeter K5294 34.1314 2
WL1704AM1 Non Servo Altimeter K5294 34.1311 1
WL604AMA12 Air Speed Indicator SRS 100 K5294 34.1411 2 Alt
WL604AMA22 Air Speed Indicator SRS 200 K5294 34.1411 2 Alt
WL604AMA23 Air Speed Indicator SRS 300 CAA K5294 34.1411 2 Repl
WL604AMA24 Air Speed Indicator SRS 300 CAA K5294 34.1411 2 Repl
WL604AMA25 Air Speed Indicator SRS 200 FAA K5294 34.1411 2 Alt
WL604AMA26 Air Speed Indicator SRS 200 CAA K5294 34.1411 2
WL604AMA27 Air Speed Indicator SRS 100 FAA K5294 34.1411 2 Alt
WL604AMA28 Air Speed Indicator SRS 100 CAA K5294 34.1411 2 Alt
WL604AMA29 Air Speed Indicator SRS 300 CAA K5294 34.1411 2 Alt
WL604AMA30 Air Speed Indicator SRS 300 FAA K5294 34.1411 2 Alt
WL651RSA5 N2 Indicator for LF502 R5 K5294 31.1301 4
WL651RSA6 N2 Indicator for LF502 R3 & R5 K5294 31.1301 4 Alt
WL706RSA4 EGT Indicator K5294 31.1301 4
WL706RSA5 EGT Indicator, Bump Rated K5294 31.1301 4 Opt
WL719RSA1 N1 Indicator K5294 31.1301 4
WL719RSA4 N1 Indicator, Bump Rated K5294 31.1301 4 Opt
WP207 W/S Wash Pump K5788 30.4314 1
</TABLE>
45
<PAGE> 48
APPENDIX 3
CERTAIN DEFINITIONS
1. "JetSpares Rate" shall mean US $[*] per Flight
Hour based on the assumption that ASA achieves a utilization of [*]
Flight Hours and [*] Flight Cycles
per annum on each of the Applicable Aircraft. Avro reserves the right
to vary the JetSpares Rate in the event that the actual utilization of
ASA differs by more than [*] in either
Flight Hours or Flight Cycles from this stated utilization or the
fleet size varies from [*] aircraft. The JetSpares Rate shall
be varied in respect of the changes in economic conditions between 1st
January 1995 and 1st January in each subsequent year. The price shall
be fixed annually from the 1st January each year for the duration of
this Agreement.
2. "Escalation Formula" shall mean the following formula:
P=Po([*]BW+[*]BM+[*]AW+[*]AM)
-- -- -- ---
BWo BMo AWo AMo
where
<TABLE>
<S> <C>
P = JetSpares Rate as varied by this Clause
Po = JetSpares Rate
BWo = The UK Earnings Index, averaged for 3 months up to and including January
1995
BW = The revised UK Earnings Index
BMo = The UK Materials Index, averaged for 3 months up to and including January
1995
BM = The revised UK Materials Index
AWo = The US Earnings Index, averaged for 3 months up to and including January
1995
AW = The revised US Labor Index
AMo = The revised US Materials Index, averaged for 3 months up to and including
January 1995
AM = The revised US Materials Index
K = 1
</TABLE>
46
<PAGE> 49
The UK Earnings Index is the Index of "Average Earnings - All
Employees, Manufacturing Industries," published in Table 5.1 of the
United Kingdom Government Department of Employment publication
"Employment Gazette."
The UK Materials Index is the Index of "Materials and Fuels (Aerospace
Industry)," published in Table 3 (SIC 3640) of the United Kingdom
Government Department of Trade and Industry publication "British
Business."
The US Earnings Index is the Index of "Average Hourly Earnings,
Aircraft and Parts" as published in Table B15, (SIC 372), of the
United States Department of Labor publication "Employment and
Earnings."
The US Materials Index is in the Metals and Metal Products as
published in Table 6 (Code 10) of the United States Department of
Labor publication "Producer Prices and Prices Indexes."
The revised index shall mean the average of the appropriate index
numbers for the 3 months up to and including the 31st December of each
year.
3. "Minimum Amount" shall mean US $[*]
SCHEDULE A
[*]
47
<PAGE> 50
SCHEDULE B
[*]
48
<PAGE> 51
APPENDIX 4
1. ORDERING PROCEDURE
1.1 ASA shall provide a written order to: British Aerospace Holdings,
Inc., Avro International Aerospace Division, Attention: Director -
Spares Operations, Fax Number (703) 406-1451, or such other Avro
contact as may be advised by Avro, for the required Replacement
Rotable Part(s) detailing the following information:
(i) the order number;
(ii) the part number(s) required;
(iii) the quantity required;
(iv) the priority of the Rotable Part order (AOG, Urgent
or Routine);
(v) the fact that the order forms part of
the ASA JetSpares Program; and
(vi) any special dispatch
instructions.
1.2 Delivery of the Replacement Rotable Parts shall be effected upon
notification by Avro to ASA (Manager Inventory Control - Fax No. (912)
788-9588) that the Replacement Rotable Parts are ready for collection
by ASA in accordance with 1.1 above Avro shall notify ASA at the
following contract:
Atlantic Southeast Airlines, Inc. Maintenance Facility
Middle Georgia Airport
P.O. Box 10216
Macon, Georgia 31297-0216
1.3 ASA shall place separate orders with Avro for items not covered under
the JetSpares Program.
2. RETURN PROCEDURE
2.1 ASA shall return the Unserviceable Rotable Part(s) together with a
completed and mutually acceptable label and all relevant technical
documentation relating to the Unserviceable Rotable Part to:
Director - Spares Operations
British Aerospace Holdings, Inc.
Avro International Aerospace Division
22070 Broderick Drive
Sterling, VA 20166
or to Herndon, Virginia as may be advised by Avro.
2.2 ASA shall provide the following written information about the
Unserviceable Rotable Part(s) to British Aerospace Holdings, Inc.,
Avro International Aerospace Division, Attention: Director - Spares
Operations, Fax Number (703) 406-1451, or such other Avro contact in
the United States as may be advised by Avro, prior to the
Unserviceable Rotable Part(s) being received by Avro:
49
<PAGE> 52
(i) a copy of the mutually agreeable label;
(ii) the dispatch details;
(iii) the order number for the corresponding Replacement
Rotable Part(s) as specified in 1.1 above; and
(iv) the utilization of the Unserviceable Rotable Part
since fitment in Flight Hours and Flight Cycles.
50
<PAGE> 1
EXHIBIT 10 (ae)
Confidential treatment has been applied for with
respect to certain provisions of this Exhibit, which
provisions have been omitted from this Exhibit,
marked with an asterisk (*) and filed separately with
the SEC.
<PAGE> 2
ENGINE MAINTENANCE COST PROTECTION PROGRAM
BETWEEN
ALLIEDSIGNAL INC., ALLIEDSIGNAL ENGINES
AND
ATLANTIC SOUTHEAST AIRLINES, INC.
<PAGE> 3
INDEX
I. Introduction & Scope
II. Definitions
III. Basic Understandings
IV. Program Period
V. AlliedSignal's Obligations
VI. Customer's Obligations
VII. Program Exclusions
VIII. Price & Payment Terms
IX. Warranty & Limitation of Liability
X. Force Majeure
XI. Notices
XII. Termination
XIII. Title
XIV. General Provisions Exhibits
<TABLE>
<S> <C> <C> <C>
A. Applicable Laws A. Schedule of Coverage
B. Assignments B. EMCPP Escalation Formula
C. Entire Agreement C. Monthly Operation Report
D. Non-Disclosure D. Engine Enrollment Form
E. Indemnity E. On-Wing Maintenance Tasks
F. Transfer of Data F. EMCPP Adjustment Formula
G. Remedies Cumulative
H. Residual Property
I. Captions
J. Non-Waiver
K. Precedence
</TABLE>
<PAGE> 4
ENGINE MAINTENANCE COST PROTECTION PROGRAM ("EMCPP")
THIS AGREEMENT made and entered into as of the _________ day of
_____________________________________, 1995, by and between AlliedSignal Inc.,
a Delaware corporation, acting through its ALLIEDSIGNAL ENGINES business, a
unit of AlliedSignal Aerospace, with offices at 111 South 34th Street, Phoenix,
Arizona 85072 (hereinafter called "ALLIEDSIGNAL") and Atlantic Southeast
Airlines, Inc., having a place of business at 100 Hartsfield Centre, Suite 800,
Atlanta, GA 30354-1356 (hereinafter called "CUSTOMER").
WHEREAS, CUSTOMER intends to lease a fleet of five BAe 146 Series Aircraft
manufactured by British Aerospace Limited, each of which are equipped with four
(4) ALLIEDSIGNAL Model ALF502R Series Turbofan Engines, and desires to obtain a
program for the maintenance and repair of the ALF502R Series Engines; and
WHEREAS, ALLIEDSIGNAL, as the original equipment manufacturer for the Engines
desires to offer such a program for the Engines at a fixed rate per Flight Hour
as more fully set forth hereinafter (and hereinafter called "Engine Maintenance
Cost Protection Program" or "EMCPP").
NOW THEREFORE, in consideration of the mutual premises and covenants herein
contained, the receipt of which is hereby acknowledged by the parties, it is
agreed as follows:
ARTICLE I. INTRODUCTION AND SCOPE
- -------------------------------------
ALLIEDSIGNAL and CUSTOMER herewith enter into this Engine Maintenance Cost
Protection Program (EMCPP) under which ALLIEDSIGNAL will provide Off-Wing
Maintenance and Repair in support of CUSTOMER'S ALF502R Series Engines, in
consideration for which CUSTOMER will monthly pay ALLIEDSIGNAL the established
dollar amount per Engine Flight Hour as specified in Article VIII hereof,
subject to the obligations, procedures, guidelines and other terms and
conditions as set forth herein. A schedule of coverage of the EMCPP Program
and the responsibilities of each party is categorized in Exhibit A hereto.
ARTICLE II. DEFINITIONS
- ----------------------------
As used in this Engine Maintenance Cost Protection Program, the following words
and phrases have the following meanings:
A. "Aircraft", as used herein, shall mean the BAe 146 Series Aircraft
manufactured by BAe and acquired/operated/leased by CUSTOMER for use
in airline service.
B. "Engines", as used herein, shall mean those twenty-two (22) eligible
ALF502R Series Turbofan Engines identified in Exhibit D hereto which
are acquired for use on Aircraft and does not include QEC Hardware.
-1-
<PAGE> 5
C. "Modules", as used herein, shall mean sub assembly sections of the
Engine.
D. "Parts", as used herein, shall mean components for Engines, Modules,
and Accessories.
E. "Life Limited Parts", as used herein, shall mean those Parts which
have defined life limits as defined within AlliedSignal Service
Bulletin 72-002.
F. "Flight Hours" or "Flying Time", as used herein, shall mean the amount
of time incurred by the Aircraft from the moment of wheels-off the
ground to the moment of wheels-on the ground at the end of the flight.
G. "Relevant Period", as used herein, shall mean a period of time
commencing with the delivery of the first ALF502R powered BAe146
aircraft into Customers fleet and ending upon the anniversary of the
delivery date of the fifth Aircraft, or upon termination of the
Aircraft lease, without regard to extensions, whichever occurs first.
H. "Engine Accessories", as used herein, shall mean non-line expendable
material items which may normally be removed and replaced with the
Engine installed in the Aircraft as part of flight line maintenance
activities.
I. "Repair", as used herein, shall mean the disassembly, inspection,
restoration, Parts replacement, reassembly and testing of Engines and
Modules to permit said equipment to continue service operations.
J. "Corrosion", as used herein, shall mean a condition of oxidation
caused by an environmental or chemical reaction, and which would lead
to Part or Engine functional deterioration.
K. "Unserviceable Part", as used herein, shall mean a Part which is not
in proper operating condition within the limits defined in applicable
manuals, specification, and/or publications.
L. "On-Wing Maintenance", as used herein, shall mean maintenance, in
addition to normal line maintenance tasks, i.e. oil system
maintenance, chip detector inspections, etc., Tasks 1 through 11 as
defined in Exhibit E which are customarily accomplished with the
Engine installed on the Aircraft.
M. "Off-Wing Maintenance", as used herein, shall mean maintenance actions
beyond Task 11 which are customarily accomplished with the Engine
removed from the Aircraft.
N. "QEC Hardware", as used herein, shall mean interface hardware
installed by the CUSTOMER on an Engine to achieve a maximum neutral
Engine configuration including those Parts making an Engine peculiar
to a particular position on an Aircraft.
O. "Item", as used herein, shall mean Engines, Modules, Engine
Accessories, and Parts.
-2-
<PAGE> 6
P. "Line Expendable Material", as used herein, shall mean those
non-repairable Items normally associated with Engine servicing. Such
Items would include, but not be limited to, packings, o-rings,
gaskets, oil and fuel filters.
Q. "CAA", as used herein, shall mean the Civil Aviation Authority.
R. "FAA", as used herein, shall mean the Federal Aviation Authority.
S. "Customer Inventory", as used herein, shall mean those on-hand Items
of property which belong to the CUSTOMER.
T. "Notice", as used herein, shall mean a written communication,
including telex and telefax, received at the business address defined
in Article XI herein.
U. "Accounting Period", as used herein, shall mean a twelve (12) calendar
month period within the Relevant Period.
V. "Aircraft Lease", as used herein, shall mean those certain leases
between Jet Acceptance Corporation/AMO and the CUSTOMER for the lease
of five (5) BAe-146 series Aircraft.
ARTICLE III. BASIC UNDERSTANDINGS
- -------------------------------------
A. CUSTOMER acknowledges and agrees that the basic understandings set
forth herein with respect to CUSTOMER'S intended utilization of the
Aircraft and expected on condition maintenance practices and
procedures are conditions precedent to ALLIEDSIGNAL'S willingness to
offer this Engine Maintenance Cost Protection Program. Changes in any
of the basic understandings shall be considered a material change
entitling ALLIEDSIGNAL or CUSTOMER to a fair and reasonable adjustment
in the rate per Engine Flight Hour set forth in Exhibit F and Article
VIII hereof and in any other provisions of this Engine Maintenance
Cost Protection Program which may be affected thereby.
B. A Basic understanding is that CUSTOMER must maintain the recommended
level of two spare ALF502R engine(s) to support the fleet of five BAe
146-200 Aircraft. Spare engines to be obtained as agreed in separate
Customer Support Agreement.
C. A basic understanding is that during the Relevant Period all Off-Wing
Maintenance, Repair, and overhaul of the CUSTOMER'S Engines will be
performed by ALLIEDSIGNAL, or an approved Service Center, or the
CUSTOMER. ALLIEDSIGNAL reserves the right, in its sole discretion, to
subcontract the whole or any part of the Repair of any Item.
D. A basic understanding is that CUSTOMER'S Flying Time shall average
between [*] and [*] minutes per flight and annual utilization shall
average [*] Flight Hours per Aircraft per year. A material change
shall be considered to have occurred should CUSTOMER'S Flying Time
-3-
<PAGE> 7
average less than [*] minutes per flight or average greater than [*]
minutes per flight and/or CUSTOMER'S annual utilization averages less
than [*] Flight Hours per Aircraft per year. Adjustments to the then
current EMCPP hourly rate will be made in accordance with Exhibit F.
E. A basic understanding is that once the CUSTOMER has reached a fleet of
five BAe146 Aircraft, the CUSTOMER must fully operate not less than
four (4) BAe 146-200 Aircraft in its fleet to benefit from this Engine
Maintenance Cost Protection Program.
F. Deleted.
G. Within the first year of operation and based upon CUSTOMER
revenue operations, CUSTOMER and ALLIEDSIGNAL will jointly establish a
fleet average mission profile (Temperature/Time) for the CUSTOMER'S
fleet (TGT in C(degree)/Time in minutes) for takeoff, climb and cruise
equating to a CUSTOMER fleet average derate of 10%. A basic
understanding is that the CUSTOMER will operate the Aircraft in such a
manner that the fleet average of the individual Aircraft mission
profile weighted average temperatures established above will not be
exceeded.
A material change shall have occurred should the fleet average of the
individual Aircraft mission profile weighted average temperatures vary
upward by [*] or more from the above specified value for a given
Accounting Period. To verify compliance with these temperature
parameters, ALLIEDSIGNAL may conduct periodic audits of the flight
data and conduct periodic audits of the flight crew operating
practices and procedures being followed by the CUSTOMER'S fleet.
H. [*]
I. [*]
-4-
<PAGE> 8
[*]
ARTICLE IV. PROGRAM PERIOD
- ------------------------------
The program period for this "EMCPP" Program is that as previously defined as
the "Relevant Period".
ARTICLE V. ALLIEDSIGNAL'S OBLIGATIONS
- -----------------------------------------
A. In addition to other responsibilities as may be set forth herein,
except for those exclusions listed in Article VII, ALLIEDSIGNAL shall
provide for labor, Parts (excluding Life Limited Parts) and material
for performance of Off-Wing Maintenance and Repair of CUSTOMER'S
Engines and related Items including incorporation of required or
mandatory Service Bulletins as determined by ALLIEDSIGNAL or the
FAA/CAA.
B. ALLIEDSIGNAL shall furnish its facilities, tooling and resources for
maintenance administratively through its main headquarters in Phoenix,
AZ. ALLIEDSIGNAL may perform the work effort at any of various
locations at its own discretion, and at its option may choose to
perform limited tasks on-site where feasible or necessary to resolve
emergency situations.
C. [*]
D. ALLIEDSIGNAL will provide to CUSTOMER, Engine disassembly and teardown
reports upon completion of an Engines shop visit, so as to allow
CUSTOMER to meet FAA mandated reporting requirements.
-5-
<PAGE> 9
E. Cooperate in a manner which will enable CUSTOMER to
effectively perform its obligations under this Agreement.
ARTICLE VI. CUSTOMER'S OBLIGATIONS
- --------------------------------------
The CUSTOMER throughout the Relevant Period shall:
A. Maintain, in a format to be agreed upon with ALLIEDSIGNAL, a daily
performance and status report (to also include operating time and
cycles and pertinent trend monitoring data) for each Engine. The
CUSTOMER shall accumulate and provide such reports to ALLIEDSIGNAL
within 15 days after the end of each calendar month together with any
other pertinent records which may reasonably be required by
ALLIEDSIGNAL for administration of this Agreement.
The CUSTOMER shall also keep a detailed maintenance and utilization
history of the Engines to a standard agreed between ALLIEDSIGNAL and
CUSTOMER and supply to ALLIEDSIGNAL such certified records as may
reasonably be required by ALLIEDSIGNAL.
B. Maintain an accurate record of Parts condemned or repaired in
maintaining and repairing the Engines.
C. Operate, trend monitor, maintain and rectify or Repair the Engines and
Parts supplied by ALLIEDSIGNAL in the manner specified by BAe and/or
ALLIEDSIGNAL in the following documents:
BAe 146 Aircraft Maintenance Manual
BAe 146 CAA Approved Flight Manual
BAe 146 Operations Manual
BAe 146 MRB Report
ALLIEDSIGNAL ALF502R Engine Manual
ALLIEDSIGNAL Parts Re-work Procedures
ALLIEDSIGNAL Service Bulletins and Service Letters
ALLIEDSIGNAL Written Instructions
D. Implement and utilize Reduced Thrust or Optimum Power Management
procedures as defined in the BAe 146 CAA Approved Flight Manual.
Operation of the Aircraft pursuant to this Agreement is to be such
that the Engine temperature shall not exceed the time weighted average
operating temperature as mutually agreed to following the first year
of operation, as set forth in Article III, Paragraph G.
E. Utilize only oils and fuel qualified by ALLIEDSIGNAL.
-6-
<PAGE> 10
F. Accept ALLIEDSIGNAL'S reasonable offers to provide free of charge
technical service support by qualified personnel and/or corrective
engineering design changes and implement those recommendations which
may be reasonably requested by ALLIEDSIGNAL'S technical support
personnel.
G. Install within a reasonable time after optional Service Bulletin
release all new or used serviceable free of charge Parts or
modifications supplied by ALLIEDSIGNAL at its sole discretion,
provided the installation of the Parts/modifications is within the
CUSTOMER'S capability to perform.
H. Not permit the installation of any Item on an Engine that was not
authorized by ALLIEDSIGNAL for such purpose.
I. At its own labor and Line Expendable Material expense, perform Engine
On-Wing Maintenance activities in accordance with CAA/FAA and
ALLIEDSIGNAL instructions. Engine removals necessitated by
operational time constraints notwithstanding, CUSTOMER must cooperate
with ALLIEDSIGNAL in adhering to a policy to minimize return of
Engines to the overhaul shop for repair by maximum utilization of the
line repair stations to promote lower maintenance costs.
J. Use its best endeavors to ship to ALLIEDSIGNAL, complete Engines, with
regard to Parts and Accessories. CUSTOMER may, at its own discretion,
remove Parts or Accessories determined by CUSTOMER to be required to
support the CUSTOMER'S operation. ALLIEDSIGNAL will return the Engine
to the CUSTOMER in the "as received" condition, with regard to any
Part(s) or Accessories(s) not received with an Engine at an
ALLIEDSIGNAL facility.
K. Accurately identify each Engine change and notify ALLIEDSIGNAL within
5 working days as to the Aircraft in which each Engine is operating.
L. Cooperate in a manner which will enable ALLIEDSIGNAL to effectively
perform its obligations under this Agreement.
M. Cooperate fully with ALLIEDSIGNAL in providing resources and
unrestricted access to Engine Items when it has been mutually
determined by the parties that a maintenance task should be performed
on-site.
N. Make payments to ALLIEDSIGNAL in accordance with Article VIII of this
Agreement.
O. Use only ALLIEDSIGNAL approved Items in support of its Engines.
P. Warrant that all flight hours and cycles recorded and reported to
ALLIEDSIGNAL are correct.
-7-
<PAGE> 11
ARTICLE VII. PROGRAM EXCLUSIONS
- -----------------------------------
CUSTOMER accepts full responsibility for the following and agrees that they are
not covered under this Agreement and further agrees as applicable to discharge
these responsibilities in a timely manner;
A. Transportation, taxes and insurance fees incurred by CUSTOMER.
B. Any damage resulting from abuse, negligence, ingestion of foreign
objects (including snow and ice or sand and dust or any corrosive
agent), corrosion or erosion beyond normal wear resulting from abuse.
C. Any damage resulting from droppage, accident, use of Repair procedures
not approved by ALLIEDSIGNAL or other event beyond the control of
ALLIEDSIGNAL such as lightning strikes, hard landings, and maintenance
errors except to the extent caused solely by an act or omission of
ALLIEDSIGNAL or any subcontractor of ALLIEDSIGNAL or both.
D. Any damage caused by or to items that are not included in Parts,
Engines, Modules or Accessories as herein defined.
E. Any damage caused by Spare Items not purchased from ALLIEDSIGNAL or
ALLIEDSIGNAL approved parts.
F. Operation of the Engine outside the limits per the following:
Installed - BAe 146 CAA Approved Flight Manual
Uninstalled - ALLIEDSIGNAL ALF502R Engine Manual
G. Items or repair services obtained from sources other than ALLIEDSIGNAL
or ALLIEDSIGNAL approved sources.
H. Replacement and Repair costs associated with Aircraft QEC components.
I. Costs arising from maintenance actions not indicated as necessary by
the maintenance requirements or serviceable condition criteria
published by ALLIEDSIGNAL or from minor maintenance actions which
could have reasonably been performed as On-Wing Maintenance.
J. Labor associated with On-Wing Line Maintenance including, but not
limited to, normal servicing, operational adjustments, engine
cleaning, routine scheduled inspection, trouble shooting including
engine borescope inspections and engine evaluation analysis, accessory
gearbox module and Accessory removals and replacements, and three
engine ferry preparation.
K. Removal and installation of Engines from Aircraft.
-8-
<PAGE> 12
L. Disassembly and reassembly of Aircraft hardware not part of Engine.
M. Replacement or Repair of tools, test rigs or test equipment.
ARTICLE VIII. PRICE AND PAYMENT TERMS
- -----------------------------------------
A. CUSTOMER shall within 15 days from the close of each calendar month
submit a Monthly Operation Report (Exhibit C) showing the total actual
number of Flight Hours accumulated during the month for each Engine
multiplied by the current hourly EMCPP Rate described below.
Simultaneous with such report, CUSTOMER shall submit the associated
payment to ALLIEDSIGNAL, without any need for a ALLIEDSIGNAL invoice,
in accordance with Paragraph C hereof.
The base EMCPP Rate per Engine Flight Hour for the Relevant Period is
[*] in January 1, 1996 dollars. The base EMCPP Rate shall be
escalated [*]
.
The above EMCPP Rate is based on the assumption that the CUSTOMER will
comply with all the Basic Understandings. If the CUSTOMER does not
comply with all the Basic Understandings, ALLIEDSIGNAL reserves the
right to a fair and reasonable adjustment to the EMCPP Rate.
B. Interest on all CUSTOMER'S past due amounts shall be invoiced and paid
at the Chase Manhattan Bank prime rate + 1% per annum (Based upon date
account becoming past due). Failure of the CUSTOMER to make payments
within 30 days of receipt of appropriate notice shall constitute a
breach of this Agreement, and acceptance by ALLIEDSIGNAL of any
interest on past due amount shall not constitute a waiver of
ALLIEDSIGNAL'S right to terminate this Agreement or withhold services
hereunder. CUSTOMER shall pay all reasonable attorney's fees,
expenses and costs incurred by ALLIEDSIGNAL in seeking recovery of an
amount due ALLIEDSIGNAL where payment has not been received within 30
days of appropriate Notice to CUSTOMER.
C. All payments from CUSTOMER to ALLIEDSIGNAL hereunder shall be remitted
in US Dollars by wire transfer via "S.W.I.F.T." to:
ABA Routing No. 021000021
Chase Manhattan Bank
New York, New York
Account No. 910-2-554780
MAKE PAYABLE TO: ALLIEDSIGNAL INC.,
ALLIEDSIGNAL ENGINES
-9-
<PAGE> 13
When and if wire transfer is made, CUSTOMER shall send to
ALLIEDSIGNAL'S Billing Department detailed information concerning the
amounts being paid by that wire transfer so that CUSTOMER'S account
may be credited properly.
If CUSTOMER is unable to effect payments by wire transfer, then such
conventional payments to ALLIEDSIGNAL shall be remitted in US Dollars
payable to ALLIEDSIGNAL at the following depository lockbox account:
ALLIEDSIGNAL INC., ALLIEDSIGNAL ENGINES
c/o Nations Bank
P.O. Box 840469 (Lockbox Account)
Dallas, Texas 75284-0469
ARTICLE IX. DISCLAIMER OF WARRANTY AND LIMITATION OF LIABILITY
- ------------------------------------------------------------------
A. ALLIEDSIGNAL AND CUSTOMER ACKNOWLEDGE AND AGREE THAT THIS EMCPP
CONTRACT CONSTITUTES SOLELY A COST CONTAINMENT MECHANISM FOR
MAINTENANCE OF CUSTOMER'S ENGINES AND SHALL NOT CONSTITUTE A
REPRESENTATION OR WARRANTY RELATING TO, (i)THE ACTUAL COST OF
OPERATION OR MAINTENANCE OF THE ENGINES, OR (ii) THE PERFORMANCE OF
THE ENGINES.
B. THE OBLIGATION OF ALLIEDSIGNAL TO PERFORM MAINTENANCE UNDER THIS
AGREEMENT IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES,
REPRESENTATIONS AND/OR REMEDIES, EXCEPT AS OUTLINED WITHIN THE
CUSTOMER SUPPORT AGREEMENT, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE, AND ALL
OTHER OBLIGATIONS OR LIABILITIES, RIGHTS OR CLAIMS, WHETHER IN
CONTRACT OR IN TORT, AT LAW OR IN EQUITY, OR UNDER ANY OTHER THEORY OF
RELIEF (INCLUDING BUT NOT LIMITED TO STRICT LIABILITY AND NEGLIGENCE
ON ALLIEDSIGNAL'S PART). [*]
-10-
<PAGE> 14
[*]
C. IN NO EVENT UNDER ANY THEORY OF LIABILITY (INCLUDING BUT NOT LIMITED
TO STRICT LIABILITY OR NEGLIGENCE ON ALLIEDSIGNAL'S PART) SHALL
ALLIEDSIGNAL BE LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL, EXEMPLARY,
OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOSS OF PROFITS
OR REVENUES, LOSS OF USE OF THE ENGINE OR AIRCRAFT, OR COST OF
REPLACEMENT.
ARTICLE X. FORCE MAJEURE
- ----------------------------
Neither party shall be liable for any excusable delay or failure to perform
hereunder due to causes beyond its reasonable control, including but not
limited to fires, explosions, floods, earthquakes, embargoes, wars (declared or
undeclared), riots, insurrections, civil commotion, unavoidable accidents,
unusual breakdown of machinery or plant, compliance with any law, enacted after
the date hereof regulation or order of a governmental agency applicable after
the date hereof, unforseeable shortage of materials, (including but not limited
to any occasioned by either party's choice as to its source of components),
delay in transportation, labor trouble causing stoppage or interruption of
work, or unusual and unforseeable delays by suppliers.
-11-
<PAGE> 15
ARTICLE XI. NOTICES
- -----------------------
Whenever any notice is required to be given by either party to the other, such
notice shall be by telegraph or in writing and shall be addressed as follows:
<TABLE>
<S> <C> <C>
To ALLIEDSIGNAL:
ALLIEDSIGNAL INC.
ALLIEDSIGNAL ENGINES
111 S. 34th Street Rapidfax: (602) 231-2309
Phoenix, AZ 85072 Telephone: (602) 231-3433
Attn: Director, Regional Turbofan Program
To CUSTOMER:
Atlantic Southeast Airlines, Inc.
100 Hartsfield Centre Rapidfax: (404) 209-0162
Suite 800 Telephone: (404) 766-1400
Atlanta, GA 30354-1356
Attn: Vice President - Finance
</TABLE>
Such notices shall be effective from the date of receipt. Change of addresses
may be accomplished by notice to the other party without changing this
Agreement.
ARTICLE XII. TERMINATION
- ----------------------------
A. Either party shall have the right to terminate this Agreement at any
time during its term upon the occurrence of one or more of the
following events:
1. If the other party becomes insolvent, makes an assignment for
the benefit of creditors, or becomes involved in any
proceedings for dissolution, or if such other party's goods
are seized by writ of attachment or otherwise, or if a
receiver for such other party is appointed, or a petition in
bankruptcy is filed by or against such other party.
-12-
<PAGE> 16
2. If the other party defaults by committing a breach in the
performance of any of the covenants and conditions of this
Agreement and such default is not remedied within a period of
forty-five (45) days following receipt by such other party of
NOTICE of default.
3. The other party terminates its existence or ceases to do
business.
4. The other party assigns or transfers this Agreement to any
person, entity or company, except as permitted by Article
XIV(B) hereto.
5. The Aircraft lease(s) is/are terminated.
6. [*]
B. Upon termination of this Agreement, any property which is in the
custody of a party other than its proper owner shall be returned to
its owner.
C. When this Agreement is terminated pursuant to this Article XII such
termination shall be without prejudice to any rights which may have
accrued to either party or to any other remedies which either party
may have.
ARTICLE XIII. TITLE
- -----------------------
ALLIEDSIGNAL and the CUSTOMER acknowledge and agree that Items may be removed
and replaced during the term of this Agreement. Accordingly, each party
warrants that it has or shall have title free and clear of all encumbrances for
the Items provided or exchanged by it and each shall deliver to the other such
documents as may be necessary to transfer title and release any encumbrances
effecting said Items. If CUSTOMER'S interest is not that of an owner or if the
Engine Items are subject to encumbrances, CUSTOMER shall obtain the consent of
the owner or
-13-
<PAGE> 17
encumbrances holder in a form satisfactory to ALLIEDSIGNAL. Any Item of
value supplied by ALLIEDSIGNAL under a lease shall remain the property of
ALLIEDSIGNAL, and the CUSTOMER shall not pledge, loan, relinquish possession
of, or suffer claims or encumbrances to be made thereon. Any new or repaired
serviceable Parts incorporated into an Item in the course of Repair in
accordance with this Agreement shall be deemed to have been sold to the
CUSTOMER and title to and risk of loss and damage to such Parts shall pass to
the CUSTOMER upon incorporation of such Parts into an Item. The title to the
Parts when removed shall simultaneously pass to ALLIEDSIGNAL.
ARTICLE XIV. GENERAL PROVISIONS
- -----------------------------------
A. Applicable Law
--------------
1. This Agreement shall be governed and construed according to
the laws of the State of [*], United States of America,
without reference to its conflicts or choice of law rules.
Any provision hereof which contravenes such laws will be
deemed void and of no effect but shall not be construed to
affect the rights and obligations of the parties under the
remaining provisions of this Agreement.
2. This Agreement is also subject to all the laws and regulations
and other administrative acts, now or hereafter in effect, of
the U.S. Government and its departments and agencies.
B. Assignment
----------
1. The rights and privileges of this Agreement are unique to
CUSTOMER and any entity or corporation controlled by or under
common control of the CUSTOMER and may not be assigned or
transferred by CUSTOMER or by operation of law without the
prior written approval of ALLIEDSIGNAL which will not be
unreasonably withheld.
2. The rights and privileges of this Agreement are unique to
ALLIEDSIGNAL and any entity or corporation controlled by or
under common control of ALLIEDSIGNAL and may not be assigned
or transferred by ALLIEDSIGNAL or by operation of law without
the prior written approval of CUSTOMER which will not be
unreasonably withheld.
3. This Agreement shall be binding upon and inure to the benefit
of ALLIEDSIGNAL ENGINES of ALLIEDSIGNAL INC. or to any
successor to substantially all of the business now conducted
by ALLIEDSIGNAL ENGINES of ALLIEDSIGNAL INC. relating to the
subject matter of this Agreement.
C. Entire Agreement
This Agreement contains the entire and only agreement between the
parties, respecting the subject matter hereof, and any representation,
promise, or condition in connection therewith
-14-
<PAGE> 18
not incorporated herein shall not be binding upon either party. No
modification, renewal, extension or waiver, of this Agreement or any
part of the provisions herein contained shall be binding upon the
party against whom enforcement of such modification, renewal,
extension or waiver is sought, unless it is made in writing and signed
by authorized representatives of each party.
D. Non-Disclosure
--------------
This Agreement is for the benefit of the parties hereto and is not for
the benefit of any third person, firm or corporation. ALLIEDSIGNAL
and CUSTOMER agree not to disclose any of the provisions of this
Agreement to any third party without the prior written consent of the
opposite party, except for the disclosure of information released to a
government agency as required by law or as required by public
accounting requirements.
E. Indemnity
---------
1. ALLIEDSIGNAL agrees to indemnify and hold harmless CUSTOMER,
its affiliates and their officers, directors, employees and
representatives, from and against all claims, losses, damages,
actions, suits or judgments, whether civil or criminal,
including costs and expenses incident thereto, arising in
whole or in part out of:
(i) The conduct of ALLIEDSIGNAL'S operations, including
but not limited to, the defective performance of
Services by ALLIEDSIGNAL;
(ii) Failure of ALLIEDSIGNAL to perform or comply with the
terms and conditions of this Agreement, including but
not limited to, laws, regulations and requirements of
the U.S. Government as are referred to in this
Agreement;
(iii) Death or injury to any persons or loss, damage or
destruction of any property, including but not
limited to, injuries or losses suffered by
ALLIEDSIGNAL'S employees, other than such claims as
arise from the sole negligence of CUSTOMER, its
agents and employees, arising while such employees
are at CUSTOMER'S facility for the purpose of this
Agreement.
(iv) Any claim of a third party that ALLIEDSIGNAL
misrepresented its authority or made any contractual
commitment not expressly authorized by this
Agreement.
2. CUSTOMER agrees to indemnify and hold harmless ALLIEDSIGNAL,
its affiliates and their officers, directors, employees and
representatives, from and against all claims, losses, damages,
actions, suits or judgments, whether civil or criminal,
including costs and expenses incident thereto, arising in
whole or in part out of:
-15-
<PAGE> 19
(i) The conduct of CUSTOMER'S operations, including but
not limited to, the defective performance of Services
by CUSTOMER;
(ii) Failure of CUSTOMER to perform or comply with the
terms and conditions of this Agreement, including but
not limited to, laws, regulations and requirements of
the U.S. Government as are referred to in this
Agreement;
(iii) Death or injury to any persons or loss, damage or
destruction of any property, including but not
limited to, injuries or losses suffered by CUSTOMER'S
employees, other than such claims as arise from the
sole negligence of ALLIEDSIGNAL, its agents and
employees, arising while such employees are at
ALLIEDSIGNAL'S facility for the purpose of this
Agreement.
(iv) Any claim of a third party that CUSTOMER
misrepresented its authority or made any contractual
commitment not expressly authorized by this
Agreement.
F. Transfer of Technical Data
--------------------------
1. ALLIEDSIGNAL and CUSTOMER agree to safeguard all technical
data furnished in accordance with this Agreement from
transmittal to other parties and it further agrees that such
technical data will not be used by ALLIEDSIGNAL and CUSTOMER
or anyone in privity with it for any use other than in
accordance with the terms of this Agreement.
2. CUSTOMER recognizes that the technical data, such as Engine
manuals, blueprints, service bulletins, etc., furnished by
ALLIEDSIGNAL contains proprietary trade secrets and
confidential information owned by ALLIEDSIGNAL and hereby
agrees that it will not disclose or use such information
except as provided herein during the term of this Agreement.
This obligation shall survive any termination or expiration of
this Agreement.
G. Remedies Cumulative
-------------------
Neither failure nor delay by one party to exercise any right, remedy,
power or privilege provided for herein or by statute or by law, or in
equity or otherwise shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, remedy, power or
privilege preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege.
-16-
<PAGE> 20
H. Residual Property
-----------------
Any residual Parts or other material which are removed from CUSTOMER'S
Engines in the course of maintenance or Repair performed in accordance
with this Agreement, shall become ALLIEDSIGNAL property effective with
the completion of such maintenance or Repair. With regard to
maintenance or Repair performed at a "Field Site", ALLIEDSIGNAL may
elect not to accept ownership of such residual property or shall
provide shipping instructions for shipment by CUSTOMER'S "Field Site"
to ALLIEDSIGNAL.
I. Captions
--------
The captions used in this Agreement are for convenience of reference
only and are not to be deemed or construed to limit or extend the
language of the provisions which they introduce.
J. Non-Waiver
----------
The failure of either party to insist in any one or more instances
upon the performance by the other of any of the terms, covenants or
conditions of this Agreement, or the exercise of any right under this
Agreement, shall not be construed as a waiver of the future
performance of any such term, covenant or condition, or the future
exercise of such right, but the obligation of such other party with
respect to such future performance shall continue in full force and
effect.
K. Precedence
----------
Purchase orders placed with ALLIEDSIGNAL are subject to the "Terms and
Conditions" of this Agreement which shall take precedence over any
other terms and conditions appearing on CUSTOMER'S or ALLIEDSIGNAL'S
forms.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement to be
effective as of the day and year first above written.
ALLIEDSIGNAL INC.,
ALLIEDSIGNAL ENGINES
/s/ Jon Beatty
---------------------------------------
(Signature)
Jon Beatty
---------------------------------------
(Name)
Regional Turbofan Program Director
---------------------------------------
(Title)
9/29/95
---------------------------------------
(Date)
-17-
<PAGE> 21
Atlantic Southeast Airlines, Inc.
/s/ George F. Pickett
------------------------------------
(Signature)
George F. Pickett
------------------------------------
(Name)
Chairman/CEO
------------------------------------
(Title)
10/3/95
------------------------------------
(Date)
-18-
<PAGE> 22
EXHIBIT A
---------
SCHEDULE OF COVERAGE
--------------------
<TABLE>
<CAPTION>
AlliedSignal Customer
Responsibility Responsibility
-------------------------------------
<S> <C> <C>
SUPPORT ELEMENTS
- ----------------
Spare Engines - X
Spare Parts (Initial LRU Lay-In) X -
(Initial Consumable/Expendable Lay-in) - X
Support Equipment & Tools (Initial) X -
MAINTENANCE AND INSPECTION (ON-WING)
- ------------------------------------
Labor - X
Parts Replenishment (Excluding Expendables) X -
Shipment Cost of Parts and Engine - X
QEC Hardware Repair/Replacement - X
Line Expendable Material - X
INTERMEDIATE/OVERHAUL MAINTENANCE (OFF-WING)
- --------------------------------------------
Labor X -
Parts Replenishment-Excluding LLPs X -
Parts Repair & Modification X -
Shipment Cost of Parts and Engine - X
QEC Hardware Build and Teardown - X
SERVICE BULLETIN COMPLIANCE
- ---------------------------
MANDATORY/RECOMMENDED
---------------------
Parts-Including Consumable X -
Labor X -
OPTIONAL/MODEL CONVERSION
-------------------------
Parts-Including Consumables - X
Labor - X
</TABLE>
-19-
<PAGE> 23
EXHIBIT B
EMCPP RATE ADJUSTMENT FORMULA
-----------------------------
The base EMCPP Rate (Po) will be adjusted in accordance with the following
formula:
P = Po (0.75 L/LO + 0.25 A/Ao)
P = Adjusted Hourly EMCPP Rate for each calendar year.
Po = Base hourly EMCPP Rate predicated upon January 1996
value.
L = The average hourly earnings for Standard Industrial
Classification (SIC) 3724 entitled "Aircraft Engine
and Engine Parts Labor" for the first nine months of
the calendar year preceding the year for which the P
is being calculated.
Lo = The average hourly earnings for Standard Industrial
Classification (SIC) 3724 entitled "Aircraft Engine
and Engine Parts Labor" for the months of January
through September 1995.
A = The average hourly direct labor rate for the
ALLIEDSIGNAL Engine production for the same period as
L.
Ao = The average hourly direct labor rate for the
ALLIEDSIGNAL Engine production for the months of
January through September 1995.
Note 1 In the event that any of the above data is not
available in time to permit the adjusted Hourly EMCPP
Rate calculation, the preceding period's value will
be utilized and the Hourly EMCPP Rate adjusted as
soon as circumstances permit.
Note 2 In the event that index SIC 3724 is discontinued or
the index base is changed, a mutually agreed
alternate index will be selected, and/or base index
value will be adjusted, in a fair and reasonable
manner.
Note 3 Subject to CUSTOMER'S Agreement, ALLIEDSIGNAL
reserves the right to change L and Lo from the
average hourly earnings to the Employment Cost Index
(ECI) when the Bureau of Labor begins publication of
such ECI index.
-20-
<PAGE> 24
EXHIBIT C
ENGINE MAINTENANCE COST PROTECTION PROGRAM
------------------------------------------
MONTHLY OPERATION REPORT
------------------------
Customer (Name & Address):
----------------------------------------------------
- ------------------------------------------------------------------------------
Reporting Period: From: To:
--------------------------- ------------------
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Aircraft Engine Engine History Reporting Flight
Serial Serial -------------- Period Hour Sub
Number Number TSN TSO CSN Hours Charge Total
------ ------ --- --- --- ----- ------ -----
<S> <C>
X -
- -------------------------------------------------------------------------------------------------
X -
- -------------------------------------------------------------------------------------------------
X -
- -------------------------------------------------------------------------------------------------
X -
- -------------------------------------------------------------------------------------------------
X -
- -------------------------------------------------------------------------------------------------
X -
- -------------------------------------------------------------------------------------------------
X -
- -------------------------------------------------------------------------------------------------
X -
- -------------------------------------------------------------------------------------------------
X -
- -------------------------------------------------------------------------------------------------
X -
- -------------------------------------------------------------------------------------------------
X -
- -------------------------------------------------------------------------------------------------
X -
- -------------------------------------------------------------------------------------------------
X -
- -------------------------------------------------------------------------------------------------
</TABLE>
Total Month
Signature/Title: Date: Charge Due:
------------------------- --------- --------
Mail Copy To:
-21-
<PAGE> 25
EXHIBIT D
---------
ENGINE ENROLLMENT FORM
----------------------
The twenty-two (22) ALF502R Series Engines and the Modules thereof that are
enrolled in the EMCPP Program are identified below. The module serial numbers
will be completed upon aircraft delivery.
<TABLE>
<CAPTION>
=======================================================================================
Engine Module Serial Numbers
- ---------------------------------------------------------------------------------------
(c)
(b) Gas Combustor
Engine S/N (a) Fan Producer Turbine (d) AGB
=======================================================================================
<S> <C> <C> <C> <C> <C>
1 LF0 5333A 86H007 86H007 86H007 86H006
- ---------------------------------------------------------------------------------------
2 LF0 5330A 86H005 86H005 87A005 86H005
- ---------------------------------------------------------------------------------------
3 LF0 5090A 83L001 83J001 89A002 86E009
- ---------------------------------------------------------------------------------------
4 LF0 5277A 86C008 86E010 86E010 84M008
- ---------------------------------------------------------------------------------------
5 LF0 5380A
- ---------------------------------------------------------------------------------------
6 LF0 5428A
- ---------------------------------------------------------------------------------------
7 LF0 5446A
- ---------------------------------------------------------------------------------------
8 LF0 5527A
- ---------------------------------------------------------------------------------------
9 LF0 5433A
- ---------------------------------------------------------------------------------------
10 LF0 5442A
- ---------------------------------------------------------------------------------------
11 LF0 5425A
- ---------------------------------------------------------------------------------------
12 LF0 5448A
- ---------------------------------------------------------------------------------------
13 LF0 5378A
- ---------------------------------------------------------------------------------------
14 LF0 5382A
- ---------------------------------------------------------------------------------------
15 LF0 5436A
- ---------------------------------------------------------------------------------------
16 LF0 5449A
- ---------------------------------------------------------------------------------------
17 LF0 5472A
- ---------------------------------------------------------------------------------------
</TABLE>
-22-
<PAGE> 26
<TABLE>
<CAPTION>
=======================================================================================
Engine Module Serial Numbers
- ---------------------------------------------------------------------------------------
(c)
(b) Gas Combustor
Engine S/N (a) Fan Producer Turbine (d) AGB
=======================================================================================
<S> <C>
18 LF0 5475A
- ---------------------------------------------------------------------------------------
19 LF0 5427A
- ---------------------------------------------------------------------------------------
20 LF0 5089A
- ---------------------------------------------------------------------------------------
21 LF0 TBDA
- ---------------------------------------------------------------------------------------
22 LF0 TBDA
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
=======================================================================================
</TABLE>
-23-
<PAGE> 27
EXHIBIT E
---------
MAINTENANCE TASKS
-----------------
<TABLE>
<CAPTION>
==========================================================================
TASK TASK DESCRIPTION
- --------------------------------------------------------------------------
<S> <C>
1 Engine/LRU Remove & Replace
- --------------------------------------------------------------------------
2 Module Remove & Replace + Handling
- --------------------------------------------------------------------------
3 Fan Blade Remove & Replace
- --------------------------------------------------------------------------
4 4th Turbine Remove & Replace
- --------------------------------------------------------------------------
5 AGB Seals Remove & Replace
- --------------------------------------------------------------------------
6 Overspeed Pickup Remove & Replace
- --------------------------------------------------------------------------
7 Fan Stator Remove & Replace
- --------------------------------------------------------------------------
8 Fan Rotor Remove & Replace
- --------------------------------------------------------------------------
9 #9 Seal Remove & Replace
- --------------------------------------------------------------------------
10 EGT Harness Remove & Replace
- --------------------------------------------------------------------------
11 #3 Bearing/Seal Remove & Replace
==========================================================================
</TABLE>
-24-
<PAGE> 28
EXHIBIT F
EMCPP HOURLY RATE ADJUSTMENT FORMULA
------------------------------------
ALF502R
INFLUENCE of FLIGHT TIME on DMC
[graph not reproduceable]
-25-
<PAGE> 1
EXHIBIT 10(af)
Confidential treatment has been applied for with
respect to certain provisions of this Exhibit, which
provisions have been omitted from this Exhibit,
marked with an asterisk (*) and filed separately with
the SEC.
<PAGE> 2
CUSTOMER SUPPORT AGREEMENT
(ALF 502 SERIES TURBOFAN ENGINES)
BETWEEN
ALLIEDSIGNAL AEROSPACE-ENGINE DIVISION
AND
ATLANTIC SOUTHEAST AIRLINES INC.
SEPTEMBER 1995
-1-
<PAGE> 3
INDEX
Articles:
I. Basic Product Support Program
II. Engine Warranty Program
III. Deleted
IV. Engine Reliability Guarantee Program
V. Engine Introductory Assistance
VI. Deleted
VII. Force Majeure
VIII. Notices
IX. Term & Termination
X. General Provisions
A. Applicable Laws
B. Assignment
C. Entire Agreement
D. Non-Disclosure
E. Indemnity
F. Remedies Cumulative
G. Captions
H. Non-Waiver
I. Precedence
J. Patent or Copyright Infringement
Sections:
1. Engine Warranty Program Terms and Conditions
2. General Warranty ("GW")
3. Service Life Warranty ("SLW")
4. Deleted
5. Engine Reliability Guarantee Program Profile
6. Basic Engine Caused Unscheduled Removal Rate Guarantee
7. Basic Engine In-Flight Shutdown Rate Guarantee
8. Engine Delay & Cancellation Rate Guarantee
9. Engine Introductory Assistance
-2-
<PAGE> 4
CUSTOMER SUPPORT AGREEMENT
- --------------------------
THIS AGREEMENT made and entered into as of the __________day of
________________1995, by and between AlliedSignal Inc., a Delaware corporation,
acting through its ALLIEDSIGNAL ENGINES business, a unit of AlliedSignal
Aerospace, with offices at 111 South 34th Street, Phoenix, AZ 85072
(hereinafter called "ALLIEDSIGNAL") and Atlantic Southeast Airlines, Inc.,
having a place of business at 100 Hartsfield Centre, Suite 800, Atlanta, GA
30354-1356 (hereinafter called "CUSTOMER").
WHEREAS, CUSTOMER intends to lease a fleet of five (5) BAe 146-200 Series
Aircraft manufactured by British Aerospace Limited; and
WHEREAS, each such Aircraft is to be equipped with four (4) used ALLIEDSIGNAL
ALF 502R-5 Turbofan Engines; and
WHEREAS, ALLIEDSIGNAL is prepared to offer CUSTOMER a support program for such
Engines (including spare engines) and CUSTOMER desires to participate in such
program.
NOW, THEREFORE, in consideration of the mutual premises and covenants herein
contained, the receipt of which is hereby acknowledged by the parties, it is
agreed as follows:
ARTICLE I - BASIC PRODUCT SUPPORT PROGRAM
- -----------------------------------------
A. ALLIEDSIGNAL agrees to provide those basic Product Support Services
for the Engines as defined in Appendix A attached hereto which is
incorporated by reference as if fully set forth herein. The
provisions of this Customer Support Agreement are in addition to and
do not reduce or eliminate the obligation of ALLIEDSIGNAL to the
CUSTOMER under the terms and conditions of the Engine Maintenance Cost
Protection Program Agreement.
ARTICLE II - ENGINE WARRANTY PROGRAM
- ------------------------------------
A. ALLIEDSIGNAL agrees to provide a Warranty Program with respect to the
Engines.
B. The terms and conditions of such Warranty Program are set forth in
Section 1 through 3, attached hereto and made a part of this
Agreement.
ARTICLE III - Deleted
- ---------------------
-3-
<PAGE> 5
ARTICLE IV - ENGINE RELIABILITY GUARANTEE PROGRAM
- -------------------------------------------------
A. ALLIEDSIGNAL agrees to provide a Reliability Guarantee Program with
respect to the Engines.
B. The terms and conditions of such Reliability Guarantee Program are set
forth in Sections 5 through 8, attached hereto and made a part of this
Agreement.
ARTICLE V - ENGINE INTRODUCTORY ASSISTANCE
- ------------------------------------------
A. ALLIEDSIGNAL agrees to provide an Engine Introductory Assistance
Program with respect to the Engines.
B. The terms and conditions of such assistance are set forth in Section
9, attached hereto and made a part of this Agreement.
ARTICLE VI - Deleted
- --------------------
The following ARTICLES, hereto referred to by title only, apply to this
Customer Support Agreement, with the wording and effectivity of each ARTICLE
being identical to that as written and applied to the EMCPP Agreement.
ARTICLE VII - FORCE MAJEURE
- ---------------------------
ARTICLE VIII - NOTICES
- ----------------------
Whenever any notice is required to be given by either party to the other, such
notice shall be by telegraph or in writing and shall be addressed as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
To ALLIEDSIGNAL:
ALLIEDSIGNAL
111 S. 34th Street Telefax: (602) 231-3433
Phoenix, AZ 85072 Telephone: (602) 231-2309
Attn: Director, Regional Turbofan Program
To CUSTOMER:
Atlantic Southeast Airlines, Inc.
Macon Municipal Airport Telefax: (912) 788-9588
Macon, Georgia 31297 Telephone: (912) 784-0318
Attention: Bill Hinson - V.P. Technical Services
</TABLE>
-4-
<PAGE> 6
Such notices shall be effective from the date of receipt. Change of
addresses may be accomplished by notice to the other party without changing
this Agreement.
ARTICLE IX - TERM AND TERMINATION
- ---------------------------------
ARTICLE X - GENERAL PROVISIONS
- ------------------------------
I. Precedence
Purchase orders placed with ALLIEDSIGNAL are subject to the "Terms and
Conditions" of the EMCPP Agreement which shall take precedence over
any other terms and conditions appearing on CUSTOMER's or
ALLIEDSIGNAL'S order forms.
J. Patent or Copyright Infringement
ALLIEDSIGNAL shall indemnify and defend CUSTOMER against all claims
and proceedings based upon actual or alleged infringement of any
patent or copyright by any Items furnished by ALLIEDSIGNAL to CUSTOMER
hereunder or based upon actual or alleged misappropriation or wrongful
use of any proprietary or confidential information involving any such
Item, provided that ALLIEDSIGNAL is notified by CUSTOMER of such
claims or proceedings with reasonable promptness. CUSTOMER shall
furnish all reasonable assistance required by ALLIEDSIGNAL to defend
itself against any claims and proceedings initiated by third parties.
-5-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have signed this Agreement to be
effective as of the day and year first above written.
ALLIEDSIGNAL INC.
ALLIEDSIGNAL ENGINES
/s/ Jon Beatty
--------------------------------------
(Signature)
Jon Beatty
--------------------------------------
(Name)
Regional Turbofan Program Director
--------------------------------------
(Title)
9/29/95
--------------------------------------
(Date)
Atlantic Southeast Airlines, Inc.
/s/ George F. Pickett
--------------------------------------
(Signature)
George F. Pickett
--------------------------------------
(Name)
Chairman/CEO
--------------------------------------
(Title)
10/3/95
--------------------------------------
(Date)
-6-
<PAGE> 8
SECTION 1: ENGINE WARRANTY TERMS AND CONDITIONS
- ---------- ------------------------------------
1.1 ALLIEDSIGNAL shall provide to CUSTOMER the following warranties in
respect of Engines and Parts supplied by ALLIEDSIGNAL whether directly
to CUSTOMER or through another agent of ALLIEDSIGNAL.
A. A General Warranty in the terms set out in Section 2 hereof,
and
B. A Service Life Warranty in the terms set out in Section 3
hereof.
1.2 Unless otherwise stated herein, warranty periods as defined in such
warranties, whether expressed in calendar periods or flying hours,
shall commence from the date of delivery of each Aircraft to CUSTOMER.
1.3 ALLIEDSIGNAL shall assign the benefits of such warranties to third
parties who purchase or lease Engines or Parts thereof from CUSTOMER
prior to the expiry of the relevant warranty periods provided
notification of such purchases or leases are made to ALLIEDSIGNAL
within 28 days and provided that the terms of the warranties specified
in paragraph 1.1 of this Section 1 may be renegotiated where
reasonably required by ALLIEDSIGNAL.
1.4 Notwithstanding that CUSTOMER may be simultaneously entitled under the
several warranties contained in Section 2 and 3 inclusive of this
Section:
A. ALLIEDSIGNAL shall not be obliged to meet any claim made by
CUSTOMER under one or more such warranties where to do so
would result in CUSTOMER being indemnified, compensated or
otherwise relieved again for the same incident or occurrence
in respect of which CUSTOMER has already received from
ALLIEDSIGNAL indemnity, compensation or other relief; and
B. While CUSTOMER shall have the right to elect under which one
or more of such warranties it brings claim or claims CUSTOMER
shall not so marshall its claims that the intention of
sub-paragraph A above is circumvented.
1.5 THE OBLIGATION OF ALLIEDSIGNAL TO PERFORM MAINTENANCE UNDER THIS
AGREEMENT IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES,
REPRESENTATIONS AND/OR REMEDIES, EXCEPT AS OUTLINED WITHIN THE
CUSTOMER SUPPORT AGREEMENT, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE, AND ALL
OTHER OBLIGATIONS OR LIABILITIES, RIGHTS OR CLAIMS, WHETHER IN
CONTRACT OR IN TORT, AT LAW OR IN EQUITY, OR UNDER ANY OTHER THEORY OF
RELIEF (INCLUDING BUT NOT LIMITED TO STRICT LIABILITY AND NEGLIGENCE
ON ALLIEDSIGNAL'S PART). [*]
-7-
<PAGE> 9
[*]
SECTION 2: GENERAL WARRANTY ("GW")
- ---------- -----------------------
Herein is set forth the General Warranty provided by ALLIEDSIGNAL.
2.1 ALLIEDSIGNAL hereby warrants subject to the provisions hereof that:
(a) All ALLIEDSIGNAL Engines and Modules supplied fitted to BAe
146 series Aircraft on delivery,
(b) All new Engines and Modules supplied by ALLIEDSIGNAL TO
CUSTOMER as spares, and
(c) All new Parts supplied by ALLIEDSIGNAL TO CUSTOMER as Spares,
shall, at time of delivery, comply with the relevant specification and be free
from defect in workmanship, materials, or design having regard to the state of
the art at the date of design.
Any such Item or Part thereof unserviceable by its nonconformance to the above,
or rendered unserviceable as a result of nonconformance in another such Part,
shall be rectified by ALLIEDSIGNAL pursuant to terms below. Unserviceability
may be by failure, breakage, damage, malfunction, or abnormal deterioration.
(d) All Engines, Modules, and Parts supplied by ALLIEDSIGNAL after
overhaul or repair by ALLIEDSIGNAL shall, at the time of
delivery, comply with the relevant specification and be free
from defect in workmanship and materials supplied in the
repair or overhaul, and each new Part installed shall be free
from defect in material, workmanship or design having regard
to the state of the art at the time of design.
-8-
<PAGE> 10
In any such Item, any such Part unserviceable by its nonconformance to
the above shall be rectified by ALLIEDSIGNAL pursuant to terms below.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
WARRANTED ITEM WARRANTY PERIOD WARRANTY CHARGE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
All Items listed in Two years from delivery of each No direct charge
paragraph 2.1(a) above Aircraft to CUSTOMER or for the
first 2000 flying hours whichever
first expires
- ----------------------------------------------------------------------------------------------------------------
All Items listed in paragraph Two years from the date of dispatch No direct charge
2.1(b) and (c) above from ALLIEDSIGNAL of the Item or
for the first 2000 flying hours
whichever first expires
- ----------------------------------------------------------------------------------------------------------------
All Items listed in paragraph After repair or overhaul, two years No direct charge
2.1(d) above from dispatch from ALLIEDSIGNAL, or
1000 flying hours from first use,
whichever first expires
- ----------------------------------------------------------------------------------------------------------------
Any new Item listed Table 2.A For the flying hours, stated in No direct charge up to first
attached hereto Table 2.A attached hereto over a 2000 flying hours and then
calendar period not to exceed that prorata from no charge at the
stated above as respectively first 2000 flying hours to full
applicable to Items listed in price at end of the flying hours
2.1(a), (b), and (c) stated in Table 2.A
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
2.2 In all cases, charges incurred associated with Engine and QEC removal
and installation, transportation, taxes and insurance shall be borne
by CUSTOMER.
2.3 ALLIEDSIGNAL shall not be obligated to accept any claim under this GW
in the event that the equipment or Part which is the subject of the
claim has been subjected to damage resulting from ingestion of birds,
snow and ice, salt corrosion or any maintenance, overhaul,
installation, handling, alteration or modification, experimental
running, storage, operation or use not in accordance with the
applicable ALLIEDSIGNAL instructions; or has been operated on fuels or
lubricants other than those specifically identified in the Technical
Specification (unless such subjection is at the hands of ALLIEDSIGNAL
or its servants); or has suffered an accident, misuse or neglect
(otherwise than while in ALLIEDSIGNAL possession) unless there is
reasonable evidence that the occurrence of such event was not the
primary cause of the claim. Further ALLIEDSIGNAL shall not be liable
under this warranty to replace expendable and standard consumable
hardware.
-9-
<PAGE> 11
2.4 Any claim under this GW shall be submitted within 90 days of discovery
of the nonconformance.
2.5 Rectification required in paragraph 2.1 shall be by repair or
replacement of the nonconforming Item or any Part thereof at the
option of ALLIEDSIGNAL. Rectification shall be made diligently and
shipment shall be without delay. The provisions of this GW shall
apply to each rectified Item and its warranty period commencement and
service time accumulation shall be deemed that of its corresponding
nonconforming Item at the time of withdrawal from service.
2.6 Subject to ALLIEDSIGNAL'S agreement (which agreement shall not be
withheld unreasonably) CUSTOMER may elect to carry out a warranted
rectification by repair within the terms of this GW. In the event of
such election:
A. ALLIEDSIGNAL shall reimburse to CUSTOMER the costs of such
repair. Such costs shall be assessed on a fair and reasonable
basis.
B. ALLIEDSIGNAL shall be under no liability whatsoever in respect
of workmanship or material used in such repair other than for
spare Parts pursuant to paragraph 2.1(c) or (d).
2.7 Deleted
2.8 ALLIEDSIGNAL shall have no liability under this GW otherwise than as
expressly provided in the foregoing paragraphs hereof.
-10-
<PAGE> 12
<TABLE>
<CAPTION>
- ------------------------------------------------------------
TABLE 2.A
PRORATA NEW PARTS WARRANTY
- ------------------------------------------------------------
Warranted Flying Hours Since 3000 4000 5000
New:
- ------------------------------------------------------------
<S> <C> <C> <C>
FAN ROTOR ASSEMBLY
------------------
Fan Disc x
- ------------------------------------------------------------
Fan Blade x
- ------------------------------------------------------------
Supercharger Disc x
- ------------------------------------------------------------
Supercharger Blade x
- ------------------------------------------------------------
Fan Stator (casing) x
- ------------------------------------------------------------
Supercharger Stator (inlet) x
- ------------------------------------------------------------
Supercharger Stator (exit) x
- ------------------------------------------------------------
REDUCTION GEARS
---------------
- ------------------------------------------------------------
Bell Gear x
- ------------------------------------------------------------
Planet Gears x
- ------------------------------------------------------------
Sun Gear x
- ------------------------------------------------------------
Planet Gear Carrier x
- ------------------------------------------------------------
COMPRESSOR
----------
- ------------------------------------------------------------
Axial Blades x
- ------------------------------------------------------------
Spacers x
- ------------------------------------------------------------
Disc x
- ------------------------------------------------------------
Shaft x
- ------------------------------------------------------------
Centrifugal Compressor x
- ------------------------------------------------------------
Stators x
- ------------------------------------------------------------
Compressor Housing x
- ------------------------------------------------------------
COMBUSTOR
---------
- ------------------------------------------------------------
Liner x
- ------------------------------------------------------------
Housing x
- ------------------------------------------------------------
HIGH PRESSURE TURBINE
---------------------
- ------------------------------------------------------------
1st Turbine Blades x
- ------------------------------------------------------------
1st Turbine Disc x
- ------------------------------------------------------------
1st & 2nd Stage Sealing Plates x
- ------------------------------------------------------------
Spacer x
- ------------------------------------------------------------
</TABLE>
-11-
<PAGE> 13
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
TABLE 2.A
PRORATA NEW PARTS WARRANTY
- -----------------------------------------------------------------
Warranted Flying Hours Since 3000 4000 5000
New:
- -----------------------------------------------------------------
<S> <C> <C>
2nd Stage Blades x
- -----------------------------------------------------------------
2nd Stage Disc x
- -----------------------------------------------------------------
Low Pressure Turbine
--------------------
- -----------------------------------------------------------------
3rd Stage Blade x
- -----------------------------------------------------------------
3rd Stage Disc x
- -----------------------------------------------------------------
Power Shaft x
- -----------------------------------------------------------------
4th Stage Blades x
- -----------------------------------------------------------------
4th Stage Disc x
- -----------------------------------------------------------------
Main Engine Bearings x
- -----------------------------------------------------------------
Gearbox (case, shaft, drive, gears, x
bearings)
- -----------------------------------------------------------------
Oil Tank x
- -----------------------------------------------------------------
All other Parts x
- -----------------------------------------------------------------
Accessories As Identified Below x
- -----------------------------------------------------------------
Lube and Scavenge Pump x
- -----------------------------------------------------------------
Fuel/Oil Heat Exchanger x
- -----------------------------------------------------------------
Fuel Flow Divider x
- -----------------------------------------------------------------
Thermocouple Harness x
- -----------------------------------------------------------------
NH & NL Speed Pick-Up x
- -----------------------------------------------------------------
Ignition Exciter x
- -----------------------------------------------------------------
Air Bleed Actuator x
- -----------------------------------------------------------------
Drain Valve x
- -----------------------------------------------------------------
Overspeed Controller x
- -----------------------------------------------------------------
Anti-Icing Valve x
- -----------------------------------------------------------------
Fuel Ecology Valve x
- -----------------------------------------------------------------
Fuel Valve x
- -----------------------------------------------------------------
Fuel Control Unit x
- -----------------------------------------------------------------
In-Line Fuel Filter x
- -----------------------------------------------------------------
Main Fuel Filter x
- -----------------------------------------------------------------
Gearbox Chip Detector x
- -----------------------------------------------------------------
</TABLE>
-12-
<PAGE> 14
SECTION 3: SERVICE LIFE WARRANTY ("SLW")
- ---------- -----------------------------
Herein is set forth the SLW provided by ALLIEDSIGNAL.
3.1 ALLIEDSIGNAL hereby warrants subject to the provisions hereof that the
Parts listed in Table 3.A, below, supplied by ALLIEDSIGNAL or an agent
of ALLIEDSIGNAL TO CUSTOMER for use with the BAE146 series Aircraft,
shall be approved for the warranted service life stated in said table.
3.2 In the event that any life restriction is imposed by the Airworthiness
Authority or ALLIEDSIGNAL upon any such Part held by CUSTOMER with the
result that the said Part is no longer approved for its warranted
service life as herein defined, ALLIEDSIGNAL undertakes to make
available a replacement Part or at its option a modified Part free
from life restriction at a price to be determined in accordance with
the formula:
P = C x T/N
where P = the price to be paid for the replacement Part or
modified Part
C = the price which would, apart from the undertaking, be
payable by CUSTOMER to ALLIEDSIGNAL for the
replacement or modified Part at the time of
replacement.
T= mandatory retirement life imposed in respect of the
replaced Part and published in ALLIEDSIGNAL service
bulletins or the actual life achieved by the replaced
part, whichever is the greater.
N= warranted service life of the replaced Part.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
TABLE 3.A
- ------------------------------------------------------------------------------------------------------
<S> <C>
Fan & Supercharger Discs The warranted service life is 80% of the service
life specified in the applicable revision to
ALLIEDSIGNAL'S Service Bulletin No. ALF502-72-002 in
effect at the date of the Agreement
- -----------------------------------
Compressor Discs, Spacers &
Impeller
- -----------------------------------
Turbine Discs, Sealing Plate,
Spacers & Shaft
- -----------------------------------
</TABLE>
-13-
<PAGE> 15
SECTION: 4 DELETED
- ----------- -------
SECTION: 5 ENGINE RELIABILITY GUARANTEE PROGRAM PROFILE
- ----------- --------------------------------------------
This Section provides a profile and general understandings regarding the
reliability guarantees provided by ALLIEDSIGNAL to CUSTOMER. Except as
provided herein, definitions applicable to the guarantees are set forth in
Appendix B attached hereto which are incorporated by reference as if fully set
forth herein.
5.1 ALLIEDSIGNAL herein provides CUSTOMER the following guarantees in
respect of Engines and Parts supplied by ALLIEDSIGNAL whether directly
to CUSTOMER or through an agent of ALLIEDSIGNAL.
A. Basic Engine Unscheduled Removal Rate Guarantees in the terms
set out in Section 6 hereof.
B. Basic Engine In-Flight Shutdown Rate Guarantee in the terms
set out in Section 7 hereof, and
C. Engine Delay And Cancellation Rate Guarantee in the terms set
out in Section 8 hereof.
5.2 Unless otherwise stated herein, guarantee periods as defined in the
following Sections shall commence at the time of delivery of the first
BAe146 series Aircraft delivered to CUSTOMER.
5.3 Notwithstanding that CUSTOMER may be simultaneously entitled under the
several guarantees contained in Sections 6 through 8 inclusive of this
Agreement:
A. ALLIEDSIGNAL shall not be obliged to meet any claim made by
CUSTOMER under one or more such guarantees where so to do
would result in CUSTOMER being indemnified, compensated or
otherwise relieved again for the same incident or occurrence
in respect of which CUSTOMER has already received from
ALLIEDSIGNAL indemnity, compensation or other relief; and
B. While CUSTOMER shall have the right to elect under which one
or more of such guarantees it brings claim or claims CUSTOMER
shall not so marshall its claims that the intention of
sub-paragraph A above is circumvented.
5.4 THE OBLIGATION OF ALLIEDSIGNAL TO PERFORM MAINTENANCE UNDER THIS
AGREEMENT IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES,
REPRESENTATIONS AND/OR REMEDIES, EXCEPT AS OUTLINED WITHIN THE
CUSTOMER SUPPORT AGREEMENT, EXPRESS OR IMPLIED, INCLUDING ANY
-14-
<PAGE> 16
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE,
AND ALL OTHER OBLIGATIONS OR LIABILITIES, RIGHTS OR CLAIMS, WHETHER IN
CONTRACT OR IN TORT, AT LAW OR IN EQUITY, OR UNDER ANY OTHER THEORY OF
RELIEF (INCLUDING BUT NOT LIMITED TO STRICT LIABILITY AND NEGLIGENCE
ON ALLIEDSIGNAL'S PART). [*]
5.5 BASIC UNDERSTANDINGS
--------------------
A. The basic understandings set forth herein with respect to
CUSTOMER's intended utilization of the Aircraft and expected
maintenance practices and procedures are material to
ALLIEDSIGNAL'S willingness to offer the described guarantees.
Changes in any of the basic understandings shall be considered
a material change entitling ALLIEDSIGNAL to an adjustment in
the guarantees set forth in the following Sections hereof and
in any other provisions of this Section as may be affected
thereby.
B. A basic understanding is that CUSTOMER must maintain the
recommended level of spare ALF 502-R5 engine(s) to support the
BAe146 Aircraft fleet.
C. A basic understanding is that all maintenance, repairs, and
overhaul will be performed by CUSTOMER and/or ALLIEDSIGNAL, or
a ALLIEDSIGNAL approved facility.
D. A basic understanding is that CUSTOMER's Flying Time shall
average [*] to [*] minutes per flight and annual utilization
shall average [*] Flight Hours per year per Aircraft. A
material change shall be considered to have occurred should
CUSTOMER's Flying Time average less than [*] minutes per
flight or its aggregate average annual utilization fall below
[*] Flight Hours per Aircraft during the Relevant Period.
E. A basic understanding is that once the CUSTOMER has reached a
fleet of [*] Aircraft, CUSTOMER must fully operate not less
than [*] BAe146 Aircraft in its fleet to benefit from
this Engine Reliability Guarantee Program.
F. Deleted.
-15-
<PAGE> 17
G. WITHIN THE FIRST YEAR OF OPERATION AND BASED UPON
CUSTOMER REVENUE OPERATIONS, CUSTOMER AND
ALLIEDSIGNAL WILL JOINTLY ESTABLISH A FLEET AVERAGE
MISSION PROFILE (TEMPERATURE/TIME) FOR THE CUSTOMER'S
FLEET (TGT IN C DEGREE/TIME IN MINUTES) FOR TAKEOFF,
CLIMB AND CRUISE EQUATING TO AN CUSTOMER FLEET AVERAGE
DERATE OF 10%. A BASIC UNDERSTANDING IS THAT THE
CUSTOMER WILL OPERATE THE AIRCRAFT IN SUCH A MANNER
THAT THE FLEET AVERAGE OF THE INDIVIDUAL AIRCRAFT
MISSION PROFILE WEIGHTED AVERAGE TEMPERATURES
ESTABLISHED ABOVE WILL NOT BE EXCEEDED.
A material change shall have occurred should the
fleet average of the individual Aircraft mission
profile weighted average temperatures vary upward by
[*] or more from the above specified value for a
given Accounting Period. To verify compliance with
these temperature parameters, ALLIEDSIGNAL may
conduct periodic audits of the flight data and
periodic audits of the flight crew operating
practices and procedures being followed by the
CUSTOMER's fleet.
5.6 GENERAL OBLIGATIONS
-------------------
The reliability guarantees provided herein are binding upon
ALLIEDSIGNAL only so long as CUSTOMER shall:
1. Maintain, in a format to be agreed upon with ALLIEDSIGNAL, a
daily performance and status report (to also include operating
time and cycles and pertinent trend monitoring data) for each
Engine. The CUSTOMER shall accumulate and provide such
reports to ALLIEDSIGNAL within 15 days after the end of each
calendar month together with any other pertinent records which
may reasonably be required by ALLIEDSIGNAL for administration
of this Agreement.
The CUSTOMER shall also keep a detailed maintenance and
utilization history of the Engines to a standard agreed
between ALLIEDSIGNAL and CUSTOMER and have supplied to
ALLIEDSIGNAL such certified records as may reasonably be
required by ALLIEDSIGNAL.
2. Maintain an accurate record of Parts used, condemned or
repaired in maintaining and repairing the Engines.
3. Operate, trend monitor, maintain and rectify or Repair the
Engines and Parts supplied by ALLIEDSIGNAL in the manner
specified by CUSTOMER and/or ALLIEDSIGNAL in the following
documents:
BAe 146 Aircraft Maintenance Manual
BAe 146 CAA Approved Flight Manual
-16-
<PAGE> 18
BAe 146 Operations Manual
BAe 146 MRB Report
ALLIEDSIGNAL ALF502R Engine Manual
ALLIEDSIGNAL Parts Re-work Procedures
ALLIEDSIGNAL Service Bulletins and Service Letters
ALLIEDSIGNAL Written Instructions
4. Implement and utilize Reduced Thrust or Optimum Power
Management procedures as defined in the BAe146 FAA/CAA
Approved Flight Manual. Operation of the Aircraft pursuant to
this Agreement is to be such that the Engine temperature shall
not exceed the time weighted average operating temperature set
forth in 5.5 G. above. Compliance shall be evidenced in part
by flight crew operating practices, policies or procedures
published by the CUSTOMER.
5. Utilize only oils and fuel qualified by ALLIEDSIGNAL.
6. Accept ALLIEDSIGNAL'S reasonable offers to provide free of
charge technical service support by qualified personnel and/or
corrective engineering design changes and implement those
recommendations which may be reasonably requested by
ALLIEDSIGNAL'S technical support personnel.
7. Install within a reasonable time after optional Service
Bulletin release all new or used serviceable free of charge
Parts or modifications supplied by ALLIEDSIGNAL at its sole
discretion, provided Parts/modification(s) is within
CUSTOMER'S capability to perform.
8. Not permit the installation of any Item on an Engine that was
not authorized by ALLIEDSIGNAL for such purpose.
9. Accurately identify each Engine change and notify ALLIEDSIGNAL
within 5 working days as to the Aircraft in which each Engine
is operating.
10. Use only ALLIEDSIGNAL approved Items in support of its
Engines.
5.7 EXCLUSIONS
----------
Engine reliability discrepancies attributable to the following are not
to be included in the accounting of chargeable events:
1. Removal of Engine/Module which is repairable on wing but
removed for the convenience of CUSTOMER.
-17-
<PAGE> 19
2. Damage caused by Parts, Engines, Modules, or Accessories not
originally purchased from ALLIEDSIGNAL or repaired in
accordance with ALLIEDSIGNAL repair criteria/specifications or
that have been involved in an accident or other event beyond
the control of ALLIEDSIGNAL.
3. Use of replacement Parts proprietary to ALLIEDSIGNAL purchased
other than from ALLIEDSIGNAL, except for standard hardware and
accessories or during a default by ALLIEDSIGNAL.
4. Mechanical failures caused by errors or failures of CUSTOMER's
personnel or non-compliance with established maintenance or
operating practices or instructions, or failure of CUSTOMER's
personnel to take timely action to prevent recurrent defects;
5. Tools, test rigs or test equipment inaccuracies.
6. Mechanical failures attributable to neglect, misuse, droppage,
accident, use of repair procedures not approved by
ALLIEDSIGNAL, or other event beyond the control of
ALLIEDSIGNAL;
7. Deleted
8. Deleted
9. Routine servicing such as the addition of oil, or fuel and oil
filter maintenance, unless such servicing is attributable to
mechanical failure of a Part or system;
10. Maintenance attributable to ingestion of birds, snow, ice or
salt corrosion.
11. Failure to report events to ALLIEDSIGNAL at the specified
review time period together with the circumstances of each
event complete with elapsed time involved and details of
apparent causes thereof.
SECTION 6: BASIC ENGINE CAUSED UNSCHEDULED REMOVAL RATE GUARANTEE
- ---------- ------------------------------------------------------
6.1 GUARANTEE STATEMENT
-------------------
ALLIEDSIGNAL Guarantees that the ALF 502R-5 fleet average Basic Engine
Unscheduled Removal Rate will not exceed [*] per [*] Engine Flight
Hours on a cumulative basis for a period of five years commencing with
the initiation of operation of the first ALF 502R-5 powered BAe146
Series Aircraft.
-18-
<PAGE> 20
6.2 REMEDY
------
Under the provision of the Plan, ALLIEDSIGNAL will provide a credit of
[*] for each excess removal. Credit adjustments will be
made annually on a cumulative-to-date basis.
Should CUSTOMER return the Aircraft per the provisions of the Aircraft
Leases, any outstanding credit notes due CUSTOMER will be paid to
CUSTOMER by ALLIEDSIGNAL.
6.3 DEFINITIONS
-----------
1. Basic Engine Caused Unscheduled Removal
A removal which was not selectable for the time and place of
removal, resulting from an Engine malfunction while being used
and maintained in the manner for which it was designed and
which was not externally induced.
Engine removals where line-replaceable units or Accessory Gear
Box Module replacement would have corrected Engine distress
are not chargeable, nor are removals which result from
scheduled hot section inspections.
2. Non-Basic Engine Caused Unscheduled Removal (Externally
Caused)
An Engine Removal as a result of an externally induced
condition unrelated to the basic Engine, e.g. Bird Ingestion,
Airframe Supplied Component(s) Failure, Build Error other than
the Original Equipment Manufacturer, Maintenance Error, etc.
3. Scheduled Removal
An Engine Removal brought about as a result of the engine's
life having approached or achieved a previously defined limit,
or, to perform maintenance at defined intervals to retain an
engine in a serviceable condition.
6.4 ACCOUNTING
----------
1. Credits due under this guarantee shall be reviewed Bi-annually
with annual adjustments.
2. At the end of each six (6) month interval of the Accounting
period CUSTOMER shall submit to ALLIEDSIGNAL a report of
scheduled Aircraft revenue flight hours and Basic Engine
Caused Unscheduled Engine Removals occurring during the
previous six (6) calendar month period, which ALLIEDSIGNAL
shall have reasonable opportunity to verify.
-19-
<PAGE> 21
3. If at the end of each Accounting Period the
cumulative total of chargeable removals to date
exceeds the cumulative total of allowable removals to
date, ALLIEDSIGNAL shall credit CUSTOMER U.S. dollars
[*] for each chargeable removal in excess of the
allowable number of removals, less the net aggregate
of any reimbursements already made for previous
Accounting Periods. Should the net aggregate of any
reimbursements already made by ALLIEDSIGNAL for
previous adjustment be greater than the excess,
ALLIEDSIGNAL will bill CUSTOMER for recovery of prior
credits equal to the difference of these amounts. If
at these times the cumulative total of chargeable
removals is equal to or less than the cumulative
total of allowable removals, ALLIEDSIGNAL will bill
CUSTOMER for recovery of prior credits.
SECTION 7: BASIC ENGINE IN-FLIGHT SHUTDOWN RATE GUARANTEE
- ---------- ----------------------------------------------
7.1 GUARANTEE STATEMENT
-------------------
ALLIEDSIGNAL guarantees that the ALF 502R-5 fleet average Basic Engine
In-Flight Shutdown Rate will not exceed [*] per [*] Engine
Flight Hours on a cumulative basis for a period of five years
commencing with the initiation of operation of the first ALF 502R-5
powered BAe146 Series Aircraft.
7.2 REMEDY
------
Under the provision of the Plan, ALLIEDSIGNAL will provide a credit of
[*] for each excess shutdown. Adjustments will be made annually
on a cumulative-to-date basis. Should
CUSTOMER return the Aircraft per the provisions of the Aircraft
Leases, any outstanding credit notes due CUSTOMER will be paid to
CUSTOMER by ALLIEDSIGNAL.
7.3 DEFINITION
----------
A basic engine caused in-flight shutdown is an engine shutdown which
occurs at any time an Aircraft is airborne as a result of a basic
engine malfunction while being used in the manner for which it was
designed, and which was not externally induced.
7.4 ACCOUNTING
----------
1. Credits due under this guarantee shall be reviewed Bi-annually
with annual adjustments.
2. At the end of each six (6) month interval of the Accounting
period CUSTOMER shall submit to ALLIEDSIGNAL a report of
scheduled Aircraft revenue flight hours and basic engine
caused in-flight shutdowns occurring during the previous six
(6)
-20-
<PAGE> 22
calendar month period, which ALLIEDSIGNAL shall have
reasonable opportunity to verify.
3. If at the end of each Accounting Period, the cumulative total
of chargeable in-flight shutdowns to date exceeds the
cumulative total of allowable in-flight shutdowns to date,
ALLIEDSIGNAL shall credit CUSTOMER [*]
for each chargeable in-flight shutdown in excess of the
allowable number of shutdowns, less the net aggregate of any
reimbursements already made by ALLIEDSIGNAL for previous
Accounting Periods. Should the net aggregate of any
reimbursements already made by ALLIEDSIGNAL for previous
adjustments be greater than the excess, ALLIEDSIGNAL will bill
CUSTOMER for recovery of prior credits equal to the difference
of these amounts. If at these times the cumulative total of
actual in-flight shutdowns is equal to or less than the
cumulative total of chargeable in-flight shutdowns,
ALLIEDSIGNAL will bill CUSTOMER for recovery of prior credits
provided.
SECTION 8: ENGINE DELAY AND CANCELLATION RATE GUARANTEE
- ---------- --------------------------------------------
8.1 GUARANTEE STATEMENT
-------------------
ALLIEDSIGNAL guarantees that the ALF 502R-5 fleet average basic caused
(non-cascaded) Engine Delay and Cancellation Rate will not exceed
[*] on a cumulative basis for a
period of five years commencing with the initiation of revenue service
utilizing the first ALF 502R-5 powered BAe146 Series Aircraft.
8.2 REMEDY
------
Under the provisions of the Plan, ALLIEDSIGNAL will provide a credit
to [*] for each excess delay and cancellation. Adjustments
will be made annually on a cumulative-to-date basis. Should CUSTOMER
return the Aircraft per the provisions of the Aircraft Leases, any
outstanding credit notes due CUSTOMER will be paid to CUSTOMER by
ALLIEDSIGNAL.
8.3 DEFINITIONS
-----------
The following definitions shall control the meaning of the indicated
terms throughout this Section 8.
1. "Chargeable Event" shall mean one or more confirmed mechanical
failures in an eligible Part or system which:
(1) Solely prevents an Aircraft operated by CUSTOMER from
being dispatched within (15) fifteen minutes after
-21-
<PAGE> 23
(a) The scheduled departure time if on an
originating flight, or
(b) The expiration of the schedule ground time if
on a through service or turnaround flight,
provided that but for the Chargeable Event
that Aircraft could have departed within such
(15) fifteen minutes, or, provided that where
such departure is delayed for reasons other
than those contemplated in this paragraph
8.3, the schedule departure time shall be the
rescheduled time or times of departure
thereafter, or,
2. Causes the Aircraft to return to the ramp or to
alternative landing site without having completed its
scheduled flight sector. The cancellation or delay
of subsequent sectors of a scheduled service
resulting from a Chargeable Event shall be
disregarded for the purposes of this guarantee.
2. "ADR" shall mean the Achieved Dispatch Reliability which is expressed
as a percentage value to be computed in accordance with Paragraph 8.3
hereof based on actual experience.
3. "MDR" shall mean the Minimum Dispatch Reliability of [*] %
against which the ADR is to be measured, and which is subject to the
parameters and adjustments listed in Paragraph 8.4 hereof.
4. "Dispatch" shall mean the officially recorded time of Aircraft
movement.
5. "Eligible Part or System" shall mean any part or system of the Engine
which has not been expressly designated an allowable deficiency in the
CAA Approved Minimum Equipment List, has been obtained by CUSTOMER
from a source authorized by ALLIEDSIGNAL, and has been properly
maintained.
6. "Compensate" shall mean provision of credits from ALLIEDSIGNAL to
CUSTOMER, as described in Paragraph 8.6 hereof, which shall be the
only remedy available to CUSTOMER in respect of the guarantee
statement.
8.4 COMPUTATION OF ADR
------------------
The ADR for the Aircraft fleet shall be computed at the end of each
time period during the Guarantee Period, and shall be the result of
the formula:
ADR = (100 - 100X) %
----
Y
-22-
<PAGE> 24
where:
ADR = the Achieved Dispatch Reliability percentage
for that time period;
100% = a perfect ADR percentage;
X = total number of Chargeable Events during that
time period;
Y = total number of scheduled departures for the
Aircraft Fleet during that time period less
airframe and weather caused chargeable
events.
8.5 MDR PARAMETERS AND ADJUSTMENTS
------------------------------
The MDR percentage values established in the guarantee statement are
based on the understanding that the operation of the Aircraft fleet
will be in accordance with the Basic Understandings outlined herein
and as within the EMCPP Agreement.
CUSTOMER shall advise ALLIEDSIGNAL of any operations outside the above
stated parameters, and agreement shall be reached on equitable
adjustments to the guaranteed MDR percentage values that arise from
alteration in the parameters.
8.6 ACCOUNTING
----------
A. Credits due under this guarantee shall be reviewed Bi-annually
with annual adjustments.
B. At the end of each six months during the Accounting Period,
CUSTOMER shall submit to ALLIEDSIGNAL a report of scheduled
Aircraft revenue departures and Chargeable Events occurring
during the previous six month period, which ALLIEDSIGNAL shall
have reasonable opportunity to verify.
C. If at the end of each Accounting Period the cumulative total
of the ADR to date is less than the cumulative total of the
MDR to date, ALLIEDSIGNAL shall credit CUSTOMER
[*] for each
Chargeable Event during the Accounting Period which causes the
ADR to be less favorable than the MDR less the net aggregate
of any reimbursements already provided by ALLIEDSIGNAL for
previous Accounting Periods. Should the net aggregate of any
reimbursements already made be greater than the excess,
ALLIEDSIGNAL will bill CUSTOMER for recovery of prior credits
equal to the difference of these amounts. If at these times
the cumulative total of ADR to date is equal to or greater
than the cumulative total of the MDR to date established in
the guarantee statement, ALLIEDSIGNAL will bill CUSTOMER for
recovery of prior credits provided.
-23-
<PAGE> 25
SECTION 9: ENGINE INTRODUCTORY ASSISTANCE
- --------- ------------------------------
9.1 Spare Engine Support
--------------------
[*]
9.2 Spare Parts & GSE Support
-------------------------
A. ALLIEDSIGNAL will undertake to position an initial inventory
of ALF 502R-5 Line Replaceable Units (LRU's) at CUSTOMER's
facility at no charge to CUSTOMER. The content of this
inventory will be as outlined in Attachment 1. The LRU's will
be delivered against a no charge purchase order to be issued
by CUSTOMER. Free and clear title to and ownership of such
LRU's shall pass to CUSTOMER immediately upon receipt of
CUSTOMER's fifth BAe146 Series Aircraft.
B. ALLIEDSIGNAL will undertake to position an initial inventory
of Ground Support Equipment (GSE) at CUSTOMER's facility at no
charge to CUSTOMER. The content of such initial GSE inventory
will be as outlined in Attachment 2. The GSE will be
delivered against a no-charge purchase order to be issued by
CUSTOMER. Free and clear title to and ownership of such GSE
shall pass to CUSTOMER immediately upon receipt of CUSTOMER's
fifth BAe146 Series Aircraft. ALLIEDSIGNAL shall have no
responsibility to replenish or repair such GSE except
-24-
<PAGE> 26
for correction of defects in material or workmanship in
accordance with good commercial practice.
D. CUSTOMER shall procure an initial inventory of
Consumable/Expendable hardware, based upon a provisioning
conference to be scheduled not later than 60 days prior to
first BAe146 Series Aircraft delivery.
9.3 TECHNICAL PUBLICATIONS
----------------------
ALLIEDSIGNAL will provide CUSTOMER with five (5) sets and regular
revision service of ALF 502R-5 Technical Manuals and other support
documents, free of charge, necessary to operate and maintain the ALF
502R-5 engine in hard copy or microfilm.
Technical documentation consists of:
A. Engine Manual
Provides complete engine maintenance procedures and acceptance
standards necessary for engine and module repair including
component repair up to and including full engine overhaul and
test.
B. Illustrated Parts Catalog
Provides, by part number, a complete illustrated breakdown of
the engine by module, sub-module, and sub-assembly to the
piece part level.
C. Illustrated Tool and Equipment Manual
Provides, by part number, an illustrated breakdown of all the
tools and support equipment used in the maintenance, assembly,
and disassembly of the ALF502 engine. The manual also
illustrates the designated portion of the engine at which the
tool/equipment is used and describes its function.
D. Component Maintenance and Overhaul Manual
Provides full details for the in-depth repair and/or overhaul
of each of the repairable vendor supplied accessory components
installed on the ALLIEDSIGNAL ALF502 series engine.
-25-
<PAGE> 27
E. Service Bulletins
Service Bulletins are periodically issued as required to
provide information on engine inspection or configuration
changes that improve the reliability, maintainability and/or
economics of the product. Technical publications are supplied
and updated in accordance with ATA Specification 100.
F. Service Letters
Service Letters are issued as required to provide information
of a general nature which does not warrant the issuance of a
Service Bulletin.
9.4 TRAINING
--------
To further assure successful operation of the ALF 502R-5 Series
Turbofan engine in airline service, ALLIEDSIGNAL has prepared an
extensive, lecture/hands-on Engine Training Program at our training
school facility located in Phoenix, Arizona. ALLIEDSIGNAL will
provide free of charge to CUSTOMER eighteen (18) Line Maintenance
training slots at a schedule to be agreed.
Description of courses offered:
Course Type: Line Maintenance Training
<TABLE>
<CAPTION>
<S> <C>
Recommended for: Supervisory and line maintenance personnel
Course Objective: Provides the knowledge and experience necessary to service, adjust, diagnose,
and repair the engine and its supporting systems, including the performance of
required Hot Section (HSI) and other line level inspections.
Type of Presentation: Lecture/demonstration 40%, hands-on 60%
Course Duration: 40 hours
</TABLE>
-26-
<PAGE> 28
Line Level Maintenance Course consists of the following training
phases:
Engine Design Philosophy
Electrical, Ignition, and Thermocouple System Operation and Servicing
Systems Operation and Servicing
Nomenclature, Function, and Test Description of Line
Replaceable Units
Overspeed Trip System Operation
Engine Airflow Orientation
Major Engine Module Removal and Installation Procedures
Compressor and Engine Air Bleed Systems
Line Level Module Repair and Hot Section and Hot Section
Inspection Techniques
Line Service and Inspection Requirements
Borescope Inspection Technics
Lubrication System Operation and Servicing
Fuel System Operation and Line Troubleshooting procedures
Procedures
Utilization of Engine Logbooks
Fuel Control Servicing Procedures
Accessory Drive and Power Extraction System Operation
-27-
<PAGE> 29
ATTACHMENT 1
LINE REPLACEABLE UNITS
----------------------
The following new/used serviceable Line Replaceable Units (LRU) will be
provided to CUSTOMER:
<TABLE>
<CAPTION>
<S> <C> <C>
Bleed Band Actuator 2-160-350-29 1 each
Pump Assembly 2-160-790-08 1 each
Fuel Manifold Assy. 2-163-620-35 2 each
Fuel Manifold Assy. 2-163-620-36 2 each
Fuel Control Assy. 2-163-810-21 1 each
Anti-ice Splitter 2-173-530-02 1 each
IN-Line Fuel Filter 2-183-660-02 1 each
Oil Pump Assy. 2-193-790-01 1 each
Main Fuel Filter 2-263-440-01 1 each
Flow Divider 2-300-711-02 1 each
Fuel Solenoid Valve 2-303-175-02 1 each
Heat Exchanger 2-303-491-02 1 each
Anti-ice Valve 2-303-625-02 1 each
</TABLE>
-28-
<PAGE> 30
ATTACHMENT 1
GROUND SUPPORT EQUIPMENT
The following Ground Support Equipment will be provided to CUSTOMER:
<TABLE>
<CAPTION>
TOOL NO. FUNCTION
-------- --------
<S> <C> <C>
LTCT 1430-01 Engine Lifting Sling
LTCT 7952-01 Actuator Position Indicator
LTCT 13712-01 G.P. Module Lifting Sling
LTCT 14617-01 C.T. Module Lifting Adapter
LTCT 27680-01 Overspeed System Test Kit
LTCT 28960-01 Scavenge Oil Temp. Probe
</TABLE>
In addition to the above, ALLIEDSIGNAL will provide blueprints to facilitate
local manufacture, for CUSTOMER'S exclusive use, the following tools:
<TABLE>
<CAPTION>
TOOL NO. FUNCTION
-------- --------
<S> <C> <C>
LTCT 7844-01 Press Installation Sleeve Set
LTCT 7514-01 F.C.U. Pad Seal Puller
LTCT 7121-01 F.C.U. Shaft Seal Installation Tool
LTCT 1430-01 T-Bolt Jack Screw Set
LTCT 5973-01 G.P. Module Parking Stand
LTCT 7185-01 Compressor Wash Fixture
LTCT 7197-01 Module Depth Gage
LTCT 7496-01 Three Engine Ferry N2 Lock
LTCT 12986-01 Three Engine Ferry N1 Lock
LTCT 14125-01 C.T. Module Parking Cradle
LTCT 14238-01 Fan Module Dust Cover
LTCT 14377-01 Sun Gear Extension Wrench
LTCT 14496-01 Fourth Turbine Dust Cover
LTCT 14775-01 Cold Weather Fuel Control Trim Stop
LTCT 28999-01 Engine Dolly
LTCT 14605-01 Starter Pinion Gearshaft Fixture
</TABLE>
-29-
<PAGE> 31
The following conditions apply to the issuance of the above blueprints
to CUSTOMER:
1. Tools manufactured via the supplied drawings shall not be resold by
CUSTOMER.
2. CUSTOMER accepts full responsibility for maintaining confidentiality
of all drawings whether the drawings are in their possession or in the
possession of an outside vendor.
To facilitate the fabrication of the above items, CUSTOMER may contact the
following ALLIEDSIGNAL licensed representative:
Turbine Tool
6600-D Burleson Rd.
Austin, TX 78744
Attention: John Ridings (512) 385-5311
-30-
<PAGE> 32
APPENDIX A - SUPPORT SERVICES
ALLIEDSIGNAL shall provide the following support services to CUSTOMER free of
charge unless otherwise specified:
1. A. Customer Support Engineering
B. Service Analysis
C. Field Service Representatives
D. Training in the operation, servicing, maintenance and repair
of equipment.
E. Engine and component overhaul and repair services by wholly
owned ALLIEDSIGNAL commercial facilities located at Stratford,
Connecticut; Greer, South Carolina; or Luton, England.
F. Reliability criteria and assessment, when required, from the
initial point of design conception until the ultimate
retirement of the product from active service.
G. Maintainability, safety engineering and human factors input to
engineering design, development and operational programs.
H. Preparation, production cataloging, and distribution
requirements of technical manuals and publications for
commercial customers in support of ALLIEDSIGNAL products.
I. Initial and on-going hardware provisioning support and
analysis to airline customers.
J. Processing of customer orders to ensure that the proper spare
parts and ground support equipment will be made available to
customers to meet their needs as confirmed by contract,
purchase order or agreement.
K. Integration of the activities of all elements of customer
service to ensure effective and efficient product support to
all ALLIEDSIGNAL customers.
L. Ensure the necessary interfaces between CUSTOMER Operations
and other elements of the Division in providing and
establishing ALLIEDSIGNAL'S posture with its customers and
suppliers.
M. Processing of CUSTOMER warranty claims to ensure that the
customer is able to maintain an adequate level of spare parts
to support its flight program, while at the same time having a
minimal impact on financial operations.
-31-
<PAGE> 33
APPENDIX B - DEFINITIONS
A. "Aircraft", as used herein, shall mean any or all of the
BAe146 Series Aircraft manufactured by BAE/AVRO and acquired
by or for CUSTOMER for civil commercial service.
B. "Engine/s", as used herein, shall mean ALF502R-5 Series
turbofan engines acquired for use on Aircraft. "Engines"
shall not include QEC hardware.
C. "Basic Engine", as used herein, shall mean those twenty-two
eligible ALF502R-5 Series turbofan engine less accessories.
D. "Module/s" as used herein, shall mean replaceable sub assembly
sections of the Engine.
E. "Part/s", as used herein, shall mean replacement components
for Engines and Modules.
F. "Flight Hours" or "Flying Time", as used herein, shall mean
the amount of time incurred by the Aircraft from the moment of
wheels-off the ground to the moment of wheels-on the ground at
the end of the flight.
G. "Labor" as used herein, shall mean all eligible time expended
by CUSTOMER and its overhaul facility maintaining, repairing
or replacing Engines, Modules or Parts.
H. "Relevant Period", as used herein, shall mean a period of time
commencing with the delivery of the first ALF502R powered
BAe146 aircraft into Customers fleet and ending upon the
anniversary of the delivery date of the fifth Aircraft, or
upon termination of the Aircraft lease, without regard to
extensions, whichever occurs first.
I. "Accounting Period", as used herein, shall mean a twelve month
interval during the Relevant Period.
J. "Accessories", as used herein, shall mean those items listed
below:
Lube & Scavange Pump
Fuel/Oil Heat Exchanger
Fuel Flow Divider
Thermocouple Harness
NH and NL Speed Pickup
Ignition Exciter
Air Bleed Actuator
Drain Valve
-32-
<PAGE> 34
Drain Valve
Overspeed Controller
Anti-Ice Valve
Fuel Ecology Valve
Fuel Valve
Fuel Control Unit
In-Line Fuel Filter
Main Fuel Filter
Gearbox Chip Detector
K. "Tool", as used herein, shall mean a special tool intended to
facilitate assembly, disassembly or maintenance of an Engine,
Module, Accessory or Part.
L. "Item/s", as used herein, shall mean Engines, Modules,
Accessories, and Parts.
M. "GSE", as used herein, shall mean ground support equipment
required for handling and maintenance of Engines.
N. "AOG", as used herein, shall mean the situation which occurs
when any one of CUSTOMER's Aircraft is grounded or in imminent
danger of being grounded solely because CUSTOMER cannot
provide a serviceable Item from its own resources.
O. "Unserviceability", as used herein, shall mean
unserviceability of an Item that can be shown to result from
some act or omission within the control of ALLIEDSIGNAL or the
manufacturer of an Item and excluding unserviceability
coincident with ingestion of foreign objects, or salt
corrosion, or any storage, maintenance, overhaul,
installation, handling, alteration, modification, experimental
running, operation or use not in accordance with applicable
ALLIEDSIGNAL instructions, or operation with fuels or
lubricants other than those specifically identified in the
Technical Specifications, or subjection to accident, misuse or
neglect unless there is reasonable evidence that such an event
was not the cause of the unserviceability.
P. Deleted
Q. "CAA", as used herein, shall mean the Civil Aviation Authority
of the United Kingdom.
R. "FAA", as used herein, shall mean the Federal Aviation
Administration of the United States of America.
-33-
<PAGE> 35
S. "Consumables" or "Expendables", as used herein, shall
mean Items for which no authorized repair procedure
exists and whose cost of repair would normally exceed
that of replacement. These are further categorized
into the following groupings (as defined further in
the "World Airline and Supplier's Guide" currently in
effect):
Mandatory (100%) Replacement Items
On Condition Replacement Items
Hardware Items
Bulk Material
-34-
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Income before cumulative effect of
accounting change $51,137,417 $52,655,748 $46,332,461
Cumulative effect as of January 1,
1993 of change in method of
accounting for income taxes - - 4,212,300
----------- ----------- -----------
Net income $51,137,417 $52,655,748 $50,544,761
=========== =========== ===========
Earnings per share:
Income before cumulative effect of
accounting change $ 1.55 $ 1.54 $ 1.35
Cumulative effect of accounting
change - - $ 0.12
----------- ----------- -----------
Net income $ 1.55 $ 1.54 $ 1.47
=========== =========== ===========
Weighted average number of shares
outstanding 32,964,138 34,187,833 34,395,401
=========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
ASA Investments, Inc., a Delaware corporation, is 100% owned by Atlantic
Southeast Airlines, Inc.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 2-94852) pertaining to the Atlantic Southeast Airlines, Inc. Investment
Savings Plan, and the Registration Statement (Form S-8 No, 33-37304) pertaining
to the Atlantic Southeast Airlines, Inc. 1990 Stock Appreciation Rights Plan, of
our report dated February 2, 1996, with respect to the consolidated financial
statements and schedule of Atlantic Southeast Airlines, Inc. included in the
Annual Report (Form 10-K) for the year ended December 31, 1995.
ERNST & YOUNG LLP
Atlanta, Georgia
March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS OF ATLANTIC SOUTHEAST AIRLINES, INC.
FOR THE YEAR ENDED DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 66,403
<SECURITIES> 121,697
<RECEIVABLES> 11,982
<ALLOWANCES> (266)
<INVENTORY> 6,440
<CURRENT-ASSETS> 210,743
<PP&E> 483,011
<DEPRECIATION> 190,613
<TOTAL-ASSETS> 512,699
<CURRENT-LIABILITIES> 69,066
<BONDS> 120,210
0
0
<COMMON> 3,171<F1>
<OTHER-SE> 249,684<F2>
<TOTAL-LIABILITY-AND-EQUITY> 512,699
<SALES> 0
<TOTAL-REVENUES> 328,725
<CGS> 0
<TOTAL-COSTS> 252,850
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 20
<INTEREST-EXPENSE> 7,609
<INCOME-PRETAX> 80,774
<INCOME-TAX> 29,636
<INCOME-CONTINUING> 51,137
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,137
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.55
<FN>
<F1>REDUCED BY APPROXIMATELY $268,000 ALLOCABLE TO 2,683,100 SHARES OF TREASURY
STOCK.
<F2>REDUCED BY APPROXIMATELY $55,133,000 ALLOCABLE TO 2,683,100 SHARES OF
TREASURY STOCK.
</FN>
</TABLE>
