REGISTRATION STATEMENT
                                                     REGISTRATION NO. 333-104689
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                -----------------
                                 AMENDMENT NO. 1
                                       TO
                                    FORM S-4
             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
                                -----------------
                           CONTINENTAL AIRLINES, INC.
             (Exact name of registrant as specified in its charter)

         DELAWARE                   4512                    74-2099724
     (State or other         (Primary Standard           (I.R.S. Employer
     jurisdiction of     Industrial Classification    Identification Number)
    incorporation or            Code Number)
      organization)
                         1600 Smith Street, Dept. HQSEO
                              Houston, Texas 77002
                                 (713) 324-2950
    (Address, including zip code, and telephone number, including area code,
                  of registrant's principal executive offices)
                                -----------------
                             Jennifer L. Vogel, Esq.
                  Vice President, General Counsel and Secretary
                           Continental Airlines, Inc.
                         1600 Smith Street, Dept. HQSLG
                              Houston, Texas 77002
                                 (713) 324-2950
            (Name, address, including zip code, and telephone number,
                   including area code, of agent for service)

                          COPIES OF CORRESPONDENCE TO:

                               John K. Hoyns, Esq.
                            Hughes Hubbard & Reed LLP
                             One Battery Park Plaza
                          New York, New York 10004-1482
                                 (212) 837-6000
                                -----------------
     Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
     If the  securities  being  registered  on this  Form are being  offered  in
connection  with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [__]
     If this Form is filed to  register  additional  securities  for an offering
pursuant to Rule 462(b) under the  Securities  Act,  check the following box and
list the Securities Act registration  statement number of the earlier  effective
registration statement for the same offering. [__] ________
     If this form is a  post-effective  amendment  filed pursuant to Rule 462(d)
under the  Securities  Act,  check the following box and list the Securities Act
registration  statement number of the earlier effective  registration  statement
for the same offering. [__] _________

                         CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------
                                             PROPOSED MAXIMUM     PROPOSED MAXIMUM
TITLE OF EACH CLASS OF        AMOUNT TO BE    OFFERING PRICE     AGGREGATE OFFERING       AMOUNT OF
SECURITES TO BE REGISTERED     REGISTERED        PER UNIT               PRICE         REGISTRATION FEE(1)
- --------------------------    ------------   ----------------    ------------------   -------------------

Floating Rate Secured Notes
   Due 2007                   $200,000,000         100%             $200,000,000        $16,180 (2) (3)

- -----------------
(1)  Pursuant to Rule 457(f)(2),  the registration fee has been calculated using
     the book value of the securities being registered.
(2)  The Commission has informed Continental Airlines,  Inc. that it may set off
     an amount equal to $12,740.53 against the registration fee payable for this
     registration  statement due to a post-filing adjustment of the registration
     fee for the Continental Airlines,  Inc. registration  statement on Form S-3
     (File No.  333-71906),  originally filed with the Commission on October 19,
     2001.
(3)  Paid on April 22, 2003.

     THE REGISTRANT  HEREBY AMENDS THIS  REGISTRATION  STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER  AMENDMENT  WHICH  SPECIFICALLY  STATES  THAT  THIS  REGISTRATION
STATEMENT SHALL  THEREAFTER  BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE  SECURITIES  ACT OF 1933 OR UNTIL THE  REGISTRATION  STATEMENT  SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION,  ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================


                   SUBJECT TO COMPLETION, DATED JUNE 3, 2003
PROSPECTUS

                                  $200,000,000

                           CONTINENTAL AIRLINES, INC.

                                OFFER TO EXCHANGE
                      FLOATING RATE SECURED NOTES DUE 2007,
          WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
        FOR ANY AND ALL OUTSTANDING FLOATING RATE SECURED NOTES DUE 2007

     We are  offering to issue the new senior  notes to satisfy our  obligations
contained in the registration  rights agreement entered into when the old senior
notes were sold in  transactions  exempt from,  or not subject to,  registration
under the Securities Act.

     The terms of the new senior  notes will be  substantially  identical to the
terms  of the old  senior  notes,  except  that  the new  senior  notes  will be
registered  under  the  Securities  Act  of  1933,  the  transfer  restrictions,
registration  rights and provisions for additional  interest relating to the old
senior  notes will not apply to the new senior  notes,  and the new senior notes
will be available only in book-entry form.

     There is no existing market for the new senior notes.  The new senior notes
will not be listed on any national securities exchange.

     The  exchange  of old  senior  notes  will not be a taxable  event for U.S.
federal income tax purposes.

     Old senior notes may be tendered only in integral  multiples of $1,000. You
may withdraw a tender of old senior notes at any time prior to the expiration of
the  exchange  offer.  All old senior  notes that are validly  tendered  and not
validly withdrawn will be exchanged.

     The exchange  offer  expires at 5:00 p.m.,  New York City time, on _______,
2003, unless the exchange offer is extended.
                                -----------------

     THE SENIOR NOTES AND THE EXCHANGE OFFER INVOLVE  RISKS.  SEE "RISK FACTORS"
ON PAGE 22.
                                -----------------

       PRINCIPAL                    INTEREST                    FINAL SCHEDULED
         AMOUNT                      RATE(1)                     PAYMENT DATE
      ------------          -------------------------          ----------------

      $200,000,000          USD 3-Month LIBOR + 0.90%          December 6, 2007

- -----------------
(1)  Subject to a maximum  rate of 12%  applicable  only for periods as to which
     Continental has failed to pay accrued  interest when due and failed to cure
     such nonpayment.

NEITHER  THE  SECURITIES  AND  EXCHANGE  COMMISSION  NOR  ANY  STATE  SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS  IS TRUTHFUL OR  COMPLETE.  ANY  REPRESENTATION  TO THE CONTRARY IS A
CRIMINAL OFFENSE.

                  The date of this Prospectus is _______, 2003






                                                 TABLE OF CONTENTS

                                                  PAGE                                                       PAGE

PRESENTATION OF INFORMATION..........................2        Redemption.......................................49
INCORPORATION OF CERTAIN DOCUMENTS BY                         Collateral.......................................50
   REFERENCE.........................................4        Event of Default.................................55
PROSPECTUS SUMMARY...................................6        Remedies.........................................56
  The Exchange Offer.................................6        Controlling Party................................58
  Summary of Terms of Notes..........................9        Priority of Distributions........................59
  Collateral........................................10        Modifications and Waiver of the Indenture
  Cash Flow Structure...............................11          and Certain Other Agreements...................61
  The Senior Notes..................................12        Merger, Consolidation and Transfer of Assets.....63
  Summary Financial and Operating Data..............18        Indemnification..................................64
RISK FACTORS........................................22        Governing Law....................................64
  Terrorist Attacks and International Hostilities...22        The Trustee......................................64
  Risk Factors Relating to the Company..............22        Book Entry; Delivery and Form....................64
  Risk Factors Relating to the Airline Industry.....25      DESCRIPTION OF THE SUBORDINATED NOTES..............67
  Risk Factors Relating to the Senior Notes and               General..........................................67
    the Exchange Offer..............................26        Payments of Principal and Interest...............67
  Risk Factors Relating to the Policy Provider......29        Redemption.......................................67
USE OF PROCEEDS.....................................30        Collateral.......................................68
RATIO OF EARNINGS TO FIXED CHARGES..................31      DESCRIPTION OF THE LIQUIDITY FACILITY..............69
THE COMPANY.........................................32        General..........................................69
  Domestic Operations...............................32        Drawings.........................................69
  International Operations..........................33        Reimbursement of Drawings........................71
  Outlook...........................................34        Liquidity Events of Default and Termination......73
DESCRIPTION OF THE POLICY PROVIDER..................37        Liquidity Provider...............................73
  General...........................................37      DESCRIPTION OF THE POLICY AND THE POLICY
  MBIA Financial Information........................37         PROVIDER AGREEMENT..............................74
  Financial Strength Rating of MBIA.................38        The Policy.......................................74
THE EXCHANGE OFFER..................................39        General..........................................76
  Terms of the Exchange Offer.......................39        Definitions......................................76
  Interest on the New Senior Notes..................41        The Policy Provider Agreement....................77
  Procedures for Tendering..........................42      DESCRIPTION OF THE APPRAISAL.......................78
  Acceptance of Old Senior Notes for                        MATERIAL U.S. FEDERAL INCOME TAX
    Exchange; Delivery of New Senior Notes..........43         CONSEQUENCES....................................79
  Book-Entry Transfer...............................44        Exchange of Old Senior Notes for New Senior
  Guaranteed Delivery Procedures....................44          Notes..........................................79
  Withdrawal of Tenders.............................44      PLAN OF DISTRIBUTION...............................79
  Conditions........................................45      LEGAL MATTERS......................................80
  Exchange Agent....................................45      EXPERTS............................................80
  Fees and Expenses.................................46      FORWARD-LOOKING STATEMENTS.........................80
DESCRIPTION OF THE SENIOR NOTES.....................47      WHERE YOU CAN FIND MORE INFORMATION................81
  General...........................................47      INDEX OF TERMS.............................APPENDIX I
  Payments of Principal and Interest................47      APPRAISAL LETTER..........................APPENDIX II
  Determination of LIBOR............................48
  Break Amount......................................49

     YOU SHOULD RELY ONLY ON THE  INFORMATION  CONTAINED IN THIS  DOCUMENT OR TO
WHICH WE HAVE  REFERRED YOU. WE HAVE NOT  AUTHORIZED  ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT.  THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL
TO SELL THESE SECURITIES.  THE INFORMATION IN THIS DOCUMENT MAY BE ACCURATE ONLY
ON THE DATE OF THIS DOCUMENT.

                          PRESENTATION OF INFORMATION

     We have given certain  capitalized  terms specific meanings for purposes of
this Prospectus.  The "Index of Terms" attached as Appendix I to this Prospectus
lists the page on which we have defined each such term.



         At various places in this Prospectus, we refer you to other sections of
this document for additional  information  by indicating the caption  heading of
such other sections.  The page on which each principal  caption included in this
Prospectus can be found is listed in the Table of Contents.



                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE


     The  Securities and Exchange  Commission  (the  "Commission")  allows us to
incorporate by reference  information into this  prospectus.  This means that we
can disclose  important  information to you by referring you to another document
filed separately with the Commission.  The information incorporated by reference
is considered to be part of this Prospectus,  except for any information that is
superseded  by  subsequent  incorporated  documents  or by  information  that is
included directly in this Prospectus.

     This  Prospectus  includes by reference the documents  listed below that we
previously  have filed with the  Commission and that are not delivered with this
document. They contain important information about our company and its financial
condition.

   FILING                                                                                   DATE FILED

   Amended Annual Report on Form 10-K/A-1 for the year ended December 31, 2002............  April 22, 2003

   Quarterly Report on Form 10-Q for the Quarter ended March 31, 2003.....................  April 16, 2003

   Current Report on Form 8-K.............................................................  January 3, 2003

   Current Report on Form 8-K.............................................................  January 15, 2003

   Current Report on Form 8-K.............................................................  February 4, 2003

   Current Report on Form 8-K.............................................................  February 4, 2003

   Current Report on Form 8-K.............................................................  March 4, 2003

   Amendment to Current Report on Form 8-K................................................  March 4, 2003

   Current Report on Form 8-K.............................................................  March 4, 2003

   Current Report on Form 8-K.............................................................  March 19, 2003

   Current Report on Form 8-K.............................................................  March 20, 2003

   Current Report on Form 8-K.............................................................  April 2, 2003

   Current Report on Form 8-K.............................................................  April 15, 2003

   Current Report on Form 8-K.............................................................  May 2, 2003

   Current Report on Form 8-K.............................................................  May 12, 2003

   Current Report on Form 8-K.............................................................  May 14, 2003

   Current Report on Form 8-K.............................................................  June 3, 2003

     Our Commission file number is 1-10323.

     We incorporate by reference  additional documents that we may file with the
Commission  between  the  date of this  Prospectus  and the  termination  of the
Exchange Offer.  These documents  include our periodic  reports,  such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form
8-K, as well as our proxy statements.

     You may obtain any of these incorporated  documents from us without charge,
excluding  any exhibits to those  documents  unless the exhibit is  specifically
incorporated   by  reference  in  such  document.   You  may  obtain   documents
incorporated    by   reference   in   this    prospectus    from   our   website
(WWW.CONTINENTAL.COM)  or by requesting  them from us in writing or by telephone
at the following address:



                           Continental Airlines, Inc.
                         1600 Smith Street, Dept. HQSEO
                              Houston, Texas 77002
                              Attention: Secretary
                            Telephone: (713) 324-2950

     IN ORDER TO OBTAIN TIMELY DELIVERY OF THE DOCUMENTS,  ANY REQUEST SHOULD BE
MADE  BY  [_________],  2003  (THE  FIFTH  BUSINESS  DAY  BEFORE  THE  SCHEDULED
EXPIRATION DATE OF THE EXCHANGE OFFER).



                               PROSPECTUS SUMMARY


     THIS SUMMARY HIGHLIGHTS  SELECTED  INFORMATION FROM THIS PROSPECTUS AND MAY
NOT CONTAIN ALL OF THE  INFORMATION  THAT IS IMPORTANT TO YOU. FOR MORE COMPLETE
INFORMATION ABOUT THE NOTES AND CONTINENTAL AIRLINES, INC., YOU SHOULD READ THIS
ENTIRE  PROSPECTUS,  AS WELL AS THE MATERIALS FILED WITH THE COMMISSION THAT ARE
CONSIDERED  TO BE  PART  OF  THIS  PROSPECTUS.  SEE  "INCORPORATION  OF  CERTAIN
DOCUMENTS BY REFERENCE".


THE EXCHANGE OFFER


The Notes.....................  On  December  6,  2002,  Continental  issued  an
                                aggregate of $200,000,000  Floating Rate Secured
                                Notes due 2007 in  transactions  exempt  from or
                                not subject to the registration  requirements of
                                the Securities Act.

                                When we use the term "Old Senior  Notes" in this
                                Prospectus,  we mean the  Floating  Rate Secured
                                Notes due 2007 which were  issued on December 6,
                                2002  and  which  were not  registered  with the
                                Commission.

                                When we use the term "New Senior  Notes" in this
                                Prospectus,  we mean the  Floating  Rate Secured
                                Notes due 2007  registered  with the  Commission
                                and  offered  hereby  in  exchange  for  the Old
                                Senior Notes.

                                When  we use the  term  "Senior  Notes"  in this
                                Prospectus,  the related discussion applies both
                                to the Old  Senior  Notes  and  the  New  Senior
                                Notes.

                                When we use the  term  "Subordinated  Notes"  in
                                this  Prospectus,  we  mean  the  Floating  Rate
                                Secured  Subordinated Notes due 2007, which were
                                issued  by  Continental  on  May  9,  2003.  The
                                Exchange  Offer  being  made  pursuant  to  this
                                Prospectus  does not relate to the  Subordinated
                                Notes.

                                When we use the term "Notes" in this Prospectus,
                                the  related  discussion  applies  both  to  the
                                Senior Notes and the Subordinated Notes.

Registration Rights
  Agreement...................  On December 6, 2002,  Continental entered into a
                                Registration   Rights   Agreement   with  Morgan
                                Stanley  &  Co.   Incorporated   (the   "Initial
                                Purchaser")  providing,  among other things, for
                                the Exchange  Offer being made  pursuant to this
                                Prospectus.

The Exchange Offer............  Continental  is  offering  New  Senior  Notes in
                                exchange  for an equal  principal  amount of Old
                                Senior  Notes.  The  New  Senior  Notes  will be
                                issued  to  satisfy  Continental's   obligations
                                under the Registration  Rights Agreement.  As of
                                the  date  of  this   Prospectus,   $200,000,000
                                aggregate  principal  amount of Old Senior Notes
                                are   outstanding.   Old  Senior  Notes  may  be
                                tendered only in integral multiples of $1,000.

Resale of New Senior Notes....  We believe that you can offer for resale, resell
                                or  otherwise  transfer  the  New  Senior  Notes
                                without  complying  with  the  registration  and
                                prospectus   delivery    requirements   of   the
                                Securities Act if:



                                o  you  acquire  the  New  Senior  Notes  in the
                                   ordinary course of your business;

                                o  you have no arrangement or understanding with
                                   any person to participate in the distribution
                                   of the New Senior Notes; and

                                o  you are not an "affiliate", as defined in the
                                   Rule  405  under  the   Securities   Act,  of
                                   Continental or a  broker-dealer  who acquired
                                   Old Senior Notes  directly  from  Continental
                                   for your own account.

                                If any of these  conditions is not satisfied and
                                you   transfer   any  New  Senior  Note  without
                                delivering  a  proper   prospectus   or  without
                                qualifying for a registration exemption, you may
                                incur   liability   under  the  Securities  Act.
                                Continental  does not  assume or  indemnify  you
                                against such liability.

                                Each  broker-dealer  that  receives  New  Senior
                                Notes in exchange  for Old Senior Notes held for
                                its own account as a result of  market-making or
                                other trading  activities must  acknowledge that
                                it will deliver a prospectus in connection  with
                                any   resale  of  such  New  Senior   Notes.   A
                                broker-dealer  may use  this  prospectus  for an
                                offer to  resell,  resale or other  transfer  of
                                such  New  Senior  Notes  issued  to it  in  the
                                Exchange Offer.

Conditions to the Exchange
  Offer.......................  The Exchange Offer is not  conditioned  upon any
                                minimum  principal  amount of Old  Senior  Notes
                                being  tendered  for  exchange.   However,   the
                                Exchange  Offer is subject to certain  customary
                                conditions, which may be waived by Continental.

Expiration Date of the
  Exchange Offer..............  [__________],  2003,  subject  to  Continental's
                                right to extend the Expiration Date.


Procedures for Tendering Old
  Senior Notes................  If you wish to accept the  Exchange  Offer,  you
                                must  deliver  your  Old  Senior  Notes  to  the
                                Exchange  Agent for  exchange no later than 5:00
                                p.m.,  New York  City  time,  on the  Expiration
                                Date.

                                You must also  deliver a  completed  and  signed
                                Letter  of  Transmittal  together  with  the Old
                                Senior Notes. A Letter of  Transmittal  has been
                                sent  to  Senior   Noteholders  and  a  form  is
                                attached  as  an  exhibit  to  the  Registration
                                Statement.

                                If you hold Old  Senior  Notes  through  DTC and
                                wish to accept the Exchange Offer, you may do so
                                through DTC's Automated Tender Offer Program. By
                                accepting   the  Exchange   Offer  through  such
                                program,  you  will  agree  to be  bound  by the
                                Letter of  Transmittal  as though you had signed
                                the Letter of  Transmittal  and  delivered it to
                                the Exchange Agent.



Guaranteed Delivery
  Procedures..................  If you wish to tender your Old Senior  Notes and
                                your  Old  Senior  Notes  are  not   immediately
                                available,  you cannot  deliver  your Old Senior
                                Notes  and  a  properly   completed   Letter  of
                                Transmittal  or any other  document  required by
                                the Letter of  Transmittal to the Exchange Agent
                                prior  to the  Expiration  Date  or  you  cannot



                                complete  the  book-entry   transfer  procedures
                                prior to the  Expiration  Date,  you may  tender
                                your  Old   Senior   Notes   according   to  the
                                guaranteed delivery procedures set forth in "The
                                Exchange Offer--Guaranteed Delivery Procedures".

Withdrawal Rights.............  You may withdraw a tender of Old Senior Notes at
                                any time prior to 5:00 p.m., New York City time,
                                on the Expiration  Date. To withdraw a tender of
                                Old  Senior  Notes,   the  Exchange  Agent  must
                                receive  a  written  or  facsimile  transmission
                                notice requesting such withdrawal at its address
                                set forth  under "The  Exchange  Offer--Exchange
                                Agent"  prior to 5:00 p.m.,  New York City time,
                                on the Expiration Date.

Acceptance of Old Senior Notes
  and Delivery of
  New Senior Notes............  Subject to certain  conditions,  any and all Old
                                Senior Notes which are properly  tendered in the
                                Exchange Offer prior to 5:00 p.m., New York City
                                time,  on the  Expiration  Date will be accepted
                                for  exchange.   The  New  Senior  Notes  issued
                                pursuant to the Exchange Offer will be delivered
                                promptly following the Expiration Date.

Registration, Clearance and
  Settlement........            The New Senior Notes will be  represented by one
                                or more  permanent  global notes,  which will be
                                registered  in the name of the  nominee  of DTC.
                                The  global  notes  will be  deposited  with the
                                Trustee as custodian for DTC.

Consequences of Failure to
  Exchange Old Senior Notes...  Once the Exchange Offer has been  completed,  if
                                you do not  exchange  your Old Senior  Notes for
                                New Senior Notes in the Exchange Offer, you will
                                no longer be entitled to registration rights and
                                will  not be able to  offer  or  sell  your  Old
                                Senior  Notes,  unless (i) such Old Senior Notes
                                are subsequently registered under the Securities
                                Act   (which,   subject   to   certain   limited
                                exceptions,  Continental will have no obligation
                                to do) or (ii) your  transaction is exempt from,
                                or otherwise not subject to, the  Securities Act
                                and applicable state securities laws.

Certain Federal Income Tax
  Consequences................  The  exchange of Old Senior Notes for New Senior
                                Notes  will  not  be  a  sale  or   exchange  or
                                otherwise a taxable event for federal income tax
                                purposes.

Exchange Agent................  Wilmington  Trust Company is serving as Exchange
                                Agent in connection with the Exchange Offer.

Fees and Expenses.............  All   expenses    incident   to    Continental's
                                consummation   of   the   Exchange   Offer   and
                                compliance   with   the   Registration    Rights
                                Agreement will be borne by Continental.

Use of Proceeds...............  Continental  will not receive any cash  proceeds
                                from the  exchange  of the Old Senior  Notes for
                                the New Senior Notes.



SUMMARY OF TERMS OF NOTES


                                                      Senior Notes              Subordinated Notes (1)
                                             ------------------------------   ----------------------------
Principal Amount...........................           $200,000,000                   $100,000,000
Loan to Collateral Value (2)...............               42.8%                          65.7%
Maximum Loan to Collateral Value...........               45.0%                          67.5%
Interest Rate..............................            USD 3-Month                    USD 3-Month
                                                    LIBOR + .90% (3)                 LIBOR + 7.50%
Interest Payment Dates.....................  March 6, June 6, September 6     March 6, June 6, September 6
                                                      and December 6                   and December 6
Final Scheduled Payment Date...............          December 6, 2007                 December 6, 2007
Final Legal Maturity Date..................          December 6, 2009                  Not applicable
Minimum Denomination.......................               $1,000                         $100,000
Section 1110 Protection (4)................                 Yes                             Yes
Liquidity Facility Coverage................        8 quarterly interest                     None
                                                       payments (5)
Policy Provider Coverage...................  Interest when due and principal                None
                                              no later than the Final Legal
                                                    Maturity Date (5)
- -----------------
(1)  The Exchange Offer being made pursuant to this  Prospectus  does not relate
     to the Subordinated Notes.
(2)  These   percentages  have  been  determined  by  dividing  the  outstanding
     principal  amount of the Senior Notes plus,  in the case of the  percentage
     applicable to the Subordinated  Notes, the initial  principal amount of the
     Subordinated  Notes (minus Cash  Collateral) by the appraised  value of the
     Collateral  determined as of December 25, 2002.  Continental is required to
     provide to the Policy  Provider and the Trustee a  semiannual  appraisal of
     the Collateral. If any such subsequent appraisal indicates that the loan to
     Collateral value is greater than 45.0%, in the case of the Senior Notes, or
     67.5%, in the case of the  Subordinated  Notes,  Continental is required to
     provide  additional  collateral or to reduce the principal amount of Senior
     Notes or  Subordinated  Notes  outstanding  so that the loan to  Collateral
     value is not greater than the applicable  maximum  percentage.  Continental
     deposited $13,056,950 as Cash Collateral at the initial issuance of the Old
     Senior Notes so that the initial loan to Collateral  value would not exceed
     45.0%, based on the appraisal determined as of August 25, 2002. The loan to
     Collateral  value,  determined using the appraisal as of December 25, 2002,
     would have been 45.8% for the Senior  Notes and 68.7% for the  Subordinated
     Notes without giving effect to such deposit of Cash Collateral. Continental
     expects  to  satisfy  the  applicable  maximum  loan  to  Collateral  value
     percentages  at the time of the next  appraisal  due in August 2003,  based
     upon its projected purchases of spare parts, in which case Continental will
     be entitled to withdraw such Cash Collateral.  However, no assurance can be
     given  that such  applicable  maximum  percentages  will be  satisfied.  An
     appraised value is only an estimate and reflects certain  assumptions.  See
     "Description of the Appraisal".
(3)  The interest  rate  applicable  to the Senior Notes is subject to a maximum
     rate of 12% per annum  applicable only for periods as to which  Continental
     has  failed  to pay  accrued  interest  when due and  failed  to cure  such
     nonpayment.
(4)  Section 1110 of the U.S.  Bankruptcy  Code will be  applicable to the spare
     parts of the types  initially  subject to the lien securing the Notes,  but
     will not be applicable to Cash Collateral. In addition, in order to satisfy
     the semiannual loan to collateral value requirement referred to in note (1)
     above, Continental may add other collateral that may not be entitled to the
     benefits of Section 1110, subject to certain limitations.
(5)  The amounts  available under the Liquidity  Facility and the Policy for the
     payment  of accrued  interest  on the  Senior  Notes  have been  calculated
     utilizing the Capped Interest Rate,  which is the maximum  interest rate on
     the Senior Notes  applicable  only for periods as to which  Continental has
     failed to pay accrued interest when due and failed to cure such nonpayment.



COLLATERAL

     The  Senior  Notes  are  secured  by  a  lien  on  spare  parts  (including
appliances)  first  placed  in  service  after  October  22,  1994 and  owned by
Continental that are appropriate for installation on or use in

     o    one or more of the following  aircraft  models:  Boeing model 737-700,
          737-800,  737-900,  757-200,  757-300,  767-200,  767-400  or  777-200
          aircraft,

     o    any engine utilized on any such aircraft or

     o    any other spare part included in the Collateral,

and not  appropriate  for  installation on or use in any other model of aircraft
currently  operated by Continental or engine utilized on any such other model of
aircraft.  The Subordinated Notes are also secured by a lien on such Collateral.
The lien  will not apply for as long as a spare  part is  installed  on or being
used in any aircraft,  engine or other spare part so installed or being used. In
addition,  the lien will not  apply to a spare  part not  located  at one of the
designated  locations specified pursuant to the security agreement applicable to
the spare parts.

     The spare  parts  included  in the  Collateral  fall  into two  categories,
"rotables" and "expendables".  Rotables are parts that wear over time and can be
repeatedly restored to a serviceable  condition over a period  approximating the
life of the flight equipment to which they relate.  Expendables consist of parts
that can be restored to a  serviceable  condition  but have a life less than the
related  flight  equipment  and parts that  generally  are used once and thereby
consumed  or  thereafter  discarded.  Spare  engines  are  not  included  in the
Collateral.  Set forth  below is  certain  information  about  the  spare  parts
included in the Collateral as of December 25, 2002:

                                          SPARE PARTS QUANTITY(1)
                                   -------------------------------------
        AIRCRAFT MODEL             EXPENDABLES  ROTABLES           TOTAL    APPRAISED VALUE(2)
        --------------             -----------  --------         -------    ------------------
737-700....................            877             24            901
737-700/800................        278,912          6,942        285,854
737-800....................          3,777            191          3,968
737-900....................            821             10            831
                                 ---------      ---------      ---------
737-7/8/9 Subtotal.........        284,387          7,167        291,554          $185,972,600

757-200....................        185,731          3,391        189,122            69,352,800
757-300....................         10,946             96         11,042             3,116,700
767-200....................         25,485            227         25,712             8,946,700
767-400....................         51,147          1,586         52,733            55,741,200
777-200....................        111,210          3,006        114,216           113,712,000
                                   -------        -------        -------          ------------
Total......................        668,906         15,473        684,379          $436,841,900

- -----------------
(1)  This  quantity of spare parts used in  preparing  the  appraised  value was
     determined as of December 25, 2002.  Since spare parts are regularly  used,
     refurbished, purchased, transferred and discarded in the ordinary course of
     Continental's  business,  the  quantity  of  spare  parts  included  in the
     Collateral and their appraised value will change over time.  Continental is
     required to provide to the Policy  Provider  and the  Trustee a  semiannual
     appraisal of the Collateral.

(2)  The  appraised  value  reflects the opinion of Simat,  Helliesen & Eichner,
     Inc., an independent  aviation  appraisal and consulting  firm, of the fair
     market value of the spare parts.  A letter  summarizing  such  appraisal is
     annexed to this  Prospectus  as Appendix  II. The  appraisal  is subject to
     number of  assumptions  and  limitations  and was prepared based on certain
     specified  methodologies.  An  appraisal  is only an  estimate of value and
     should not be relied upon as a measure of realizable value.



CASH FLOW STRUCTURE

     Set forth below is a diagram  illustrating  the  structure  of certain cash
flows applicable to the Notes.




- -----------
(1)  The Liquidity  Facility is sufficient to cover eight consecutive  quarterly
     interest payments on the Senior Notes, but does not cover any other amounts
     payable  on the  Senior  Notes.  There  is no  Liquidity  Facility  for the
     Subordinated Notes.

(2)  The  Policy  covers  regular  interest  payments  on the  Senior  Notes and
     outstanding  principal  of the Senior  Notes no later than the Final  Legal
     Maturity Date,  but does not cover any other amounts  payable on the Senior
     Notes. There is no Policy for the Subordinated Notes.



THE SENIOR NOTES

Issuer........................  Continental Airlines, Inc.

Notes Offered.................  Floating Rate Secured Notes due 2007.

Use of Proceeds...............  The  proceeds  from the  sale of the Old  Senior
                                Notes were used for general corporate  purposes.
                                Continental  will not receive any proceeds  from
                                the exchange of the New Senior Notes for the Old
                                Senior Notes.

Issuance of Subordinated
  Notes.......................  On May 9, 2003, Continental privately placed the
                                Subordinated  Notes. The Subordinated Notes rank
                                junior to the Senior  Notes  (including  amounts
                                owed to the Policy  Provider  and the  Liquidity
                                Provider) with respect to payments received from
                                Continental,  proceeds from  liquidation  of the
                                Collateral  and  otherwise.  Unlike  the  Senior
                                Notes,  the  Subordinated  Notes do not have the
                                benefit of a liquidity  facility or an insurance
                                policy.

Trustee and Paying Agent......  Wilmington Trust Company.

Liquidity Provider............  Morgan Stanley Capital Services.

Policy Provider...............  MBIA Insurance Corporation.

Final Scheduled Payment
  Date........................  The entire  principal amount of the Senior Notes
                                is scheduled for payment on December 6, 2007.

Final Legal Maturity Date.....  December 6, 2009.

Interest......................  The  Senior  Notes  will  accrue  interest  at a
                                variable  rate per  annum set forth on the cover
                                page of this  Prospectus.  The interest  rate on
                                the  Senior  Notes  will be subject to a maximum
                                equal  to the  Capped  Interest  Rate of 12% per
                                annum  applicable  only for  periods as to which
                                Continental  has failed to pay accrued  interest
                                when due and failed to cure such nonpayment. For
                                all  other  periods,  the  interest  rate on the
                                Senior  Notes  will not be capped.  Interest  is
                                calculated  on the basis of the actual number of
                                days  elapsed  over a  360-day  year.  LIBOR  is
                                determined  from  time to time by the  Reference
                                Agent as described in "Description of the Senior
                                Notes--Determination of LIBOR".

Interest Payment Dates........  March 6, June 6,  September  6 and  December  6,
                                commencing on March 6, 2003.

Record Dates..................  The fifteenth day preceding the related Interest
                                Payment Date.

Optional Redemption...........  Continental  may elect to redeem all or (so long
                                as  no  Payment  Default  has  occurred  and  is
                                continuing) some of the Senior Notes at any time
                                prior to maturity.  The redemption price in such
                                case will be the principal  amount of the Senior
                                Notes,   together   with   accrued   and  unpaid
                                interest,  LIBOR break  amount,  if any, and, if
                                redeemed  prior to the third  anniversary of the
                                Issuance  Date  (except  in  connection  with  a
                                redemption   to  satisfy  the   maximum   Senior
                                Collateral Ratio or minimum Senior Rotable Ratio
                                requirement),  a Premium  equal to the following
                                percentage of the principal amount prepaid:




                                   IF REDEEMED DURING THE YEAR
                                 PRIOR TO THE ANNIVERSARY OF THE
                                  ISSUANCE DATE INDICATED BELOW      PREMIUM
                                  -----------------------------      -------
                                               1st                    1.50%
                                               2nd                    1.00
                                               3rd                    0.50

                                If  Continental  gives notice of redemption  but
                                fails to pay when due all amounts  necessary  to
                                effect such redemption, such redemption shall be
                                deemed  revoked and no amount  shall be due as a
                                result  of  notice  of  redemption  having  been
                                given.

Collateral....................  The Senior  Notes are secured by a lien on spare
                                parts  (including  appliances)  first  placed in
                                service  after  October  22,  1994 and  owned by
                                Continental    that    are    appropriate    for
                                installation on or use in

                                o  one or more of the following aircraft models:
                                   Boeing  model  737-700,   737-800,   737-900,
                                   757-200, 757-300, 767-200, 767-400 or 777-200
                                   aircraft,

                                o  any engine utilized on any such aircraft or

                                o  any  other   spare  part   included   in  the
                                   Collateral,

                                and not appropriate  for  installation on or use
                                in  any  other  model  of   aircraft   currently
                                operated by  Continental  or engine  utilized on
                                any   such   other   model  of   aircraft.   The
                                Subordinated Notes are also secured by a lien on
                                such Collateral.  The lien will not apply for as
                                long as a spare  part is  installed  on or being
                                used in any aircraft, engine or other spare part
                                so  installed or being used.  In  addition,  the
                                lien will not apply to a spare part not  located
                                at  one of the  designated  locations  specified
                                pursuant to the security agreement applicable to
                                the spare parts.

Maintenance of Collateral
  Ratios......................  Continental is required to provide to the Policy
                                Provider and the Trustee a semiannual  appraisal
                                of  the   Collateral.   If  any  such  appraisal
                                indicates  that:

                                o  the ratio of the outstanding principal amount
                                   of the Senior Notes to the  Collateral  value
                                   is greater than 45.0%;

                                o  the ratio of the outstanding principal amount
                                   of the  Senior  Notes  and  the  Subordinated
                                   Notes to  Collateral  value is  greater  than
                                   67.5%;

                                o  the  ratio  of  the  value  of  the  Rotables
                                   included in the Collateral to the outstanding
                                   principal  amount of the Senior Notes is less
                                   than 150%; or

                                o  the  ratio  of  the  value  of  the  Rotables
                                   included in the Collateral to the outstanding



                                   principal  amount of the Senior Notes and the
                                   Subordinated Notes is less than 100%;

                                then   Continental   is   required   to  provide
                                additional collateral or to reduce the principal
                                amount of  Senior  Notes or  Subordinated  Notes
                                outstanding  so that such ratios comply with the
                                applicable  maximum Collateral value percentages
                                and minimum Rotable value percentages.

Section 1110 Protection.......  Continental's  outside  counsel has provided its
                                opinion to the Trustee  and the Policy  Provider
                                that the  benefits  of Section  1110 of the U.S.
                                Bankruptcy  Code will be available  with respect
                                to the lien on the spare parts collateral.

Liquidity Facility............  Under  the  Liquidity  Facility,  the  Liquidity
                                Provider will, if necessary, make advances in an
                                aggregate  amount  sufficient to pay interest on
                                the  Senior  Notes  on  up to  eight  successive
                                quarterly Interest Payment Dates. Drawings under
                                the Liquidity Facility cannot be used to pay any
                                other amount in respect of the Senior Notes.

                                Upon each drawing under the  Liquidity  Facility
                                to pay interest on the Senior Notes, the Trustee
                                will  reimburse the  Liquidity  Provider for the
                                amount  of  such  drawing.   Such  reimbursement
                                obligation  and all  interest,  fees  and  other
                                amounts  owing to the Liquidity  Provider  under
                                the   Liquidity   Facility  and  certain   other
                                agreements  will  rank  senior  to the  Notes in
                                right of payment.

                                There   is  no   Liquidity   Facility   for  the
                                Subordinated Notes.

Policy Coverage...............  Under  the  Policy,   the  Policy   Provider  is
                                required to honor drawings to cover:

                                o  Any  shortfall  on any  Distribution  Date in
                                   funds to be distributed  as accrued  interest
                                   on the Senior Notes.

                                o  Any  shortfall  on the Final  Legal  Maturity
                                   Date in funds to be  distributed as principal
                                   of,  and  accrued  interest  on,  the  Senior
                                   Notes.

                                o  Any   shortfall   in  the   proceeds  of  the
                                   disposition of the remaining  Collateral from
                                   the amount  required to pay principal of, and
                                   accrued  interest on, the Senior Notes on the
                                   Distribution  Date  established in connection
                                   with such disposition.

                                o  If  certain  payments  with  respect  to  the
                                   Senior Notes are by court order determined to
                                   be a  "preferential  transfer" under the U.S.
                                   Bankruptcy  Code or otherwise  required to be
                                   returned, the amount of such payments.

                                o  After the  continuance  of a Payment  Default
                                   for eight consecutive  Interest Periods,  any
                                   shortfall in funds  required to pay principal
                                   of, and accrued interest on, the Senior Notes
                                   on  the  Distribution   Date  established  in
                                   connection with such Payment Default. If such



                                   Distribution  Date would  occur  prior to the
                                   Final  Scheduled  Payment  Date,  instead  of
                                   paying such  shortfall  on such  Distribution
                                   Date, the Policy  Provider may, so long as no
                                   Policy Provider Default is continuing,  elect
                                   to pay:

                                o  Any  shortfall on such  Distribution  Date in
                                   funds required to pay accrued interest on the
                                   Senior Notes.

                                o  Thereafter,  on each  Distribution  Date,  an
                                   amount equal to the  scheduled  principal (on
                                   the  Final   Scheduled   Payment   Date)  and
                                   interest  (without regard to any acceleration
                                   thereof)  payable on the Senior Notes on such
                                   Distribution Date.

                                Notwithstanding  such  election  by  the  Policy
                                Provider,   the  Policy  Provider  may,  on  any
                                Business  Day  (which  shall  be a  Distribution
                                Date)  elected  by the Policy  Provider  upon 20
                                days'  notice,  cause  the  Trustee  to  make  a
                                drawing  under the Policy for an amount equal to
                                the then  outstanding  principal  balance of the
                                Senior  Notes and  accrued  and unpaid  interest
                                thereon. Further,  notwithstanding such election
                                by the Policy Provider, upon the occurrence of a
                                Policy Provider  Default,  the Trustee shall, on
                                any  Business Day elected by the Trustee upon 20
                                days'  written  notice to the  Policy  Provider,
                                make a drawing  under the  Policy  for an amount
                                equal to the then outstanding  principal balance
                                of the  Senior  Notes  and  accrued  and  unpaid
                                interest thereon.

                                Any  shortfall  for  which a  drawing  under the
                                Policy  may be made as  described  above will be
                                calculated   after  the   application  of  funds
                                available  through  drawings under the Liquidity
                                Facility   and   withdrawals   from   the   Cash
                                Collateral Account.

                                The  Policy   Provider   is  required  to  honor
                                drawings  under  the  Policy by the  Trustee  on
                                behalf  of  the   Liquidity   Provider  for  all
                                outstanding   drawings   under   the   Liquidity
                                Facility,  together with interest thereon, on or
                                after the  Business  Day which is 24 months from
                                the  earliest  to occur of (1) the date on which
                                an Interest  Drawing  shall have been made under
                                the Liquidity  Facility and remain  unreimbursed
                                from payments made by  Continental at the end of
                                such 24-month period,  (2) the date on which any
                                Downgrade  Drawing,   Non-Extension  Drawing  or
                                Final Drawing that was  deposited  into the Cash
                                Collateral  Account  shall have been  applied to
                                pay any  scheduled  payment of  interest  on the
                                Senior  Notes  and  remain   unreimbursed   from
                                payments made by  Continental at the end of such
                                24-month period and (3) the date on which all of
                                the  Senior  Notes  have  been  accelerated  and
                                remain unpaid by  Continental at the end of such
                                24-month period,  in each case  disregarding any
                                reimbursements   from  payments  by  the  Policy
                                Provider  and  from  proceeds  from  the sale of
                                Collateral  distributed  by the  Trustee  during
                                such 24-month period.

                                The  reimbursement  of drawings under the Policy
                                ranks  junior to  further  distributions  on the
                                Notes.

                                There is no Policy for the Subordinated Notes.



Control of Trustee............  Whether  before  or after the  occurrence  of an
                                Event of Default,  the "Controlling  Party" will
                                direct the  Trustee in taking  action  under the
                                Indenture and other  agreements  relating to the
                                Notes, including in amending such agreements and
                                granting waivers  thereunder.  However,  certain
                                limited   provisions   with   respect   to   the
                                Collateral  as they  relate to the  Subordinated
                                Notes  cannot be amended or waived  without  the
                                consent  of the  holders  of a  majority  of the
                                outstanding principal amount of the Subordinated
                                Notes  and  certain  other  limited   provisions
                                cannot be amended or waived  without the consent
                                of each Noteholder affected thereby. If an Event
                                of  Default  is  continuing,   the  "Controlling
                                Party"  will  direct the  Trustee in  exercising
                                remedies,  such as  accelerating  the  Notes  or
                                foreclosing the lien on the collateral  securing
                                the Notes.

                                The Controlling Party will be:

                                o  Except  as   provided   below,   the   Policy
                                   Provider.

                                o  If a Policy  Provider  Default is continuing,
                                   the  holders  of more  than 50% in  aggregate
                                   unpaid  principal  amount of the Senior Notes
                                   then outstanding or, if the Senior Notes have
                                   been paid in full, of the Subordinated  Notes
                                   then outstanding.

                                o  If the Senior Notes,  the Policy Expenses and
                                   the  Policy  Provider  Obligations  have been
                                   paid in full, the holders of more than 50% in
                                   aggregate  unpaid  principal  amount  of  the
                                   Subordinated Notes then outstanding.

                                o  Under  certain  circumstances,  the Liquidity
                                   Provider.

                                The Subordinated Noteholders will have the right
                                to direct the Policy  Provider  in acting as the
                                Controlling  Party during the  continuance of an
                                Event of Default if the Subordinated Noteholders
                                shall have  deposited  with the Policy  Provider
                                cash,  U.S.   government   securities  or  other
                                investments acceptable to the Policy Provider as
                                collateral  for amounts owed to, and for certain
                                amounts to become due and payable to, the Policy
                                Provider  under  the  Operative   Documents  and
                                Support Documents.  The amount deposited must be
                                sufficient  without  reinvestment to pay certain
                                amounts  due  and to  become  due on the  Senior
                                Notes   and   to   the   Policy   Provider.   No
                                Subordinated  Noteholder  will  be  required  to
                                contribute  to  a  deposit.   The   Subordinated
                                Noteholders   contributing  their  proportionate
                                share of such deposit will be entitled to direct
                                the  Policy  Provider  in  taking  action as the
                                Controlling Party during the continuance of such
                                Event of Default  by vote of a  majority  of the
                                principal amount of the Subordinated  Notes held
                                by such contributing  Subordinated  Noteholders.
                                If the Policy  Provider  draws on such  deposit,
                                after the  Policy  Provider  shall  have paid in
                                full all amounts  due to it under the  Operative
                                Documents   and   Support   Documents,   amounts
                                distributable  to the Policy  Provider under the
                                Indenture    will   be   distributed   to   such
                                contributing  Subordinated  Noteholders  in  the
                                same    proportion    as    their     respective
                                contributions   to  the   deposit   until  their
                                proportionate  share of the deposit not returned
                                by the Policy Provider shall have been repaid in
                                full.



                                                                      STANDARD &
                                                       MOODY'S         POOR'S

Threshold Rating for the        Short Term..........     P-1             A-1
  Liquidity Provider..........

Liquidity Provider Rating.....  Morgan  Stanley,  the  parent  company of Morgan
                                Stanley  Capital  Services,  meets the Threshold
                                Rating  requirement  and has  guaranteed  Morgan
                                Stanley Capital Services'  obligations under the
                                Liquidity Facility.

                                                                         MOODY'S

Policy Provider Rating........  Financial Strength....................     Aaa



                      SUMMARY FINANCIAL AND OPERATING DATA

     The following  tables  summarize  certain  consolidated  financial data and
certain  operating  data with respect to  Continental.  The  following  selected
consolidated financial data for the years ended December 31, 2002, 2001 and 2000
are derived from the audited  consolidated  financial  statements of Continental
(including   certain   reclassifications   to  conform  to  the   current   year
presentation)  including  the notes  thereto  incorporated  by reference in this
Prospectus and should be read in conjunction  with those  financial  statements.
The following selected consolidated  financial data for the years ended December
31, 1999 and 1998 are derived  from the  selected  financial  data  contained in
Continental's  Annual Report on Form 10-K for the year ended  December 31, 2002,
incorporated  by  reference  in this  Prospectus,  and the audited  consolidated
financial  statements of  Continental  for the years ended December 31, 1999 and
1998 and should be read in conjunction  therewith.  The  consolidated  financial
data of  Continental  for the three  months  ended  March 31,  2003 and 2002 are
derived from the unaudited  consolidated  financial  statements  of  Continental
incorporated  by reference in this  Prospectus,  which  include all  adjustments
(consisting  solely of normal  recurring  accruals,  except for fleet impairment
losses and other special charges) that Continental  considers  necessary for the
fair presentation of the financial  position and results of operations for these
periods.  Operating  results for the three  months  ended March 31, 2003 are not
necessarily  indicative  of the results that may be expected for the year ending
December 31, 2003.



                                           THREE MONTHS
                                          ENDED MARCH 31,                     YEAR ENDED DECEMBER 31,
                                        -------------------    --------------------------------------------------------
                                          2003        2002        2002         2001        2000        1999       1998
                                        --------    -------    ----------    --------    --------    --------    ------
                                           (IN MILLIONS OF DOLLARS, EXCEPT OPERATING DATA, PER SHARE DATA AND RATIOS)
FINANCIAL DATA--OPERATIONS:(1)
Operating Revenue....................   $ 2,042     $ 1,993     $ 8,402      $ 8,969     $ 9,899     $ 8,639     $ 7,927
Operating Expenses...................     2,266       2,180       8,714        8,825       9,170       8,024       7,226
                                       --------    --------    --------     --------    --------    --------    --------
Operating Income (Loss)..............      (224)       (187)       (312)         144         729         615         701
Non-operating Income (Expense), net..       (86)        (67)       (303)        (258)       (167)        183         (59)
                                       --------    --------    --------     --------    --------    --------    --------
Income (Loss) before Income Taxes
   and Cumulative Effect of Changes
   in Accounting Principles..........      (310)       (254)       (615)        (114)       562          798         642
Net Income (Loss)....................   $  (221)    $  (166)    $  (451)     $   (95)    $  342      $   455     $   383
                                       ========    ========    ========     ========    ========    ========    ========

Earnings (Loss) per Share:
   Basic.............................   $ (3.38)    $ (2.61)    $ (7.02)     $ (1.72)    $  5.62     $  6.54      $ 6.34
                                       ========    ========    ========     ========    ========    ========    ========
   Diluted...........................   $ (3.38)    $ (2.61)    $ (7.02)     $ (1.72)    $  5.45     $  6.20      $ 5.02
                                       ========    ========    ========     ========    ========    ========    ========

Shares used for Computation:
   Basic.............................      65.3        63.5        64.2         55.5        60.7        69.5        60.3
   Diluted...........................      65.3        63.5        64.2         55.5        62.8        73.9        80.3

Ratio of Earnings to Fixed Charges
(2)..................................        --          --          --           --        1.51x       1.80x       1.93x
                                       ========    ========    ========     ========    ========    ========    ========



                                           THREE MONTHS
                                          ENDED MARCH 31,                     YEAR ENDED DECEMBER 31,
                                        -------------------    ---------------------------------------------------------
                                          2003        2002        2002        2001        2000        1999        1998
                                        --------    --------   ---------    --------    --------    --------    --------
                                           (IN MILLIONS OF DOLLARS, EXCEPT OPERATING DATA, PER SHARE DATA AND RATIOS)
OPERATING DATA:
MAINLINE JET STATISTICS:
Revenue passengers (thousands)........     9,245      10,057      41,016      44,238     46,896       45,540      43,625
Revenue passenger miles
  (millions) (3)......................    13,274      14,032      59,349      61,140     64,161       60,022      53,910
Cargo ton miles (millions)............       233         208         908         917      1,096        1,000         856
Available seat miles (millions) (4)...    19,076      18,951      80,122      84,485     86,100       81,946      74,727
Passenger load factor (5).............      69.6%       74.0%       74.1%       72.4%      74.5%        73.2%       72.1%
Passenger revenue per available
  seat mile (cents)...................       8.45       8.77        8.61        8.98       9.84         9.12        9.23
Total revenue per available seat mile
  (cents).............................       9.31       9.40        9.27        9.58      10.52         9.75        9.85
Operating cost per available seat mile
  (cents) (6).........................      10.25      10.09        9.53        9.22       9.68         9.07        9.03
Special items per available seat mile.       0.34       0.48        0.31       (0.36)       N/A         0.09        0.14
Average yield per revenue passenger mile
  (cents) (7).........................      12.14      11.84       11.63       12.42      13.20        12.45       12.79
Average price per gallon of fuel,
  excluding fuel taxes (cents)........      98.50      60.17       69.97       78.24      84.21        46.56       46.83
Average price per gallon of fuel,
  including fuel taxes (cents)........     102.87      64.39       74.01       82.48      88.54        50.78       51.20
Fuel gallons consumed (millions)......        305        308       1,296       1,426      1,533        1,536       1,487
Average fare per revenue passenger....    $174.27    $165.21     $168.25     $171.59    $180.66      $164.11     $158.02
Average length of aircraft flight (miles)   1,257      1,191       1,225       1,185      1,159        1,114       1,044
Average daily utilization of each
  aircraft (hours) (8)................       9:19       9:31        9:31       10:19      10:36        10:29       10:13
Actual aircraft in fleet at end of
  period (9)..........................        362        364         366         352        371          363         363

REGIONAL JET AND TURBOPROP STATISTICS
(10):
Revenue passenger miles
  (millions) (3)......................      1,078        835       3,952       3,388      2,947        2,149      1,564
Available seat miles (millions) (4)...      1,767      1,424       6,219       5,437      4,735        3,431      2,641
Passenger load factor (5).............       61.0%      58.6%       63.5%       62.3%      62.2%        62.6%      59.2%

CONSOLIDATED STATISTICS:
Consolidated passenger load factor....       68.9%      73.0%       73.3%       71.8%      73.9%        72.8%      71.7%
Consolidated breakeven passenger load
  factor (11).........................       84.5%      87.4%       82.5%       73.5%      67.9%        64.0%      63.6%




                                                                          MARCH 31,         DECEMBER 31,
                                                                            2003                2002
                                                                        ------------        ------------
                                                                                 (IN MILLIONS OF DOLLARS)
FINANCIAL DATA--BALANCE SHEET:
ASSETS:
     Cash, Cash Equivalents and Short-Term Investments................  $      1,181        $      1,342
     Other Current Assets.............................................         1,079                 935
     Total Property and Equipment, net................................         6,824               6,968
     Routes and Airport Operating Rights, net.........................         1,003               1,009
     Other Assets.....................................................           503                 486
                                                                        ------------        ------------
           Total Assets...............................................  $     10,590        $     10,740
                                                                        ============        ============

LIABILITIES AND STOCKHOLDERS' EQUITY:
     Current Liabilities..............................................  $      3,137        $      2,926
     Long-Term Debt and Capital Leases................................         5,096               5,222
     Deferred Credits and Other Long-Term Liabilities.................         1,546               1,572
     Minority Interest............................................                19                   7
     Mandatorily Redeemable Preferred Securities of Subsidiary
        Trust Holding Solely Convertible Subordinated Debentures
        of Continental (12).......................................               241                 241
     Redeemable Preferred Stock of Subsidiary (13)....................             5                   5
     Stockholders' Equity.............................................           546                 767
                                                                        ------------        ------------
           Total Liabilities and Stockholders' Equity.................  $     10,590        $     10,740
                                                                        ============        ============

- -----------------
(1) Includes the following special expense (income) items (in millions):

                                                      THREE MONTHS
                                                     ENDED MARCH 31,              YEAR ENDED DECEMBER 31,
                                                     ----------------  --------------------------------------------
                                                      2003      2002     2002     2001     2000      1999     1998
                                                     ------    ------   ------   ------   ------    ------   ------
       Operating expense (income):
         Fleet impairment and restructuring
           charges...............................   $   65    $   90      $242   $   61     $ --    $  81      $122
         Air Transportation Safety and System
           Stabilization Act grant...............       --        --        12     (417)      --       --        --
         Severance and other special charges.....       --        --        --       63       --       --        --

       Nonoperating expense (income):
         Gain on sale of assets..................       --        --        --       --       (9)    (326)       --
         Impairment of investments...............       --        --        --       22       --       --        --

       Cumulative effect of change in accounting,
         net   of taxes..........................       --        --        --       --       --       33        --

(2)  For purposes of calculating  this ratio,  earnings consist of income before
     income taxes and cumulative effect of changes in accounting principles plus
     interest  expense  (net of  capitalized  interest),  the  portion of rental
     expense  representative  of interest expense and amortization of previously
     capitalized  interest.  Fixed  charges  consist of interest  expenses,  the
     portion of rental expense  representative of interest  expense,  the amount
     amortized  for debt  discount,  premium and  issuance  expense and interest
     previously capitalized.  For the three months ended March 31, 2003 and 2002
     and the years ended December 31, 2002 and 2001, earnings were inadequate to
     cover fixed  charges and the coverage  deficiency  was $307  million,  $257
     million, $616 million and $143 million, respectively.

(3)  The number of scheduled miles flown by revenue passengers.

(4)  The number of seats  available for  passengers  multiplied by the number of
     scheduled miles those seats are flown.

(5)  Revenue passenger miles divided by available seat miles.

(6)  Includes applicable special items noted in (1).

(7)  The average revenue received for each mile a revenue passenger is carried.

(8)  The  average  number of hours  per day that an  aircraft  flown in  revenue
     service is operated (from gate departure to gate arrival).

(9)  Excludes aircraft that are either  temporarily or permanently  removed from
     service.

(10) These statistics reflect operations of Continental  Express (as operated by
     ExpressJet).  In April 2002, ExpressJet's parent company Holdings completed
     an initial public  offering,  and  Continental's  ownership in Holdings was
     reduced to 53.1% of its  outstanding  common stock.  Pursuant to a capacity
     purchase  agreement,  Continental  currently  purchases all of ExpressJet's
     available seat miles for a negotiated price.



(11) The percentage of seats that must be occupied by revenue  passengers for us
     to  break  even on a net  income  basis.  The  special  items  noted in (1)
     included in the  consolidated  breakeven  passenger load factor account for
     3.0, 4.9, 3.3, (3.0), (0.1), (2.3) and 1.6 percentage points in each of the
     periods, respectively.

(12) The sole assets of the Trust are convertible subordinated debentures issued
     by Continental with an aggregate  principal  amount of $250 million,  which
     bear  interest at the rate of 6% per annum and mature on November 15, 2030.
     Upon  repayment,   the  Mandatorily   Redeemable  Preferred  Securities  of
     Subsidiary Trust will be mandatorily redeemed.

(13) In connection with an internal  reorganization  by Holdings,  Continental's
     53.1% majority owned subsidiary, a subsidiary of Holdings issued non-voting
     preferred  stock  which has a  liquidation  preference  of $5  million,  is
     mandatorily  redeemable  in 2012,  and is callable  beginning in 2005.  The
     preferred stock was sold to a non-affiliated  third party for a note in the
     original  principal  amount of $5 million  and is  included  on our balance
     sheet as redeemable preferred stock of subsidiary.



                                  RISK FACTORS

TERRORIST ATTACKS AND INTERNATIONAL HOSTILITIES

   THE  2001  TERRORIST  ATTACKS  AND  THE  RECENT  WAR IN IRAQ  HAVE  ADVERSELY
   AFFECTED,  AND ANY ADDITIONAL  TERRORIST  ATTACKS OR HOSTILITIES  MAY FURTHER
   ADVERSELY AFFECT,  CONTINENTAL'S  FINANCIAL CONDITION,  RESULTS OF OPERATIONS
   AND PROSPECTS

     As described in greater  detail below under "The  Company--Outlook"  and in
Continental's  filings with the Commission,  the terrorist  attacks of September
11,  2001  involving   commercial  aircraft  adversely  affected   Continental's
financial  condition,  results of  operations  and  prospects,  and the  airline
industry  generally.  Those effects continue,  although they have been mitigated
somewhat  by  increased  traffic,   money  received  by  Continental  under  the
Stabilization Act and a recent  supplemental  appropriations bill passed by both
houses of Congress and signed by the  President in April 2003 and  Continental's
cost-cutting measures. Moreover,  additional terrorist attacks, even if not made
directly on the airline  industry,  or the fear of such  attacks,  could further
negatively affect  Continental and the airline industry.  The recent war in Iraq
further  decreased  demand for air travel,  which could have a material  adverse
impact  on  Continental's   financial   condition,   liquidity  and  results  of
operations.

     Among the  effects  Continental  experienced  from the  September  11, 2001
terrorist attacks were significant flight disruption costs caused by the Federal
Aviation Administration ("FAA") imposed grounding of the U.S. airline industry's
fleet,   significantly   increased   security,   insurance   and  other   costs,
significantly higher ticket refunds, significantly reduced load factors (defined
as revenue  passenger miles divided by available seat miles),  and significantly
reduced yields.  Further  terrorist  attacks against  commercial  aircraft could
result in another  grounding of Continental's  fleet, and would likely result in
significant  reductions in load factor and yields,  along with increased  ticket
refunds and security,  insurance and other costs. In addition, terrorist attacks
not involving commercial aircraft, post war unrest in Iraq or other world events
could  result in  decreased  load  factors  and yields and could also  result in
increased  costs for Continental and the airline  industry.  For instance,  fuel
costs rose  significantly  during  2002 and the first  quarter of 2003 and until
recently have been at historically high levels.  Premiums for aviation insurance
have increased  substantially,  and could escalate further,  or certain aviation
insurance  could become  unavailable  or available  only for reduced  amounts of
coverage that are  insufficient to comply with the levels of insurance  coverage
required by aircraft  lenders and lessors or required by  applicable  government
regulations.  Additionally,  war-risk coverage or other insurance might cease to
be  available  to  Continental's   vendors,   or  might  be  available  only  at
significantly increased premiums or for reduced amounts of coverage, which could
adversely impact Continental's operations or costs.

     Due in part to the lack of predictability  of future traffic,  business mix
and yields,  Continental is currently unable to estimate the long-term impact on
it of the events of  September  11, 2001 or the impact of any further  terrorist
attacks or the war in Iraq.  However,  given the magnitude of the  unprecedented
events of September 11, 2001 and their continuing aftermath,  the adverse impact
to  Continental's  financial  condition,  results of  operations,  liquidity and
prospects may continue to be material,  and  Continental's  financial  resources
might not be sufficient to absorb it or that of any further terrorist attacks or
continued military action in Iraq.

RISK FACTORS RELATING TO THE COMPANY

   CONTINENTAL CONTINUES TO EXPERIENCE SIGNIFICANT LOSSES

     Since  September 11, 2001,  Continental  has incurred  significant  losses.
Continental  recorded  losses of $451  million  in 2002 and $221  million in the
first quarter of 2003, and expects to incur a significant loss for the full year
2003.  Passenger revenue per available seat mile for Continental's  mainline jet
operations has continued to decline since September 11, 2001,  dropping 4.1% for
the year ended  December 31, 2002 versus the same period in 2001 and 3.6% in the
first  quarter of 2003  versus  the first  quarter  of 2002.  Overall  passenger
revenue  declined 7.0% during 2002  compared to 2001,  and was flat in the first
quarter of 2003  compared to the same period in 2002.  Business  traffic in most
markets  continues to be weak,  and carriers  continue to offer reduced fares to
attract passengers,  which lowers Continental's passenger revenue and yields and
raises  Continental's  break-even load factor.  Continental  cannot predict when
business traffic or yields will increase.  Further,  the long-term impact of any
changes in fare  structures,  most  importantly  in relation to business  fares,



booking patterns,  low-cost competitor growth, increased usage of regional jets,
competitor  bankruptcies  and other  changes in industry  structure and conduct,
cannot be predicted at this time,  but could have a material  adverse  effect on
Continental's financial condition, liquidity and results of operations. See "The
Company--Outlook".

     In addition,  Continental's  capacity  purchase  agreement with  ExpressJet
provides that Continental  purchase,  in advance, all of ExpressJet's  available
seat miles for a negotiated  price, and Continental is at risk for reselling the
available  seat miles at market  prices.  Continental  previously  announced its
intention to sell or otherwise dispose of its remaining interests in ExpressJet.
If Continental does so, then Continental would report greater fixed costs, which
could result in lower or more volatile  earnings or both.  For example,  for the
year ended December 31, 2002,  Continental's  net loss of $451 million  included
net income for ExpressJet of $84 million.  For the quarter ended March 31, 2003,
Continental's net loss of $221 million included net income for ExpressJet of $26
million.

   CONTINENTAL'S HIGH LEVERAGE MAY AFFECT ITS ABILITY TO SATISFY ITS SIGNIFICANT
   FINANCING NEEDS OR MEET ITS OBLIGATIONS

     As is the  case  with its  principal  competitors,  Continental  has a high
proportion of debt compared to its equity  capital.  During 2002,  the amount of
Continental's  long-term debt increased 26%.  Continental  also has  significant
operating  leases and facility rental costs. In addition,  Continental has fewer
cash resources than some of its principal  competitors and  substantially all of
Continental's  property and equipment is subject to liens securing indebtedness.
Accordingly,  Continental  may be less  able  than  some of its  competitors  to
withstand a prolonged  recession  in the airline  industry or respond as well to
changing economic and competitive  conditions.  Moreover,  competitors  emerging
from  bankruptcy  will likely have lower cost  structures and greater  operating
flexibility after reorganizing their companies in bankruptcy.

     As of March 31, 2003, Continental had approximately:

o    $5.6 billion (including  current  maturities) of long-term debt and capital
     lease obligations.

o    $248  million  liquidation  amount  of  Continental-obligated   mandatorily
     redeemable  preferred  securities of trust ($241 million net of unamortized
     discount).

o    $546 million of stockholders' equity.

o    $1.18 billion in cash, cash equivalents and short-term investments.

     Continental has substantial commitments for capital expenditures, including
for the acquisition of new aircraft. As of March 31, 2003,  Continental had firm
commitments for 67 aircraft from Boeing, with an estimated cost of approximately
$2.5 billion.  The 67 aircraft are  scheduled to be delivered  between late 2003
and mid 2008,  with four Boeing 737-800  aircraft  scheduled for delivery in the
fourth  quarter of 2003.  Continental  has been offered  backstop  financing for
approximately  12 firm aircraft and is currently in  negotiations  regarding the
offer.  Continental  does not have  backstop  financing  or any other  financing
currently in place for the remainder of the aircraft.  In addition, at March 31,
2003,  Continental had firm  commitments to purchase 13 spare engines related to
the new Boeing aircraft for approximately $80 million. Continental does not have
any financing  currently in place for five of these spare  engines.  These spare
engines are scheduled to be delivered through March 2005. Further financing will
be needed to satisfy  Continental's  capital  commitments  for its  aircraft and
aircraft-related  expenditures  such as engines,  spare parts and related items.
There can be no assurance  that  sufficient  financing will be available for the
aircraft on order and other capital expenditures.

     As of March 31, 2003,  ExpressJet had firm commitments for an additional 74
regional jets from Empresa Brasileira de Aeronautica S.A. ("Embraer") delivering
through 2006, with an estimated aggregate cost of $1.5 billion.  ExpressJet does
not have any obligation to take any of these firm aircraft that are not financed
by a third  party and leased  either to  ExpressJet  or  Continental.  Under the
capacity purchase agreement between Continental and ExpressJet,  Continental has
agreed to lease as lessee and sublease to ExpressJet  the regional jets that are
subject to ExpressJet's  firm  commitments to purchase.  In addition,  under the



capacity purchase agreement with ExpressJet,  the Company generally is obligated
to purchase all of the  capacity  provided by these new aircraft as they deliver
to ExpressJet.  Continental cannot predict whether passenger traffic levels will
enable it to utilize fully regional jets delivering to ExpressJet in the future.

     Continental  also has  significant  operating  lease  and  facility  rental
obligations.  For the year ended December 31, 2002, annual aircraft and facility
rental expense under operating leases approximated $1.3 billion.

     Additional  financing  will be  needed  to  satisfy  Continental's  capital
commitments.  Continental  cannot predict whether  sufficient  financing will be
available.  On several  occasions  subsequent  to September  11,  2001,  each of
Moody's,  Standard & Poor's and Fitch,  Inc.  downgraded the credit ratings of a
number of major airlines,  including  Continental's  credit ratings.  Additional
downgrades  were  made in March  and  April  2003  and  further  downgrades  are
possible. Reductions in Continental's credit ratings have increased the interest
Continental  pays on new  issuances of debt and may increase the cost and reduce
the availability of financing to Continental in the future.

     Continental  does not have debt  obligations that would be accelerated as a
result of a credit rating downgrade,  but under two letters of credit facilities
securing our worker's  compensation  program,  Continental  could be required to
substitute  approximately  $67 million of cash collateral for spare engines that
currently  serve as  collateral  if the rating of its senior  unsecured  debt is
lowered below CCC- by Standard & Poor's or Caa3 by Moody's. Continental's senior
unsecured  debt  is  currently   rated  "CCC+"  on  CreditWatch   with  negative
implications by Standard & Poor's and "Caa2" with negative outlook by Moody's.

   SIGNIFICANT  CHANGES OR  EXTENDED  PERIODS OF HIGH FUEL COSTS OR FUEL  SUPPLY
   DISRUPTIONS WOULD MATERIALLY AFFECT CONTINENTAL'S OPERATING RESULTS

     Until  recently,  fuel  costs  have been at  historically  high  levels and
constitute a significant portion of Continental's  operating expense. Fuel costs
represented approximately 11.7% of Continental's operating expenses for the year
ended December 31, 2002 and 13.9% of  Continental's  operating  expenses for the
year ended December 31, 2001.  Fuel costs  represented  approximately  15.3% and
9.5% of  Continental's  operating  expenses for the three months ended March 31,
2003  and  2002,   respectively.   Fuel  prices  and  supplies  are   influenced
significantly by international political and economic circumstances, such as the
political crises in Venezuela and Nigeria and the war in Iraq. From time to time
Continental  enters  into  petroleum  swap  contracts,   petroleum  call  option
contracts  and/or  jet fuel  purchase  commitments  to provide  some  short-term
protection  (generally three to six months) against a sharp increase in jet fuel
prices.  Depending upon the hedging method employed,  Continental's strategy may
limit its ability to benefit  from  declines  in fuel  prices.  Continental  has
hedged approximately 80% of its fuel requirements for the second quarter of 2003
with petroleum call options.  Continental  has hedged  approximately  25% of its
fuel requirements for the remainder of the year with petroleum call options.  If
a future fuel supply shortage were to arise from OPEC production curtailments, a
disruption  of oil  imports,  post war unrest in Iraq,  other  conflicts  in the
Middle East, or otherwise,  higher fuel prices or further reduction of scheduled
airline service could result. Significant changes in fuel costs would materially
affect Continental's operating results.

   LABOR COSTS IMPACT CONTINENTAL'S RESULTS OF OPERATIONS

     Labor costs  constitute a  significant  percentage of  Continental's  total
operating  costs.  Continental's  mechanics,  represented  by the  International
Brotherhood  of  Teamsters,  ratified  a  new  four-year  collective  bargaining
agreement in December  2002.  The  mechanics  agreement  makes an  adjustment to
current pay and  recognizes  current  industry  conditions  with a provision  to
re-open negotiations regarding wages, pension and health insurance provisions in
January 2004. Work rules and other contract items are established  through 2006.
Collective  bargaining agreements between Continental and its pilots and between
ExpressJet  and its pilots (both of whom are  represented by the Air Line Pilots
Association)  became  amendable in October 2002. After being deferred due to the
economic  uncertainty  following  the  September  11,  2001  terrorist  attacks,
negotiations  recommenced  in  September  2002  and  are  continuing.   Although
Continental  may incur  increased labor costs in connection with the negotiation
of the  pilot  collective  bargaining  agreements,  the labor  cost  uncertainty
associated with recent major hub-and-spoke carrier bankruptcies makes predicting
the  outcome of  negotiations  more  difficult.  US  Airways  Group,  Inc.  ("US
Airways") and United Air Lines,  Inc.  ("United") have  significantly  decreased
their labor costs during their bankruptcy  cases.  Delta and Northwest  Airlines
have each recently announced that they are seeking to decrease their labor costs
significantly. American Airlines, Inc. ("American Airlines") has recently agreed
with its major  labor  groups on  significant  labor cost  reductions.  Although



Continental enjoys generally good relations with its employees,  there can be no
assurance that Continental will not experience labor disruptions in the future.

RISK FACTORS RELATING TO THE AIRLINE INDUSTRY

   THE AIRLINE INDUSTRY IS HIGHLY COMPETITIVE

     The  airline  industry  is  highly  competitive  and  susceptible  to price
discounting.  Carriers use discount fares to stimulate traffic during periods of
slack  demand,  to generate  cash flow and to  increase  market  share.  Some of
Continental's  competitors have  substantially  greater  financial  resources or
lower cost structures  than  Continental,  or both. In recent years,  the market
share held by low cost carriers has increased significantly.

     Airline profit levels are highly  sensitive to changes in fuel costs,  fare
levels and passenger demand. Passenger demand and fare levels are influenced by,
among other things, the state of the global economy,  domestic and international
events,  airline  capacity and pricing actions taken by carriers.  The weak U.S.
economy,  turbulent  international  events and extensive  price  discounting  by
carriers  contributed  to  unprecedented  losses for U.S.  airlines from 1990 to
1993. Since September 11, 2001, these same factors, together with the effects of
the terrorist  attacks and the war in Iraq, have resulted in dramatic losses for
Continental and the airline industry generally.  Continental cannot predict when
conditions will improve.  US Airways,  United and several small competitors have
filed for bankruptcy protection,  although US Airways emerged from bankruptcy on
March 31, 2003. Other carriers could follow.  These carriers could operate under
bankruptcy  protection  in a manner  that would be adverse to  Continental,  and
could emerge from  bankruptcy as more vigorous  competitors  with  substantially
lower costs.

     In recent  years,  the major U.S.  airlines  have sought to form  marketing
alliances  with other U.S. and foreign air carriers.  Such  alliances  generally
provide for codesharing,  frequent flyer reciprocity,  coordinated scheduling of
flights of each alliance member to permit convenient connections and other joint
marketing  activities.  Such  arrangements  permit an airline to market  flights
operated by other alliance members as its own. This increases the  destinations,
connections and frequencies offered by the airline, which provide an opportunity
to  increase  traffic on its  segment of flights  connecting  with its  alliance
partners.  Continental's  alliance with Northwest  Airlines and its new alliance
with  Delta and  Northwest  Airlines  are  examples  of such  arrangements,  and
Continental has existing  alliances with numerous other air carriers.  (See "The
Company--Domestic  Alliances".)  Other major U.S.  airlines  have  alliances  or
planned alliances more extensive than Continental's, which would cause the route
systems of other  carriers to provide  relatively  greater  utility to customers
than  Continental's  more limited route system.  Continental  cannot predict the
extent to which it will be disadvantaged by competing alliances.

     Since its  deregulation  in 1978, the U.S.  airline  industry has undergone
substantial  consolidation,  and  it may in  the  future  experience  additional
consolidation.   Continental  routinely  monitors  changes  in  the  competitive
landscape  and engages in  analysis  and  discussions  regarding  its  strategic
position, including alliances and business combination transactions. Continental
has had,  and  expects to  continue  to have,  discussions  with  third  parties
regarding  strategic  alternatives.  The impact of any consolidation  within the
U.S. airline industry cannot be predicted at this time.

   THE AVIATION  SECURITY ACT WILL IMPOSE  ADDITIONAL COSTS AND MAY CAUSE SEVERE
   DISRUPTIONS

     In  November  2001,  the  President   signed  into  law  the  Aviation  and
Transportation  Security Act (the "Aviation Security Act"). This law federalized
substantially   all  aspects  of  civil  aviation   security,   creating  a  new
Transportation  Security  Administration  under the Department of Transportation
(the "TSA").  Among other things,  the law required that all checked  baggage be
screened by explosive  detection  systems by December 31, 2002 (although  during
the  implementation  phase,  other  permitted  methods  of  screening  are being
utilized and federal law permits  individual  airports to request  extensions of
such deadline).  At some airports,  the TSA has provided for temporary  security
measures which are less than optimal.  Implementation of the requirements of the
Aviation  Security Act has resulted in increased costs for the airline  industry
and may result in  additional  costs,  delays  and  disruptions  in air  travel,
although pursuant to a supplemental  appropriations bill approved by both houses
of Congress and signed by the President in April 2003,  some of these costs have
been or will be reimbursed by the U.S. government. See "The Company--Outlook".



   CONTINENTAL'S BUSINESS IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION

     As evidenced by the enactment of the Aviation  Security  Act,  airlines are
subject to extensive regulatory and legal compliance requirements that result in
significant  costs.  The FAA  from  time to time  issues  directives  and  other
regulations  relating to the  maintenance and operation of aircraft that require
significant  expenditures.  Some FAA  requirements  cover,  among other  things,
retirement of older aircraft,  security measures,  collision  avoidance systems,
airborne windshear  avoidance systems,  noise abatement and other  environmental
concerns,  commuter  aircraft  safety and increased  inspections and maintenance
procedures to be conducted on older  aircraft.  Continental  expects to continue
incurring expenses to comply with the FAA's regulations.

     Additional laws, regulations, taxes and airport rates and charges have been
proposed from time to time that could significantly increase the cost of airline
operations or reduce  revenue.  Additionally,  because of  significantly  higher
security and other costs  incurred by airports  since  September  11, 2001,  and
because  reduced  landing weights since September 11, 2001 have reduced the fees
airlines pay to airports, many airports are significantly increasing their rates
and charges to air  carriers,  including  to  Continental.  Restrictions  on the
ownership and transfer of airline routes and takeoff and landing slots have also
been proposed.  The ability of U.S. carriers to operate  international routes is
subject to change because the applicable  arrangements between the United States
and foreign governments may be amended from time to time, or because appropriate
slots or facilities are not made available. Continental cannot provide assurance
that current laws and regulations, or laws or regulations enacted in the future,
will not adversely affect it.

   CONTINENTAL'S  OPERATIONS ARE AFFECTED BY THE SEASONALITY ASSOCIATED WITH THE
   AIRLINE INDUSTRY

     Due to greater demand for air travel during the summer  months,  revenue in
the airline  industry in the second and third  quarters of the year is generally
stronger than revenue in the first and fourth quarters of the year for most U.S.
air  carriers.  Continental's  results  of  operations  generally  reflect  this
seasonality,  but have also been impacted by numerous other factors that are not
necessarily seasonal,  including the extent and nature of competition from other
airlines, fare actions, excise and similar taxes, security fees, changing levels
of  operations,  fuel  prices,  weather,  air traffic  control  delays,  foreign
currency exchange rates and general economic conditions.

RISK FACTORS RELATING TO THE SENIOR NOTES AND THE EXCHANGE OFFER

   CONSEQUENCES OF FAILURE TO EXCHANGE

     If you fail to deliver the proper  documentation to the Exchange Agent in a
timely fashion, your tender of Old Senior Notes will be rejected. The New Senior
Notes  will be issued in  exchange  for the Old Senior  Notes only after  timely
receipt by the Exchange Agent of the Old Senior Notes, a properly  completed and
executed  Letter of Transmittal  (or an Agent's Message in lieu thereof) and all
other  required  documentation.  If you wish to tender your Old Senior  Notes in
exchange for New Senior Notes, you should allow sufficient time to ensure timely
delivery.  None of the Exchange  Agent,  the Trustee or Continental is under any
duty  to  give  holders  of  Old  Senior  Notes   notification   of  defects  or
irregularities with respect to tenders of Old Senior Notes for exchange.

     If you do not exchange your Old Senior Notes for New Senior Notes  pursuant
to the Exchange  Offer,  or if your tender of Old Senior Notes is not  accepted,
your Old  Senior  Notes will  continue  to be  subject  to the  restrictions  on
transfer  of such Old  Senior  Notes  as set  forth in the  legend  thereon.  In
general,  you may not offer or sell Old Senior Notes unless they are  registered
under  the  Securities  Act,  except  pursuant  to an  exemption  from,  or in a
transaction not subject to, the Securities Act and applicable  state  securities
laws.  Continental  does not currently  anticipate that it will register the Old
Senior Notes under the  Securities  Act. To the extent that Old Senior Notes are
tendered and accepted in the Exchange  Offer,  the trading market for untendered
and tendered but unaccepted Old Senior Notes could be adversely affected.

   APPRAISAL AND REALIZABLE VALUE OF COLLATERAL

     The Policy  supports  payment of interest on the Senior  Notes when due and
payment of  outstanding  principal  of the Senior  Notes no later than the Final
Legal Maturity Date.  However,  if Continental does not make such payments and a



Policy Provider Default occurs, in order to obtain such payments, the holders of
the  Senior  Notes  may  have to  rely  on the  proceeds  from  the  sale of the
Collateral.

     Simat,  Helliesen & Eichner,  Inc., an independent  aviation  appraisal and
consulting firm ("SH&E"),  has prepared an appraisal of the spare parts included
in the  Collateral  as of December 25, 2002. A letter,  dated  January 24, 2003,
summarizing  such  appraisal is annexed to this  Prospectus  as Appendix II. The
appraisal is subject to a number of assumptions and limitations and was prepared
based on certain  specified  methodologies.  In preparing  its  appraisal,  SH&E
conducted  only a limited  physical  inspection  of certain  locations  at which
Continental  maintains  the spare parts.  An appraisal  that is subject to other
assumptions  and  limitations  and based on other  methodologies  may  result in
valuations  that  are  materially  different  from  those  contained  in  SH&E's
appraisal. See "Description of the Appraisal".

     Continental is required to provide to the Policy Provider and the Trustee a
semiannual  appraisal  of the  Collateral.  If  any  such  subsequent  appraisal
indicates that the ratio of the outstanding principal amount of the Senior Notes
to the  Collateral  value  is  greater  than  45.0%,  or that  the  ratio of the
outstanding  principal amount of the Senior Notes and the Subordinated  Notes to
the Collateral  value is greater than 67.5%,  Continental is required to provide
additional  collateral  or to reduce  the  principal  amount of Senior  Notes or
Subordinated  Notes  outstanding  so that the loan to Collateral  values are not
greater  than  the  applicable   maximum   percentage.   Continental   deposited
$13,056,950 as Cash  Collateral at the initial  issuance of the Old Senior Notes
so that the initial loan to Collateral value ratio would not exceed 45.0%, based
on the  appraisal  determined  as of August 25,  2002.  The ratio of the loan to
Collateral value,  determined using the appraisal as of December 25, 2002, would
have been  45.8% for the  Senior  Notes  and  68.7% for the  Subordinated  Notes
without giving effect to such deposit of Cash Collateral. Continental expects to
satisfy the applicable  maximum loan to Collateral value percentages at the time
the next  appraisal  is required  based upon its  projected  purchases  of spare
parts,  in which  case  Continental  will be  entitled  to  withdraw  such  Cash
Collateral.  However,  no  assurance  can be given that the  applicable  maximum
percentages    will   be   satisfied.    See    "Description   of   the   Senior
Notes--Collateral".

     An  appraisal  is only an estimate  of value.  An  appraisal  should not be
relied upon as a measure of realizable  value. The proceeds realized upon a sale
of any  Collateral  may be less  than  its  appraised  value.  The  value of the
Collateral if remedies are exercised  under the Indenture  will depend on market
and economic conditions,  the supply of similar spare parts, the availability of
buyers,  the condition of the Collateral and other factors.  In addition,  since
spare  parts  are  regularly  used,  refurbished,   purchased,  transferred  and
discarded  in the  ordinary  course of  business,  the  quantity  of spare parts
included  in the  Collateral  and their  appraised  value will change over time.
Accordingly,  Continental  cannot assure you that the proceeds realized upon any
such exercise of remedies would be sufficient to satisfy in full payments due on
the Senior Notes. If a Policy Provider  Default occurs and such proceeds are not
sufficient  to repay all such amounts due on the Senior  Notes,  then holders of
Senior  Notes  (to the  extent  not  repaid  from  the  proceeds  of the sale of
Collateral) would have only unsecured claims against  Continental and the Policy
Provider.

     As  discussed  under "Risk  Factors  Relating to the Airline  Industry--The
Airline Industry is Highly  Competitive",  since September 11, 2001, the airline
industry has suffered substantial losses. Two major air carriers, US Airways and
United, have filed for bankruptcy  protection,  although US Airways emerged from
bankruptcy on March 31, 2003. Northwest Airlines has publicly  acknowledged that
it may  file  for  bankruptcy  unless  it  renegotiates  its  outstanding  labor
agreements,  and other  airlines  may file for  bankruptcy  protection  as well.
Moreover,  recent  reports have  suggested the  possibility  of  liquidation  by
United. In response to adverse market conditions, many air carriers have reduced
the  number of  aircraft  in  operation,  and there may be  further  reductions,
particularly by air carriers in bankruptcy or liquidation. Any such reduction of
aircraft  of the same  models as the models of aircraft on which the spare parts
included in the Collateral may be installed or used could  adversely  affect the
value of the Collateral.

   CONTROL OVER AMENDMENTS, WAIVERS AND SALE OF COLLATERAL

     Whether  before  or  after  the  occurrence  of an Event  of  Default,  the
"Controlling Party" will direct the Trustee in taking action under the Indenture
and  other  agreements  relating  to  the  Notes,  including  in  amending  such
agreements  and  granting  waivers   thereunder,   except  for  certain  limited
provisions  with  respect to the  Collateral  as it relates to the  Subordinated
Notes that  cannot be amended or waived  without the consent of the holders of a
majority  of the  outstanding  principal  amount of the  Subordinated  Notes and
certain other limited  provisions  that cannot be amended or waived  without the
consent of each Noteholder affected thereby. Except for those limited provisions



which are  described  in  "Description  of the Senior  Notes--Modifications  and
Waiver of the  Indenture and Certain Other  Agreements",  the  provisions of the
Indenture,  the Security  Agreement  and the other  Operative  Documents  may be
amended or waived by the  Controlling  Party (or, in the case of the  Collateral
Maintenance  Agreement,  the Policy Provider)  without the consent of the Senior
Noteholders.  If an Event of Default is continuing, the "Controlling Party" will
direct the Trustee in exercising remedies under the Indenture and the Collateral
Agreements,  including  accelerating the Senior Notes or foreclosing the lien on
the  Collateral  securing  the  Senior  Notes.  See  "Description  of the Senior
Notes--Remedies".

     The Controlling Party will be:

     o    The Policy Provider (except as provided below).

     o    If a Policy Provider  Default is continuing,  the holders of more than
          50% in  aggregate  unpaid  principal  amount of the Senior  Notes then
          outstanding  or, if the Senior  Notes  have been paid in full,  of the
          Subordinated Notes then outstanding.

     o    If the Senior  Notes,  the  Policy  Expenses  and the Policy  Provider
          Obligations  have been paid in full,  the  holders of more than 50% in
          aggregate  unpaid   principal   amount  of  Subordinated   Notes  then
          outstanding.

     o    Under certain circumstances, the Liquidity Provider.

     The  Subordinated  Noteholders  will have the right to  direct  the  Policy
Provider in acting as the  Controlling  Party during the continuance of an Event
of Default if the Subordinated  Noteholders shall have deposited with the Policy
Provider cash, U.S. government securities or other investments acceptable to the
Policy  Provider as collateral for amounts owed and to become due and payable to
the Policy  Provider under the Operative  Documents and Support  Documents.  The
Subordinated  Noteholders contributing their proportionate share of such deposit
will be  entitled  to  direct  the  Policy  Provider  in  taking  action  as the
Controlling  Party during the  continuance of such Event of Default by vote of a
majority  of the  principal  amount  of the  Subordinated  Notes  held  by  such
contributing   Subordinated   Noteholders.   See   "Description  of  the  Senior
Notes--Controlling Party".

     The rights of  holders of Senior  Notes may be  adversely  affected  by the
actions  of the  Policy  Provider  as the  Controlling  Party  described  in the
preceding   paragraphs,   particularly  if  a  Policy  Provider  Default  occurs
subsequently thereto.

   IF  CONTINENTAL  DEFAULTS,  THE  INTEREST  RATE ON THE  SENIOR  NOTES WILL BE
   SUBJECT TO A MAXIMUM EQUAL TO THE CAPPED INTEREST RATE

     If Continental  fails to pay accrued  interest on the Senior Notes when due
on a Distribution  Date and fails to cure such nonpayment,  the interest rate on
the Senior Notes for the interest due on such  Distribution Date will be subject
to a maximum  equal to the  Capped  Interest  Rate.  If  Continental  cures such
nonpayment,  such maximum rate will not apply.  However,  the amounts  available
under the Liquidity  Facility and the Policy for the payment of accrued interest
are limited by the same maximum rate. Accordingly,  if Continental fails to make
a payment of interest  when due and the  interest  rate on the Senior Notes then
applicable  exceeds the Capped  Interest  Rate,  the amount that the Trustee may
draw under the Liquidity  Facility and Policy (or, if applicable,  withdraw from
the Cash  Collateral  Account) to make such  payment will be  calculated  at the
Capped Interest Rate. If Continental  subsequently  cures,  Continental  will be
obligated to pay the accrued interest  calculated without regard to such maximum
rate. If Continental fails to cure, the Senior Noteholders will not have a claim
for interest due on such  Distribution  Date above the amount  calculated at the
Capped Interest Rate.

   CERTAIN LIMITATIONS WITH RESPECT TO THE COLLATERAL

     The Policy  supports  the payment of interest on the Senior  Notes when due
and payment of outstanding principal of the Senior Notes no later than the Final



Legal Maturity Date.  However,  if Continental does not make such payments and a
Policy Provider Default occurs, in order to obtain such payments, the holders of
Senior Notes may have to rely on the proceeds from the sale of the Collateral.

     The Senior  Notes are secured by a lien on the  Pledged  Spare  Parts.  The
Subordinated  Notes  are  also  secured  by  a  lien  on  such  collateral.  See
"Description of the Senior Notes--Collateral".  However, the lien will not apply
to a spare part for as long as it is installed on or being used in any aircraft,
engine or other spare part so installed or being used. In addition,  since spare
parts are regularly used, refurbished,  purchased,  transferred and discarded in
the  ordinary  course of  Continental's  business,  the  quantity of spare parts
included in the Collateral and their appraised value will change over time.

     Continental  is  required  to keep  the  Pledged  Spare  Parts  at  certain
Designated  Locations,  subject to certain  exceptions.  See "Description of the
Senior  Notes--Collateral--Designated  Locations".  The lien of the Senior Notes
will not apply to any spare part not located at a Designated Location.

     Upon  initial  issuance of the Old Senior  Notes,  Continental  made a cash
collateral  deposit with the Security  Agent of  $13,056,950 so that the initial
ratio of the outstanding  principal amount of the Senior Notes to the Collateral
value would not exceed 45.0%.  Continental  is required to provide to the Policy
Provider and the Trustee a semiannual  appraisal of the Collateral.  If any such
subsequent  appraisal  indicates  that the  ratio of the  outstanding  principal
amount of the Senior Notes to the  Collateral  value is greater  than 45.0%,  or
that the  ratio of the  outstanding  principal  amount of the  Senior  Notes and
Subordinated Notes to the Collateral value is greater than 67.5%, Continental is
required to provide  additional  collateral or to reduce the principal amount of
Senior Notes or  Subordinated  Notes  outstanding so that the loan to Collateral
values are not  greater  than the  applicable  maximum  percentage.  In order to
satisfy this requirement,  Continental may grant a lien on additional  Qualified
Spare Parts, cash or certain investment securities. In addition, Continental may
grant a lien on other  collateral,  provided that the Policy Provider agrees and
each Rating Agency confirms that the use of such additional  collateral will not
result in a reduction  of the rating of the Senior Notes or  Subordinated  Notes
below the then  current  rating  for such Notes  (determined  in the case of the
Senior Notes without  regard to the Policy) or a withdrawal or suspension of the
rating of such Notes. See "Description of the Senior Notes--Collateral". Section
1110 of the U.S.  Bankruptcy  Code,  which provides special rights to holders of
liens  with  respect  to  certain  equipment  (see  "Description  of the  Senior
Notes--Remedies"),  would apply to any such additional Qualified Spare Parts but
would not apply to any such cash or investment securities. In addition,  Section
1110 may not apply to such other collateral, depending on the circumstances.

   LIMITED ABILITY TO RESELL THE NOTES

     Prior to the Exchange Offer, there has been no public market for the Senior
Notes.  Continental  does not intend to apply for listing of the Senior Notes on
any  national  securities  exchange  or  otherwise.  The Initial  Purchaser  has
previously  made a market  in the Old  Senior  Notes  and  Continental  has been
advised by the Initial  Purchaser that it presently  intends to make a market in
the New Senior Notes,  as permitted by applicable  laws and  regulations,  after
consummation  of the Exchange  Offer.  The Initial  Purchaser is not  obligated,
however,  to make a market in the Old Senior Notes or the New Senior Notes,  and
any such  market-making  activity may be discontinued at any time without notice
at the sole discretion of the Initial Purchaser. There can be no assurance as to
the  liquidity  of the public  market  for the  Senior  Notes or that any active
public market for the Senior Notes will develop or continue. If an active public
market  does  develop,  it might not  continue  or it might not be  sufficiently
liquid to allow you to resell any of your Senior Notes.

RISK FACTORS RELATING TO THE POLICY PROVIDER

   IF THE FINANCIAL CONDITION OF THE POLICY PROVIDER DECLINES, THE RATING OF THE
   NOTES MAY DECLINE

     The Aaa rating by Moody's of the Senior Notes is based,  primarily,  on the
existence of the Policy that insures the complete and timely payment of interest
on the Senior Notes on each Interest Payment Date and the payment of outstanding
principal of the Senior Notes no later than the Final Legal Maturity Date.  MBIA
Insurance Corporation, the Policy Provider, has issued the Policy. If the Policy
Provider's financial condition declines or if it becomes insolvent,  the Trustee
may be unable to recover the full amount due under the Policy. In addition, such
a decline or insolvency could lead Moody's to downgrade the rating of the Senior
Notes  because  of a  concern  that the  Policy  Provider  may be unable to make
payments to the holders of the Senior Notes under the Policy. For information on



the financial  information  generally available relating to the Policy Provider,
see  "Description of the Policy Provider" and "Description of the Policy and the
Policy Provider Agreement--The Policy".

   POLICY PROTECTION IS LIMITED

     Although  the  Trustee  may make  drawings  under the Policy  for  interest
payments on the Senior Notes on each Interest  Payment Date, the Trustee may not
make drawings for  principal  payments on the Senior Notes until the Final Legal
Maturity  Date  except  in  certain  limited  circumstances.   This  limits  the
protection afforded to holders of Senior Notes by the Policy.

                                 USE OF PROCEEDS

     There will be no cash proceeds  payable to Continental from the issuance of
the New Senior Notes pursuant to the Exchange Offer.  The proceeds from the sale
of the Old Senior Notes were used by Continental for general corporate purposes.



                       RATIO OF EARNINGS TO FIXED CHARGES

         The ratios of our  "earnings"  to our "fixed  charges"  for each of the
years 1998 through 2002 and for the three months ended March 31, 2003 were:

                THREE MONTHS ENDED
                  MARCH 31, 2003                        YEAR ENDED DECEMBER 31,
                ------------------      ------------------------------------------------------
                                         2002        2001        2000        1999        1998
                                        ------      ------      ------      ------      ------
                      --(1)              --(1)       --(1)       1.51        1.80        1.93

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

(1) For the three months  ended March 31, 2003 and the years ended  December 31,
2002 and 2001,  earnings were inadequate to cover fixed charges and the coverage
deficiency was $307 million, $616 million and $143 million, respectively.

     For purposes of the ratios, "earnings" means the sum of:

     o    our pre-tax income (loss); and

     o    our fixed charges, net of interest capitalized.

     "Fixed charges" represent:

     o    the interest we pay on borrowed funds;

     o    the amount we amortize for debt discount, premium and issuance expense
          and  interest  previously  capitalized;  and

     o    that portion of rentals  considered to be  representative  of interest
          expense.



                                   THE COMPANY

     Continental  Airlines,  Inc.  ("Continental"  or the  "Company") is a major
United States air carrier  engaged in the business of  transporting  passengers,
cargo and mail.  Continental  is the fifth  largest  United  States  airline (as
measured by the number of scheduled miles flown by revenue passengers,  known as
revenue  passenger miles, in 2002) and,  together with its indirect  53.1%-owned
subsidiary,  ExpressJet  Airlines,  Inc.  (operating as Continental  Express and
referred  to  in  this  Prospectus  as  "ExpressJet"),   and  its  wholly  owned
subsidiary,  Continental Micronesia, Inc. ("CMI"), served 218 airports worldwide
at April 30, 2003. As of April 30, 2003, Continental flew to 124 domestic and 94
international  destinations and offered  additional  connecting  service through
alliances with domestic and foreign  carriers.  Continental  directly  served 16
European cities,  seven South American cities,  Tel Aviv, Hong Kong and Tokyo as
of April 30,  2003,  and is one of the  leading  airlines  providing  service to
Mexico and Central America,  serving 28 cities, more destinations than any other
United States airline.  Through its Guam hub, CMI provides  extensive service in
the western  Pacific,  including  service to more Japanese cities than any other
United States carrier. The Company's executive offices are located at 1600 Smith
Street, Houston, Texas 77002. The Company's telephone number is (713) 324-2950.

DOMESTIC OPERATIONS

     Continental  operates its domestic route system primarily  through its hubs
in the New  York  metropolitan  area at  Newark  Liberty  International  Airport
("Liberty  International"  or  "Newark"),  in  Houston,  Texas  at  George  Bush
Intercontinental   Airport  ("Bush   Intercontinental"   or  "Houston")  and  in
Cleveland,  Ohio at Hopkins  International  Airport  ("Hopkins  International").
Continental's  hub  system  allows it to  transport  passengers  between a large
number of destinations  with  substantially  more frequent  service than if each
route were  served  directly.  The hub system  also  allows  Continental  to add
service to a new  destination  from a large number of cities using only one or a
limited  number of aircraft.  As of April 30, 2003,  Continental  and ExpressJet
operated 66% of the average daily jet departures from Liberty International, 85%
of the average daily jet departures from Bush  Intercontinental,  and 67% of the
average daily jet departures from Hopkins  International (in each case including
regional  jets).  Each of  Continental's  domestic  hubs is  located  in a large
business and  population  center,  contributing  to a high volume of "origin and
destination" traffic.

   EXPRESSJET

     Continental's  mainline  jet service at each of its  domestic hub cities is
coordinated with  ExpressJet,  which operates  new-generation  regional jets. In
April 2002, ExpressJet Holdings,  Inc.  ("Holdings"),  Continental's then wholly
owned subsidiary and the sole stockholder of ExpressJet,  sold 10 million shares
of its common stock in an initial  public  offering and used the net proceeds to
repay $147 million of ExpressJet's  indebtedness  to  Continental.  In addition,
Continental  sold 20  million  of its  shares of  Holdings  common  stock in the
offering for net proceeds of $300  million.  In  connection  with the  offering,
Continental's  ownership  of  Holdings  fell  to  53.1%.  Continental  does  not
currently intend to remain a stockholder of Holdings over the long term. Subject
to market conditions,  Continental  expects to sell or otherwise dispose of some
or all of its shares of Holdings common stock in the future.  On May 1, 2003, at
Continental's  request,  Holdings filed a shelf registration  statement with the
Commission  relating to the 34 million  shares of Holdings  common stock held by
Continental  to enable  Continental  to sell such  common  stock free of certain
restrictions under the Securities Act.

     Effective  January 1, 2001,  Continental  entered into a capacity  purchase
agreement with ExpressJet pursuant to which Continental  currently purchases all
of  ExpressJet's  available  seat  miles  for  a  negotiated  price.  Under  the
agreement,   ExpressJet   has  the  right  through   December  31,  2006  to  be
Continental's  sole  provider of regional jet service from  Continental's  hubs.
Continental is responsible for all scheduling,  pricing and seat  inventories of
ExpressJet's  flights  and is  entitled  to all  revenue  associated  with those
flights.  Continental  pays ExpressJet based on scheduled block hours (the hours
from  departure gate to arrival gate) in accordance  with a formula  designed to
provide  ExpressJet with an operating margin of approximately  10% before taking
into  account   variations  in  some  costs  and  expenses  that  are  generally
controllable by ExpressJet.  ExpressJet's  overall operating margin was 13.6% in
2002.  Continental assumes the risk of revenue volatility  associated with fares
and passenger traffic, price volatility for specified expense items such as fuel
and  the  cost of all  distribution  and  revenue-related  costs.  The  capacity
purchase agreement replaced Continental's prior revenue-sharing arrangement.



     As of April 30, 2003,  ExpressJet  served 99  destinations  in the U.S., 13
cities  in  Mexico,  5  cities  in  Canada  and  Nassau.  Since  December  2002,
ExpressJet's  fleet has been comprised  entirely of regional  jets.  Continental
believes ExpressJet's regional jet service complements  Continental's operations
by carrying traffic that connects onto Continental's  mainline jets and allowing
more frequent flights to smaller cities than could be provided economically with
larger jet  aircraft.  Continental  believes  that  ExpressJet's  regional  jets
provide  greater  comfort and enjoy better  customer  acceptance  than turboprop
aircraft.  The regional jets also allow  ExpressJet to serve certain routes that
cannot be served by  turboprop  aircraft.  Additional  commuter  feed traffic is
currently provided to Continental by other codesharing partners.

   DOMESTIC CARRIER ALLIANCES

     Continental has entered into alliance  agreements,  which are also referred
to as codeshare  agreements  or  cooperative  marketing  agreements,  with other
carriers.  These  relationships may include (a) codesharing (one carrier placing
its name and flight number, or "code", on flights operated by the other carrier)
and (b) reciprocal  frequent  flyer program  participation,  reciprocal  airport
lounge  access  and  other  joint  activities  (such  as  seamless  check-in  at
airports). Some relationships may include other cooperative undertakings such as
joint purchasing, joint corporate sale contracts,  airport handling,  facilities
sharing or joint technology development.

     Continental has a long-term global alliance with Northwest  Airlines,  Inc.
("Northwest  Airlines") through 2025,  subject to earlier  termination by either
carrier in the event of certain changes in control of either Northwest  Airlines
or  Continental.  The alliance with Northwest  provides for each carrier placing
its code on a large number of the flights of the other,  reciprocity of frequent
flyer programs and airport lounge access, and other joint marketing  activities.
Northwest  Airlines  and  Continental  also  have  joint  contracts  with  major
corporations  and travel agents  designed to create access to a broader  product
line encompassing the route systems of both carriers.

     Continental  also  has  domestic  codesharing  agreements  with  Gulfstream
International Airlines,  Inc., Mesaba Aviation,  Inc., Hawaiian Airlines,  Inc.,
Alaska Airlines,  Inc.,  Horizon Airlines,  Inc.,  Champlain  Enterprises,  Inc.
(CommutAir),  Hyannis Air Service,  Inc. (Cape Air) and American Eagle Airlines,
Inc. In 2002,  Continental  introduced the first train-to-plane  alliance in the
United States with Amtrak.

     In response to the  dramatic  changes  occurring  in the airline  industry,
including a marketing alliance between United and US Airways, Continental signed
a  marketing  agreement  with  Northwest  Airlines  and  Delta Air  Lines,  Inc.
("Delta")  in August 2002 to permit it to compete  more  effectively  with other
carriers and alliance groups. As with the alliance with Northwest Airlines, this
alliance involves codesharing, reciprocal frequent flyer benefits and reciprocal
airport lounge privileges.  Implementation of this marketing alliance is planned
for Summer 2003, subject to satisfaction of certain conditions.

INTERNATIONAL OPERATIONS

     Continental directly serves destinations throughout Europe, Canada, Mexico,
Central and South America and the  Caribbean as well as Tel Aviv,  Hong Kong and
Tokyo.  Continental also provides service to numerous other destinations through
codesharing arrangements with other carriers and has extensive operations in the
western  Pacific  conducted  by CMI. As measured by 2002  available  seat miles,
approximately 39% of Continental's mainline jet operations,  including CMI, were
dedicated to international traffic.

     Continental's New York/Newark hub is a significant  international  gateway.
From Liberty International,  at April 30, 2003 Continental and ExpressJet served
16 European  cities,  five  Canadian  cities,  six Mexican  cities,  six Central
American cities,  four South American  cities,  14 Caribbean  destinations,  Tel
Aviv,  Hong Kong (though  service  between Hong Kong and Newark was suspended in
April 2003) and Tokyo.

     Continental's  Houston  hub is the focus of its  operations  in Mexico  and
Central America. As of April 30, 2003, Continental and ExpressJet flew from Bush
Intercontinental to 20 cities in Mexico,  every country in Central America,  six
cities in South  America,  three cities in Canada,  three cities in Europe,  two
Caribbean destinations and Tokyo.



     From  Continental's  Cleveland  hub,  Continental  and  ExpressJet  flew to
Montreal,  Toronto,  London, Cancun, Mexico, Nassau and San Juan, Puerto Rico as
of April 30, 2003.

   CONTINENTAL MICRONESIA

     From its hub operations  based on the island of Guam, as of April 30, 2003,
CMI provided service to eight cities in Japan, more than any other United States
carrier,  as well as other Pacific Rim  destinations,  including  Taiwan (though
service  has been  suspended  from  May 21,  2003  through  July 1,  2003),  the
Philippines,  Hong Kong  (though  service has been  suspended  from May 23, 2003
through June 2, 2003), Australia and Indonesia.

     CMI is the  principal  air  carrier in the  Micronesian  Islands,  where it
pioneered  scheduled  air service in 1968.  CMI's route  system is linked to the
United States market  through Hong Kong,  Tokyo and Honolulu,  each of which CMI
serves  non-stop  from Guam.  CMI and  Continental  also  maintain a codesharing
agreement and coordinate  schedules on certain flights from the United States to
Honolulu, and from Honolulu to Guam, to facilitate travel from the United States
into CMI's route system.

   FOREIGN CARRIER ALLIANCES

     Continental  seeks to develop  international  alliance  relationships  that
complement  Continental's  own route system and permit expanded  service through
its hubs to major  international  destinations.  International  alliances assist
Continental in the development of its route structure by enabling Continental to
offer more frequencies in a market,  provide passengers  connecting service from
Continental's  international  flights to other  destinations  beyond an alliance
partner's  hub,  and expand the  product  line that  Continental  may offer in a
foreign destination.

     In October  2001,  Continental  announced  that it had signed a cooperative
marketing  agreement  with  KLM  Royal  Dutch  Airlines  ("KLM")  that  includes
extensive  codesharing and reciprocal  frequent flyer program  participation and
airport lounge access. In January 2002,  Continental placed its code on selected
flights  operated  by KLM and KLM  Cityhopper  from  Amsterdam  to more  than 40
destinations  in Europe,  Africa and the Middle East, and KLM placed its code on
selected  flights to U.S.  destinations  operated by Continental  beyond its New
York and Houston hubs. In addition,  members of each  carrier's  frequent  flyer
program are able to earn mileage  anywhere on the other's  global route network,
as well as the global  network of Northwest  Airlines.  The current  cooperative
agreement  terminates  in October  2003.  Continental  and KLM are  currently in
negotiations to extend this alliance.

     Continental also currently has  international  codesharing  agreements with
Air Europa,  Air China,  EVA Airways  Corporation  (an airline based in Taiwan),
British  European,  Virgin Atlantic  Airways and Compania  Panamena de Aviacion,
S.A.  ("Copa").  Continental  owns 49% of the common equity of Copa. In February
2003,  Continental launched an air/rail codeshare agreement with the French high
speed  rail  provider  SNCF  TGV.  In  May  2003,  Continental  announced  a new
codesharing agreement with TAP Air Portugal, which will begin in September 2003,
subject to governmental approval.

OUTLOOK

     The current U.S. domestic airline environment is the worst in Continental's
history. Prior to September 2001, Continental was profitable, although many U.S.
air carriers were losing money and  Continental's  profitability  was declining.
The  terrorist  attacks of September  11, 2001 and the war in Iraq  dramatically
worsened the  difficult  financial  environment  and  presented  new and greater
challenges  for the  airline  industry.  Since the  terrorist  attacks,  several
airlines,  including United and US Airways, have filed for bankruptcy,  although
US Airways emerged from bankruptcy on March 31, 2003. American Airlines recently
threatened to file for  bankruptcy,  and other  airlines may file for bankruptcy
protection  as  well.  Although  Continental  has been  able to  raise  capital,
downsize its operations and reduce its expenses  significantly,  Continental has
reported  significant losses since the terrorist attacks,  and current trends in
the airline  industry  make it likely  that  Continental  will  continue to post
significant losses for the foreseeable future. The revenue environment continues
to be weak in light of changing  pricing models,  excess capacity in the market,
reduced corporate travel spending and other issues. In addition,  until recently
fuel prices had  significantly  escalated  due to the war in Iraq and  political
tensions in Venezuela and Nigeria.  Absent adverse factors outside Continental's
control such as those described herein,  Continental believes that its liquidity



and access to cash will be  sufficient  to fund its current  operations  through
2003 (and beyond if  Continental  is successful in  implementing  its previously
announced  revenue-generating and cost cutting measures).  However,  Continental
believes that the economic  environment must improve for Continental to continue
to operate at its current size and expense  level beyond that time.  Continental
may find it necessary  to further  downsize its  operations,  ground  additional
aircraft  and further  reduce its  expenses.  Continental  anticipates  that its
previously  announced  capacity and cost reductions,  together with the capacity
reductions  announced by other carriers and capacity  reductions that could come
from  restructurings  within the industry,  should result in a better  financial
environment by the end of 2003,  absent adverse  factors  outside  Continental's
control such as a further economic recession, additional terrorist attacks, post
war unrest in Iraq or conflicts  elsewhere in the world, a significant spread of
Severe Acute  Respiratory  Syndrome,  or "SARS",  decreased  consumer  demand or
sustained high fuel prices. However,  Continental expects to incur a significant
loss for the full year in 2003, regardless of such adverse factors.

     Due in part to the lack of predictability  of future traffic,  business mix
and yields,  Continental is currently unable to estimate the long-term effect on
it of the events of September 11, 2001,  or the impact of any further  terrorist
attacks  or  the  recent  war in  Iraq.  However,  given  the  magnitude  of the
unprecedented events of September 11, 2001 and their continuing  aftermath,  the
adverse  impact to  Continental's  financial  condition,  results of operations,
liquidity and prospects may continue to be material, and Continental's financial
resources might not be sufficient to absorb it or that of any further  terrorist
attacks or another military action elsewhere in the world.

         Among  the many  factors  that  threaten  Continental  and the  airline
industry generally are the following:

     o    A  weak  global  and  domestic  economy  has  significantly  decreased
          Continental's revenue. Business traffic, Continental's most profitable
          source of  revenue,  and  yields  are down  significantly,  as well as
          leisure traffic and yields.  Several of Continental's  competitors are
          significantly changing all or a portion of their pricing structures in
          a manner that is revenue dilutive to Continental. Although Continental
          has been  successful in  decreasing  its unit cost as its unit revenue
          has declined, Continental currently expects its net cash flows for the
          second quarter of 2003, excluding amounts expected to be received from
          the U.S.  government  discussed in the third bullet point below, to be
          slightly  negative at  approximately  $0.5 million per day,  including
          required  debt  payments  and  capital   expenditures.   In  addition,
          Continental  expects  to incur  significant  losses  for the full year
          2003.

     o    Continental  believes that reduced demand persists not only because of
          the weak economy,  but also because of some customers'  concerns about
          further terrorist attacks and reprisals. The war in Iraq significantly
          reduced  Continental's  bookings  and lowered  passenger  traffic.  In
          addition,  the  spread of SARS in China  and  elsewhere  has  caused a
          further  decline in passenger  traffic,  particularly to Hong Kong and
          certain other cities in Asia that  Continental  serves.  Both of these
          events have  disproportionately  affected Continental's  international
          passenger traffic. Continental has responded to the reduced actual and
          anticipated  demand by  announcing  temporary  capacity  reductions on
          certain   trans-Atlantic  and  trans-Pacific   routes  (including  the
          suspension of its flights between Hong Kong and Newark,  Hong Kong and
          Guam,  and  Taiwan  and Guam) and by  reducing  its  summer  schedule.
          Continental  believes  that  demand is further  weakened  by  customer
          dissatisfaction  with the  hassles  and delays of  heightened  airport
          security and screening procedures.

     o    Fuel costs rose  significantly  at the end of 2002 and until  recently
          have been at historically high levels.  Post war unrest in Iraq, other
          conflicts  in the  Middle  East,  political  events  in  Venezuela  or
          Nigeria,  or significant events in other  oil-producing  nations could
          cause fuel prices to increase  further and may impact the availability
          of fuel.  Based on  gallons  consumed  in 2002,  for every one  dollar
          increase in the price of crude oil,  Continental's annual fuel expense
          would be approximately $40 million higher.

     o    The terrorist  attacks of 2001 have caused  security costs to increase
          significantly, many of which have been passed on to airlines. Security
          costs are likely to continue rising for the foreseeable future. In the
          current  environment of lower consumer demand and discounted  pricing,
          these costs cannot  effectively  be passed on to customers.  Insurance
          costs have also risen sharply,  in part due to greater perceived risks
          and in part due to the reduced  availability  of  insurance  coverage.



          Continental  must  absorb  these  additional  expenses  in the current
          pricing environment. Under a supplemental appropriations bill approved
          by both houses of Congress and signed by the  President in April 2003,
          Continental  and other U.S.  carriers have been reimbursed for certain
          security  fees  paid  or  collected  by  such  carriers  and  will  be
          compensated  for other security  related costs.  Consequently,  in May
          2003  Continental and ExpressJet  received a  reimbursement  of $176.2
          million for security fees paid or collected since February 2002.

     o    Although  Continental  reduced  some of its costs during the last year
          and continues to implement  cost-cutting measures, its costs cannot be
          decreased as quickly as its revenue has declined.  In addition,  as is
          the  case  with  many  of  its  competitors,   Continental  is  highly
          leveraged, and has few assets that remain unpledged to support any new
          debt. Combined with reduced access to the capital markets,  themselves
          already  weakened by the state of the economy,  there is the potential
          for insufficient liquidity if current conditions continue unabated for
          a  sufficiently  long period of time.  Continental  had  approximately
          $1.18 billion of cash, cash equivalents and short-term  investments at
          March 31, 2003. Continental continues to hold 53.1% of the outstanding
          stock of  Holdings,  the  publicly  traded  parent of its regional jet
          subsidiary,  and this stock is not pledged to  creditors.  Continental
          intends to sell or otherwise dispose of some or all of its interest in
          Holdings, subject to market conditions.

     o    The  nature  of the  airline  industry  is  changing  dramatically  as
          business   travelers  change  their  spending  patterns  and  low-cost
          carriers continue to gain market share.  Continental has announced and
          is  implementing  plans to modify its product for the large segment of
          its  customers  who are not willing to pay for a premium  product,  to
          reduce costs and to generate additional  revenue.  Other carriers have
          announced  similar plans to create  lower-cost  products,  or to offer
          separate  low cost  products  (such as a low cost  "airline  within an
          airline").  In addition,  carriers  emerging from bankruptcy will have
          significantly reduced cost structures and operational flexibility that
          will allow them to compete more effectively.

     o    Current  conditions may cause  consolidation of the airline  industry,
          domestically and globally.  The extremity of current  conditions could
          result  in  a  reduction  of  some  of  the  regulatory  hurdles  that
          historically  have limited  consolidation.  Depending on the nature of
          the  consolidation,  Continental could benefit from it or be harmed by
          it.  Continental  continues  to monitor  developments  throughout  the
          industry and has entered into a marketing alliance  (implementation of
          which is subject to certain  conditions)  with Northwest  Airlines and
          Delta to permit  Continental  to compete more  effectively  with other
          carriers and alliance groups.

     o    Continental has several noncontributory defined benefit plans covering
          substantially all of Continental's employees. As of December 31, 2002,
          these plans were underfunded by approximately $1.2 billion as measured
          by  SFAS  87,  "Employers  Accounting  for  Pensions".   Continental's
          contributions for the remainder of 2003 are expected to be $89 million
          as of March 31,  2003.  Absent any changes to the plans (which in most
          cases are subject to collective bargaining agreements with our unions)
          or a waiver of required  payments from the Internal  Revenue  Service,
          the   minimum   funding   requirement   in  2004  is  expected  to  be
          significantly greater than in 2003.

     o    Under the most restrictive  provisions of a credit facility  agreement
          with an  outstanding  balance  of $165  million  at  March  31,  2003,
          Continental  is  required  to  maintain  a minimum  unrestricted  cash
          balance of $600 million.  Also, a separate credit  facility  agreement
          with an outstanding balance of $43 million at March 31, 2003 requires,
          beginning  in June  2003,  Continental  to  maintain a 1 to 1 ratio of
          EBITDAR  (earnings  before  interest,  income taxes,  depreciation and
          aircraft rentals) to fixed charges, which consist of interest expense,
          aircraft rental expense, cash income taxes and cash dividends, for the
          previous four quarters.  Continental  believes that it will be able to
          meet both of these covenants for the remainder of 2003.



                       DESCRIPTION OF THE POLICY PROVIDER


GENERAL

     The  information  set  forth  in  this  section,  including  any  financial
statements incorporated by reference herein, has been provided by MBIA Insurance
Corporation  ("MBIA" or the "Policy Provider") for inclusion in this Prospectus,
and such  information has not been  independently  verified by Continental,  the
Initial  Purchaser,   the  Trustee  or  the  Liquidity  Provider.   Accordingly,
notwithstanding  anything  to the  contrary  herein,  none of  Continental,  the
Initial   Purchaser,   the  Trustee  or  the  Liquidity   Provider  assumes  any
responsibility  for  the  accuracy,   completeness,  or  applicability  of  such
information.

     MBIA is the principal  operating  subsidiary of MBIA Inc., a New York Stock
Exchange  listed  company  (the  "Parent  Company").  The Parent  Company is not
obligated to pay the debts of or claims  against MBIA.  MBIA is domiciled in the
State of New York and licensed to do business in and subject to regulation under
the laws of all 50 states, the District of Columbia,  the Commonwealth of Puerto
Rico, the Commonwealth of the Northern  Mariana  Islands,  the Virgin Islands of
the United States and the Territory of Guam. MBIA has three branches, one in the
Republic of France,  one in the Republic of Singapore  and one in the Kingdom of
Spain.  New York has laws  prescribing  minimum capital  requirements,  limiting
classes and concentrations of investments,  and requiring the approval of policy
rates and forms.  State laws also  regulate the amount of both the aggregate and
individual risks that may be insured,  the payment of dividends by MBIA, changes
in control, and transactions among affiliates. Additionally, MBIA is required to
maintain  contingency  reserves on its  liabilities  in certain  amounts and for
certain periods of time.

     MBIA does not accept any responsibility for the accuracy or completeness of
this Prospectus or any information or disclosure  contained  herein,  or omitted
herefrom,  other than with respect to the accuracy of the information  regarding
the Policy  Provider  set forth  under the  heading  "Description  of the Policy
Provider" or  incorporated  by  reference  herein.  Additionally,  MBIA makes no
representation  regarding  the Notes or the  advisability  of  investing  in the
Notes.

     The Policy is not covered by the Property/Casualty  Insurance Security Fund
specified in Article 76 of the New York Insurance Law.

MBIA FINANCIAL INFORMATION

     The following documents filed by the Parent Company with the Commission are
incorporated herein by reference:

     o    the  Parent  Company's  Annual  Report on Form 10-K for the year ended
          December 31, 2002; and

     o    the Parent  Company's  Quarterly  Report on Form 10-Q for the  quarter
          ended March 31, 2003.

     Any  documents  filed by the Parent  Company  pursuant to  Sections  13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date of this
..Prospectus and prior to the termination of the offering of the New Senior Notes
shall be deemed to be  incorporated  by reference in this Prospectus and to be a
part hereof. Any statement contained in a document  incorporated or deemed to be
incorporated  by reference  herein,  or contained in this  Prospectus,  shall be
deemed to be modified or  superseded  for  purposes  of this  Prospectus  to the
extent  that a statement  contained  herein or in any other  subsequently  filed
document  which  also is or is deemed to be  incorporated  by  reference  herein
modifies  or  supersedes  such  statement.  Any such  statement  so  modified or
superseded  shall  not be  deemed,  except  as so  modified  or  superseded,  to
constitute a part of this Prospectus.

     The consolidated financial statements of MBIA, a wholly owned subsidiary of
the Parent  Company,  and its  subsidiaries as of December 31, 2002 and December
31, 2001 and for each of the three years in the period ended  December 31, 2002,
prepared in accordance with generally accepted accounting  principles,  included
in the  Annual  Report on Form 10-K of the  Parent  Company  for the year  ended
December  31, 2002 and the  consolidated  financial  statements  of MBIA and its
subsidiaries  as of March 31, 2003 and for the three month  periods  ended March



31, 2003 and March 31, 2002  included in the  Quarterly  Report on Form 10-Q for
the period ended March 31, 2003, are hereby  incorporated by reference into this
Prospectus and shall be deemed to be a part hereof. All financial  statements of
MBIA and its  subsidiaries  included in  documents  filed by the Parent  Company
pursuant to Section 13(a),  13(c), 14 or 15(d) of the Securities Exchange Act of
1934  subsequent to the date of this  Prospectus and prior to the termination of
the  offering  of the New Senior  Notes  shall be deemed to be  incorporated  by
reference into this Prospectus and to be a part hereof from the respective dates
of filing such documents.

     The  Parent  Company  files  annual,   quarterly,   and  special   reports,
information  statements and other information with the Commission under File No.
1-9583.  Copies of the Commission  filings  (including (1) the Parent  Company's
Annual  Report on Form 10-K for the year  ended  December  31,  2002 and (2) the
Parent  Company's  Quarterly Report on Form 10-Q for the quarter ended March 31,
2003)  are  available  (i)  over  the  Internet  at the  Commission  web site at
HTTP://WWW.SEC.GOV; (ii) at the Commission's public reference room in Washington
D.C.; and (iii) at no cost, upon request to MBIA Insurance Corporation, 113 King
Street, Armonk, New York 10504. The telephone number of MBIA is (914) 273-4545.

     The tables below present selected financial  information of MBIA determined
in accordance  with statutory  accounting  practices  prescribed or permitted by
insurance   regulatory   authorities  ("SAP")  as  well  as  generally  accepted
accounting principles ("GAAP"):

                                                 SAP
                           ------------------------------------------------
                               MARCH 31,                   DECEMBER 31,
                                  2003                         2002
                           ----------------------- ------------------------
                              (UNAUDITED)                   (AUDITED)
                                            (IN MILLIONS)

Admitted Assets                  $[____]                      $9,212
Liabilities                       [____]                       6,054
Capital and Surplus               [____]                       3,158

                                                 GAAP
                           ------------------------------------------------
                               MARCH 31,                   DECEMBER 31,
                                  2003                         2002
                           ----------------------- ------------------------
                              (UNAUDITED)                   (AUDITED)
                                            (IN MILLIONS)

Assets                           $[____]                     $10,588
Liabilities                       [____]                       4,679
Shareholders' Equity              [____]                       5,909


FINANCIAL STRENGTH RATING OF MBIA

     Moody's rates the financial strength of MBIA "Aaa".

     The  above  rating  reflects  the  current  assessment  by  Moody's  of the
creditworthiness  of MBIA and its  ability  to pay  claims  on its  policies  of
insurance.  Any further  explanation as to the  significance of the above rating
may be obtained only from Moody's.  The above rating is not a recommendation  to
buy,  sell,  or hold any Notes,  and such  rating may be subject to  revision or
withdrawal  at any time by Moody's.  Any downward  revision or withdrawal of the
above rating may have an adverse  effect on the market price of the Notes.  MBIA
does not guaranty  the market  price of the Notes nor does it guaranty  that the
rating on the Notes will not be revised or withdrawn.



                               THE EXCHANGE OFFER

     The following summary describes all material provisions of the Registration
Rights Agreement (the "Registration  Rights Agreement")  between Continental and
the Initial  Purchaser  with respect to the Senior  Notes.  The summary does not
purport to be complete.  We urge you to read the  Registration  Rights Agreement
for  additional  detail  and  further  information  because  it,  and  not  this
description,  defines your rights.  The  Registration  Rights Agreement has been
filed as an exhibit to the Registration Statement and copies of the Registration
Rights  Agreement  are  available  as set forth  under  "Where You Can Find More
Information".

TERMS OF THE EXCHANGE OFFER

   GENERAL

     In  connection  with the  issuance  of the Old Senior  Notes,  the  Initial
Purchaser and its assignees  became entitled to the benefits of the Registration
Rights Agreement.

     Under the Registration  Rights  Agreement,  Continental is obligated to use
its best efforts to:

     o    file the Registration Statement of which this Prospectus is a part for
          a  registered  exchange  offer  with  respect to an issue of new notes
          identical in all material  respects to the Old Senior Notes within 120
          days after December 6, 2002, which is the date on which the Old Senior
          Notes were issued (the "Issuance Date");

     o    cause  the  Registration  Statement  to  become  effective  under  the
          Securities Act within 180 days after the Issuance Date;

     o    cause the Registration Statement to remain effective until the closing
          of the Exchange Offer; and

     o    consummate  the  Exchange  Offer  within 210  calendar  days after the
          Issuance Date.

     Continental will keep the Exchange Offer open for a period of not less than
30 days.  The Exchange  Offer being made hereby,  if commenced  and  consummated
within  the  time  periods  described  in this  paragraph,  will  satisfy  those
requirements under the Registration Rights Agreement.

     Upon the terms and subject to the conditions  set forth in this  Prospectus
and in the Letter of Transmittal (which together constitute the Exchange Offer),
all Old Senior Notes validly  tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date will be accepted for exchange. New Senior
Notes will be issued in  exchange  for an equal face amount of  outstanding  Old
Senior Notes  accepted in the Exchange  Offer.  Old Senior Notes may be tendered
only in integral multiples of $1,000. This Prospectus,  together with the Letter
of Transmittal,  is being sent to all registered  holders of Old Senior Notes as
of  [_____],  2003.  The  Exchange  Offer is not  conditioned  upon any  minimum
principal amount of Old Senior Notes being tendered for exchange.  However,  the
obligation  to accept Old Senior  Notes for  exchange  pursuant to the  Exchange
Offer  is  subject   to  certain   conditions,   as  set  forth   herein   under
"--Conditions".

     Old Senior Notes shall be deemed to have been accepted as validly  tendered
when,  as and if  Continental  has given oral or written  notice  thereof to the
Exchange Agent.  The Exchange Agent will act as agent for the tendering  holders
of Old Senior  Notes for the  purposes  of  receiving  the New Senior  Notes and
delivering New Senior Notes to such holders.

     Based on  interpretations  by the staff of the Commission,  as set forth in
no-action  letters  issued to third parties,  Continental  believes that the New
Senior  Notes issued  pursuant to the Exchange  Offer in exchange for Old Senior
Notes may be offered  for resale,  resold or  otherwise  transferred  by holders
thereof  (other than (i) a  broker-dealer  who  acquired  such Old Senior  Notes
directly from  Continental for resale pursuant to Rule 144A under the Securities
Act or any other available exemption under the Securities Act or (ii) any holder
that is an  "affiliate"  of  Continental  as  defined  in  Rule  405  under  the
Securities  Act),  without  compliance  with  the  registration  and  prospectus
delivery  provisions of the Securities Act,  provided that such New Senior Notes



are acquired in the ordinary  course of such holders'  business and such holders
are not engaged in, and do not intend to engage in, a  distribution  of such New
Senior  Notes  and have no  arrangement  with any  person  to  participate  in a
distribution of such New Senior Notes.

     By tendering  the Old Senior Notes in exchange for New Senior  Notes,  each
holder, other than a broker-dealer,  will represent to Continental that:

     o    it is not an  affiliate of  Continental  (as defined in Rule 405 under
          the  Securities  Act) nor a  broker-dealer  tendering Old Senior Notes
          acquired directly from Continental for its own account;

     o    any New Senior  Notes to be  received  by it will be  acquired  in the
          ordinary course of its business; and

     o    it is not engaged in, and does not intend to engage in, a distribution
          of such New Senior Notes and has no  arrangement or  understanding  to
          participate in a distribution of the New Senior Notes.

     If a holder of Old  Senior  Notes is  engaged  in or intends to engage in a
distribution  of the New Senior Notes or has any  arrangement  or  understanding
with respect to the distribution of the New Senior Notes to be acquired pursuant
to  the   Exchange   Offer,   such  holder  may  not  rely  on  the   applicable
interpretations  of the  staff  of the  Commission  and  must  comply  with  the
registration  and  prospectus  delivery  requirements  of the  Securities Act in
connection  with any  secondary  resale  transaction.  Each  broker-dealer  that
receives New Senior Notes for its own account  pursuant to the Exchange Offer (a
"Participating   Broker-Dealer")   must  acknowledge  that  it  will  deliver  a
prospectus in connection with any resale of such New Senior Notes. The Letter of
Transmittal  states that by so acknowledging  and by delivering a prospectus,  a
Participating  Broker-Dealer  will  not  be  deemed  to  admit  that  it  is  an
"underwriter"  within the meaning of the Securities Act. This Prospectus,  as it
may be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer  in  connection  with  resales of New  Senior  Notes  received  in
exchange for Old Senior Notes where such Old Senior Notes were  acquired by such
Participating  Broker-Dealer  as a result of  market-making  activities or other
trading activities. Continental has agreed that, starting on the Expiration Date
and ending on the close of business 180 days after the Expiration  Date, it will
make this Prospectus  available to any  Participating  Broker-Dealer  for use in
connection with any such resale. See "Plan of Distribution".

     In the event that any changes in law or the applicable  interpretations  of
the staff of the  Commission  do not permit  Continental  to effect the Exchange
Offer,  if the  Registration  Statement  is not  declared  effective  within 180
calendar  days  after the  Issuance  Date  under  certain  circumstances  or the
Exchange Offer is not consummated  within 210 days after the Issuance Date under
certain  other  circumstances,  at the  request  of a  holder  not  eligible  to
participate in the Exchange Offer or under certain other circumstances described
in the Registration Rights Agreement, Continental will, in lieu of effecting the
registration of the New Senior Notes pursuant to the Registration  Statement and
at no cost to the holders of Old Senior Notes:

     o    as  promptly  as   practicable   file  with  the  Commission  a  shelf
          registration  statement (the "Shelf Registration  Statement") covering
          resales of the Old Senior Notes;

     o    use its best efforts to cause the Shelf  Registration  Statement to be
          declared  effective under the Securities Act by the 180th calendar day
          after the Issuance Date; and

     o    use  its  best  efforts  to  keep  effective  the  Shelf  Registration
          Statement for a period of two years after its  effective  date (or for
          such  shorter  period  as shall end when all of the Old  Senior  Notes
          covered by the Shelf  Registration  Statement  have been sold pursuant
          thereto  or  may be  freely  sold  pursuant  to  Rule  144  under  the
          Securities Act).

     In the event that the declaration of the effectiveness by the Commission of
the  Registration  Statement  or  the  Shelf  Registration  Statement  (each,  a
"Registration  Event")  does not  occur on or prior to the  210th  calendar  day
following  the Issuance  Date,  the interest  rate per annum borne by the Senior
Notes  shall be  increased  by 0.50%  from and  including  such 210th day to but
excluding the earlier of (i) the date on which a  Registration  Event occurs and
(ii) the date on which all of the Senior Notes otherwise become  transferable by
Senior  Noteholders  (other than affiliates or former affiliates of Continental)



without  further  registration  under the Securities  Act. In the event that the
Shelf  Registration  Statement  ceases to be  effective  at any time  during the
period  specified by the  Registration  Rights  Agreement for more than 60 days,
whether or not consecutive,  during any 12-month  period,  the interest rate per
annum borne by the Senior Notes shall be increased by 0.50% from the 61st day of
the applicable  12-month period such Shelf  Registration  Statement ceases to be
effective  until such time as the Shelf  Registration  Statement  again  becomes
effective (or, if earlier,  the end of such period specified by the Registration
Rights Agreement).

     Upon  consummation  of the Exchange Offer,  subject to certain  exceptions,
holders of Old Senior Notes who do not  exchange  their Old Senior Notes for New
Senior  Notes in the Exchange  Offer will no longer be entitled to  registration
rights and will not be able to offer or sell their Old Senior Notes, unless such
Old Senior Notes are  subsequently  registered  under the Securities Act (which,
subject to certain  limited  exceptions,  the Company will have no obligation to
do),  except  pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. See "Risk Factors--Risk
Factors Relating to the Notes and the Exchange Offer--Consequences of Failure to
Exchange".

   EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION

     The term "Expiration  Date" shall mean  [________],  2003 (30 calendar days
following the  commencement of the Exchange Offer),  unless the Company,  in its
sole discretion,  extends the Exchange Offer, in which case the term "Expiration
Date" shall mean the latest date to which the Exchange Offer is extended.

     In order to  extend  the  Expiration  Date,  Continental  will  notify  the
Exchange  Agent of any extension by oral or written  notice and will mail to the
record holders of Old Senior Notes an announcement  thereof,  each prior to 9:00
a.m.,  New York  City  time,  on the next  business  day  after  the  previously
scheduled  Expiration  Date.  Such  announcement  may state that the  Company is
extending the Exchange Offer for a specified period of time.

     Continental reserves the right:

     o    to extend the Exchange  Offer or to terminate  the Exchange  Offer and
          not permit  acceptance of Old Senior Notes not previously  accepted if
          any of the conditions set forth herein under "--Conditions" shall have
          occurred and shall not have been waived by the Company, by giving oral
          or written  notice of such  delay,  extension  or  termination  to the
          Exchange Agent; and

     o    to amend the terms of the Exchange Offer in any manner deemed by it to
          be advantageous to the holders of the Old Senior Notes.

     Any such delay in acceptance,  extension,  termination or amendment will be
followed as promptly as  practicable  by oral or written  notice  thereof to the
Exchange  Agent.  If the  Exchange  Offer is amended in a manner  determined  by
Continental to constitute a material change,  Continental will promptly disclose
such  amendment in a manner  reasonably  calculated to inform the holders of the
Old Senior Notes of such amendment.

     Without limiting the manner in which  Continental may choose to make public
announcement of any delay,  extension,  amendment or termination of the Exchange
Offer,  Continental shall have no obligation to publish,  advertise or otherwise
communicate any such public announcement,  other than by making a timely release
to an appropriate news agency.

INTEREST ON THE NEW SENIOR NOTES

     The New Senior Notes will bear  interest at the Stated  Interest  Rate from
the most recent date to which  interest  has been paid on the Old Senior  Notes.
Accordingly,  registered holders of New Senior Notes on the relevant record date
for the first  interest  payment date  following the  completion of the Exchange
Offer will receive interest accruing from the most recent date to which interest
has been paid.  Old Senior  Notes  accepted  for  exchange  will cease to accrue
interest from and after the date of completion of the Exchange Offer. Holders of
Old Senior  Notes whose Old Senior  Notes are  accepted  for  exchange  will not
receive  any payment for  accrued  interest  on the Old Senior  Notes  otherwise



payable on any  Interest  Payment  Date the record  date for which  occurs on or
after  completion of the Exchange  Offer and will be deemed to have waived their
rights to receive the accrued interest on the Old Senior Notes.


PROCEDURES FOR TENDERING

     To tender in the Exchange Offer, a holder must complete,  sign and date the
Letter of Transmittal,  or a facsimile  thereof (or, if the Old Senior Notes are
tendered in  accordance  with the procedure for  book-entry  transfer  described
below,  an  Agent's  Message  in lieu of the  Letter of  Transmittal),  have the
signatures  thereon guaranteed if required by the Letter of Transmittal and mail
or otherwise  deliver such Letter of  Transmittal  or such facsimile or have the
Agent's Message delivered,  together with any other required  documents,  to the
Exchange Agent prior to 5:00 p.m.,  New York City time, on the Expiration  Date.
In addition, either

     o    certificates  for  such  Old  Senior  Notes  must be  received  by the
          Exchange Agent along with the Letter of Transmittal;

     o    a  timely   confirmation  of  a  book-entry  transfer  (a  "Book-Entry
          Confirmation")  of  such  Old  Senior  Notes,  if  such  procedure  is
          available,  into the Exchange  Agent's account at The Depository Trust
          Company  ("DTC")  pursuant to the  procedure for  book-entry  transfer
          described  below,  must be received by the Exchange Agent prior to the
          Expiration Date; or

     o    the  holder  must  comply  with  the  guaranteed  delivery  procedures
          described below.

     The method of delivery of Old Senior Notes,  Letters of Transmittal and all
other  required  documents is at the  election and risk of the holders.  If such
delivery is by mail, it is recommended that registered mail,  properly  insured,
with return receipt requested,  be used. In all cases, sufficient time should be
allowed to assure timely delivery. No Letters of Transmittal or Old Senior Notes
should be sent to  Continental.  Delivery of all  documents  must be made to the
Exchange  Agent at one of the  addresses  as set forth  below.  Holders may also
request their respective brokers, dealers,  commercial banks, trust companies or
nominees to effect such tender for such holders.

     The tender by a holder of Old Senior  Notes will  constitute  an  agreement
between such holder and  Continental in accordance with the terms and subject to
the conditions set forth in the Prospectus and in the Letter of Transmittal.

     Only a holder of Old Senior  Notes may tender such Old Senior  Notes in the
Exchange  Offer.  The term "holder" with respect to the Exchange Offer means any
person in whose name Old Senior Notes are registered on the books of Continental
or any other  person who has obtained a properly  completed  bond power from the
registered holder.

     Any beneficial owner,  whose Old Senior Notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender,  should  contact such  registered  holder  promptly and instruct such
registered  holder to tender on such owner's behalf.  If such  beneficial  owner
wishes to tender on such owner's behalf,  such beneficial  owner must,  prior to
completing and executing the Letter of Transmittal  and delivering  such owner's
Old Senior Notes, either make appropriate  arrangements to register ownership of
the Old Senior Notes in such owner's  name or obtain a properly  completed  bond
power from the registered holder. The transfer of registered  ownership may take
considerable time.

     Signatures on a Letter of  Transmittal  or a notice of  withdrawal,  as the
case may be,  must be  guaranteed  by any member firm of a  registered  national
securities exchange or of the National Association of Securities Dealers,  Inc.,
a commercial  bank or trust  company  having an office or  correspondent  in the
United States or an "eligible guarantor  institution" within the meaning of Rule
17Ad-15 under the Exchange Act (each, an "Eligible  Institution") unless the Old
Senior Notes tendered  pursuant thereto are tendered (i) by a registered  holder
who has not  completed  the box  entitled  "Special  Issuance  Instructions"  or
"Special  Delivery  Instructions"  on the Letter of  Transmittal or (ii) for the
account of an Eligible Institution.

     If the  Letter  of  Transmittal  is  signed  by a  person  other  than  the
registered holder of any Old Senior Notes listed therein,  such Old Senior Notes



must be endorsed or accompanied by bond powers and a proxy which authorizes such
person to tender the Old Senior  Notes on behalf of the  registered  holder,  in
each case as the name of the  registered  holder or  holders  appears on the Old
Senior Notes.

     If the Letter of  Transmittal  or any Old Senior  Notes or bond  powers are
signed by trustees,  executors,  administrators,  guardians,  attorneys-in-fact,
officers  of  corporations  or others  acting in a fiduciary  or  representative
capacity,  such persons  should so indicate when  signing,  and unless waived by
Continental,  evidence  satisfactory to Continental of their authority to so act
must be submitted with the Letter of Transmittal.

     All  questions as to the validity,  form,  eligibility  (including  time of
receipt) and  withdrawal  of the tendered Old Senior Notes will be determined by
the  Company  in its sole  discretion,  which  determination  will be final  and
binding.  The  Company  reserves  the  absolute  right to reject any and all Old
Senior Notes not properly  tendered or any Old Senior  Notes the  acceptance  of
which would, in the opinion of counsel for Continental, be unlawful. Continental
also reserves the absolute  right to waive any  irregularities  or conditions of
tender as to particular Old Senior Notes.  Continental's  interpretation  of the
terms and conditions of the Exchange Offer  (including the  instructions  in the
Letter of Transmittal) will be final and binding on all parties.  Unless waived,
any defects or  irregularities  in  connection  with tenders of Old Senior Notes
must  be  cured  within  such  time  as  Continental  shall  determine.  Neither
Continental,  the Exchange Agent nor any other person shall be under any duty to
give  notification of defects or  irregularities  with respect to tenders of Old
Senior Notes, nor shall any of them incur any liability for failure to give such
notification.  Tenders of Old Senior  Notes will not be deemed to have been made
until  such  irregularities  have been cured or  waived.  Any Old  Senior  Notes
received by the Exchange  Agent that are not  properly  tendered and as to which
the  defects or  irregularities  have not been cured or waived  will be returned
without cost to such holder by the Exchange  Agent to the  tendering  holders of
Old Senior Notes (or, in the case of Old Senior Notes tendered by the book-entry
transfer procedures  described below, such nonexchanged Old Senior Notes will be
credited to an account  maintained with DTC),  unless otherwise  provided in the
Letter of Transmittal, promptly following the Expiration Date.

     In addition, Continental reserves the right in its sole discretion, subject
to the provisions of the  Indenture,  to (i) purchase or make offers for any Old
Senior Notes that remain  outstanding  subsequent to the Expiration  Date or, as
set forth under  "--Conditions",  to terminate the Exchange  Offer in accordance
with the  terms of the  Registration  Rights  Agreement  and (ii) to the  extent
permitted by applicable  law,  purchase Old Senior Notes in the open market,  in
privately negotiated transactions or otherwise.  The terms of any such purchases
or offers could differ from the terms of the Exchange Offer.


ACCEPTANCE OF OLD SENIOR NOTES FOR EXCHANGE; DELIVERY OF NEW SENIOR NOTES

     All Old Senior Notes properly tendered will be accepted, and the New Senior
Notes  will  be  issued,   promptly  after  the  Expiration  Date,   subject  to
satisfaction  or waiver of all of the  conditions to the Exchange Offer prior to
the Expiration  Date.  See  "--Conditions"  below.  For purposes of the Exchange
Offer, Old Senior Notes shall be deemed to have been accepted for exchange when,
as and if  Continental  has given oral or written notice thereof to the Exchange
Agent.

     In all cases,  issuance of New Senior  Notes for Old Senior  Notes that are
accepted  for exchange  pursuant to the  Exchange  Offer will be made only after
timely receipt by the Exchange Agent of:

     o    certificates  for  such  Old  Senior  Notes  or  a  timely  Book-Entry
          Confirmation  of such  Old  Senior  Notes  into the  Exchange  Agent's
          account at DTC;

     o    a properly  completed and duly executed  Letter of  Transmittal  or an
          Agent's Message in lieu thereof; and

     o    all other required documents.

     If any  tendered Old Senior Notes are not accepted for any reason set forth
in the terms and  conditions  of the  Exchange  Offer or if Old Senior Notes are
submitted for a greater  principal  amount than the holder  desires to exchange,
such  unaccepted  or  nonexchanged  Old Senior  Notes will be  returned  without
expense to the  tendering  holder  thereof  (or, in the case of Old Senior Notes
tendered  by  the  book-entry   transfer   procedures   described  below,   such



nonexchanged  Old Senior  Notes will be credited to an account  maintained  with
DTC), unless otherwise provided in the Letter of Transmittal, promptly following
the Expiration Date.


BOOK-ENTRY TRANSFER

     The Exchange Agent will make a request to establish an account with respect
to the Old Senior  Notes at DTC for  purposes of the  Exchange  Offer within two
business  days  after  the  date of this  Prospectus.  The  Exchange  Agent  has
confirmed that any financial  institution that is a participant in DTC's systems
(a "DTC  Participant")  may use DTC's  Automated  Tender Offer program  ("ATOP")
procedures to tender Old Senior Notes in the Exchange Offer. Any DTC Participant
may make book-entry delivery of Old Senior Notes by causing DTC to transfer such
Old Senior Notes into the Exchange  Agent's  account at DTC in  accordance  with
DTC's ATOP  procedures for transfer.  However,  although  delivery of Old Senior
Notes may be effected  through  book-entry  transfer  into the Exchange  Agent's
account at DTC,  the  Letter of  Transmittal  (or  facsimile  thereof)  with any
required  signature  guarantees,  or an Agent's Message in lieu of the Letter of
Transmittal,  and any other required documents must, in any case, be transmitted
to and received by the Exchange  Agent at one of the  addresses  set forth below
under  "--Exchange  Agent" on or prior to 5:00 p.m.,  New York City time, on the
Expiration Date or the guaranteed  delivery  procedures  described below must be
complied  with. The term "Agent's  Message" means a message,  transmitted by DTC
and  received  by  the   Exchange   Agent  and  forming  part  of  a  Book-Entry
Confirmation, that states that DTC has received an express acknowledgment from a
DTC  Participant  tendering  Old  Senior  Notes  that  are the  subject  of such
Book-Entry  Confirmation that such DTC Participant has received and agrees to be
bound by the  terms of the  Letter  of  Transmittal,  and that  Continental  may
enforce the Letter of Transmittal against such DTC Participant.


GUARANTEED DELIVERY PROCEDURES

     If a  registered  holder of Old Senior  Notes  desires  to tender  such Old
Senior Notes,  and (i) the Old Senior Notes are not  immediately  available,  or
(ii)  time will not  permit  such  holder's  Old  Senior  Notes,  the  Letter of
Transmittal or any other  required  documents to reach the Exchange Agent before
the Expiration  Date, or (iii) the procedures for book-entry  transfer cannot be
completed on a timely basis, a tender may be effected if:

     o    the tender is made through an Eligible Institution;

     o    prior to the  Expiration  Date,  the Exchange Agent receives from such
          Eligible  Institution a properly completed and duly executed Letter of
          Transmittal  (or a  facsimile  thereof  or  Agent's  Message  in  lieu
          thereof) and Notice of Guaranteed Delivery,  substantially in the form
          provided  by  Continental  (by  facsimile  transmission,  mail or hand
          delivery),  setting  forth the name and  address  of the holder of Old
          Senior Notes and the amount of Old Senior Notes tendered, stating that
          the tender is being made  thereby and  guaranteeing  that within three
          New York Stock  Exchange  trading  days after the date of execution of
          the Notice of Guaranteed Delivery, the certificates for all physically
          tendered Old Senior Notes in proper form for transfer, or a Book-Entry
          Confirmation,  as the  case  may be,  a  properly  completed  and duly
          executed  Letter of  Transmittal  (or a  facsimile  thereof or Agent's
          Message  in lieu  thereof)  and any other  documents  required  by the
          Letter of  Transmittal  will be deposited by the Eligible  Institution
          with the Exchange Agent; and

     o    the  certificates  for all  physically  tendered  Old Senior  Notes in
          proper form for transfer,  or a Book-Entry  Confirmation,  as the case
          may be, a properly  completed and duly executed  Letter of Transmittal
          (or a facsimile  thereof or Agent's  Message in lieu  thereof) and all
          other documents  required by the Letter of Transmittal are received by
          the Exchange Agent within three New York Stock  Exchange  trading days
          after the date of execution of the Notice of Guaranteed Delivery.


WITHDRAWAL OF TENDERS

     Tenders  of Old  Senior  Notes may be  withdrawn  at any time prior to 5:00
p.m., New York City time, on the Expiration Date.



     For a withdrawal to be effective,  a written  notice of withdrawal  must be
received by the Exchange  Agent prior to 5:00 p.m.,  New York City time,  on the
Expiration  Date at one of the  addresses  set  forth  below  under  "--Exchange
Agent". Any such notice of withdrawal must specify the name of the person having
tendered the Old Senior Notes to be withdrawn,  identify the Old Senior Notes to
be  withdrawn  (including  the  principal  amount of such Old Senior  Notes) and
(where certificates for Old Senior Notes have been transmitted) specify the name
in which such Old Senior Notes are  registered,  if  different  from that of the
withdrawing  holder. If certificates for Old Senior Notes have been delivered or
otherwise  identified to the Exchange Agent,  then, prior to the release of such
certificates,  the withdrawing holder must also submit the serial numbers of the
particular  certificates  to be withdrawn and a signed notice of withdrawal with
signatures  guaranteed  by an  Eligible  Institution  unless  such  holder is an
Eligible  Institution.  If Old Senior Notes have been  tendered  pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal must
specify  the name and  number  of the  account  at DTC to be  credited  with the
withdrawn  Old Senior Notes and  otherwise  comply with the  procedures  of such
facility. All questions as to the validity, form and eligibility (including time
of  receipt)  of  such  notices  will  be  determined  by   Continental,   whose
determination shall be final and binding on all parties. Any Old Senior Notes so
withdrawn  will be deemed not to have been  validly  tendered  for  exchange for
purposes of the Exchange  Offer.  Any Old Senior Notes which have been  tendered
for exchange but which are not  exchanged for any reason will be returned to the
holder thereof  without cost to such holder (or, in the case of Old Senior Notes
tendered  by  book-entry  transfer  into the  Exchange  Agent's  account  at DTC
pursuant to the book-entry transfer procedures  described above, such Old Senior
Notes  will be  credited  to an account  maintained  with DTC for the Old Senior
Notes)  as  soon  as  practicable  after  withdrawal,  rejection  of  tender  or
termination of the Exchange  Offer.  Properly  withdrawn Old Senior Notes may be
retendered by following one of the procedures  described under "--Procedures for
Tendering" and "--Book-Entry Transfer" above at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.


CONDITIONS

     Notwithstanding any other term of the Exchange Offer, Old Senior Notes will
not be required to be accepted for exchange, nor will New Senior Notes be issued
in exchange for, any Old Senior Notes,  and  Continental  may terminate or amend
the Exchange  Offer as provided  herein before the acceptance of such Old Senior
Notes, if because of any change in law, or applicable interpretations thereof by
the  Commission,  Continental  determines that it is not permitted to effect the
Exchange Offer,  and Continental has no obligation to, and will not,  knowingly,
permit  acceptance of tenders of Old Senior Notes from affiliates of the Company
(within  the  meaning  of Rule 405 under the  Securities  Act) or from any other
holder or holders who are not  eligible to  participate  in the  Exchange  Offer
under applicable law or interpretations thereof by the Commission, or if the New
Senior Notes to be received by such holder or holders of Old Senior Notes in the
Exchange  Offer,  upon  receipt,  will not be tradable  by such  holder  without
restriction  under the Securities Act and the Exchange Act and without  material
restrictions under the "blue sky" or securities laws of substantially all of the
states of the United States.


EXCHANGE AGENT

     Wilmington  Trust  Company  has  been  appointed  as  exchange  agent  (the
"Exchange Agent") for the Exchange Offer.  Questions and requests for assistance
and  requests  for  additional  copies of this  Prospectus  or of the  Letter of
Transmittal should be directed to the Exchange Agent addressed as follows:

               BY MAIL:                          BY OVERNIGHT DELIVERY OR HAND:
       Wilmington Trust Company                     Wilmington Trust Company
        DC-1615 Reorg Services                   Corporate Trust Reorg Services
              PO Box 8861                           1100 North Market Street
    Wilmington, Delaware 19899-8861              Wilmington, Delaware 19890-1615

                             FACSIMILE TRANSMISSION:
                                 (302) 636-4145

                              CONFIRM BY TELEPHONE:
                                 (302) 636-6472



FEES AND EXPENSES

     The expenses of soliciting  tenders  pursuant to the Exchange Offer will be
borne by Continental.  The principal  solicitation  for tenders  pursuant to the
Exchange Offer is being made by mail; however,  additional  solicitations may be
made by  telephone,  telecopy,  electronic  mail or in  person by  officers  and
regular employees of Continental.

     Continental will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. Continental, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the  Exchange  Agent for its  reasonable  out-of-pocket  expenses in  connection
therewith.  Continental  may also pay  brokerage  houses  and other  custodians,
nominees and fiduciaries the reasonable  out-of-pocket expenses incurred by them
in forwarding  copies of the Prospectus and related  documents to the beneficial
owners of the Old Senior  Notes,  and in  handling  or  forwarding  tenders  for
exchange.

     The expenses to be incurred in connection  with the Exchange  Offer will be
paid by  Continental,  including fees and expenses of the Exchange Agent and the
Trustee and accounting, legal, printing and related fees and expenses.

     Continental will pay all transfer taxes, if any, applicable to the exchange
of Old Senior Notes pursuant to the Exchange Offer.  If,  however,  certificates
representing  New Senior  Notes or Old Senior  Notes for  principal  amounts not
tendered  or  accepted  for  exchange  are  to be  delivered  to,  or  are to be
registered or issued in the name of, any person other than the registered holder
of the Old Senior Notes tendered, or if tendered Old Senior Notes are registered
in the  name  of any  person  other  than  the  person  signing  the  Letter  of
Transmittal,  or if a  transfer  tax is imposed  for any  reason  other than the
exchange of Old Senior Notes pursuant to the Exchange Offer,  then the amount of
any such transfer taxes (whether  imposed on the registered  holder or any other
persons) will be payable by the tendering  holder.  If satisfactory  evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal,  the amount of such transfer taxes will be billed  directly to such
tendering holder.



                         DESCRIPTION OF THE SENIOR NOTES

     The following summary describes the material terms of the Senior Notes. The
summary does not purport to be complete.  We urge you to read the Senior  Notes,
the Indenture,  the Security Agreement, the Collateral Maintenance Agreement and
the Reference Agency  Agreement  (collectively,  the "Operative  Documents") for
additional   detail  and  further   information   because  they,  and  not  this
description,  define your rights. Each of the Operative Documents has been filed
as an exhibit to the Registration  Statement and is available as set forth under
"Where You Can Find More Information". The references to Sections in parentheses
in the following  summary are to the relevant  Sections of the Indenture  unless
otherwise indicated.

GENERAL


     The Old Senior Notes were issued by  Continental  under an Indenture  among
Continental,  Wilmington Trust Company,  as trustee (the "Trustee"),  the Policy
Provider  and the  Liquidity  Provider,  which was amended  and  restated on the
Subordinated  Notes Issuance Date (such  Indenture,  as so amended and restated,
the "Indenture").  The New Senior Notes will also be issued by Continental under
the Indenture.

     The forms and terms of the New  Senior  Notes are the same in all  material
respects as the form and terms of the Old Senior  Notes,  except that:

     o    the New Senior Notes will be registered under the Securities Act;

     o    the New Senior  Notes will not  contain  restrictions  on  transfer or
          provisions relating to registration rights or interest rate increases;
          and

     o    the New Senior Notes will be available only in book-entry form.

     The New Senior Notes will be issued only in fully registered form,  without
coupons,   and  will  be  subject  to  the  provisions   described  below  under
"--Book-Entry;  Delivery and Form".  The New Senior Notes will be issued only in
minimum  denominations of $1,000 or integral multiples thereof,  except that one
Senior Note may be issued in a different denomination. (Section 2.1(b))

     The Senior Notes are secured by a lien on the Collateral.  The Senior Notes
rank equally in right of payment with all of Continental's other  unsubordinated
obligations,  except to the  extent of the assets  subject  to such lien,  as to
which the Senior Notes effectively rank senior.  The Senior Notes rank senior to
the Subordinated Notes, which are also secured by a lien on the Collateral.

     On the  Issuance  Date,  the Trustee,  for the benefit of the  Noteholders,
entered into the Liquidity  Facility,  the fee letter with respect thereto,  the
Policy  and  the  Policy   Provider   Agreement   (collectively,   the  "Support
Documents"). (Section 3.10)

PAYMENTS OF PRINCIPAL AND INTEREST


     Continental has issued  $200,000,000 in aggregate  principal  amount of Old
Senior Notes.  The Senior Notes are limited to  $200,000,000 of principal in the
aggregate.  Subject to the  provisions of the  Indenture,  the entire  principal
amount of the Senior Notes is scheduled to be paid to the Senior  Noteholders on
December 6, 2007 (the "Final Scheduled Payment Date"). The "Final Legal Maturity
Date" is December 6, 2009.

     Interest  accrues on the unpaid principal amount of each Senior Note at the
variable rate per annum set forth on the cover page of this Prospectus (plus, if
applicable,  0.50%  during the  periods  specified  in the  Registration  Rights
Agreement),  subject to a maximum equal to the Capped  Interest Rate  applicable
only for periods as to which Continental has failed to pay accrued interest when
due and failed to cure such nonpayment  (the "Stated  Interest  Rate").  For all
other periods, the interest rate on the Senior Notes will not be capped. Accrued
interest will be payable on March 6, June 6,  September 6 and December 6 of each
year (each, a "Scheduled  Interest Payment Date") or, if not a Business Day, the
next  succeeding  Business Day (each date on which interest is due, an "Interest



Payment Date" ), commencing on March 6, 2003. Such accrued interest will be paid
to holders of record on the 15th day preceding the applicable Scheduled Interest
Payment Date. Interest on the Senior Notes will accrue from the most recent date
to which  interest  has been paid or, if no  interest  has been  paid,  from the
Issuance  Date.  Interest on the Senior Notes is  calculated on the basis of the
actual  number of days elapsed over a 360-day year and shall accrue with respect
to the first but not the last day of each Interest Period. If any date scheduled
for a payment of principal,  interest, Premium, if any, or Break Amount, if any,
is not a Business Day, such payment will be made on the next succeeding Business
Day, and interest shall be added for such additional period. (Section 2.7)

     Payments  of  interest  on the Senior  Notes are  supported  by a Liquidity
Facility  provided by the  Liquidity  Provider for the benefit of the holders of
the Senior Notes.  The Liquidity  Facility will provide an amount  sufficient to
pay  interest  on the Senior  Notes at the Stated  Interest  Rate on up to eight
successive  Interest Payment Dates. The Liquidity  Facility does not provide for
drawings or payments  thereunder to pay for principal of, or Premium, if any, or
Break Amount, if any, with respect to, the Senior Notes. See "Description of the
Liquidity Facility".

     Except in specified  circumstances,  after use of any available funds under
the Liquidity Facility and the Cash Collateral Account,  the payment of interest
on the  Senior  Notes at the Stated  Interest  Rate is  supported  by the Policy
provided by the Policy  Provider.  Payment of  principal  of the Senior Notes no
later than the Final Legal  Maturity Date is also  supported by the Policy.  See
"Description of the Policy and the Policy Provider Agreement--The Policy".

     Payments of interest and principal on the Notes will be  distributed by the
Trustee on the date  scheduled  for such payment  under the Indenture or, if the
money for purposes of such payment has not been deposited,  in whole or in part,
with the Trustee by Continental,  the Liquidity  Provider or the Policy Provider
on such  date,  on the next  Business  Day on which some or all of the money has
been deposited with the Trustee (a "Distribution Date"). However, if some or all
of the money has not been  deposited  with the Trustee for purposes of making an
interest payment on the Senior Notes within five days after the Interest Payment
Date for such payment, Continental is required to fix a special payment date and
special  record date for such payment and to give  written  notice to the Senior
Noteholders  of such special  dates and the amount of  defaulted  interest to be
paid.

DETERMINATION OF LIBOR


     LIBOR  ("LIBOR")  for the period  commencing  on and including the Issuance
Date and ending on but excluding the first  Interest  Payment Date (the "Initial
Interest Period" and an "Interest Period") was determined on the second Business
Day preceding  the Issuance Date as the rate for deposits in U.S.  dollars for a
period of three months that appeared on the display designated as page "3750" on
the Telerate Monitor.

     For the purpose of calculating  LIBOR for the periods from and including an
Interest Payment Date to but excluding the next succeeding Interest Payment Date
(each, also an "Interest Period"), Continental and the Trustee have entered into
a Reference Agency Agreement (as amended, the "Reference Agency Agreement") with
Wilmington  Trust  Company,  as reference  agent (the  "Reference  Agent").  The
Reference  Agent will  determine  LIBOR for each Interest  Period  following the
Initial  Interest  Period,  on a date (the "Reference  Date") that is two London
banking  days  (meaning  days on which  commercial  banks  are open for  general
business in London,  England)  before the  Interest  Payment  Date on which such
Interest Period commences.

     On each  Reference  Date, the Reference  Agent will determine  LIBOR as the
rate for  deposits in U.S.  dollars for a period of three months that appears on
the display  designated  as page "3750" on the  Telerate  Monitor (or such other
page or service as may replace it) as of 11:00 a.m., London time.

     If the rate  determined  as described in the foregoing  paragraph  does not
appear on the Telerate Page 3750, the Reference  Agent will  determine  LIBOR on
the basis of the rates at which deposits in U.S.  Dollars are offered by certain
reference banks as described in the Reference  Agency Agreement at approximately
11:00 a.m., London time, on the Reference Date for such Interest Period to prime
banks in the London interbank market for a period of three months  commencing on
the first day of such  Interest  Period and in an amount that is  representative
for a single  transaction in the London  interbank  market at the relevant time.
The  Reference  Agent will request the  principal  London  office of each of the
reference  banks to  provide  a  quotation  of its  rate.  If at least  two such
quotations  are  provided,  the  rate  for  that  Interest  Period  will  be the
arithmetic  mean of the  quotations.  If fewer than two quotations are provided,
the interest rate for the next Interest  Period shall be the arithmetic  mean of
the rates  quoted by major  banks in New York City,  selected  by the  Reference



Agent in good faith and in a commercially  reasonable  manner,  at approximately
11:00 a.m.,  New York City time,  on the first day of such  Interest  Period for
loans in U.S.  Dollars to leading  European  banks for a period of three  months
commencing  on the first day of such  Interest  Period and in an amount  that is
representative  for a single  transaction in the New York market at the relevant
time,  except  that,  if the banks so  selected by the  Reference  Agent are not
quoting as  mentioned  above,  LIBOR shall be the  floating  rate of interest in
effect for the last preceding Interest Period.

     The Reference Agent's determination of LIBOR (in the absence of negligence,
willful  default,  bad faith or manifest  error) will be conclusive  and binding
upon all parties.

     As  promptly  as  is  practicable  after  the  determination  thereof,  the
Reference Agent will give notice of its  determination of LIBOR for the relevant
Interest  Period to  Continental,  the Trustee,  the Liquidity  Provider and the
Policy  Provider.  Holders of the Senior  Notes (the "Senior  Noteholders"  and,
together with the Subordinated  Noteholders,  the "Noteholders") may obtain such
information from the Trustee.

     Continental  reserves  the  right  to  terminate  the  appointment  of  the
Reference  Agent at any time on 30 days'  notice  and to  appoint a  replacement
reference agent in its place.  Notice of any such  termination  will be given to
the  Noteholders.  The  Reference  Agent may not be removed or resign its duties
without a successor having been appointed.

BREAK AMOUNT

     "Break Amount" means, as of any date of payment, redemption or acceleration
of any Note (the "Applicable Date"), an amount determined by the Reference Agent
on the date that is two Business Days prior to the  Applicable  Date pursuant to
the formula set forth below.

     The Break Amount with respect to any Note will be calculated as follows:

     Break Amount = Z-Y

     Where:

     X =  with respect to any  applicable  Interest  Period,  the sum of (i) the
          amount  of the  outstanding  principal  amount  of such Note as of the
          first day of the then  applicable  Interest  Period plus (ii) interest
          payable  thereon during such entire  Interest Period at then effective
          LIBOR.

     Y =  X,  discounted  to  present  value  from  the  last  day of  the  then
          applicable   Interest  Period  to  the  Applicable  Date,  using  then
          effective LIBOR as the discount rate.

     Z =  X,  discounted  to  present  value  from  the  last  day of  the  then
          applicable  Interest Period to the Applicable Date, using a rate equal
          to  the  applicable   London  interbank  offered  rate  for  a  period
          commencing  on the  Applicable  Date and ending on the last day of the
          then applicable Interest Period,  determined by the Reference Agent as
          of two  Business  Days prior to the  Applicable  Date as the  discount
          rate.

     No Break  Amount will be payable  (x) if the Break  Amount,  as  calculated
pursuant to the formula set forth above, is equal to or less than zero or (y) on
or in respect of any Applicable Date that is an Interest Payment Date.

REDEMPTION

     The  Senior  Notes may be  redeemed  at any time in whole or (so long as no
Payment  Default  has  occurred  and is  continuing)  in part  (in any  integral
multiple  of $1,000) by the  Company at its sole  option at a  redemption  price
equal to the sum of 100% of the principal amount of, accrued and unpaid interest
on, and Break Amount,  if any, with respect to, the redeemed Senior Notes to and
including  the date of  redemption.  In  addition,  if a Senior Note is redeemed
before the third  anniversary of the Issuance Date (except in connection  with a
redemption  to satisfy the maximum  Senior  Collateral  Ratio or minimum  Senior
Rotable  Ratio  requirement   discussed  under   "--Collateral--Appraisals   and



Maintenance  of  Ratios"),  such  redemption  price will  include a premium (the
"Premium")  equal to the following  percentage  of the principal  amount of such
Senior Note: (i) if redeemed before the first  anniversary of the Issuance Date,
1.5%; (ii) if redeemed on or after such first  anniversary and before the second
anniversary of the Issuance  Date,  1.0%; and (iii) if redeemed on or after such
second  anniversary and before the third anniversary of the Issuance Date, 0.5%.
(Section 4.1)

     At least 15 days but not more than 60 days before any redemption  date, the
Trustee will send a notice of redemption to each Senior  Noteholder whose Senior
Notes are to be redeemed,  identifying the Senior Notes and the principal amount
thereof to be redeemed. If less than all of the Senior Notes are to be redeemed,
the  Trustee  will  select the Senior  Notes to be redeemed on either a pro rata
basis or by lot or by any other  equitable  manner  determined by the Trustee in
its sole discretion.  On the redemption  date,  interest will cease to accrue on
the Senior Notes or portions thereof called for redemption,  unless  Continental
fails to make the redemption  payment for such Senior Notes.  (Sections 4.3, 4.4
and 4.5)

     If the Trustee gives notice of redemption but Continental fails to pay when
due all amounts  necessary to effect such  redemption,  such redemption shall be
deemed  revoked and no amount  shall be due as a result of notice of  redemption
having been given.

COLLATERAL

     The  Senior  Notes  are  secured  by  a  lien  on  spare  parts  (including
appliances)  first  placed in  service  after  October  22,  1994,  and owned by
Continental that are appropriate for installation on or use in

     o    one or more of the following  aircraft  models:  Boeing model 737-700,
          737-800,  737-900,  757-200,  757-300,  767-200,  767-400  or  777-200
          aircraft,

     o    any engine utilized on any such aircraft or

     o    any other Qualified Spare Part,

and not  appropriate  for  installation on or use in any other model of aircraft
currently  operated by Continental or engine utilized on any such other model of
aircraft  ("Qualified  Spare Parts"),  together with certain records relating to
such spare parts, certain rights of Continental with respect to such spare parts
and certain  proceeds of the foregoing  (collectively,  the  "Collateral").  The
Subordinated  Notes are also secured by a lien on the Collateral.  The lien will
not  apply  for as long as a spare  part is  installed  on or being  used in any
aircraft,  engine or other spare part so installed  or being used.  In addition,
the lien will not apply if a spare part is not located at a Designated Location.
(Security  Agreement,  Section  2.01)  Spare  engines  are not  included  in the
Collateral.

     On the Issuance  Date,  Continental  entered into a Security  Agreement (as
amended,  the "Security  Agreement" and, together with any other agreement under
which  Continental  may grant a lien for the  benefit  of the  Noteholders,  the
"Collateral  Agreements")  with the  Trustee,  acting  as  security  agent  (the
"Security  Agent"  and,  together  with any  collateral  agent  under  any other
Collateral Agreement,  the "Collateral Agents"),  providing for the grant of the
lien on the Collateral.  In addition, on the Issuance Date,  Continental entered
into a Collateral Maintenance Agreement (as amended, the "Collateral Maintenance
Agreement")  with the Policy  Provider,  providing  for  appraisal  reports  and
certain  other  requirements  with  respect  to the  Collateral.  The  following
summarizes   certain   provisions  of  the  Security  Agreement  and  Collateral
Maintenance Agreement, as such agreements were amended on the Subordinated Notes
Issuance  Date in  connection  with  the  issuance  of the  Subordinated  Notes,
relating  to the spare parts  included in the  Collateral  (the  "Pledged  Spare
Parts").

   APPRAISALS AND MAINTENANCE OF RATIOS

     Continental  is required to furnish to the Policy  Provider and the Trustee
by the fifth  Business Day of February  and the fifth  Business Day of August in
each year,  commencing  in August  2003,  so long as the Notes of any series are
outstanding,  a certificate of an independent  appraiser.  Such certificates are
required  to state  such  appraiser's  opinion of the fair  market  value of the
Collateral  and of the Rotables  included in the  Collateral,  determined on the
basis  of a  hypothetical  sale  negotiated  in  an  arm's  length  free  market



transaction  between a willing  and able  seller and a willing  and able  buyer,
neither of whom is under undue pressure to complete the transaction,  under then
current market  conditions  (the "Fair Market  Value").  This appraisal will not
apply to any cash or permitted  investment  securities  (the "Cash  Collateral")
then held as collateral for the Notes, and such securities will be valued by the
Trustee in accordance with customary financial market practices. Such valuations
will then be used to calculate the following:

     o    the "Senior  Collateral Ratio"  applicable to the Senior Notes,  which
          shall mean a  percentage  determined  by  dividing  (i) the  aggregate
          principal amount of the outstanding  Senior Notes minus the sum of the
          Cash Collateral  held by the Collateral  Agent by (ii) the Fair Market
          Value of all Collateral  (excluding any Cash  Collateral) as set forth
          in such independent appraiser's certificate;

     o    the  "Subordinated  Collateral  Ratio"  applicable to the Subordinated
          Notes,  which shall mean a percentage  determined  by dividing (i) the
          aggregate  principal  amount  of  the  outstanding  Senior  Notes  and
          Subordinated  Notes minus the sum of the Cash  Collateral  held by the
          Collateral  Agent  by (ii)  the Fair  Market  Value of all  Collateral
          (excluding  any Cash  Collateral)  as set  forth  in such  independent
          appraiser's  certificate;

     o    the "Senior Rotable Ratio" applicable to the Senior Notes, which shall
          mean a percentage  determined by dividing (i) the Fair Market Value of
          the Rotables as set forth in such independent  appraiser's certificate
          by (ii) the aggregate principal amount of all outstanding Senior Notes
          minus the sum of the Cash Collateral held by the Collateral Agent; and

     o    the "Subordinated Rotable Ratio" applicable to the Subordinated Notes,
          which shall mean a  percentage  determined  by  dividing  (i) the Fair
          Market  Value  of  the  Rotables  as set  forth  in  such  independent
          appraiser's  certificate by (ii) the aggregate principal amount of all
          outstanding  Senior Notes and Subordinated  Notes minus the sum of the
          Cash Collateral held by the Collateral Agent.

The calculation of the Senior  Collateral  Ratio,  the  Subordinated  Collateral
Ratio  (together,  the  "Collateral  Ratios"),  the Senior Rotable Ratio and the
Subordinated Rotable Ratio (together, the "Rotable Ratios") will be set forth in
a certificate of Continental. (Collateral Maintenance Agreement, Article 2)

     If the Senior  Collateral  Ratio as so  determined is greater than 45.0% or
the  Subordinated  Collateral  Ratio as so  determined  is greater  than  67.5%,
Continental  will be  required,  within 90 days after the date of  Continental's
certificate calculating such Collateral Ratios, to:

     o    subject  additional  Qualified Spare Parts to the lien of the Security
          Agreement;

     o    grant a security  interest  in other  property to secure the Notes for
          the benefit of the Noteholders  (which  thereafter will be included as
          "Collateral"  for  purposes  of the  Notes),  but  only if the  Policy
          Provider   agrees  and   Continental   shall  have  received   written
          confirmation from each nationally recognized rating agency then rating
          the Senior Notes or the Subordinated Notes at Continental's request (a
          "Rating  Agency") that the use of such  additional  collateral and the
          related  agreements to reduce the Collateral Ratios will not result in
          a  reduction  of the rating for the Senior  Notes or the  Subordinated
          Notes below the then current rating for such Notes (such rating in the
          case of the Senior Notes determined without regard to the Policy) or a
          withdrawal or suspension of the rating of such Notes;

     o    provide  additional  Cash  Collateral to the Security  Agent under the
          Security  Agreement   (provided  that  if  Continental's   cash,  cash
          equivalents  and  certain  other  marketable   securities  as  of  the
          applicable  determination  date was less than  $600,000,000,  then the
          total amount of Cash Collateral may not exceed $20,000,000);

     o    deliver Notes to the Trustee for cancellation;

     o    redeem some or all of the Notes; or



     o    any combination of the foregoing;

such that the Senior Collateral Ratio and the Subordinated  Collateral Ratio, as
recalculated  giving effect to such action (but otherwise  using the information
most recently used to determine such  Collateral  Ratios),  would not be greater
than 45.0% and 67.5%, respectively.  (Collateral Maintenance Agreement,  Section
3.1(a))

     If the  Senior  Rotable  Ratio as so  determined  is less  than 150% or the
Subordinated Rotable Ratio as so determined is less than 100%,  Continental will
be  required,  within  90  days  after  the  date of  Continental's  certificate
calculating such Rotable Ratios, to:

     o    subject additional Rotables to the lien of the Security Agreement;

     o    provide  additional  Cash  Collateral to the Security  Agent under the
          Security  Agreement   (provided  that  if  Continental's   cash,  cash
          equivalents  and  certain  other  marketable   securities  as  of  the
          applicable  determination  date was less than  $600,000,000,  then the
          total amount of Cash Collateral may not exceed $20,000,000);

     o    deliver Notes to the Trustee for cancellation;

     o    redeem some or all of the Notes; or

     o    any combination of the foregoing;

such that the  Senior  Rotable  Ratio and the  Subordinated  Rotable  Ratio,  as
recalculated  giving effect to such action (but otherwise  using the information
most recently  used to determine  such Rotable  Ratios),  would not be less than
150% and 100%, respectively. (Collateral Maintenance Agreement, Section 3.1(b))

     If Continental  provides additional Cash Collateral to comply with any such
maximum Collateral Ratio or minimum Rotable Ratio  requirement,  it must, within
90 days after providing such Cash Collateral, take additional action (other than
providing Cash Collateral) to cause the Collateral Ratios and the Rotable Ratios
(in each case  calculated  to exclude such Cash  Collateral)  to comply with the
applicable maximum or minimum  percentage.  (Collateral  Maintenance  Agreement,
Section 3.1(e)) If the Senior Collateral Ratio and Subordinated Collateral Ratio
are less than the applicable maximum percentage and the Senior Rotable Ratio and
the  Subordinated   Rotable  Ratio  are  greater  than  the  applicable  minimum
percentage, in each case as most recently determined as described above, and the
Security  Agent held Cash  Collateral  as of the  relevant  determination  date,
Continental  may withdraw Cash  Collateral in excess of the amount  necessary to
comply with such ratios. (Security Agreement, Section 7.03(b))

     Continental  deposited  Cash  Collateral of  $13,056,950  with the Security
Agent upon initial  issuance of the Old Senior Notes, so that the initial Senior
Collateral Ratio was 45.0% based on the initial appraisal as of August 25, 2002,
prepared by SH&E. See  "Description of the Appraisal".  Without giving effect to
such deposit,  the initial Senior Collateral Ratio would have been 48.1%.  Using
the appraisal of the Collateral  determined as of December 25, 2002, and without
giving effect to such deposit, the Senior Collateral Ratio would have been 45.8%
and the Subordinated Collateral Ratio would have been 68.7%. See "Description of
the Appraisal". The calculation of the Collateral Ratios at the time of the next
semiannual  appraisal  due in August 2003 will be made without  giving effect to
such Cash  Collateral  deposit.  Continental  expects  to  satisfy  the  maximum
Collateral Ratio  requirements at that time based on its projected  purchases of
spare parts,  in which case  Continental  will be entitled to withdraw such Cash
Collateral. However, no assurance can be given that the maximum Collateral Ratio
requirements  will  be  satisfied  based  on  such  purchases.  If  it  is  not,
Continental will be required to take one or more of the other actions  described
above (other than providing Cash Collateral) to satisfy such requirement.

     Continental is required to furnish to the Policy  Provider and the Trustee,
within ten Business Days after each May 1 and November 1, commencing with May 1,
2003, a report providing certain  information  regarding the quantity of Pledged
Spare Parts included in the Collateral and compliance with certain  requirements
of the Collateral Maintenance Agreement.



     FLEET REDUCTION

     The  Collateral   Maintenance   Agreement  requires  that  the  outstanding
principal amount of Senior Notes and Subordinated  Notes be reduced if the total
number of aircraft of any of the four  aircraft  model  groups  listed  below in
Continental's  in-service fleet during any period of 60 consecutive days is less
than the minimum  specified below for such group (other than due to restrictions
on  operating  such  aircraft  imposed by the FAA or any other  U.S.  Government
agency):

   AIRCRAFT MODEL                                                          MINIMUM
   --------------                                                          -------
   o     Boeing 737-700, Boeing 737-800 and Boeing 737-900 Aircraft....  63 Aircraft
   o     Boeing 757-200 and Boeing 757-300 Aircraft....................  23 Aircraft
   o     Boeing 767-200 and Boeing 767-400 Aircraft....................  13 Aircraft
   o     Boeing 777-200 Aircraft.......................................   9 Aircraft

If any of the foregoing  specified  minimums is not so satisfied with respect to
any aircraft model group, then within 90 days after such occurrence, Continental
must redeem Senior Notes or deliver Senior Notes to the Trustee for cancellation
(or a combination  thereof) in a percentage of the outstanding  principal amount
of Senior Notes  determined by dividing the appraised value of the Pledged Spare
Parts that are appropriate for  installation on, or use in, only the aircraft of
such  model  group,  or the  engines  utilized  only  on such  aircraft,  by the
appraised  value  of  the  Collateral.  In  addition,  Continental  must  redeem
Subordinated Notes or deliver Subordinated Notes to the Trustee for cancellation
(or a combination  thereof) in the same percentage of the outstanding  principal
amount of Subordinated Notes. (Collateral Maintenance Agreement, Section 3.3)

     LIENS

     Continental  is required to  maintain  the Pledged  Spare Parts free of any
liens,  other than the rights of the Trustee,  the  Noteholders  and Continental
arising under the Indenture or the other Operative  Documents  related  thereto,
and other than certain limited liens  permitted under such documents,  including
but not limited to (i) liens for taxes either not yet due or being  contested in
good faith by appropriate proceedings; (ii) materialmen's,  mechanics' and other
similar liens arising in the ordinary course of business that either are not yet
delinquent  for  more  than 60 days or are  being  contested  in good  faith  by
appropriate  proceedings;  (iii)  judgment  liens  so long as such  judgment  is
discharged or vacated within 60 days or the execution of such judgment is stayed
pending  appeal  or  discharged,  vacated  or  reversed  within  60  days  after
expiration  of such stay;  and (iv) any other lien as to which  Continental  has
provided a bond or other  security  adequate  in the  reasonable  opinion of the
Security Agent;  provided that in the case of each of the liens described in the
foregoing clauses (i), (ii) and (iii), such liens and proceedings do not involve
any material risk of the sale,  forfeiture or loss of the Pledged Spare Parts or
the  interest of the Security  Agent  therein or impair the lien of the Security
Agreement. (Collateral Maintenance Agreement, Section 3.4)

     MAINTENANCE

     Continental is required to maintain the Pledged Spare Parts in good working
order and condition, excluding (i) Pledged Spare Parts that have become worn out
or unfit for use and not reasonably  repairable or obsolete,  (ii) Pledged Spare
Parts  that are not  required  for  Continental's  normal  operations  and (iii)
expendable parts that have been consumed or used in Continental's operations. In
addition,  Continental  must  maintain  all  records,  logs and other  materials
required  by the FAA or under  the  Federal  Aviation  Act to be  maintained  in
respect of the Pledged Spare Parts.  (Collateral Maintenance Agreement,  Section
3.5)

     USE AND POSSESSION

     Continental  has the  right to deal  with the  Pledged  Spare  Parts in any
manner consistent with its ordinary course of business.  This includes the right
to install on, or use in, any aircraft, engine or Qualified Spare Part leased to
or owned by  Continental  any  Pledged  Spare  Part,  free  from the lien of the
Security Agreement. (Security Agreement Section 4.02(a))



     Continental may not sell, lease,  transfer or relinquish  possession of any
Pledged  Spare Part without the prior  written  consent of the Policy  Provider,
except as  permitted by the Security  Agreement  or the  Collateral  Maintenance
Agreement.  So long as no Event  of  Default  has  occurred  and is  continuing,
Continental  may sell,  transfer or dispose of Pledged Spare Parts free from the
Lien of the Security Agreement.  (Security Agreement,  Section 4.03(a)) However,
as of any date during the period  between the dates of  independent  appraiser's
certificates  delivered pursuant to the Collateral  Maintenance  Agreement,  the
aggregate  appraised value of all Pledged Spare Parts (x) previously during such
period sold, transferred or disposed of (with certain exceptions) may not exceed
2% of the appraised value of the Collateral, (y) then subject to leases or loans
may not exceed 2% of the appraised  value of the  Collateral  or (z)  previously
during such period moved from a Designated  Location to a location that is not a
Designated Location (with certain exceptions) may not exceed 2% of the appraised
value of the Collateral. Such restrictions may be waived by the Policy Provider,
so long as after giving  effect to a  transaction  permitted as a result of such
waiver the  Subordinated  Collateral  Ratio (using the information most recently
used to  determine  such ratio)  would not be greater  than  67.5%.  (Collateral
Maintenance Agreement, Section 3.2)

     Continental may, in the ordinary course of business, transfer possession of
any Pledged Spare Part to the manufacturer thereof or any other organization for
testing, overhaul, repairs, maintenance,  alterations or modifications or to any
person for the  purpose  of  transport  to any of the  foregoing.  In  addition,
Continental  may  dismantle  any Pledged  Spare Part that has become worn out or
obsolete or unfit for use and may sell or dispose of any such Pledged Spare Part
or any  salvage  resulting  from  such  dismantling,  free  from the lien of the
Security  Agreement.  Continental  also may subject any Pledged  Spare Part to a
pooling,  exchange,  borrowing or maintenance  servicing  agreement  arrangement
customary in the airline  industry  and entered  into in the ordinary  course of
business;  provided,  however,  that if Continental's  title to any such Pledged
Spare Part shall be  divested  under any such  agreement  or  arrangement,  such
divestiture  shall be deemed to be a sale with  respect  to such  Pledged  Spare
Part. (Collateral Maintenance Agreement, Section 3.6(a))

     So long as no Event of  Default  shall  have  occurred  and be  continuing,
Continental may enter into a lease with respect to any Pledged Spare Part to any
U.S.  air  carrier  that is not  then  subject  to any  bankruptcy,  insolvency,
liquidation,  reorganization,  dissolution  or similar  proceeding and shall not
have  substantially  all of its property in the  possession  of any  liquidator,
trustee,  receiver or similar person. In the case of any such lease, Continental
will  include in such  lease  appropriate  provisions  which (i) make such lease
expressly subject and subordinate to all of the terms of the Security Agreement,
including  the rights of the Security  Agent to avoid such lease in the exercise
of its rights to  repossession  of the  Pledged  Spare  Parts  thereunder;  (ii)
require the lessee to comply with the insurance  requirements  of the Collateral
Maintenance  Agreement;  and (iii)  require that the Pledged Spare Parts subject
thereto be used in accordance with the limitations  applicable to  Continental's
use,  possession  and  location  of such  Pledged  Spare  Parts  provided in the
Collateral Maintenance Agreement and the Security Agreement (including,  without
limitation,  that such  Pledged  Spare  Parts be kept at one or more  Designated
Locations). (Collateral Maintenance Agreement, Section 3.6(b))

         DESIGNATED LOCATIONS

     Continental  is required to keep the Pledged  Spare Parts at one or more of
the designated  locations specified in the Security Agreement or added from time
to  time  by  Continental  in  accordance  with  the  Security   Agreement  (the
"Designated  Locations"),  except as  otherwise  permitted  under  the  Security
Agreement and Collateral  Maintenance  Agreement.  (Security Agreement,  Section
4.02(b))  Continental  is entitled to hold  Qualified  Spare Parts at  locations
other than  Designated  Locations.  The lien of the Security  Agreement does not
apply to any spare part not located at a Designated Location.

         INSURANCE

     Continental is required to maintain  insurance  covering physical damage to
the Pledged Spare Parts.  Such insurance must provide for the  reimbursement  of
Continental's  expenditure  in repairing  or replacing  any damaged or destroyed
Pledged  Spare Part. If any such Pledged Spare Part is not repaired or replaced,
such  insurance  must  provide  for the  payment  of the amount it would cost to
repair or replace  such  Pledged  Spare Part,  on the date of loss,  with proper
deduction for  obsolescence  and physical  depreciation.  However,  after giving
effect to self-insurance permitted as described below, the amounts payable under
such insurance may be less.



     All  insurance  proceeds  paid  under  such  policies  as a  result  of the
occurrence  of an  "Event of Loss"  with  respect  to any  Pledged  Spare  Parts
involving  proceeds  in  excess  of $2  million,  up to 110% of the  outstanding
principal amount of the Notes (the "Debt Balance"), will be paid to the Security
Agent.  The entire amount of any  insurance  proceeds not involving an "Event of
Loss" with  respect to any  Pledged  Spare  Parts or  involving  proceeds  of $2
million or less,  and the  amount of  insurance  proceeds  in excess of the Debt
Balance,  will be paid to  Continental so long as no Payment  Default,  Event of
Default or Continental Bankruptcy Event shall be continuing. For these purposes,
"Event of Loss" means,  with respect to any Pledge Spare Part, its  destruction,
damage beyond repair,  damage that results in the receipt of insurance  proceeds
on the same basis as  destruction  or loss of possession by  Continental  for 90
consecutive days as a result of theft or  disappearance.  Any such proceeds held
by the Security  Agent will be disbursed to  Continental to reimburse it for the
purchase of additional  Qualified Spare Parts after the occurrence of such Event
of Loss.  In addition,  such proceeds  will be disbursed to  Continental  to the
extent it would not cause the Collateral Ratios, as subsequently determined,  to
exceed the applicable maximum percentages.

     Continental  is also required to maintain third party  liability  insurance
with  respect  to  the  Pledged  Spare  Parts,  in an  amount  and  scope  as it
customarily maintains for equipment similar to the Pledged Spare Parts.

     Continental  may  self-insure  the risks required to be insured  against as
described  above in such  amounts as shall be  consistent  with normal  industry
practice.

EVENT OF DEFAULT


     Each of the following constitutes an "Event of Default" with respect to the
Notes:

     o    Failure  by  Continental  to pay (i)  principal  of,  interest  on, or
          Premium,  if any, or Break  Amount,  if any, with respect to, any Note
          when due, and such failure shall remain  unremedied  for more than ten
          Business Days (it being understood that any amount  distributed to the
          Senior  Noteholders in respect of the foregoing from funds provided by
          the Policy  Provider,  the Liquidity  Provider or the Cash  Collateral
          Account  shall not be deemed to cure such  Default)  or (ii) any other
          amount  payable by it to the  Noteholders  under the  Indenture or any
          other Operative Document when due, and such failure shall continue for
          more than ten Business  Days after  Continental  has received  written
          notice from the Trustee of the failure to make such  payment  when due
          (without giving effect to any such notice or grace period,  a "Payment
          Default").

     o    Failure by  Continental to observe or perform (or cause to be observed
          and performed) in any material  respect any other covenant,  agreement
          or  obligation  set forth in the  Indenture or in any other  Operative
          Document,  and such failure shall  continue after notice and specified
          cure periods.

     o    Any representation or warranty made by Continental in the Indenture or
          any  Operative  Document  (a)  shall  prove  to have  been  untrue  or
          inaccurate  in any  material  respect  as of the date  made,  (b) such
          untrue or  inaccurate  representation  or  warranty is material at the
          time in question and (c) the same shall remain  uncured (to the extent
          of the adverse impact of such  incorrectness  on the Trustee) for more
          than 30 days  after the date of  written  notice  from the  Trustee to
          Continental.

     o    The  occurrence of certain  events of  bankruptcy,  reorganization  or
          insolvency of Continental  (each, a "Continental  Bankruptcy  Event").
          (Section 7.1)

     If an event occurs and is  continuing  which is, or after notice or passage
of time, or both, would be an Event of Default (a "Default") and if such Default
is  known  to the  Trustee,  the  Trustee  shall  mail to each  Noteholder,  the
Liquidity  Provider  and the Policy  Provider a notice of the Default  within 90
days after the  occurrence  thereof  except as otherwise  permitted by the Trust
Indenture Act of 1939,  as amended (the "TIA").  Except in the case of a Default
in payment of principal of, or interest on, or Premium, if any, or Break Amount,
if any, with respect to, any Note, the Trustee may withhold the notice if and so
long as it, in good  faith,  determines  that  withholding  the notice is in the
interests of the Noteholders. (Section 8.5)



REMEDIES

     If an Event of Default (other than a Continental  Bankruptcy  Event) occurs
and is continuing,  the Controlling  Party may, by notice to Continental and the
Trustee,  and the  Trustee  shall,  upon the request of the  Controlling  Party,
declare all unpaid principal of, accrued but unpaid interest on, and Premium, if
any, and Break Amount,  if any, with respect to, the outstanding Notes and other
amounts  otherwise  payable under the  Indenture,  if any, to be due and payable
immediately. If a Continental Bankruptcy Event occurs, such amounts shall be due
and payable without any declaration or other act on the part of the Trustee, the
Controlling Party or any Noteholder. (Section 7.2)

     The Controlling  Party by notice to the Trustee may rescind an acceleration
and its  consequences  if (a) all  existing  Events of  Default,  other than the
non-payment as to the Notes of the  principal,  interest,  Premium,  if any, and
Break Amount,  if any, with respect thereto and other amounts  otherwise payable
under the Indenture, if any, which have become due solely by such declaration of
acceleration,  have been cured or waived,  (b) to the extent the payment of such
interest is permitted by law,  interest on overdue  installments of interest and
on overdue  principal which has become due otherwise than by such declaration of
acceleration,  has been paid,  (c) the  rescission  would not conflict  with any
judgment or decree of a court of  competent  jurisdiction,  and (d) all payments
due to the  Trustee  and  any  predecessor  Trustee  have  been  made.  No  such
rescission shall affect any subsequent  default or impair any right arising from
any subsequent default. (Section 7.2)

     If an Event of Default occurs and is continuing, the Trustee may pursue any
available  remedy by  proceeding  at law or in equity to collect  the payment of
principal of,  interest on, or Premium,  if any, or Break  Amount,  if any, with
respect to, the Notes or other amounts otherwise payable under the Indenture, if
any,  or to  enforce  the  performance  of any  provision  of the  Notes  or the
Indenture,  including instituting  proceedings and exercising and enforcing,  or
directing  exercise and  enforcement  of, all rights and remedies of the Trustee
and the  Collateral  Agent  under the  Operative  Documents  and  directing  the
Collateral  Agent to deposit with the Trustee all cash or investment  securities
held by the Collateral  Agent.  The Trustee may maintain a proceeding even if it
does  not  possess  any of the  Notes  or does  not  produce  any of them in the
proceeding.  A delay or omission by the Trustee or any  Noteholder in exercising
any right or remedy accruing upon an Event of Default shall not impair the right
or remedy or constitute a waiver of or acquiescence in the Event of Default.  No
remedy is exclusive of any other remedy.  All available remedies are cumulative.
(Section 7.3)

     The Controlling Party by notice to the Trustee may authorize the Trustee to
waive an  existing  Default or Event of Default and its  consequences,  except a
Default or Event of Default (i) in the payment of principal of,  interest on, or
Premium, if any, or Break Amount, if any, with respect to, any Note that has not
been paid to the  Noteholder  from funds  provided by the Policy  Provider,  the
Liquidity  Provider  or the Cash  Collateral  Account  or (ii) in  respect  of a
covenant  or  provision  of the  Indenture  which  cannot be modified or amended
without the  consent of the  Liquidity  Provider,  the Policy  Provider  and the
holder of each Note affected.  When a Default or Event of Default is waived,  it
is cured and  ceases,  and the  Company,  the  Liquidity  Provider,  the  Policy
Provider,  the  Noteholders  and the Trustee  shall be restored to their  former
positions and rights hereunder respectively;  but no such waiver shall extend to
any  subsequent  or other  Default  or Event of  Default  or  impair  any  right
consequent thereon. (Section 7.4)

     No holder of a Note may  institute any remedy with respect to the Indenture
or the Notes  unless such  holder has  previously  given to the Trustee  written
notice of a  continuing  Event of  Default,  the  holders  of 25% or more of the
principal  amount of a series of Notes then  outstanding have requested that the
Trustee pursue the remedy, such holder has offered the Trustee indemnity against
loss,  liability and expense satisfactory to the Trustee, the Trustee has failed
so to act for 60 days after  receipt of the same,  during such 60-day period the
Controlling  Party has not given the Trustee a direction  inconsistent  with the
request  and,  in the  case of a  Subordinated  Noteholder,  the  principal  of,
interest on, and Premium,  if any,  Break Amount,  if any, and all other amounts
payable under the  Indenture  with respect to the Senior Notes have been paid in
full. (Section 7.6)  Notwithstanding the foregoing,  the right of any Noteholder
to receive payment when due of principal,  interest,  Premium, if any, and Break
Amount, if any, or to bring suit for the enforcement of any such payment,  shall
not be impaired or affected without the consent of such holder. (Section 7.7)

     The Controlling  Party may direct the time,  method and place of conducting
any proceeding for any remedy available to the Trustee (as Trustee or Collateral
Agent, subject, in the case of any actions based on the status of the Trustee as
Collateral  Agent, to any limitations  otherwise  expressly  provided for in the
Operative  Documents) or exercising any trust or power conferred on it; provided



that the Trustee may take any other action deemed proper by the Trustee which is
not  inconsistent  with such  direction.  The  Trustee  may refuse to follow any
direction or authorization  that conflicts with law or the Indenture or that the
Trustee determines may subject the Trustee to personal  liability.  In addition,
at any time  after a Policy  Provider  Default or after the  Senior  Notes,  the
Policy Expenses and the Policy Provider  Obligations have been paid in full, the
Trustee may refuse to follow any  direction  or  authorization  that the Trustee
determines  may be  unduly  prejudicial  to the  rights of  another  Noteholder.
However, the Trustee shall have no liability for any actions or omissions to act
which are in accordance with any such direction or authorization. (Section 7.5)

     The Controlling  Party shall not direct the Trustee or any Collateral Agent
to sell or otherwise  dispose of any Collateral  unless all unpaid principal of,
accrued but unpaid interest on, and Premium,  if any, and Break Amount,  if any,
with respect to, the outstanding Notes and other amounts otherwise payable under
the  Indenture,  if any,  shall be declared or otherwise  become due and payable
immediately. (Section 7.5)

     In the case of Chapter 11 bankruptcy proceedings,  Section 1110 of the U.S.
Bankruptcy Code ("Section  1110") provides special rights to holders of security
interests  with  respect to  "equipment"  (defined as  described  below).  Under
Section 1110, the right of such holders to take  possession of such equipment in
compliance  with the  provisions of a security  agreement is not affected by any
provision of the U.S. Bankruptcy Code or any power of the bankruptcy court. Such
right to take  possession may not be exercised for 60 days following the date of
commencement of the reorganization  proceedings.  Thereafter, such right to take
possession may be exercised  during such proceedings  unless,  within the 60-day
period or any longer period  consented to by the relevant  parties (the "Section
1110 Period"), the debtor agrees to perform its future obligations and cures all
existing and future defaults on a timely basis.  Defaults  resulting solely from
the financial condition, bankruptcy,  insolvency or reorganization of the debtor
need not be cured.

     "Equipment"  is defined in Section 1110, in part, as an aircraft,  aircraft
engine, propeller, appliance or spare part (as defined in Section 40102 of Title
49 of the U.S. Code) that is subject to a security  interest  granted by, leased
to, or  conditionally  sold to a debtor that,  at the time such  transaction  is
entered into,  holds an air carrier  operating  certificate  issued  pursuant to
chapter 447 of Title 49 of the U.S. Code for aircraft capable of carrying ten or
more individuals or 6,000 pounds or more of cargo.

     On the  Issuance  Date,  Hughes  Hubbard & Reed  LLP,  outside  counsel  to
Continental,  provided its opinion to the Trustee and the Policy  Provider  that
the Security Agent will be entitled to the benefits of Section 1110 with respect
to the  Pledged  Spare  Parts,  assuming  that,  at the  time  of the  issuance,
Continental held an air carrier operating certificate issued pursuant to chapter
447 of Title 49 of the U.S.  Code for  aircraft  capable of carrying ten or more
individuals or 6,000 pounds or more of cargo.

     If Continental is the debtor in a Chapter 11 bankruptcy proceeding and:

     o    the Section  1110  Period  shall  expire  without  Continental  having
          entered  into an  agreement  to  perform  its  obligations  under  the
          Indenture and the other Operative Documents in accordance with Section
          1110(a),

     o    Continental  shall have entered  into such an agreement in  accordance
          with Section 1110(a) but thereafter Continental defaults such that the
          Security  Agent is entitled to take  possession  of the Pledged  Spare
          Parts  pursuant to the Security  Agreement or

     o    Continental  shall not reinstate its  obligations  under the Operative
          Documents in its confirmed plan of reorganization,

then the Policy Provider,  if then the Controlling  Party,  will not permit (and
will not permit the Trustee or any Collateral Agent to permit) the sale or lease
of any  Collateral to  Continental  or any of its affiliates for any amount less
than the then  current  fair  market  value  for such  transaction.  The  Policy
Provider,  if  then  the  Controlling  Party,  will  give  the  holders  of  the
Subordinated  Notes (the  "Subordinated  Noteholders")  at least 30 days'  prior
written  notice of its intention to sell or lease any of the  Collateral.  These
restrictions  are not applicable to any Controlling  Party other than the Policy
Provider.



CONTROLLING PARTY

     Whether before or after the occurrence of an Event of Default,  the Trustee
and the  Security  Agent will be  directed  by the  Controlling  Party in taking
action under the Indenture and other agreements relating to the Notes, including
in amending such agreements and granting waivers  thereunder.  However,  certain
limited  provisions  with  respect  to the  Collateral  as  they  relate  to the
Subordinated  Notes  cannot be  amended  or waived  without  the  consent of the
holders of a majority of the outstanding  principal  amount of the  Subordinated
Notes and certain other limited  provisions  cannot be amended or waived without
the  consent of each  Noteholder  affected  thereby.  Except  for those  limited
provisions which are described in  "--Modifications  and Waiver of the Indenture
and Certain Other  Agreements",  the provisions of the  Indenture,  the Security
Agreement  and the other  Operative  Documents  may be  amended or waived by the
Controlling Party (or, in the case of the Collateral Maintenance Agreement,  the
Policy Provider) without the consent of the Noteholders.  If an Event of Default
has occurred and is continuing,  the  Controlling  Party will direct the Trustee
and the Security Agent in exercising  remedies under the Indenture and under the
Security Agreement, subject to the limitations described below. (Section 3.8(a))

     The "Controlling Party" will be:

     o    The Policy Provider (except as provided below).

     o    If a Policy Provider  Default is continuing,  the holders of more than
          50% in  aggregate  unpaid  principal  amount of the Senior  Notes then
          outstanding  or, if the Senior  Notes  have been paid in full,  of the
          Subordinated Notes then outstanding.

     o    If the Senior  Notes,  the  Policy  Expenses  and the Policy  Provider
          Obligations  have been paid in full,  the  holders of more than 50% in
          aggregate  unpaid  principal  amount of the  Subordinated  Notes  then
          outstanding.

     o    Under the circumstances described in the next paragraph, the Liquidity
          Provider.

     At any time after the Liquidity  Provider  Reimbursement  Date, if a Policy
Provider  Default  attributable  to a  failure  to  make a  drawing  to pay  the
Liquidity Provider, as described under "Description of the Policy and the Policy
Provider Agreement--The  Policy--Liquidity Provider Drawing", is continuing, the
Liquidity  Provider (so long as the Liquidity  Provider has not defaulted in its
obligation  to make any advance  under the  Liquidity  Facility)  shall have the
right to become the  Controlling  Party,  provided  that if the Policy  Provider
subsequently pays to the Liquidity Provider all outstanding  drawings,  together
with accrued interest thereon owing under the Liquidity  Facility,  and no other
Policy Provider Default has occurred and is continuing, then the Policy Provider
shall be the  Controlling  Party so long as no Policy  Provider  Default  occurs
after the date of such payment. (Section 3.8(c))

     The  Subordinated  Noteholders  will have the right to  direct  the  Policy
Provider in acting as the  Controlling  Party during the continuance of an Event
of Default if the Subordinated  Noteholders shall have deposited with the Policy
Provider cash, U.S. government securities or other investments acceptable to the
Policy  Provider as collateral for amounts owed to and to become due and payable
to the Policy Provider under the Operative Documents and Support Documents.  The
payments of principal and interest when due and without reinvestment on any such
deposited U.S.  government  securities or other  investments  plus any deposited
money without investment must, in the opinion of a nationally recognized firm of
independent  certified  public  accountants  acceptable to the Policy  Provider,
provide cash  sufficient to pay: (i) all accrued and unpaid Policy  Expenses and
Policy Provider  Obligations,  (ii) the then outstanding principal amount of the
Senior  Notes,  (iii)  interest  accruing and payable on the Senior Notes to the
Final Legal  Maturity Date (or,  alternatively,  the interest  calculated at the
rate of interest of 12% per annum for a period of 24 months (or, if shorter, the
period from the date of such deposit to the Final Legal Maturity Date)) and (iv)
the Policy premium payable for a period of 24 months (or, if shorter, the period
from the date of such  deposit to the Final Legal  Maturity  Date).  In order to
participate  in such deposit,  a  Subordinated  Noteholder  must  contribute its
proportionate  share  of the  deposit,  which  will be the  proportion  that the
principal amount of its Subordinated  Notes bears to the principal amount of the
Subordinated  Notes  of  all  Subordinated  Noteholders  participating  in  such
deposit.  A  Subordinated  Noteholder  will not be required to  contribute  to a
deposit. The Subordinated Noteholders contributing their proportionate shares of
such deposit will be entitled to direct the Policy  Provider in taking action as
the Controlling Party during the continuance of such Event of Default by vote of
a  majority  of the  principal  amount of the  Subordinated  Notes  held by such



contributing  Subordinated  Noteholders.  If the Policy  Provider  draws on such
deposit,  after the Policy Provider shall have been paid in full all amounts due
to it under the Operative  Documents and Support  Documents,  amounts  otherwise
distributable  to the Policy Provider under the Indenture will be distributed to
such  contributing  Subordinated  Noteholders  in the same  proportion  as their
respective  contributions to the deposit until their  proportionate share of the
deposit not returned by the Policy  Provider  shall have been repaid in full. If
Continental or any of its affiliates is a Subordinated  Noteholder,  it will not
be entitled to  participate  in making the  foregoing  deposit or directing  the
Controlling Party. (Section 3.11)

     "Policy  Provider  Default"  means the  occurrence  of any of the following
events:  (a) the  Policy  Provider  fails to make a payment  required  under the
Policy in accordance with its terms and such failure remains  unremedied for two
Business Days  following  the delivery of written  notice of such failure to the
Policy  Provider or (b) the Policy  Provider (i) files any petition or commences
any case or proceeding under any provisions of any federal or state law relating
to insolvency, bankruptcy,  rehabilitation,  liquidation or reorganization, (ii)
makes a general  assignment  for the  benefit of its  creditors  or (iii) has an
order for relief  entered  against it under any federal or state law relating to
insolvency,  bankruptcy,  rehabilitation,  liquidation or reorganization that is
final and nonappealable,  or (c) a court of competent jurisdiction, the New York
Department of Insurance or another competent regulatory authority enters a final
and nonappealable order, judgment or decree (i) appointing a custodian, trustee,
agent or receiver for the Policy Provider or for all or any material  portion of
its  property  or (ii)  authorizing  the taking of  possession  by a  custodian,
trustee,  agent or receiver of the Policy  Provider (or taking of  possession of
all or any material portion of the Policy Provider's property).

PRIORITY OF DISTRIBUTIONS

     On each Distribution  Date, all payments received by the Trustee in respect
of the Notes will be promptly distributed in the following order:

     o    If an Event of Default  shall have  occurred and be continuing on such
          Distribution Date, to the Trustee, the Policy Provider,  the Liquidity
          Provider  and any  Senior  Noteholder  to the extent  required  to pay
          certain  out-of-pocket  costs and  expenses  actually  incurred by the
          Trustee or the Policy  Provider or to reimburse  the Policy  Provider,
          the Liquidity Provider or any Senior Noteholder in respect of payments
          made to the Trustee in connection  with the  protection or realization
          of the value of the Collateral.

     o    To the Liquidity  Provider to the extent required to pay the Liquidity
          Expenses and to the Policy Provider to pay the Policy Expenses.

     o    To the  Liquidity  Provider  to the extent  required  to pay  interest
          accrued on the  Liquidity  Obligations  (as  determined  after  giving
          effect to certain  payments by the Policy  Provider  to the  Liquidity
          Provider),  to the  Policy  Provider  to the  extent  required  to pay
          interest  accrued on certain Policy Provider  Obligations  and, if the
          Policy  Provider has paid to the  Liquidity  Provider all  outstanding
          drawings and interest thereon owing to the Liquidity Provider,  to the
          Policy  Provider  to the  extent  required  to  reimburse  the  Policy
          Provider for the amount of such payment made to the Liquidity Provider
          attributable to interest accrued on such drawings.

     o    To (i)  the  Liquidity  Provider  to the  extent  required  to pay the
          outstanding  amount of all Liquidity  Obligations (as determined after
          giving  effect to  certain  payments  by the  Policy  Provider  to the
          Liquidity   Provider),   (ii)  if  applicable,   unless  (x)  on  such
          Distribution Date the Senior Notes are  Non-Performing and a Liquidity
          Event of Default  shall have  occurred  and be  continuing  or (y) the
          Final Drawing shall have  occurred,  to replenish the Cash  Collateral
          Account up to the Required  Amount (less the amount of any  repayments
          of Interest Drawings under the Liquidity Facility while sub-clause (x)
          of this clause is  applicable)  and (iii) if the Policy  Provider  has
          paid to the Liquidity  Provider all outstanding  drawings and interest
          thereon owing to the Liquidity Provider, to the Policy Provider to the
          extent  required to  reimburse  the Policy  Provider for the amount of
          such payment made to the Liquidity Provider in respect of principal of
          drawings under the Liquidity Facility.



     o    If an Event of Default  shall have  occurred and be continuing on such
          Distribution Date and at all times  thereafter,  to the Trustee or any
          Senior Noteholder,  to the extent required to pay certain fees, taxes,
          charges and other amounts payable.

     o    To the  Senior  Noteholders  to the  extent  required  to pay in  full
          amounts due on such Distribution Date.

     o    To the Policy  Provider to the extent  required to pay Policy Provider
          Obligations  (other than  amounts  payable  pursuant to the first four
          clauses above).

     o    To the Subordinated  Noteholders to the extent required to pay in full
          amounts  due on  such  Distribution  Date.

     o    To the  Trustee for the payment of certain  fees and  expenses  (other
          than amounts payable pursuant to the first and fifth clauses above).

     o    To the  Company  (unless  on such  Distribution  Date  (i) an Event of
          Default has occurred and is  continuing  or (ii) any amount due to the
          Liquidity  Provider  or the Policy  Provider  from the Company has not
          been paid). (Section 3.2)

     "Liquidity  Obligations"  means the  obligations to reimburse or to pay the
Liquidity Provider all principal,  interest,  fees and other amounts owing to it
under the Liquidity Facility or certain other agreements.

     "Liquidity  Expenses"  means  the  Liquidity  Obligations  other  than  any
interest  accrued  thereon  or the  principal  amount of any  drawing  under the
Liquidity Facility.

     "Non-Performing"  means, with respect to any Senior Note, a Payment Default
existing thereunder (without giving effect to any acceleration); provided, that,
in the event of a bankruptcy  proceeding under the U.S. Bankruptcy Code in which
the Company is a debtor,  any Payment  Default  existing at the  commencement of
such bankruptcy proceeding or during the 60-day period under Section 1110(a) (2)
(A) of the U.S.  Bankruptcy  Code (or such  longer  period  as may  apply  under
Section 1110(b) of the U.S. Bankruptcy Code or as may apply for the cure of such
Payment Default under Section  1110(a)(2)(B) of the U.S.  Bankruptcy Code) shall
not be taken into consideration until the expiration of the applicable period.

     "Policy Provider  Obligations"  means all  reimbursement and other amounts,
including fees and indemnities  (to the extent not included in Policy  Expenses)
due to the Policy  Provider  under the Policy  Provider  Agreement  and,  if the
Liquidity  Provider  has failed to honor any Interest  Drawing,  interest on any
Policy Drawing made to cover the shortfall  attributable  to such failure by the
Liquidity  Provider in an amount equal to the amount of interest that would have
accrued on such Interest  Drawing if such Interest  Drawing had been made at the
interest rate applicable to such Interest  Drawing until such Policy Drawing has
been repaid in full.  Except as provided in the  definition  of Policy  Provider
Obligations, no interest will accrue on any Policy Drawing.

     "Policy  Expenses"  means all  amounts  (including  amounts  in  respect of
premiums,  fees, expenses or indemnities) owing to the Policy Provider under the
Policy Provider  Agreement other than (i) any Policy Drawing,  (ii) any interest
accrued  on any  Policy  Provider  Obligation  and  (iii)  reimbursement  of and
interest on the Liquidity  Obligations in respect of the Liquidity Facility paid
by the Policy Provider to the Liquidity Provider,  provided that if, at the time
of  determination,  a Policy Provider  Default exists,  Policy Expenses will not
include any indemnity payments owed to the Policy Provider.

     "Policy Drawing" means any payment of a claim under the Policy.

     Interest Drawings under the Liquidity  Facility,  withdrawals from the Cash
Collateral  Account and  drawings  under the Policy will be  distributed  to the
Trustee for distribution to the Senior Noteholders, notwithstanding the priority
of distributions set forth in the Indenture and otherwise  described herein. All
amounts  on  deposit in the Cash  Collateral  Account  that are in excess of the
Required Amount will be paid to the Liquidity Provider.



     If any  Distribution  Date is a  Saturday,  Sunday  or  other  day on which
commercial  banks are  authorized  or required  to close in New York,  New York,
Houston,  Texas, or Wilmington,  Delaware, or, which is not a day for trading by
and between banks in the London interbank Eurodollar market (any other day being
a "Business Day"),  distributions scheduled to be made on such Distribution Date
will be made on the next  succeeding  Business Day, and interest  shall be added
for such additional period.

MODIFICATIONS AND WAIVER OF THE INDENTURE AND CERTAIN OTHER AGREEMENTS

         The  Company,  the  Trustee  and the  Collateral  Agent  may  amend  or
supplement the Indenture,  the Notes,  the other  Operative  Documents and, upon
request of  Continental,  the  Trustee  shall  amend or  supplement  the Support
Documents, in each case without the consent of the Noteholders:

     o    To provide for uncertificated Notes of any series in addition to or in
          place of certificated Notes of such series.

     o    To provide for the assumption of the Company's  obligations  under the
          Operative   Documents   and  the  Notes  in  the  case  of  a  merger,
          consolidation or conveyance, transfer or lease of all or substantially
          all of the assets of the Company.

     o    To comply with any  requirements  of the Commission in connection with
          the  qualification  of the Indenture under the TIA. o To provide for a
          replacement Liquidity Provider.

     o    To  provide  for  the  effectiveness  of  any  additional   Collateral
          Agreement.

     o    To comply with the requirements of DTC,  Euroclear Bank or Clearstream
          Banking or the Trustee with respect to the provisions of the Indenture
          or the Notes of any series  relating to transfers and exchanges of the
          Notes of any series or beneficial interests therein.

     o    To provide for any successor  Trustee or Collateral Agent with respect
          to the Notes of one or more  series and to add to or change any of the
          provisions  of the  Indenture  as shall be  necessary  or advisable to
          provide for or facilitate the  administration  of the trusts under the
          Indenture by more than one Trustee.

     o    To cure any ambiguity, defect or inconsistency.

     o    To make any other change not inconsistent with the Indenture  provided
          that such action does not materially adversely affect the interests of
          any Noteholder. (Section 10.1)

     The Company,  the Trustee and the Collateral  Agent may otherwise  amend or
supplement the Indenture,  the Notes and the other  Operative  Documents  (other
than the Collateral  Maintenance  Agreement),  and, upon consent of the Company,
the Trustee shall amend or supplement the Support  Documents,  in each case only
with the written  consent of the Controlling  Party,  subject to certain limited
exceptions.  Except for those limited provisions described in this section under
the caption  "--Modifications  and Waiver of the  Indenture  and  Certain  Other
Agreements",  the  provisions of the Indenture,  the Security  Agreement and the
Operative  Documents may be amended or waived by the  Controlling  Party (or, in
the case of the Collateral Maintenance  Agreement,  the Policy Provider) without
the consent of the  Noteholders.  Whether  before or after the  occurrence of an
Event of Default,  the  Controlling  Party may authorize the Trustee to, and the
Trustee upon such authorization  shall, waive compliance by the Company with any
provision of the Indenture,  the Notes or the other Operative  Documents  (other
than  the  Collateral  Maintenance  Agreement).   However,  no  such  amendment,
supplement  or waiver may,  without the consent of the Liquidity  Provider,  the
Policy  Provider  and each Senior  Noteholder  affected:

     o    Reduce the amount of Senior  Notes whose  holders  must  consent to an
          amendment, supplement or waiver.



     o    Reduce the rate or extend  the time for  payment  of  interest  on any
          Senior Note.

     o    Reduce the amount or extend the time for payment of  principal  of, or
          Premium,  if any, or Break  Amount,  if any,  with respect to (in each
          case, whether on redemption or otherwise), any Senior Note.

     o    Change the place of payment  where,  or the coin or currency in which,
          any Senior Note (or the redemption price thereof),  interest  thereon,
          or Premium,  if any, or Break Amount, if any, with respect thereto, is
          payable.

     o    Change the  priority  of  distributions  and  application  of payments
          specified in the Indenture.

     o    Waive a default in the payment of the  principal  of,  interest on, or
          Premium,  if any, or Break Amount, if any, with respect to, any Senior
          Note.

     o    Make any  changes to  provisions  in the  Indenture  that  involve the
          waiver of defaults, the right of Senior Noteholders to receive payment
          of principal of,  interest on, and Premium,  if any, and Break Amount,
          if any,  with  respect to, any Senior Note on or after the  respective
          due dates.

     o    Impair the right of any Senior  Noteholder  to institute  suit for the
          enforcement  of any  amount  payable  on any  Senior  Note  when  due.
          (Section 10.2)

     In  addition,  no such  amendment,  supplement  or waiver may,  without the
consent of each Subordinated Noteholder affected:

     o    Reduce the amount of Subordinated  Notes whose holders must consent to
          an amendment, supplement or waiver.

     o    Reduce the rate or extend  the time for  payment  of  interest  on any
          Subordinated Note.

     o    Reduce the amount or extend the time for payment of  principal  of, or
          Premium,  if any, or Break  Amount,  if any,  with respect to (in each
          case, whether on redemption or otherwise), any Subordinated Note.

     o    Change the definitions of "Maximum  Subordinated  Collateral Ratio" or
          "Subordinated Collateral Ratio".

     o    Increase  the  principal  amount of, or the rate of  interest  on, the
          Senior Notes.

     o    Change the place of payment  where,  or the coin or currency in which,
          any  Senior  Note  or  Subordinated  Note  (or  the  redemption  price
          thereof),  interest thereon,  or Premium,  if any, or Break Amount, if
          any,  with  respect  thereto,  is  payable.

     o    Change the  priority  of  distributions  and  application  of payments
          specified  in the  Indenture.

     o    Waive a default in the payment of the  principal  of,  interest on, or
          Premium,  if any,  or Break  Amount,  if any,  with  respect  to,  any
          Subordinated Note.

     o    Make any  changes to  provisions  in the  Indenture  that  involve the
          waiver of defaults,  the right of  Noteholders  to receive  payment of
          principal of, interest on, and Premium,  if any, and Break Amount,  if
          any, with respect to, any Subordinated Note on or after the respective
          due dates.

     o    Impair the right of any Subordinated  Noteholder to institute suit for
          the  enforcement of any amount payable on any  Subordinated  Note when
          due. (Section 10.2)



     The provisions of the Indenture for determining who will be the Controlling
Party,  the  definition of "Event of Default" and the covenant  described in the
last paragraph under  "--Remedies"  cannot be amended without the consent of the
holders  of a  majority  in  principal  amount  of the  Subordinated  Notes.  In
addition,  an amendment of any defined term used in the  definitions of "Maximum
Subordinated Collateral Ratio" or "Subordinated Collateral Ratio" or in any such
defined  term will not be  effective  for  purposes of such  definitions  unless
consented  to  by  the  holders  of  a  majority  in  principal  amount  of  the
Subordinated Notes. The requirement that the Subordinated Noteholders consent to
an amendment to the  definition  of "Event of Default" does not affect the right
of the Controlling Party to waive an Event of Default. See "--Remedies".

     The Company and the Policy Provider can amend,  modify or waive  compliance
with any  provision  of the  Collateral  Maintenance  Agreement  (including  the
provisions  described under  "--Appraisals and Maintenance of Ratios",  "--Fleet
Reduction",   "--Liens",   "--Maintenance",   "--Insurance"   and   "--Use   and
Possession")  without the consent of the Trustee,  the  Collateral  Agent or any
Noteholders, except for certain limited provisions. However, the Company and the
Trustee,  with the consent of the holders of a majority in  principal  amount of
the  Subordinated  Notes and  without the  consent of the Policy  Provider,  can
amend,  modify  or waive  compliance  with  the  following  requirements  of the
Collateral Maintenance Agreement:

     o    that  appraisals  of  the  Collateral  be  obtained  for  purposes  of
          determining  the maximum  Subordinated  Collateral  Ratio by the fifth
          Business Day of February and the fifth  Business Day of August in each
          year,  commencing in August 2003 (see  "--Collateral  --Appraisals and
          Maintenance of Ratios");

     o    that the maximum  Subordinated  Collateral  Ratio be complied  with in
          connection with such appraisals (see  "--Collateral  --Appraisals  and
          Maintenance of Ratios");

     o    that the outstanding  principal  amount of the  Subordinated  Notes be
          reduced  if  there is a fleet  reduction  (see  "--Collateral  --Fleet
          Reduction"); or

     o    that the maximum  Subordinated  Collateral Ratio be complied with upon
          effecting  a  transaction  permitted  as a result of the waiver by the
          Policy Provider of certain restrictions on selling, leasing and moving
          Pledged Spare Parts (see "--Collateral --Use and Possession").

However,  the methods for  determining  the Fair Market Value of the Collateral,
the  qualifications  of the appraiser,  the  limitations on Cash  Collateral and
other provisions of the Collateral  Maintenance Agreement applicable to both the
Senior Notes and the Subordinated  Notes may be amended or modified by agreement
of the Company  and the Policy  Provider  without  the  consent of  Subordinated
Noteholders.

     In  determining  whether the holders of the  required  principal  amount of
Senior Notes or Subordinated Notes have consented to an amendment,  modification
or waiver,  any such Senior Notes or Subordinated  Notes owned by Continental or
any of its affiliates will be disregarded and deemed not  outstanding.  (Section
2.13)

MERGER, CONSOLIDATION AND TRANSFER OF ASSETS

     Continental  is  prohibited  from  consolidating  with,  merging  into,  or
conveying, transferring or leasing substantially all of its assets to any Person
unless:

     o    The  resulting,  surviving,  transferee  or  lessee  Person  shall  be
          organized  under the laws of the United  States,  any state thereof or
          the District of Columbia and shall be a U.S. air carrier.

     o    The resulting,  surviving, transferee or lessee Person shall expressly
          assume  all  of  the  obligations  of  Continental  contained  in  the
          Indenture,  the Notes and any other Operative Documents.

     o    Continental  shall  have  delivered  a  certificate  and an opinion of
          counsel stating that (i) such  transaction,  in effect,  complies with



          such  conditions  and (ii) the  Indenture,  the  Notes  and the  other
          Operative   Documents   constitute  the  valid  and  legally   binding
          obligations of the resulting,  surviving, transferee or lessee Person.

     o    Immediately  after  giving  effect  to such  transaction,  no Event of
          Default shall have occurred and be continuing. (Section 5.4)

     The Indenture,  the Notes and the other Operative  Documents do not contain
any  covenants  or  provisions  which may  afford  the  Trustee  or  Noteholders
protection  in  the  event  of  a  highly   leveraged   transaction,   including
transactions  effected by management or affiliates,  which may or may not result
in a change in control of Continental.

INDEMNIFICATION

     Continental  is required to indemnify  the Liquidity  Provider,  the Policy
Provider,  the Trustee and the Collateral  Agent, but not the  Noteholders,  for
certain losses, claims and other matters. (Section 6.1)

GOVERNING LAW

     The  Indenture  and the Notes are  governed by the laws of the State of New
York. (Section 12.8)

THE TRUSTEE

     The Trustee is Wilmington  Trust Company.  Except as otherwise  provided in
the Indenture,  the Trustee, in its individual capacity,  will not be answerable
or  accountable  under the Indenture or under the Notes under any  circumstances
except,  among other things, for its own willful misconduct or gross negligence.
Continental  and its  affiliates  may from time to time enter into  banking  and
trustee relationships with the Trustee and its affiliates. The Trustee's address
is Wilmington  Trust  Company,  Rodney Square North,  1100 North Market  Street,
Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration.


BOOK ENTRY; DELIVERY AND FORM

     GENERAL

     The New Senior Notes will be  represented  by one or more global Notes,  in
definitive, fully registered form without interest coupons (the "Global Notes").
Each Global Note will be deposited  with the Trustee,  as custodian for DTC, and
registered in the name of Cede & Co. ("Cede"), as nominee for DTC.

     DTC has advised  Continental  as follows:  DTC is a limited  purpose  trust
company  organized  under  the  laws  of the  State  of  New  York,  a  "banking
organization"  within the meaning of the New York  Banking  Law, a member of the
Federal  Reserve  System,  a  "clearing  corporation"  within the meaning of the
Uniform  Commercial  Code and a  "clearing  agency"  registered  pursuant to the
provisions  of  Section  17A of the  Exchange  Act.  DTC  was  created  to  hold
securities for DTC  Participants  and facilitate the clearance and settlement of
securities  transactions between DTC Participants through electronic  book-entry
changes  in  accounts  of DTC  Participants,  thereby  eliminating  the need for
physical movement of certificates.  DTC Participants  include securities brokers
and dealers,  banks,  trust companies,  clearing  corporations and certain other
organizations.  DTC is owned by a number of DTC Participants and by the New York
Stock  Exchange,  Inc.,  the  American  Stock  Exchange  LLC,  and the  National
Association of Securities  Dealers,  Inc.  Indirect  access to the DTC system is
available to others such as banks,  brokers,  dealers and trust  companies  that
clear  through or  maintain a  custodial  relationship  with a DTC  Participant,
either directly or indirectly ("Indirect Participants").

     Ownership of beneficial interests in Global Notes is limited to persons who
have accounts with DTC  Participants  or persons who hold interests  through DTC
Participants. Ownership of beneficial interests in the Global Notes is shown on,
and the transfer of that ownership is effected only through,  records maintained
by DTC or its nominee  (with respect to interests of DTC  Participants)  and the
records of DTC Participants (with respect to interests of persons other than DTC
Participants).  The laws of some  states  require  that  certain  purchasers  of



securities take physical delivery of such securities.  Such limits and such laws
may limit the market for beneficial interests in the Global Notes.

     So long as DTC or its  nominee  is the  registered  owner or  holder of the
Global Notes,  DTC or such nominee,  as the case may be, will be considered  the
sole record owner or holder of the Senior Notes represented by such Global Notes
for all purposes under the Indenture. No beneficial owners of an interest in the
Global Notes will be able to transfer  that interest  except in accordance  with
DTC's  applicable  procedures,  in  addition  to those  provided  for  under the
Indenture.

     Beneficial   interests  in  the  Global  Notes  will  be   exchangeable  or
transferable,  as the  case  may be,  for  Senior  Notes  in  definitive,  fully
registered form  ("Definitive  Notes") only if (i) DTC notifies the Trustee that
DTC is unwilling or unable to continue as  depositary  for such Senior Notes and
successor  depositary  is not  appointed  by the Trustee  within 90 days of such
notice or (ii) after the  occurrence  and during the  continuance of an Event of
Default,  owners of beneficial interests in the Global Notes (the "Note Owners")
with a principal amount  aggregating not less than a majority of the outstanding
principal  amount of the Global Notes advise the  Trustee,  Continental  and DTC
through Direct  Participants  in writing that the  continuation  of a book-entry
system  through  DTC  (or a  successor  thereto)  is no  longer  in  their  best
interests.  (Section  2.5(b))  Upon the  occurrence  of any event  described  in
clauses (i) or (ii) of the immediately  preceding sentence,  the Trustee will be
required to notify all Direct  Participants  having a beneficial interest in the
Global Notes of the availability of Definitive  Notes.  Upon surrender by DTC of
the Global Notes and receipt of instructions  for  re-registration,  the Trustee
will  reissue the Senior  Notes as  Definitive  Notes to Note  Owners.  (Section
2.5(d))

     Payments of the  principal  of,  interest  on,  Premium,  if any, and Break
Amount,  if any,  with  respect to, the Global  Notes will be made to DTC or its
nominee,  as  the  case  may  be,  as  the  registered  owner  thereof.  Neither
Continental,  the Trustee,  nor any paying agent will have any responsibility or
liability for any aspect of the records  relating to or payments made on account
of  beneficial  ownership  interests  in the  Global  Notes or for  maintaining,
supervising  or  reviewing  any records  relating to such  beneficial  ownership
interests.

     Continental expects that DTC or its nominee, upon receipt of any payment of
principal  of,  interest on,  Premium,  if any, and Break  Amount,  if any, with
respect to, a Global  Note,  will credit the accounts of DTC  Participants  with
payments in amounts  proportionate to their respective  beneficial  interests in
the principal  amount of such Global Note, as shown on the records of DTC or its
nominee. Continental also expects that payments by DTC Participants to owners of
beneficial interests in such Global Note held through such DTC Participants will
be governed by standing instructions and customary practices, as is now the case
with  securities  held for the accounts of customers  registered in the names of
nominees for such customers.  Such payments will be the  responsibility  of such
DTC Participants.

     Distributions of principal of, interest on, and Premium,  if any, and Break
Amount,  if any, with respect to,  Definitive  Notes will be made by the Trustee
directly  in  accordance  with the  procedures  set forth in the  Indenture,  to
holders in whose  names the  Definitive  Notes were  registered  at the close of
business on the applicable record date. Such distributions will be made by check
mailed to the address of such holder as it appears on the register maintained by
the Trustee.  The final payment on any Senior Note,  however,  will be made only
upon  presentation  and  surrender  of such  Senior Note at the office or agency
specified in the notice of final distribution to Senior Noteholders.

     Neither  Continental  nor  the  Trustee  has  any  responsibility  for  the
performance  by  DTC,  DTC  Participants  or  Indirect   Participants  of  their
respective   obligations   under  the  rules  and  procedures   governing  their
operations.

     SAME-DAY SETTLEMENT AND PAYMENT


     As  long as the  Senior  Notes  are  registered  in the  name of DTC or its
nominee,  Continental  will make all payments to the Trustee under the Indenture
in  immediately  available  funds.  The  Trustee  will  pass  through  to DTC in
immediately  available funds all payments received from  Continental,  including
the final distribution of principal with respect to the Senior Notes.

     Any Senior Notes registered in the name of DTC or its nominee will trade in
DTC's  Same-Day  Funds  Settlement  System  until  maturity.  DTC  will  require



secondary  market trading  activity in the Senior Notes to settle in immediately
available funds. Continental cannot give any assurance as to the effect, if any,
of settlement in same-day funds on trading activity in the Senior Notes.



                      DESCRIPTION OF THE SUBORDINATED NOTES

     The following  summary  describes terms of the Subordinated  Notes that are
material  to a holder  of Senior  Notes.  The  summary  does not  purport  to be
complete. We urge you to read the Subordinated Notes and the Operative Documents
for  additional  detail  and  further  information  because  they,  and not this
description,  define your rights. Each of the Operative Documents has been filed
as an exhibit to the Registration  Statement and is available as set forth under
"Where You Can Find More Information". The references to Sections in parentheses
in the following summary are to the relevant Sections of the Indenture.

GENERAL

     On May 9, 2003 (the "Subordinated Notes Issuance Date"), Continental issued
the Subordinated  Notes under the Indenture.  The Subordinated Notes are secured
by a lien on the Collateral.  The  Subordinated  Notes rank junior to the Senior
Notes (including amounts owed to the Policy Provider and the Liquidity Provider)
with respect to payments received from Continental, proceeds from liquidation of
the Collateral and otherwise.

PAYMENTS OF PRINCIPAL AND INTEREST

     The  Subordinated  Notes are limited to  $100,000,000  of  principal in the
aggregate.  Subject to the  provisions of the  Indenture,  the entire  principal
amount of the  Subordinated  Notes is scheduled  to be paid to the  Subordinated
Noteholders on the Final Scheduled Payment Date.

     Interest accrues on the unpaid principal amount of each  Subordinated  Note
at LIBOR plus 7.50% (plus, if applicable,  0.50% during the periods specified in
the registration rights agreement applicable to the Subordinated Notes). Accrued
interest on the  Subordinated  Notes is payable on March 6, June 6,  September 6
and  December  6 of each year or, if not a  Business  Day,  the next  succeeding
Business Day,  commencing on June 6, 2003. Such accrued interest will be paid to
holders of record on the 15th day preceding the  applicable  Scheduled  Interest
Payment Date.  Interest on the  Subordinated  Notes accrues from the most recent
date to which interest has been paid or, if no interest has been paid,  from the
Subordinated  Notes  Issuance  Date.  Interest  on  the  Subordinated  Notes  is
calculated on the basis of the actual number of days elapsed over a 360-day year
and shall accrue with respect to the first but not the last day of each Interest
Period. If any date scheduled for a payment of principal, interest, Subordinated
Notes  Premium,  if any, or Break  Amount,  if any, is not a Business  Day, such
payment will be made on the next succeeding  Business Day, and interest shall be
added for such additional period. (Section 2A.7)

     The Subordinated Notes do not have the benefit of a Liquidity Facility or a
Policy.

REDEMPTION

     The Subordinated  Notes may not be redeemed by Continental  prior to May 9,
2004.  The  Subordinated  Notes may be  redeemed  at any time on or after May 9,
2004, in whole or (so long as no Payment Default has occurred and is continuing)
in part (in any integral  multiple of $1,000) by  Continental at its sole option
at a  redemption  price  equal to the sum of 100% of the  principal  amount  of,
accrued and unpaid  interest on, and Break Amount,  if any, with respect to, the
redeemed  Subordinated  Notes  to and  including  the  date  of  redemption.  In
addition,  if a Subordinated  Note is redeemed before the fourth  anniversary of
the Subordinated  Notes Issuance Date (except in connection with a redemption to
satisfy the  maximum  Collateral  Ratio or minimum  Rotable  Ratio  requirements
discussed  under  "Description of the Senior  Notes--Collateral--Appraisals  and
Maintenance  of  Ratios"),  such  redemption  price will  include a premium (the
"Subordinated Notes Premium") equal to the following percentage of the principal
amount of such Subordinated  Note: (i) if redeemed before the second anniversary
of the Subordinated Notes Issuance Date, 3.0%; (ii) if redeemed on or after such
second  anniversary and before the third  anniversary of the Subordinated  Notes
Issuance Date,  2.0%;  and (iii) if redeemed on or after such third  anniversary
and before the fourth anniversary of the Subordinated Notes Issuance Date, 1.0%.
Notwithstanding the foregoing, so long as the Policy Provider is the Controlling
Party, no such redemption may be made if an Event of Default has occurred and is
continuing or if the Senior Collateral Ratio or Senior Rotable Ratio is not then
satisfied  (after  giving  effect to any  concurrent  redemption  of the  Senior
Notes), unless the Policy Provider shall otherwise agree. (Section 4.1)



     If  Continental  gives notice of  redemption  but fails to pay when due all
amounts  necessary to effect such  redemption,  such redemption  shall be deemed
revoked and no amount  shall be due as a result of notice of  redemption  having
been given.

COLLATERAL

     The  Subordinated  Notes  are  secured  by a lien  on the  Collateral.  See
"Description of the Senior Notes--Collateral".



                      DESCRIPTION OF THE LIQUIDITY FACILITY

     The  following  summary  describes  the  material  terms  of the  Liquidity
Facility  and certain  provisions  of the  Indenture  relating to the  Liquidity
Facility.  The summary does not purport to be complete.  We urge you to read the
Liquidity   Facility  and  the  Indenture  for  additional  detail  and  further
information because they, and not this description,  define your rights. Each of
the  Liquidity  Facility and the  Indenture  has been filed as an exhibit to the
Registration  Statement  and is available as set forth under "Where You Can Find
More Information".

GENERAL

     Morgan Stanley Capital Services Inc. (the "Liquidity Provider") has entered
into a revolving  credit  agreement (the "Liquidity  Facility") with the Trustee
with respect to the Senior Notes. The Subordinated Notes do not have the benefit
of a Liquidity Facility.

     On any  Distribution  Date,  if, after giving  effect to the  subordination
provisions of the Indenture,  the Trustee does not have sufficient funds for the
payment of interest on the Senior Notes,  the Liquidity  Provider is required to
make an  advance  (an  "Interest  Drawing")  in the  amount  needed  to fund the
interest  shortfall  (calculated  assuming  that  Continental  will not cure the
nonpayment of interest) up to the Maximum Available Commitment.

     The  maximum  amount of Interest  Drawings  available  under the  Liquidity
Facility  will be  sufficient to pay interest on the Senior Notes on up to eight
consecutive  quarterly  Interest  Payment  Dates  at the  Stated  Interest  Rate
(calculated assuming that Continental will not cure any nonpayment of interest).
If  interest  payment  defaults  occur  which  exceed the amount  covered by and
available under the Liquidity  Facility,  the Senior Noteholders will bear their
allocable  share of the  deficiencies  to the  extent  that  there  are no other
sources of funds. The initial Liquidity  Provider may be replaced by one or more
other entities under certain circumstances.

DRAWINGS

     The aggregate  amount  available  under the Liquidity  Facility at March 6,
2003,   the  first   Interest   Payment  Date  after  the  Issuance   Date,  was
$48,733,333.33.

     Except as otherwise  provided  below,  the Liquidity  Facility  enables the
Trustee  to  make  Interest  Drawings   thereunder  promptly  on  or  after  any
Distribution Date if, after giving effect to the subordination provisions of the
Indenture, there are insufficient funds available to the Trustee to pay interest
then due and payable on the Senior Notes at the Stated Interest Rate (calculated
assuming that Continental  will not cure any nonpayment of interest);  provided,
however,  that the maximum  amount  available  to be drawn  under the  Liquidity
Facility  on any  Distribution  Date to fund any  shortfall  of  interest on the
Senior Notes will not exceed the then Maximum Available Commitment.

     The "Maximum  Available  Commitment"  at any time is an amount equal to the
then Required Amount of the Liquidity Facility less the aggregate amount of each
Interest Drawing outstanding thereunder at such time, provided that, following a
Non-Extension  Drawing,  a  Downgrade  Drawing or a Final  Drawing,  the Maximum
Available Commitment shall be zero.

     The  "Required  Amount"  will  be  equal,  on any  day,  to the  sum of the
aggregate amount of interest, calculated at the Capped Interest Rate, that would
be  payable  on the  Senior  Notes on each of the  eight  consecutive  quarterly
Interest  Payment  Dates  immediately  following  such day or, if such day is an
Interest Payment Date, on such day and the succeeding  seven quarterly  Interest
Payment Dates, in each case calculated on the  outstanding  aggregate  principal
amount of the Senior  Notes on such day and without  regard to  expected  future
payments of principal.

     "Capped Interest Rate" is 12% per annum.

     The Liquidity Facility does not provide for drawings  thereunder to pay for
principal of, or Premium,  if any, or Break Amount, if any, with respect to, the



Senior  Notes,  any interest  thereon in excess of an amount equal to eight full
quarterly  installments  of  interest  calculated  at the Capped  Interest  Rate
thereon  or any  amount  with  respect  to the  Subordinated  Notes.  (Liquidity
Facility, Section 2.02; Indenture, Section 3.5)

     Each  payment by the  Liquidity  Provider  reduces  by the same  amount the
Maximum Available Commitment, subject to reinstatement as hereinafter described.
With respect to any  Interest  Drawings,  upon  reimbursement  of the  Liquidity
Provider  in full or in part  for the  amount  of such  Interest  Drawings  plus
interest  thereon,  the Maximum  Available  Commitment  will be reinstated to an
amount not to exceed the then Required Amount.  However,  the Liquidity Facility
will not be so reinstated at any time if (i) the Senior Notes are Non-Performing
and a Liquidity  Event of Default  shall have occurred and be continuing or (ii)
the Liquidity Provider  Reimbursement Date has occurred. Any amounts paid by the
Policy  Provider to the Liquidity  Provider as described in  "Description of the
Senior  Notes--Controlling  Party" or  "Description of the Policy and the Policy
Provider Agreement--Liquidity Provider Drawing" will not reinstate the Liquidity
Facility but any  reimbursement  of such amounts received by the Policy Provider
under the distribution  provisions of the Indenture will reinstate the Liquidity
Facility  to the extent of such  reimbursement  unless (i) the Senior  Notes are
Non-Performing  and a  Liquidity  Event of Default  shall have  occurred  and be
continuing or (ii) the Liquidity Provider Reimbursement Date has occurred.  With
respect to any other drawings under the Liquidity Facility, amounts available to
be drawn thereunder are not subject to  reinstatement.  The Required Amount will
be automatically  reduced from time to time to an amount equal to the next eight
successive  quarterly  interest payments due on the Senior Notes (without regard
to  expected  future  payments  of  principal)  at  the  Capped  Interest  Rate.
(Liquidity  Facility,  Section  2.04(a);  Indenture,  Section  3.5(j))  Upon the
occurrence of the Liquidity  Provider  Reimbursement  Date, no further  drawings
under the Liquidity Facility will be permitted.

     If at any  time the  short-term  unsecured  debt  rating  of the  Liquidity
Provider  Guarantor  then issued by either Moody's or Standard & Poor's is lower
than the Threshold Rating or the Liquidity Provider Guarantor's guarantee ceases
to be in full  force and  effect or  becomes  invalid  or  unenforceable  or the
Liquidity Provider Guarantor denies its liability thereunder,  and the Liquidity
Facility  is not  replaced  with a  Replacement  Facility  within ten days after
notice of such  downgrading  or such  event  and as  otherwise  provided  in the
Indenture,  the Liquidity  Facility will be drawn in full up to the then Maximum
Available  Commitment  (the  "Downgrade  Drawing").  The proceeds of a Downgrade
Drawing will be deposited into a cash collateral  account (the "Cash  Collateral
Account")  and used for the same purposes and under the same  circumstances  and
subject to the same  conditions as cash payments of Interest  Drawings under the
Liquidity  Facility  would  be  used.  (Liquidity  Facility,   Section  2.02(c);
Indenture,  Section 3.5(c)) If a qualified  Replacement Facility is subsequently
provided,  the  balance  of the Cash  Collateral  Account  will be repaid to the
replaced Liquidity Provider.

     A  "Replacement  Facility"  means an  irrevocable  liquidity  facility  (or
liquidity  facilities)  in  substantially  the  form of the  replaced  Liquidity
Facility,  including reinstatement  provisions, or in such other form (which may
include a letter of credit) as shall permit the Rating  Agencies with respect to
the Senior Notes to confirm in writing its ratings then in effect for the Senior
Notes  (before  downgrading  of  such  ratings,  if  any,  as a  result  of  the
downgrading of the Liquidity  Provider but without regard to the Policy),  which
shall have been consented to by the Policy Provider,  which consent shall not be
unreasonably  withheld or delayed,  in a face  amount (or in an  aggregate  face
amount)  equal to the amount of  interest  payable  on the Senior  Notes (at the
Capped  Interest  Rate  and  without  regard  to  expected  future  payments  of
principal) on the eight Interest Payment Dates following the date of replacement
of the Liquidity  Facility and issued by a person (or persons) having  unsecured
short-term  debt rating or issuer credit  rating,  as the case may be, issued by
each of  Moody's  and  Standard & Poor's  which are equal to or higher  than the
Threshold  Rating.  (Indenture,  Appendix  I) The  provider  of any  Replacement
Facility  will have the same rights  (including,  without  limitation,  priority
distribution  rights and rights as  "Controlling  Party") under the Indenture as
the initial Liquidity Provider.

     "Threshold  Rating" means the  short-term  unsecured  debt rating of P-1 by
Moody's Investors Service, Inc. ("Moody's") and A-1 by Standard & Poor's Ratings
Services, a division of The McGraw Hill Companies, Inc. ("Standard & Poor's").

         The  Liquidity   Facility   provides  that  the  Liquidity   Provider's
obligations  thereunder  will  expire on the  earliest  of:

     o    364 days after the Issuance Date (counting  from,  and including,  the
          Issuance Date).



     o    The date on which the  Trustee  delivers to the  Liquidity  Provider a
          certification that all of the Senior Notes have been paid in full.

     o    The date on which the  Trustee  delivers to the  Liquidity  Provider a
          certification  that a Replacement  Facility has been  substituted  for
          such Liquidity Facility.

     o    The  fifth  Business  Day  following  receipt  by  the  Trustee  of  a
          Termination  Notice  from the  Liquidity  Provider  (see  "--Liquidity
          Events of Default and Termination").

     o    The date on which no  amount is or may (by  reason  of  reinstatement)
          become  available  for drawing  under the  Liquidity  Facility.

     o    The occurrence of the Liquidity Provider Reimbursement Date.

     The Liquidity Facility provides that it will be automatically  extended for
additional  364-day periods unless the Liquidity  Provider  notifies the Trustee
that it does not agree to such extension.

     The Indenture  provides for the  replacement  of the Liquidity  Facility if
such  Liquidity  Facility is scheduled to expire  earlier than 15 days after the
Final Legal Maturity Date and the Liquidity Facility is not extended at least 25
days prior to its then scheduled  expiration date. If the Liquidity  Facility is
not so  extended  or  replaced  by the  25th day  prior  to its  then  scheduled
expiration  date,  the  Liquidity  Facility will be drawn in full up to the then
Maximum Available Commitment (the "Non-Extension  Drawing"). The proceeds of the
Non-Extension  Drawing will be deposited in the Cash Collateral  Account as cash
collateral  to be used for the same  purposes and under the same  circumstances,
and subject to the same conditions,  as cash payments of Interest Drawings under
the Liquidity  Facility would be used.  (Liquidity  Facility,  Section  2.02(b);
Indenture, Section 3.5(d))

     Subject to certain limitations, Continental may, at its option, arrange for
a Replacement Facility at any time to replace the Liquidity Facility (including,
without  limitation,   any  Replacement  Facility  described  in  the  following
sentence).  In addition, if the Liquidity Provider shall determine not to extend
the Liquidity Facility,  then the Liquidity Provider may, at its option, arrange
for a  Replacement  Facility to replace the  Liquidity  Facility  (i) during the
period  no  earlier  than 40 days  and no later  than 25 days  prior to the then
scheduled  expiration date of the Liquidity  Facility and (ii) at any time after
such scheduled  expiration  date. The Liquidity  Provider may also arrange for a
Replacement  Facility  to replace  the  Liquidity  Facility  at any time after a
Downgrade  Drawing  thereunder.  If any Replacement  Facility is provided at any
time after a Downgrade Drawing or a Non-Extension  Drawing, the funds on deposit
in the Cash Collateral  Account will be returned to the Liquidity Provider being
replaced. (Indenture, Section 3.5(e))

     Upon  receipt by the Trustee of a  Termination  Notice  from the  Liquidity
Provider,  the Trustee shall request a final drawing (a "Final  Drawing")  under
the  Liquidity  Facility  in an  amount  equal  to the  then  Maximum  Available
Commitment  thereunder.  The Trustee will hold the proceeds of the Final Drawing
in the  Cash  Collateral  Account  as cash  collateral  to be used  for the same
purposes and under the same  circumstances,  and subject to the same conditions,
as cash  payments of Interest  Drawings  under the Liquidity  Facility  would be
used. (Liquidity Facility, Section 2.02(d); Indenture, Section 3.5(i))

     Drawings  under the  Liquidity  Facility  will be made by  delivery  by the
Trustee of a certificate  in the form required by the Liquidity  Facility.  Upon
receipt of such a  certificate,  the  Liquidity  Provider is  obligated  to make
payment of the drawing  requested  thereby in immediately  available funds. Upon
payment by the Liquidity  Provider of the amount  specified in any drawing under
the Liquidity  Facility,  the Liquidity Provider will be fully discharged of its
obligations  under the Liquidity  Facility with respect to such drawing and will
not  thereafter  be obligated to make any further  payments  under the Liquidity
Facility in respect of such drawing to the Trustee or any other person.

REIMBURSEMENT OF DRAWINGS

     The Trustee must  reimburse  amounts drawn under the Liquidity  Facility by
reason of an Interest Drawing, Final Drawing, Downgrade Drawing or Non-Extension
Drawing and interest thereon,  but only to the extent that the Trustee has funds
available therefor.



   INTEREST DRAWINGS AND FINAL DRAWINGS

     Amounts  drawn by reason of an Interest  Drawing or Final Drawing under the
Liquidity  Facility will be immediately due and payable,  together with interest
on the amount of such drawing.  From the date of the drawing to (but  excluding)
the third business day following the Liquidity  Provider's receipt of the notice
of such Interest  Drawing,  interest will accrue at the Base Rate plus 2.00% per
annum.  Thereafter,  interest  will accrue at Liquidity  Facility  LIBOR for the
applicable  interest  period  plus  2.00%  per  annum.  In the case of the Final
Drawing,  however,  the Trustee may  convert  the Final  Drawing  into a drawing
bearing  interest  at the Base Rate  plus  2.00% per annum on the last day of an
interest period for such Drawing.

     "Base Rate" means a fluctuating interest rate per annum in effect from time
to time,  which rate per annum  shall at all times be equal to (a) the  weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers,  as published for such
day (or, if such day is not a business day, for the next preceding business day)
by the Federal Reserve Bank of New York, or if such rate is not so published for
any day that is a business day, the average of the  quotations  for such day for
such  transactions  received by the Liquidity  Provider from three Federal funds
brokers of  recognized  standing  selected  by it, plus (b)  one-quarter  of one
percent (1/4 of 1%).

     "Liquidity  Facility LIBOR" means, with respect to any interest period, (i)
the  rate  per  annum   appearing   on  display  page  3750   (British   Bankers
Association--LIBOR)  of the Dow  Jones  Markets  Service  (or any  successor  or
substitute therefor) at approximately 11:00 a.m. (London time) two business days
before the first day of such interest  period,  as the rate for dollar  deposits
with a  maturity  comparable  to such  interest  period,  or  (ii)  if the  rate
calculated  pursuant to clause (i) above is not available,  the average (rounded
upwards,  if necessary,  to the next 1/16 of 1%) of the rates per annum at which
deposits in dollars are offered for the relevant  interest period by three banks
of  recognized  standing  selected  by the  Liquidity  Provider  in  the  London
interbank  market at  approximately  11:00 a.m.  (London time) two business days
before the first day of such interest period in an amount approximately equal to
the principal  amount of the LIBOR  Advance to which such interest  period is to
apply and for a period comparable to such interest period.

   DOWNGRADE DRAWINGS AND NON-EXTENSION DRAWINGS

     The amount  drawn  under the  Liquidity  Facility  by reason of a Downgrade
Drawing or a Non-Extension Drawing will be treated as follows:

     o    Such amount will be released on any Distribution Date to the Liquidity
          Provider to the extent that such amount exceeds the Required Amount.

     o    Any portion of such amount withdrawn from the Cash Collateral  Account
          to pay interest on the Senior Notes will be treated in the same way as
          Interest Drawings.

     o    The  balance of such  amount  will be  invested  in certain  specified
          eligible investments.

     Any  Downgrade  Drawing,  other  than any  portion  thereof  applied to the
payment of  interest  on the Senior  Notes,  will bear  interest  (x) subject to
clause (y) below, at a rate equal to Liquidity Facility LIBOR for the applicable
interest period plus a specified  margin on the outstanding  amount from time to
time of such Downgrade Drawing and (y) from and after the date, if any, on which
it is  converted  into a Final  Drawing as  described  below under  "--Liquidity
Events of Default and Termination",  at a rate equal to Liquidity Facility LIBOR
for the  applicable  interest  period (or, as described  in the first  paragraph
under  "--Interest  Drawings and Final Drawings",  the Base Rate) plus 2.00% per
annum.

     Any  Non-Extension  Drawing,  other than any portion thereof applied to the
payment of  interest  on the Senior  Notes,  will bear  interest  (x) subject to
clause (y)  below,  in an amount  equal to the  investment  earnings  on amounts
deposited  in the  Cash  Collateral  Account  plus  a  specified  margin  on the
outstanding amount from time to time of such Non-Extension  Drawing and (y) from
and after the date,  if any, on which it is  converted  into a Final  Drawing as
described below under "--Liquidity Events of Default and Termination", at a rate



equal to Liquidity  Facility  LIBOR for the applicable  interest  period (or, as
described in the first paragraph under "--Interest Drawings and Final Drawings",
the Base Rate) plus 2.00% per annum.

LIQUIDITY EVENTS OF DEFAULT AND TERMINATION

     Events of default under the Liquidity Facility (each, a "Liquidity Event of
Default") consist of:

     o    The acceleration of the Senior Notes.

     o    Certain bankruptcy or similar events involving Continental. (Liquidity
          Facility, Section 1.01)

     If any Liquidity  Event of Default has occurred and is  continuing  and the
Senior Notes are Non-Performing,  the Liquidity Provider may, in its discretion,
give a notice of termination of the Liquidity Facility (a "Termination Notice").
The Termination Notice will have the following consequences:

     o    The Liquidity Facility will expire on the fifth Business Day after the
          date on which such Termination Notice is received by the Trustee.

     o    The Trustee will promptly  request,  and the  Liquidity  Provider will
          make, a Final Drawing in an amount equal to the then Maximum Available
          Commitment.

     o    Any drawing remaining  unreimbursed as of the date of termination will
          be automatically  converted into a Final Drawing.

     o    All amounts  owing to the  Liquidity  Provider  automatically  will be
          accelerated.

     Notwithstanding the foregoing, the Trustee will be obligated to pay amounts
owing to the Liquidity  Provider only to the extent of funds available  therefor
after giving effect to the payments in accordance  with the provisions set forth
under "Description of the Senior  Notes--Priority of Distributions".  (Liquidity
Facility,   Section  6.01)  Upon  the   circumstances   described   above  under
"Description of the Senior  Notes--Remedies",  the Liquidity Provider may become
the  Controlling  Party  with  respect to the  exercise  of  remedies  under the
Indenture. (Indenture, Section 3.8(c))

     Upon the  occurrence  of the Liquidity  Provider  Reimbursement  Date,  the
Liquidity Facility will automatically expire, any drawing remaining unreimbursed
as of such date will be  automatically  converted  into a Final  Drawing and all
amounts owing to the Liquidity Provider  automatically  will be accelerated.  On
and after such date, no drawings under the Liquidity Facility will be permitted.

LIQUIDITY PROVIDER

     The  initial  Liquidity  Provider  for the Senior  Notes is Morgan  Stanley
Capital  Services Inc. The obligations of Morgan Stanley  Capital  Services Inc.
have been  guaranteed  by Morgan  Stanley,  its parent  company (the  "Liquidity
Provider  Guarantor").  Morgan Stanley has short-term  unsecured debt ratings of
P-1 from Moody's and A-1 from Standard & Poor's.



           DESCRIPTION OF THE POLICY AND THE POLICY PROVIDER AGREEMENT

     The  following  summary  describes  the  material  terms of the  Policy and
certain  provisions  of the Policy  Provider  Agreement.  The  summary  does not
purport to be complete. We urge you to read the Policy for additional detail and
further information  because it, and not this description,  defines your rights.
The Policy has been filed as an  exhibit to the  Registration  Statement  and is
available as set forth under "Where You Can Find More Information".

THE POLICY

     The Policy  Provider has issued a certificate  guarantee  insurance  policy
(the "Policy") in favor of the Trustee for the benefit of the Senior Noteholders
and the Liquidity Provider.  The Subordinated Notes do not have the benefit of a
Policy.

     Drawings   under  the  Policy  may  be  made   under  the   following   six
circumstances:

   INTEREST DRAWINGS

     If on any Distribution  Date (other than the date on which a Policy Drawing
is made as  described in  "--Proceeds  Deficiency  Drawing",  "--Non-Performance
Drawing" or "--Final Policy  Drawing") after giving effect to the  subordination
provisions of the Indenture and to the application of any drawing paid under the
Liquidity  Facility  in respect  of  interest  due on the  Senior  Notes on such
Distribution  Date and any withdrawal of funds from the Cash Collateral  Account
in respect of such interest (collectively,  "Prior Funds"), the Trustee does not
then have  sufficient  funds  available  for the  payment of all amounts due and
owing in respect of accrued  interest on the Senior Notes at the Stated Interest
Rate (without  giving effect to any  acceleration  and calculated  assuming that
Continental will not cure the nonpayment of interest), the Trustee is to request
a Policy Drawing under the Policy in an amount  sufficient to enable the Trustee
to pay such accrued interest.

   PROCEEDS DEFICIENCY DRAWING

     If on any Distribution  Date (other than the date on which a Policy Drawing
is made as described in "--Non-Performance Drawing" or "--Final Policy Drawing")
established  by the Trustee by reason of its  receipt of a payment  constituting
the proceeds from the sale of Pledged Spare Parts  comprising all of the Pledged
Spare Parts  subject to the lien of the  Security  Agreement at the time of such
sale, after giving effect to the  subordination  provisions of the Indenture and
to the  application  of Prior Funds,  the Trustee does not then have  sufficient
funds available for the payment in full of the then outstanding principal amount
of the Senior Notes  together  with accrued and unpaid  interest  thereon at the
Stated Interest Rate  (calculated  assuming that  Continental  will not cure the
nonpayment  of interest and  excluding  any accrued and unpaid  Premium or Break
Amount)  (collectively,  the "Outstanding  Amount"), the Trustee is to request a
Policy Drawing under the Policy in an amount sufficient to enable the Trustee to
pay the Outstanding Amount.

   NON-PERFORMANCE DRAWING

     If a Payment  Default exists under the Senior Notes (without  giving effect
to any  acceleration  or any  payments by the  Liquidity  Provider or the Policy
Provider)  for  eight   consecutive   Interest   Periods   (such   period,   the
"Non-Performing  Period")  (regardless  of whether any proceeds from the sale of
any Collateral are  distributed by the Trustee during such period) and continues
to exist on the Interest  Payment Date on which such eighth Interest Period ends
(or, if such Interest Payment Date falls within the applicable  period specified
in the proviso to the definition of "Non-Performing",  continues to exist on the
Business Day immediately  following such period (the "Relevant  Date")),  and on
the 25th day  following  such  Interest  Payment  Date or,  if  applicable,  the
Relevant  Date (or, if such 25th day is not a Business  Day,  the next  Business
Day)  (the   "Non-Performance   Payment   Date")  after  giving  effect  to  the
subordination provisions of the Indenture and to the application of Prior Funds,
the Trustee does not then have  sufficient  funds  available  for the payment in
full of the Outstanding  Amount as of the  Non-Performance  Payment Date, unless
the Policy  Provider  shall have paid on any day prior  thereto the  Outstanding
Amount as of such day pursuant to a Policy  Drawing as described in  "--Proceeds
Deficiency  Drawing" or "--Final  Policy  Drawing",  the Trustee is to request a



Policy Drawing under the Policy in an amount sufficient to enable the Trustee to
pay such Outstanding Amount. If the Non-Performance Payment Date is established,
the  Trustee  shall  send  to the  Senior  Noteholders  written  notice  thereof
promptly,  but no later than three  Business  Days,  after the occurrence of the
Interest Payment Date on which the Non-Performing Period ends or, if applicable,
the Relevant Date.

     Notwithstanding  the  foregoing,  if the  Non-Performance  Payment  Date is
scheduled to occur prior to the Final Scheduled Payment Date,  instead of paying
such amount on the  Non-Performance  Payment Date,  the Policy  Provider may, so
long as no Policy Provider  Default is continuing,  elect (the "Policy  Provider
Election"),  by  giving  notice  to the  Trustee  at least 10 days  prior to the
Non-Performance  Payment Date,  to pay:

     o    Any shortfall on the Non-Performance Payment Date in funds required to
          pay accrued interest on the Senior Notes.

     o    Thereafter,  on  each  Distribution  Date,  an  amount  equal  to  the
          scheduled principal (on the Final Scheduled Payment Date) and interest
          (without  regard to any  acceleration  thereof)  payable on the Senior
          Notes on such Distribution Date.

     Notwithstanding  the Policy Provider Election,  the Policy Provider may, on
any  Business  Day (which shall be a  Distribution  Date)  elected by the Policy
Provider  upon 20 days'  notice,  cause the Trustee to make a drawing  under the
Policy for an amount equal to the  Outstanding  Amount as of such day.  Further,
notwithstanding  the Policy Provider  Election,  upon the occurrence of a Policy
Provider Default,  the Trustee shall, on any Business Day elected by the Trustee
upon 20 days' notice to the Policy Provider, make a drawing under the Policy for
an amount equal to the Outstanding Amount as of such day.

   FINAL POLICY DRAWING

     If  on  the  Final  Legal  Maturity  Date,   after  giving  effect  to  the
subordination  provisions of the Indenture and to the  application  of any Prior
Funds,  unless the Policy  Provider shall have paid on any day prior thereto the
Outstanding  Amount  as of  such  day as  described  in  "--Proceeds  Deficiency
Drawing"  or  "--Non-Performance  Drawing",  the  Trustee  does  not  then  have
sufficient funds available for the payment in full of the Outstanding  Amount as
of such date,  the Trustee is to request a Policy Drawing under the Policy in an
amount sufficient to enable the Trustee to pay such Outstanding Amount.

   AVOIDANCE DRAWING

     If, at any time,  the Trustee has actual  knowledge  of the issuance of any
Final Order, the Trustee is to give prompt notice to the Liquidity  Provider and
the Policy  Provider of such Final  Order and,  prior to the  expiration  of the
Policy,  to request a Policy  Drawing for the  relevant  Avoided  Payment and to
deliver  to the  Policy  Provider a copy of the  documentation  required  by the
Policy with respect to such Final Order.  To the extent that any portion of such
Avoided  Payment  is to be  paid  to the  Trustee  (and  not  to  any  receiver,
conservator,  debtor-in-possession  or trustee in  bankruptcy as provided in the
Policy), the Trustee shall establish as a Distribution Date the date that is the
earlier of three  Business  Days after the date of the  expiration of the Policy
and the Business Day that immediately follows the 25th day after that notice for
distribution of such portion of the proceeds of such Policy Drawing.

   LIQUIDITY PROVIDER DRAWING

     On or after the  Business Day which is 24 months from the earliest to occur
of (1) the date on which an  Interest  Drawing  shall  have been made  under the
Liquidity Facility and remains unreimbursed from payments made by Continental at
the end of such 24-month  period,  (2) the date on which any Downgrade  Drawing,
Non-Extension  Drawing  or  Final  Drawing  that  was  deposited  into  the Cash
Collateral  Account  shall  have been  applied to pay any  scheduled  payment of
interest on the Senior  Notes and remains  unreimbursed  from  payments  made by
Continental at the end of such 24-month  period and (3) the date on which all of
the Senior Notes have been  accelerated  and remain unpaid by Continental at the
end of such 24-month period (in each case,  disregarding any reimbursements from
payments by the Policy  Provider and from  proceeds  from the sale of Collateral
distributed by the Trustee during such 24-month  period) (such Business Day, the
"Liquidity  Provider  Reimbursement  Date"),  the Policy Provider (upon 20 days'



prior  notice  from the  Trustee on behalf of the  Liquidity  Provider)  will be
required  to honor  drawings  under the  Policy by the  Trustee on behalf of the
Liquidity  Provider for all outstanding  drawings under the Liquidity  Facility,
together with interest thereon.

GENERAL

     All requests by the Trustee for a Policy  Drawing  under the Policy  (other
than a Policy Drawing as described in "--Liquidity  Provider Drawing") are to be
made by it no later than 1:00 p.m.  (New York City time) on (or,  in the case of
any Avoided  Payment,  at least  three  Business  Days prior to) the  applicable
Distribution  Date and in the form  required by the Policy and  delivered to the
Policy  Provider  in  accordance  with the  Policy.  All  proceeds of any Policy
Drawing  under  the  Policy  (other  than  a  Policy  Drawing  as  described  in
"--Liquidity  Provider  Drawing")  by the  Trustee  are to be  deposited  by the
Trustee in a separate  policy  account and from there  distributed to the Senior
Noteholders without regard to the subordination  provisions of the Indenture. In
the case of any Avoided  Payments,  however,  all or part of the Policy  Drawing
will   be   paid   directly   to   the   bankruptcy    receiver,    conservator,
debtor-in-possession or trustee to the extent such amounts have not been paid by
the Senior  Noteholders.  If any request for a Policy Drawing is rejected as not
meeting the requirements of the Policy,  the Trustee is to resubmit such request
so as to meet such requirements.

     The Policy provides that if such a request for a Policy Drawing is properly
submitted  or  resubmitted  it will pay to the Trustee for deposit in a separate
policy account the  applicable  payment under the Policy no later than 3:00 p.m.
on the  later of the  relevant  Distribution  Date and the date the  request  is
received by the Policy Provider (if the request is received by 1:00 p.m. on such
date) or the next Business Day (if the request is received after that time).

     Once any  payment  under the  Policy  is paid to the  Trustee,  the  Policy
Provider will have no further obligation in respect of such payment.  THE POLICY
PROVIDER  SHALL NOT BE REQUIRED  TO MAKE ANY PAYMENT  EXCEPT AT THE TIMES AND IN
THE AMOUNTS AND UNDER THE CIRCUMSTANCES EXPRESSLY SET FORTH IN THE POLICY.

     The  Policy  does not cover (i)  shortfalls,  if any,  attributable  to the
liability of the Trustee for withholding  taxes, if any (including  interest and
penalties in respect of that  liability),  (ii) any interest on the Senior Notes
in excess of the Capped Interest Rate,  (iii) any Premium or other  acceleration
payment payable in respect of the Senior Notes,  (iv) any Break Amount,  (v) any
failure of the Trustee to make any payment  due to the Senior  Noteholders  from
funds received or (vi) any amount with respect to the Subordinated Notes.

     The Policy Provider's obligation under the Policy will be discharged to the
extent that funds are  received by the  Trustee for  distribution  to the Senior
Noteholders, whether or not the funds are properly distributed by the Trustee.

     The Policy is noncancellable. The Policy expires and terminates without any
action on the part of the Policy  Provider or any other  person on the date (the
"Termination Date") that is one year and one day following the date on which the
Outstanding Amount is paid on the Senior Notes, unless an Insolvency  Proceeding
has commenced and has not been concluded or dismissed on the  Termination  Date,
in which case on the later of (i) the date of the  conclusion  or  dismissal  of
such Insolvency Proceeding without continuing  jurisdiction by the court in such
Insolvency  Proceeding  and (ii) the date on which the Policy  Provider has made
all  payments  required  to be made under the terms of such Policy in respect of
Avoided  Payments.  No portion of the premium under the Policy is refundable for
any reason including payment or provision being made for payment.

     The Policy is issued under and  pursuant to, and shall be construed  under,
the laws of the State of New York.

DEFINITIONS

     "Avoided  Payment"  means with  respect  to the  Policy any amount  paid or
required to be paid thereunder  that is voided under any applicable  bankruptcy,
insolvency,  receivership or similar law in an Insolvency Proceeding,  and, as a
result of which, the Trustee, the Liquidity Provider or any Senior Noteholder is
required  to return all or any  portion of such voided  payment  (including  any
disgorgement  from the Senior  Noteholders or the Liquidity  Provider  resulting
from an  Insolvency  Proceeding  whether such  disgorgement  is  determined on a
theory of  preferential  conveyance or  otherwise)  in accordance  with a final,
non-appealable order of a court of competent jurisdiction.



     "Final  Order" means the order  referred to in the  definition  of the term
"Avoided Payment".

     "Insolvency Proceeding" means the commencement, after the Issuance Date, of
any bankruptcy, insolvency, readjustment of debt, reorganization, marshalling of
assets and liabilities or similar  proceedings by or against  Continental or the
Liquidity  Provider  and the  commencement,  after  the  Issuance  Date,  of any
proceedings  by  Continental  or the  Liquidity  Provider  for the winding up or
liquidation  of its affairs or the  consent,  after the  Issuance  Date,  to the
appointment of a trustee, conservator, receiver or liquidator in any bankruptcy,
insolvency,  readjustment  of debt,  reorganization,  marshalling  of assets and
liabilities  or  similar  proceedings  of or  relating  to  Continental  or  the
Liquidity Provider.

THE POLICY PROVIDER AGREEMENT

     The  Trustee,  Continental  and the Policy  Provider  have  entered into an
insurance and indemnity agreement (the "Policy Provider  Agreement") pursuant to
which  Continental  has agreed to reimburse the Policy Provider for amounts paid
pursuant  to claims  made under the  Policy.  Pursuant  to the  Policy  Provider
Agreement,  Continental has agreed to pay the Policy Provider a premium based on
the  outstanding  principal of the Senior Notes and a fee in connection with any
prepayment of the Senior Notes and to reimburse the Policy  Provider for certain
expenses.



                          DESCRIPTION OF THE APPRAISAL

     SH&E, an independent  aviation  appraisal and consulting firm, has prepared
an appraisal of the spare parts  included in the  Collateral  as of December 25,
2002. A letter, dated January 24, 2003, summarizing such appraisal is annexed to
this  Prospectus  as  Appendix  II.  The  appraisal  is  subject  to a number of
assumptions  and  limitations  and  was  prepared  based  on  certain  specified
methodologies.  In  preparing  its  appraisal,  SH&E  conducted  only a  limited
physical  inspection  of certain  locations at which  Continental  maintains the
spare parts.  An appraisal that is subject to other  assumptions and limitations
and based on other  methodologies  may result in valuations  that are materially
different from those contained in SH&E's appraisal.

     The spare  parts  included  in the  Collateral  fall  into two  categories,
"rotables" and "expendables".  Rotables are parts that wear over time and can be
repeatedly restored to a serviceable  condition over a period  approximating the
life of the flight  equipment  to which they relate  ("Rotables").  For example,
thrust  reversers,   auxiliary  power  units  and  landing  gear  are  Rotables.
Expendables consist of parts that can be restored to a serviceable condition but
have a life less than the related flight  equipment and parts that generally are
used once and thereby  consumed or  thereafter  discarded.  For example,  engine
cowlings,  engine blades and duct assemblies are repairable expendable parts and
bolts,  screws,  tubes and hoses are consumable  expendable parts. Spare engines
are not included in the Collateral. Set forth below is certain information about
the spare parts of the types included in the Collateral and the appraised  value
of such spare parts set forth in SH&E's appraisal referred to above:

                                        SPARE PARTS QUANTITY(1)
                                   --------------------------------------
        AIRCRAFT MODEL             EXPENDABLES    ROTABLES         TOTAL      APPRAISED VALUE
        --------------             -----------    --------     ----------     ---------------
737-700....................            877               24            901
737-700/800................        278,912            6,942        285,854
737-800....................          3,777              191          3,968
737-900....................            821               10            831
                                ----------       ----------     ----------
737-7/8/9 Subtotal.........        284,387            7,167        291,554     $185,972,600

757-200....................        185,731            3,391        189,122       69,352,800
757-300....................         10,946               96         11,042        3,116,700
767-200....................         25,485              227         25,712        8,946,700
767-400....................         51,147            1,586         52,733       55,741,200
777-200....................        111,210            3,006        114,216      113,712,000
                                ----------       ----------     ----------
Total......................        668,906           15,473        684,379     $436,841,900


- -----------------
(1)  This  quantity of spare parts used in  preparing  the  appraised  value was
     determined as of December 25, 2002.  Since spare parts are regularly  used,
     refurbished, purchased, transferred and discarded in the ordinary course of
     Continental's  business,  the  quantity  of  spare  parts  included  in the
     Collateral and their appraised value will change over time.  Continental is
     required to provide to the Policy  Provider  and the  Trustee a  semiannual
     appraisal   of   the   Collateral.   See   "Description   of   the   Senior
     Notes--Collateral".

     In connection  with the issuance of the Old Senior Notes,  SH&E prepared an
appraisal,  dated as of  October  31,  2002,  of the  spare  parts of the  types
included in the Collateral owned by Continental as of August 25, 2002,  prepared
on  substantially  the same basis as the appraisal  described  above.  The total
appraised value of the spare parts according to such appraisal was $415,429,000.

     An  appraisal  is only an estimate  of value.  An  appraisal  should not be
relied upon as a measure of realizable  value. The proceeds realized upon a sale
of any  Collateral  may be less  than  its  appraised  value.  The  value of the
Collateral if remedies are exercised  under the Indenture  will depend on market
and economic conditions,  the supply of similar spare parts, the availability of
buyers,  the condition of the Collateral and other factors.  In addition,  since
spare  parts  are  regularly  used,  refurbished,   purchased,  transferred  and
discarded  in the  ordinary  course of  business,  the  quantity  of spare parts
included  in the  Collateral  and their  appraised  value will change over time.
Accordingly,  Continental  cannot assure you that the proceeds realized upon any
such exercise of remedies would be sufficient to satisfy in full payments due on
the Senior Notes. If a Policy Provider  Default occurs and such proceeds are not



sufficient to repay all such amounts due on the Senior  Notes,  then holders (to
the extent not repaid from the  proceeds of the sale of  Collateral)  would have
only unsecured claims against Continental and the Policy Provider.


                  MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

EXCHANGE OF OLD SENIOR NOTES FOR NEW SENIOR NOTES

     The  following  summary  describes  the material  U.S.  federal  income tax
consequences  to Senior  Noteholders of the exchange of the Old Senior Notes for
New Senior Notes.  This summary is intended to address the beneficial  owners of
Senior Notes that are citizens or residents of the United States,  corporations,
partnerships or other entities  created or organized in or under the laws of the
United States or any State,  or estates or trusts the income of which is subject
to U.S.  federal  income  taxation  regardless  of its source that will hold the
Senior Notes as capital assets.  The summary does not address all of the federal
income tax consequences that may be relevant to all Senior  Noteholders in light
of their particular  circumstances  (including,  for example,  any special rules
applicable to tax-exempt  organizations,  broker-dealers,  insurance  companies,
foreign  entities  and persons who are not  citizens or  residents of the United
States) and does not address any tax consequences  other than federal income tax
consequences.

     The  exchange  of Old Senior  Notes for New Senior  Notes (the  "Exchange")
pursuant to the Exchange Offer will be treated as a continuation of the holder's
investment  in the Old  Senior  Notes and will not be a  taxable  event for U.S.
federal income tax purposes.  As a result,  a holder of an Old Senior Note whose
Old Senior Note is accepted in an Exchange Offer will not recognize gain or loss
on the Exchange. Similarly, there would be no federal income tax consequences to
a Senior Noteholder that does not participate in the Exchange Offer. A tendering
holder's tax basis in the New Senior Notes will be the same as such holder's tax
basis in its Old Senior Notes. A tendering  holder's  holding period for the New
Senior Notes  received  pursuant to the Exchange  Offer will include its holding
period for the Old Senior Notes surrendered therefor.

     ALL  HOLDERS OF OLD  SENIOR  NOTES ARE  ADVISED  TO  CONSULT  THEIR OWN TAX
ADVISORS  REGARDING  THE UNITED  STATES  FEDERAL,  STATE,  LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE EXCHANGE OF OLD SENIOR NOTES FOR NEW SENIOR NOTES AND OF THE
OWNERSHIP AND  DISPOSITION OF NEW SENIOR NOTES RECEIVED IN THE EXCHANGE OFFER IN
LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES.

                              PLAN OF DISTRIBUTION

     Each  broker-dealer  that  receives  New Senior  Notes for its own  account
pursuant  to the  Exchange  Offer  must  acknowledge  that  it  will  deliver  a
prospectus  in  connection  with any  resale  of such  New  Senior  Notes.  This
Prospectus,  as it may be amended or supplemented from time to time, may be used
by a  broker-dealer  in connection  with resales of New Senior Notes received in
exchange  for Old Senior  Notes where such Old Senior  Notes were  acquired as a
result of market-making activities or other trading activities.  Continental has
agreed that, starting on the Expiration Date and ending on the close of business
180 days after the Expiration Date, it will make this Prospectus,  as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition,  until such date all broker-dealers  effecting transactions
in the New Senior Notes may be required to deliver a prospectus.

     Continental will not receive any proceeds from any sale of New Senior Notes
by  broker-dealers.  New Senior Notes received by  broker-dealers  for their own
account  pursuant to the Exchange  Offer may be sold from time to time in one or
more transactions in the  over-the-counter  market, in negotiated  transactions,
through the writing of options on the New Senior Notes or a combination  of such
methods of resale,  at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated  prices.  Any such resale
may be made directly to  purchasers or to or through  brokers or dealers who may
receive  compensation  in the form of commissions  or concessions  from any such
broker-dealer   and/or  the  purchasers  of  any  such  New  Senior  Notes.  Any
broker-dealer that resells New Senior Notes that were received by it for its own
account   pursuant  to  the  Exchange  Offer  and  any  broker  or  dealer  that
participates  in a distribution  of such New Senior Notes may be deemed to be an
"underwriter"  within the  meaning of the  Securities  Act and any profit of any
such resale of New Senior Notes and any  commissions or concessions  received by
any such  persons  may be  deemed  to be  underwriting  compensation  under  the
Securities Act. The Letter of Transmittal  states that by acknowledging  that it



will deliver and by delivering a prospectus,  a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.

     Starting on the Expiration Date,  Continental will promptly send additional
copies of this  Prospectus and any amendment or supplement to this Prospectus to
any  broker-dealer  that requests such  documents in the Letter of  Transmittal.
Continental has agreed to pay all expenses  incident to the Exchange Offer other
than  commissions or  concessions of any brokers or dealers,  fees of counsel to
the Senior  Noteholders  and certain  transfer  taxes,  and will  indemnify  the
Holders of the New Senior Notes (including any  broker-dealers)  against certain
liabilities, including liabilities under the Securities Act.

                                  LEGAL MATTERS

     The validity of the New Senior  Notes is being passed upon for  Continental
by Hughes Hubbard & Reed LLP, New York, New York.

                                     EXPERTS

     The consolidated  financial  statements  (including the financial statement
schedule) of  Continental  Airlines,  Inc.  appearing in  Continental  Airlines,
Inc.'s Annual Report (Form 10-K),  as amended,  for the year ended  December 31,
2002 have been audited by Ernst & Young LLP, independent  auditors, as set forth
in their reports thereon included therein and incorporated  herein by reference.
Such  consolidated  financial  statements  (including  the  financial  statement
schedule) are, and audited  consolidated  financial statements to be included in
subsequently  filed  documents  will be,  incorporated  herein by  reference  in
reliance upon such reports of Ernst & Young LLP pertaining to such  consolidated
financial  statements  (to  the  extent  covered  by  consents  filed  with  the
Commission)  given on the  authority of such firm as experts in  accounting  and
auditing.

     The  consolidated  balance  sheets of MBIA Inc. and  subsidiaries  and MBIA
Insurance  Corporation and subsidiaries as of December 31, 2002 and December 31,
2001 and the related consolidated statements of income, changes in shareholders'
equity,  and cash flows for each of the three years in the period ended December
31, 2002,  incorporated  herein by reference,  have been incorporated  herein in
reliance on the reports of PricewaterhouseCoopers  LLP, independent accountants,
given on the authority of that firm as experts in accounting  and auditing.  Any
other audited  financial  statements of such companies that are  incorporated or
that are deemed to be incorporated herein by reference that are the subject of a
report  by  PricewaterhouseCoopers  LLP,  independent  accountants,  will  be so
incorporated  by reference in reliance  upon such reports and upon the authority
of such firms as experts in  accounting  and  auditing to the extent  covered by
consents of PricewaterhouseCoopers LLP filed with the SEC.

     The references to SH&E, and to its appraisal  reports,  dated as of October
31,  2002 and  January  24,  2003,  are  included  herein in  reliance  upon the
authority of such firm as an expert with respect to the matters contained in its
appraisal reports.

                           FORWARD-LOOKING STATEMENTS

     This  Prospectus  and the documents we incorporate by reference may contain
"forward-looking statements".  Forward-looking statements include any statements
that  predict,  forecast,  indicate  or imply  future  results,  performance  or
achievements,  and may  contain  the words  "believe",  "anticipate",  "expect",
"estimate",  "project",  "will be", "will continue",  "will result", or words or
phrases of similar meaning.

     Any  such   forward-looking   statements   are  not  assurances  of  future
performance  and  involve  risks  and  uncertainties.  Actual  results  may vary
materially  from  anticipated  results for a number of reasons,  including those
stated in our Commission reports incorporated in this Prospectus by reference or
as stated in "Risk Factors".

     All forward-looking  statements  attributable to us are expressly qualified
in their entirety by the cautionary statements above.



                       WHERE YOU CAN FIND MORE INFORMATION

     Continental files annual,  quarterly and special reports,  proxy statements
and other  information with the Commission under the Securities  Exchange Act of
1934. You may read and copy this information at the Public Reference Room of the
Commission,  Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed  rates.  You may obtain  information  on the  operation of the Public
Reference Room by calling the Commission at (800) SEC-0330.

     The Commission  also maintains an internet web site that contains  reports,
proxy statements and other information about issuers, like Continental, who file
reports  electronically  with  the  Commission.  The  address  of  that  site is
HTTP://WWW.SEC.GOV.

     You may also inspect reports,  proxy statements and other information about
Continental  at the  offices  of the New York  Stock  Exchange,  Inc.,  20 Broad
Street, New York, New York 10005.

     Continental's  annual report on Form 10-K,  quarterly  reports on Form 10-Q
and current reports on Form 8-K, as well as any amendments and exhibits to those
reports,  are  available  free  of  charge  through   Continental's  website  at
HTTP://WWW.CONTINENTAL.COM/COMPANY/INVESTOR  as soon as  reasonably  practicable
after it files them with, or furnishes them to, the Commission.

     This Prospectus  constitutes a part of a registration statement on Form S-4
(together  with all  amendments,  exhibits  and  appendices,  the  "Registration
Statement")  filed by Continental  with the  Securities and Exchange  Commission
under the  Securities  Act. This  Prospectus  omits  certain of the  information
contained in the  Registration  Statement,  and  reference is hereby made to the
Registration  Statement for further  information with respect to Continental and
the securities offered hereby.  Although statements  concerning and summaries of
certain  documents  are included  herein,  reference is made to the copy of such
document filed as an exhibit to the  Registration  Statement or otherwise  filed
with the Commission.



                                         APPENDIX I--INDEX OF TERMS


                                                 PAGE                                                  PAGE

  Agent's Message..................................44   Final Order......................................77
  American Airlines................................24   Final Scheduled Payment Date.....................47
  Applicable Date..................................49   Fixed charges....................................31
  ATOP.............................................44   GAAP.............................................38
  Aviation Security Act............................25   Global Notes.....................................64
  Avoided Payment..................................76   holder...........................................42
  Base Rate........................................72   Holdings.........................................32
  Book-Entry Confirmation..........................42   Hopkins International............................32
  Break Amount.....................................49   Houston..........................................32
  Bush Intercontinental............................32   Indenture........................................47
  Business Day.....................................61   Indirect Participants............................64
  Capped Interest Rate.............................69   Initial Interest Period..........................48
  Cash Collateral..................................51   Initial Purchaser.................................6
  Cash Collateral Account..........................70   Insolvency Proceeding............................77
  Cede.............................................64   Interest Drawing.................................69
  CMI..............................................32   Interest Payment Date............................47
  Collateral.......................................50   Interest Period..................................48
  Collateral Agents................................50   Issuance Date....................................39
  Collateral Agreements............................50   KLM..............................................34
  Collateral Maintenance Agreement.................50   Liberty International............................32
  Collateral Ratios................................51   LIBOR............................................48
  Commission........................................4   Liquidity Event of Default.......................73
  Company..........................................32   Liquidity Expenses...............................60
  Continental......................................32   Liquidity Facility...............................69
  Continental Bankruptcy Event.....................55   Liquidity Facility LIBOR.........................72
  Controlling Party................................27   Liquidity Obligations............................60
  Copa.............................................34   Liquidity Provider...............................69
  Debt Balance.....................................55   Liquidity Provider Guarantor.....................73
  Default..........................................55   Liquidity Provider Reimbursement Date............75
  Definitive Notes.................................65   Maximum Available Commitment.....................69
  Delta............................................33   MBIA.............................................37
  Designated Locations.............................54   Moody's..........................................70
  Distribution Date................................48   New Senior Notes..................................6
  Downgrade Drawing................................70   Newark...........................................32
  DTC..............................................42   Non-Extension Drawing............................71
  DTC Participant..................................44   Non-Performance Payment Date.....................74
  earnings.........................................31   Non-Performing...................................60
  Eligible Institution.............................42   Non-Performing Period............................74
  Embraer..........................................23   Northwest Airlines...............................33
  Equipment........................................57   Note Owners......................................65
  Event of Default.................................55   Noteholders......................................49
  Event of Loss....................................55   Notes.............................................6
  Exchange.........................................79   Old Senior Notes..................................6
  Exchange Agent...................................45   Operative Documents..............................47
  Exchange Offer....................................6   Outstanding Amount...............................74
  Expiration Date..................................41   Parent Company...................................37
  ExpressJet.......................................32   Participating Broker-Dealer......................40
  FAA..............................................22   Payment Default..................................55
  Fair Market Value................................51   Pledged Spare Parts..............................50
  Final Drawing....................................71   Policy...........................................74
  Final Legal Maturity Date........................47   Policy Drawing...................................60



  Policy Expenses..................................60   Security Agreement...............................50
  Policy Provider..................................37   Senior Collateral Ratio..........................51
  Policy Provider Agreement........................77   Senior Noteholders...............................49
  Policy Provider Default..........................59   Senior Notes......................................6
  Policy Provider Election.........................75   Senior Rotable Ratio.............................51
  Policy Provider Obligations......................60   SH&E.............................................27
  Premium..........................................50   Shelf Registration Statement.....................40
  Prior Funds......................................74   Standard & Poor's................................70
  Qualified Spare Parts............................50   Stated Interest Rate.............................47
  Rating Agency....................................51   Subordinated Collateral Ratio....................51
  Reference Agency Agreement.......................48   Subordinated Noteholders.........................57
  Reference Agent..................................48   Subordinated Notes................................6
  Reference Date...................................48   Subordinated Notes Issuance Date.................67
  Registration Event...............................40   Subordinated Notes Premium.......................67
  Registration Rights Agreement....................39   Subordinated Rotable Ratio.......................51
  Registration Statement...........................81   Support Documents................................47
  Relevant Date....................................74   Termination Date.................................76
  Replacement Facility.............................70   Termination Notice...............................73
  Required Amount..................................69   Threshold Rating.................................70
  Rotable Ratios...................................51   TIA..............................................55
  Rotables.........................................78   Trustee..........................................47
  SAP..............................................38   TSA..............................................25
  SARS.............................................35   United...........................................24
  Scheduled Interest Payment Date..................47   US Airways.......................................24
  Section 1110.....................................57
  Section 1110 Period..............................57
  Security Agent...................................50



                          APPENDIX II--APPRAISAL LETTER



SH&E INTERNATIONAL AIR TRANSPORT CONSULTANCY



















                                        A FULL APPRAISAL OF SELECTED SPARE PARTS








                                                                   Prepared for:

                                                            CONTINENTAL AIRLINES




                                                                    Prepared by:
                                                                            SH&E


                                                                JANUARY 24, 2003



                                                          TABLE OF CONTENTS

1    1.0  INTRODUCTION, DETERMINATION &
ASSUMPTIONS....................................................................1
     1.1    Introduction.......................................................1
     1.2    Determination......................................................1
     1.3    Assumptions........................................................3
2    2.0  DESCRIPTION OF ASSETS................................................4
     2.1    Spare Parts Nomenclature...........................................4
     2.2    Summary of the Continental Inventory...............................7
     2.3    Comparison of the Two Appraisals...................................8
         2.3.1    Inventory Size Comparison....................................9
         2.3.2    Significant Changes in the Inventory........................10
         2.3.3    Other Observations..........................................11
3    3.0  METHODOLOGY.........................................................12
     3.1    Definition of Terms...............................................12
         3.1.1    Base Value..................................................12
         3.1.2    Current Market Value........................................12
     3.2    Spare Parts Appraisal Methodology.................................13
         3.2.1    Sampling Process............................................13
         3.2.2    Sample Valuation............................................14
         3.2.3    Current Market Value Determination..........................14
         3.2.4    Condition and Quantity Adjustment...........................15
4    4.0  THE MARKET FOR THE SUBJECT ASSETS...................................16
5    5.0  QUALIFICATIONS......................................................17
6    6.0  LIMITATIONS.........................................................18

Appendix A - Value by Aircraft Type by Material Class

Appendix B - Summary of Inventory Adjustments

Appendix C - Proportion of Serviceable & Unserviceable Parts




                                                 1.0 INTRODUCTION, DETERMINATION
                                                                   & ASSUMPTIONS


1.1      INTRODUCTION


Continental  Airlines,  Inc.  ("Continental"  the "Client") has retained  Simat,
Helliesen  & Eichner,  Inc.  ("SH&E") to prepare an update to its opinion of the
Current (or Fair) Market Value  ("CMV") of an inventory of selected  spare parts
owned by  Continental  (collectively  the "Subject  Assets").  This report is an
update to SH&E's previous report dated October 31, 2002.

As part  of the  appraisal,  SH&E  conducted  limited  physical  inspections  of
Continental's  warehouse  facilities  at Newark (3  locations),  Cleveland,  Los
Angeles (2  locations),  Houston - George Bush  Intercontinental  (4 locations),
Houston - Hobby, Honolulu (2 locations) and Orlando.  Together,  these locations
account for 80% of the subject asset value.


1.2      DETERMINATION


SH&E has determined the aggregate  Adjusted1 Current Market Value of the Subject
Assets to be:

                                 $ 436.8 MILLION

As a point of reference,  this updated appraisal represents an increase of $21.4
million from the  valuation  provided in the previous  report dated  October 31,
2002 that was based on an inventory listing as of August 25, 2002.










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

1.   Adjustments  were  made to the CMV to  reflect  serviceability  levels  and
     inventory accuracy



- --------------------------------------------------------------------------------
TABLE 1-1:  CONTINENTAL AIRLINES SELECTED SPARE PARTS VALUATION SUMMARY ($000)
- --------------------------------------------------------------------------------
                         UNADJUSTED CURRENT MARKET VALUE

                              Serviceable      Unserviceable               Total
- --------------------------------------------------------------------------------
737-7/8/9                      $157,991.7          $56,175.8          $214,167.6

757-200                         $62,373.7          $17,599.7           $79,973.4

757-300                          $2,944.5             $434.0            $3,378.4

767-200                          $6,340.1           $7,193.2           $13,533.3

767-400                         $51,935.1           $9,576.8           $61,511.8

777-200                         $97,444.4          $32,665.2          $130,109.6
                                ---------          ---------          ----------

Total                          $379,029.5         $123,644.7          $502,674.2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------






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

TABLE 1-2:  CONTINENTAL AIRLINES SELECTED SPARE PARTS VALUATION SUMMARY ($000)
- --------------------------------------------------------------------------------
                          ADJUSTED CURRENT MARKET VALUE

SH&E Value
Group                         Serviceable      Unserviceable               Total
- --------------------------------------------------------------------------------
737-7/8/9                      $157,991.7          $27,980.8          $185,972.6

757-200                         $62,373.7           $6,979.1           $69,352.8

757-300                          $2,944.5             $172.2            $3,116.7

767-200                          $6,340.1           $2,606.6            $8,946.7

767-400                         $51,935.1           $3,806.1           $55,741.2

777-200                         $97,444.4          $16,267.6          $113,712.0
                                ---------          ---------          ----------

Total                          $379,029.5          $57,812.4          $436,841.9
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------



1.3      ASSUMPTIONS



SH&E relied on the following assumptions while performing this valuation:

     o    The global commercial  aviation industry and, more  specifically,  the
          aviation  spare parts  aftermarket  will  continue to recover from the
          financial distress experienced since early 2001.

     o    The  SH&E  values   assume  the  Subject   Assets  meet  all  relevant
          specifications and performance capabilities.

     o    SH&E relied upon Continental's  determination as to the serviceability
          or  unserviceability  of the Subject  Assets.  Any  variation in their
          status would affect the values referenced herein.

     o    SH&E has not addressed  any ownership  rights and has assumed that the
          Subject  Assets  are  owned by the  Client.

     o    The Subject Asset's records are in compliance with International Civil
          Aviation  Organization  (ICAO)  standards  and  furthermore,  all Life
          Limited Parts ("LLP's") records are traceable "back to birth"2.

     o    All  normally  required   maintenance  has  been  performed  including
          compliance with all mandatory Airworthiness Directives.

     o    All of the data and information provided by Continental is an accurate
          representation  of  the  actual  conditions  or  circumstances  of the
          Subject Assets.

     o    The  Subject  Assets have not been  involved in any major  incident or
          accident that resulted in significant damage to the asset.




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

2.   "Back-to-birth"   records  are  those  that   provide   operating   history
     information  for  each  LLP from  the  date of its  first  delivery  by the
     Original  Equipment  Manufacturer  (OEM) to its first operator and for each
     subsequent installation.





                                                       2.0 DESCRIPTION OF ASSETS


2.1 SPARE PARTS NOMENCLATURE


Aircraft and engine spare parts are generally categorized as follows:


ROTABLES


Rotable  parts are those  components  that can be  repeatedly  and  economically
restored to a serviceable  condition over a period approximating the life of the
flight  equipment to which they are related.  When in need of overhaul,  rotable
components  are  generally  worth 30-50% of new and,  after  overhaul,  they are
typically worth 70-85% of new depending on the age of the aircraft type.

Examples of rotable  parts  include  thrust  reversers,  auxiliary  power units,
landing gears, generators,  valves and actuators. Rotable parts normally have an
unique serial number.


REPAIRABLES

Repairables are those components or parts that can be economically restored to a
serviceable or overhauled  condition,  but that have a life that is considerably
less  than the  life of the  flight  equipment  to which  they are  related.  In
addition,  they can only be  overhauled  or repaired a limited  number of times.
When in need of overhaul or repair,  repairable parts are typically worth 30-50%
of new and, after overhaul 60-80 % of new.

In the Continental  system,  these parts are classified as Expendables  (because
they are  ultimately  consumed) with a notation in the part record that the part
is to be  "recovered"  and  inspected to  determine if repair is cost  effective
prior to being scrapped.

Examples of repairable or Recoverable  Expendable parts include engine cowlings,
fairings,  and engine blades,  flap track  assemblies,  certain  bearings,  duct
assemblies and fittings.



EXPENDABLES

Expendables are parts or material that, once used, cannot be re-used and, if not
serviceable, they generally cannot be overhauled or repaired.


LIFE LIMITED PARTS

Life limited parts (LLP) have a finite  operating life that is defined by hours,
cycles or  calendar  limit and are usually  found in engines  and  landing  gear
assemblies.  When a LLP  reaches  its life  limit,  it cannot be  overhauled  or
repaired and must be destroyed.




The condition of aircraft and engine parts is classified as follows:


NEW

New  parts  are  parts  that  have  never  been  used  and are  normally  in the
manufacturer's original packaging.


OVERHAULED

Overhauled  parts are rotable or  repairable  parts that have been  repaired and
tested to defined overhaul  standards that can be specified by the manufacturer,
an airline or the repair vendor.  The overhaul process restores the part to near
new service standard.


SERVICEABLE

Serviceable  parts are parts that have been inspected and tested and found to be
within prescribed service limits.





AS REMOVED

An 'As Removed' part is in the condition that it was when it was removed from an
operator's  aircraft  or  engine.  Such a part can be  installed,  if  operating
normally prior to removal, without prior testing on an aircraft or engine in the
same operator's  fleet. In all other cases, an As Removed part must be inspected
and tested in an approved manner before it can be declared serviceable.


UNSERVICEABLE

Unserviceable  (sometimes  referred to as  Repairable)  components or parts have
been either removed from service for not working  correctly or, upon  inspection
and testing, were found not to meet certain prescribed standards. Such parts can
be sent to suitably qualified facilities for repair or overhaul as required.


BEYOND ECONOMIC REPAIR

An  unserviceable  part that,  when  inspected  and tested,  is found to require
repairs  that are  estimated  to cost  more  than the part is worth is  declared
'Beyond Economic Repair' (BER) and is usually scrapped.


AIRWORTHINESS OF PARTS

All  parts,  regardless  of  whether  or  not  they  are  classified  as  'New',
'Overhauled'  or  'Serviceable'  only  remain  airworthy  as  long  as the  part
continues  to  comply  with  all  manufacturer's  storage,  maintenance  and FAA
Airworthiness Directives requirements.




2.2 SUMMARY OF THE CONTINENTAL INVENTORY


The Subject  Assets are  selected  airframe,  avionic and engine spare parts for
Continental's  in-service fleet of Boeing 737-700,  737-800 and 737-900 together
with  Boeing  757-200,  757-300,  767-200,  767-400 and  777-200  aircraft.  The
aircraft  inventories  include the total  inventory  population for all of those
aircraft except for the 757-200. The 757 parts include only those acquired after
October 1994.

SH&E was provided with an electronic  inventory listing from CO's  'SCEPTRE/ICS'
inventory  management system dated as of December 25, 2002. The inventory listed
each  Continental  part number  ("MEPN") and information for each MEPN by fleet,
category  (expendable  or rotable),  historic  average cost (also last  purchase
price and catalogue  price if available),  and the percentage  serviceable.  The
inventory  consisted  of 25,465  line items  with a total of 789,737  individual
parts.  A total of 2,110 line items  containing  105,358  parts (see Appendix B)
were excluded from this appraisal for the following reasons:

     1.   The  parts  are for an  aircraft  modification  program  that  will be
          completed by the next appraisal (cockpit doors).

     2.   The parts are assets  supplied and owned by vendors but tracked in the
          Continental maintenance system (brake and tire sets).

     3.   Or, are branded parts specific to Continental  and can only be used by
          the airline (seat covers, carpet and cushion, and fabric).

These parts except for the cockpit doors, which are new items, were also removed
from the previous appraisal.

The majority of the Subject  Assets were  assessed to be in a new or  overhauled
maintenance  condition.  Continental  claimed that the accuracy of the inventory
management systems found by SH&E at the inspected  facilities was representative
of other  stations in the system and SH&E found no  indications to the contrary.
It should be noted that SH&E did not  compare or  reconcile  the part cost basis
provided to SH&E with values reported on Continental's Balance Sheet.



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

TABLE 2-1:  SELECTED SPARE PARTS DISTRIBUTION
- --------------------------------------------------------------------------------

Value Group            Fleet             Expendable       Rotable         Total
- --------------------------------------------------------------------------------

                       737-700/800         278,912         6,942         285,854
                       737-800               3,777           191           3,968
                       737-900                 821            10             831
                                               ---            --             ---
737-7/8/900 Total                          284,387         7,167         291,554

757-200                757-200             185,731         3,391         189,122
757-300                757-300              10,946            96          11,042
767-200                767-200              25,485           227          25,712
767-400                767-400              51,147         1,586          52,733
777-200                777-200             111,210         3,006         114,216
                                           -------         -----         -------

Grand Total                                668,906        15,473         684,379
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

*These  summary  tables  reflect  the  current  part count  after all  inventory
adjustments. See Appendix B for a detailed summary of inventory adjustments.


2.3      COMPARISON OF THE TWO APPRAISALS


For this  appraisal  SH&E  used  data as of  December  25,  2002;  in the  prior
appraisal, the inventory was dated as of August 25, 2002




     2.3.1 INVENTORY SIZE COMPARISON

The  inventory  as of December  25, 2002  contained  742 more  Continental  part
numbers  and  contained  59,454  more  individual  parts.  The  following  table
summarizes the differences.

- --------------------------------------------------------------------------------
TABLE 2-2:  INVENTORY AS OF DECEMBER 2002
- --------------------------------------------------------------------------------
Aircraft                            Lines                                  Parts
- --------------------------------------------------------------------------------

737-7/8/9                           6,036                                335,753

757-200                             7,568                                212,363

757-300                               674                                 12,662

767-200                             1,298                                 26,574

767-400                             3,970                                 67,597

777-200                             5,919                                134,788
                                    -----                                -------

Grand Total                        25,465                                789,737
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------






- --------------------------------------------------------------------------------
TABLE 2-3:  INVENTORY AS OF AUGUST 2002
- --------------------------------------------------------------------------------
Aircraft                            Lines                                  Parts
- --------------------------------------------------------------------------------

737-7/8/9                           5,756                                279,537

757-200                             7,386                                212,424

757-300                               659                                 12,080

767-200                             1,260                                 26,418

767-400                             3,867                                 67,304

777-200                             5,795                                132,520
                                    -----                                -------

Grand Total                        24,723                                730,283
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------



- --------------------------------------------------------------------------------
TABLE 2-4:  INVENTORY - DIFFERENCES
- --------------------------------------------------------------------------------
Aircraft                            Lines                                  Parts
- --------------------------------------------------------------------------------

737-7/8/9                             280                                 56,216

757-200                               182                                   (61)

757-300                                15                                    582

767-200                                38                                    156

767-400                               103                                    293

777-200                               124                                  2,268
                                      ---                                  -----

Grand Total                           742                                 59,454
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*THE COUNT OF PARTS AS OF JANUARY 2003 IS BEFORE ALL INVENTORY ADJUSTMENTS.  SEE
APPENDIX B FOR A DETAILED SUMMARY OF INVENTORY ADJUSTMENTS.




The change in inventory  represents  an increase in  unadjusted  current  market
value of approximately $47.9 Million.


     2.3.2 SIGNIFICANT CHANGES IN THE INVENTORY


SH&E  noted  that  the  proportion  of  unserviceable  parts  has  increased  by
approximately  $50 million (before  maintenance  adjustment)  since the previous
inventory.  This change was expected as it was noted during the prior  appraisal
that the proportion of unserviceable parts was relatively low compared with U.S.
industry average.

SH&E also  noted  that  Continental  acquired  4 new APUs3  with an  approximate
current market value of $2.5 million.





- -----------------
3.   An APU is an Auxiliary Power Unit. It is a small jet engine used to provide
     electrical  and pneumatic  power to aircraft  system when on the ground and
     power for starting the main engines.  Certain of the engines can be used to
     provide emergency in-flight electrical power.



     2.3.3 OTHER OBSERVATIONS


     o    At Newark Liberty International Airport, Continental is building a new
          spare parts facility  which is due for completion in April 2003.  Once
          complete,  parts from the  current  hanger  location  and  off-airport
          warehouse will be consolidated into the single facility.

     o    The  Guam  station  holds  inventory  representing  approximately  $25
          million in value and was recently  damaged by a typhoon.  Accordingly,
          SH&E was unable to inspect this facility. Continental reports that the
          facility is being  repaired.  Continental  further informs us that the
          associated damage, to the spare parts was minimal,  and affected parts
          are  being  repaired.  SH&E  will  inspect  the  facility  at the next
          appraisal update.

     o    SH&E observed different packaging standards between different stations
          although all were acceptable by industry  standards.  SH&E recommended
          that all parts in excess of $2,500 be individually  packaged even when
          stored within a bin.

     o    Previously at the Houston - Morales (MOR)  location,  SH&E  discovered
          several  rotable  parts were reported as being present at the facility
          inventory   when  they  were   actually   installed  on  an  aircraft.
          Continental  was  aware  of the  problem  and  advised  it  was  being
          corrected.  SH&E  retested  samples of this  inventory and the problem
          appears to have been corrected.




                                                                 3.0 METHODOLOGY


3.1 DEFINITION OF TERMS


     3.1.1 BASE VALUE


The Base Value  ("BV") is the  appraiser's  opinion of the  underlying  economic
value of an asset in an open,  unrestricted and stable market environment with a
reasonable balance of supply and demand, and also assumes full considerations of
its "highest and best use". An asset's BV is founded in the historical  trend of
values and in the projection of value trends and presumes an arm's-length,  cash
transaction between willing, able and knowledgeable  parties,  acting prudently,
with an absence of duress and with a  reasonable  period of time  available  for
marketing.

Since BV pertains to a somewhat  idealized  asset and market  combination it may
not  necessarily  reflect the actual  value of the asset in  question,  but is a
nominal  starting  value to which  adjustments  may be applied to  determine  an
actual value.  Since BV is related to long-term market trends, the BV definition
is normally applied to analyses of historical values and projections of residual
values and lease rates.


     3.1.2 CURRENT MARKET VALUE


The Current (or Fair) Market Value ("CMV" or "FMV") is the  appraiser's  opinion
of the most likely  trading price that may be generated for an individual  asset
under  the  market  circumstances  that  are  perceived  to exist at the time in
question.  CMV assumes that the asset is valued for its highest,  best use, that
the parties to the hypothetical sale transaction are willing,  able, prudent and
knowledgeable.  Neither are under any unusual  pressure for a prompt  sale,  and
that the transaction  would be negotiated in an open and unrestricted  market on
an  arm's-length  basis,  for cash or  equivalent  consideration,  and  given an
adequate  amount of time for effective  exposure to prospective  buyers.  Unless
stated  otherwise,  the total CMV of multiple assets represents the aggregate of
the  individual  asset's  Current  Market  Values  were  they  to be  sold on an
asset-by-asset basis and not the value of the assets if sold in bulk.



3.2      SPARE PARTS APPRAISAL METHODOLOGY


SH&E's  standard  parts  appraisal  can be  summarized  as a  calculation  of an
adjustment to the owner's  internal  inventory value.  The  statistically  based
adjustment is achieved by the development of a representative,  dollar-weighted,
stratified  sample of the parts,  the  valuation  of that  sample and then,  the
application of a derived  adjustment factor to the sample and then to the entire
population of parts. That process is more fully described below.


     3.2.1 SAMPLING PROCESS


SH&E obtained an itemized  database of the parts to be valued from  Continental.
The data identified each part by aircraft type, rotable or expendable  category,
description,  manufacturer's part number, quantity, and percent serviceable. The
data also provided an average  acquisition  cost for each part.  Some parts were
listed with zero cost and those were handled separately.

SH&E  compiled a single  database of the  selected  Continental  inventory  that
contained  25,465 line items.  The  inventory  was then grouped by aircraft type
with common trading  characteristics  and  subsequently,  by category.  For this
valuation, SH&E initially grouped all 737 aircraft together but kept the 757 and
767 parts  separate.  It  should  be noted  that the  later  model  767-400  has
significant systems and parts commonality with the 777 aircraft.

Each of the  groupings  was then sorted by  descending  unit cost value and then
divided  into four to six  separate  strata of  approximately  equal total value
based on  Continental's  reported  cost or value for each line  item.  A further
stratum  was  created in some cases to  provide  consideration  for parts with a
reported zero average  acquisition  value.  Approximately  1,500 line items were
selected  for the initial  sampling and these served as the basis of the pricing
and  physical  sampling  process.  The pricing  sample was further  increased to
include all matching parts in SH&E's internal parts database.



     3.2.2 SAMPLE VALUATION


The CMV of the  individual  parts  that make up each  sample was  determined  by
investigating  the  current  sale price for new or  overhauled  parts,  based on
information from independent third parties,  manufacturers' parts lists and SH&E
files.

SH&E performed a detailed  pricing survey for the prior  appraisal and, for this
update,  spot  checked  values from each pool of parts and found no  significant
change in the  individual  part's  values.  New pricing was performed on a small
group of parts with higher  values to validate  their pricing  consistency  with
similar parts from the prior appraisal.  A small sample of new parts was sent to
several major parts vendors who provided current trading values. As before, most
of these  parts  are  associated  with new  production  aircraft  with a limited
secondary market and many of the returned vendor-provided values were new prices
or catalogue values.


     3.2.3 CURRENT MARKET VALUE DETERMINATION


SH&E applied the results of the sample pricing to each  appropriate  strata and,
in addition, applied price matches from other sources. Over 30 different sources
including price catalogs from the major manufacturers, US government procurement
data,  airline parts pooling price lists and inventory and purchase records from
seven major U.S. and European airlines files were reviewed in order to determine
additional current market values.  More than three million parts pricing records
were examined in order to match a part number and reference  price for each part
in the Continental inventory.

SH&E  obtained  a  market  price  for the  small  sample  of  parts  based on an
assumption  that each part would be purchased  independently,  as a single unit,
and  in a new or  overhauled  condition  for  rotables  and  new  condition  for
expendables.  In cases where more than one quote was obtained, SH&E attempted to
determine the most reasonable value.

This file matching procedure,  using both the initial sample and SH&E's internal
resources,  was successful in determining market price for approximately  17,500
line  items  representing  approximately  71% of the line  items  and 74% of the
historic cost.




     3.2.4 CONDITION AND QUANTITY ADJUSTMENT


The CMV of  unserviceable  parts was  calculated  using ratios of serviceable to
unserviceable  values  obtained from prior SH&E parts  appraisals and applied to
SH&E's findings made during the physical inspection and audit.

Continental  provided SH&E with a percentage  unserviceable by part number. This
statistic was tested against  internal  records but, during this  appraisal,  no
supplier audits or surveys' were made to validate the unserviceable  percentages
provided by the airline. Selected vendor audit will be performed during the next
full appraisal.

For this  update,  SH&E  revisited  Continental's  parts  facilities  in Newark,
Cleveland, Los Angeles and Houston (George Bush) and performed first time visits
to Honolulu,  Houston Hobby and Orlando to physically  inspect the assets and to
verify the accuracy of the inventory reporting system. As before the accuracy of
Continental's  inventory was above industry  standard and Honolulu and Cleveland
both had no discrepancies. SH&E's review of the associated records also revealed
no discrepancies.

The physical sample audit indicated accuracy above U.S. industry norms, however,
SH&E did note  that the  airline  creates a large  number of  "kits." A kit is a
package of parts,  either  multiple  units of the same part or a  collection  of
necessary parts needed to complete a certain maintenance task. Sometimes the kit
contains a rotable item along with the necessary  expendable material to perform
installation.  Almost  all the  material  was new.  It should be noted  that the
"kitting"  process makes the kit unique to Continental but the parts can be made
generic simply by  disassembling  the kit. For this valuation the kit parts were
treated as independent parts.



                                                  4.0 THE MARKET FOR THE SUBJECT
                                                                          ASSETS

The potential market for Continental  Airlines' spare parts remains positive. In
the main,  the parts are  associated  with aircraft that have enjoyed  extensive
production  runs and also have a wide operator  base. The two exceptions are the
757-300 and the 767-400;  these aircraft have both limited  production  runs and
small operator bases. There have been a total of 63 757-300 aircraft ordered for
7 operators and 37 767-400 aircraft  ordered for two operators,  Continental and
Delta. That said, there is very significant  commonality between the 757-200 and
757-300 aircraft and also between the 767-400 and the 777.

The parts  aftermarket,  generally  estimated  to exceed $1.3  billion in annual
revenues,  has obtained the majority of its product from either airline  surplus
sales or from  dismantled  aircraft.  There  have been no  significant  sales of
surplus  parts  for the  late  generation  aircraft  represented  by this  parts
inventory or for their associated engines.  Nor have any of these aircraft types
been dismantled for parts other than  incident-related  aircraft.  Consequently,
there is very little of this type of airframe  material  available  on the parts
aftermarket. The same is true for the engine market where the Original Equipment
Manufacturers  ("OEM")  have  maintained  a  tight  control  of any  aftermarket
relating to newer  generation  engines.  SH&E is of the opinion that the Subject
Assets, if offered for sale, would include some of the most marketable  material
in the commercial aviation parts aftermarket.



                                                              5.0 QUALIFICATIONS


Founded in 1963 and with  offices in New York,  Boston,  Washington,  London and
Amsterdam,   SH&E  is  the  world's  largest  consulting  firm  specializing  in
commercial aviation. Its staff of over 90 personnel encompasses expertise in all
disciplines  of the industry and the firm has  provided  appraisal,  consulting,
strategic  planning  and  technical  services to  airlines,  leasing  companies,
government   agencies,   airframe  and  engine   manufacturers,   and  financial
institutions.

SH&E's appraisal staff are all members of the International Society of Transport
Aircraft  Trading  (ISTAT),   the   internationally   recognized  body  for  the
certification of aircraft appraisers. SH&E performs all appraisals in accordance
with the  definitions,  guidelines  and  standards  set forth by  ISTAT.  SH&E's
officer responsible for all appraisals is an ISTAT Senior Appraiser.

SH&E annually  values  approximately  $20 billion of aviation  assets  including
commercial  and military  equipment,  airline fleets and lease  portfolios.  The
appraisals  range from full appraisals  involving  detailed  aircraft and record
inspections  conducted by SH&E's  technical  staff to the valuation of tax-based
leases.  SH&E's proprietary  aircraft residual value model is widely accepted by
the rating  agencies as a reliable  forecasting  tool.  In addition to the above
aircraft  valuations,  SH&E  annually  values in excess of $3  billion  worth of
aircraft spare parts and spare engines. SH&E routinely values flight simulators,
hangar tooling, ground equipment, gates, slots, maintenance facilities and Fixed
Base Operations.

A related  service  that SH&E offers its Clients is Asset  Management.  Over the
last few years,  SH&E has been the principal  asset manager  responsible for the
recovery and subsequent  remarketing of a number of individual aircraft and some
significant portfolios.

This active  participation  in the market place provides SH&E with practical and
first hand  knowledge  of the values and lease  rates of  aircraft,  engines and
parts.



                                                                 6.0 LIMITATIONS


SH&E used  information  supplied  by the  Client  together  with  in-house  data
accumulated through other recent studies of aircraft parts transactions.

SH&E's opinions are based upon historical relationships and expectations that it
believes are reasonable.

Some of the underlying assumptions, including those described above are detailed
explicitly or implicitly  elsewhere in this report, may not materialize  because
of  unanticipated  events and  circumstances.  SH&E's opinions could, and would,
vary materially, should any of the above assumptions prove to be inaccurate.

The  opinions  expressed  herein  are not  given  for,  or as an  inducement  or
endorsement for, any financial transaction.  They are prepared for the exclusive
use of the addressee.  SH&E accepts no responsibility for damages,  if any, that
result from decisions made or actions taken based on this report.

This report does not address  the  validity of title or  ownership  of the items
discussed herein.

This report  reflects  SH&E's expert  opinion and best  judgment  based upon the
information available to it at the time of its preparation.  SH&E does not have,
and does not expect to have, any financial interest in the appraised property.

For SH&E:

/s/ CLIVE G. MEDLAND

Clive G. Medland, FRAeS
Senior Vice President
Senior Appraiser
International Society of
Transport Aircraft Trading



January 24, 2003



SH&E INTERNATIONAL AIR TRANSPORT CONSULTANCY























                                                                      APPENDIX A
                                        VALUE BY AIRCRAFT TYPE BY MATERIAL CLASS



               SELECTED SPARE PARTS VALUATION SUMMARY BY MATERIAL
                                     CLASS


     Dollars in (000)

- --------------------------------------------------------------------------------
     VALUE GROUP             ROTABLE         EXPENDABLE         GRAND TOTAL
- --------------------------------------------------------------------------------
       737-7/8/9          $153,526.8          $32,445.7          $185,972.6
- --------------------------------------------------------------------------------
         757-200           $49,898.8          $19,454.1           $69,352.8
- --------------------------------------------------------------------------------
         757-300            $2,267.0             $849.7            $3,116.7
- --------------------------------------------------------------------------------
         767-200            $6,611.4           $2,335.3            $8,946.7
- --------------------------------------------------------------------------------
         767-400           $46,714.4           $9,026.8           $55,741.2
- --------------------------------------------------------------------------------
         777-200           $88,442.0          $25,270.0          $113,712.0
- --------------------------------------------------------------------------------
           TOTAL          $347,460.4          $89,381.5          $436,841.9
- --------------------------------------------------------------------------------



SH&E INTERNATIONAL AIR TRANSPORT CONSULTANCY























                                                                      APPENDIX B
                                                SUMMARY OF INVENTORY ADJUSTMENTS



                   SELECTED SPARE PARTS: SUMMARY OF INVENTORY
                                   ADJUSTMENTS


- ------------------------  -------------------------------   ----------------------   ---------------------  -----------------------
 Starting CO Inventory     Less brakes, tires, cockpit        Less CO specific        Total Adjustments        Inventory After
                                      doors                         parts                to Inventory            Adjustments
- ------------------------  -------------------------------   ----------------------   ---------------------  -----------------------
Group     Lines     Qty   Group   Lines Qty       Reason    Group   Lines     Qty    Group   Lines    Qty   Group   Lines      Qty
- ------------------------  -------------------------------   ----------------------   ---------------------  -----------------------
737-7/8/9 6,036 335,753   737-7/8/9  1   50         DOOR    737-7/8/9 470  44,149    737-7/8/9 471  44,199  737-7/8/9 5,565  291,554
757-200   7,568 212,363   757-200    3   99   BRAKE/TIRE    757-200   395  23,142    757-200   398  23,241  757-200   7,170  189,122
757-300     674  12,662   757-300    2   14   BRAKE/TIRE    757-300    46   1,606    757-300    48   1,620  757-300     626   11,042
767-200   1,298  26,574   767-200    2    9   BRAKE/TIRE    767-200    38     853    767-200    40     862  767-200   1,258   25,712
767-400   3,970  67,597   767-400    1   35   BRAKE/TIRE    767-400   282  14,829    767-400   283  14,864  767-400   3,687   52,733
777-200   5,919 134,788   777-200    3  294   BRAKE/TIRE    777-200   867  20,278    777-200   870  20,572  777-200   5,049  114,216
- ------------------------  -------------------------------   ----------------------   ---------------------  -----------------------
Total    25,465 789,737   Total     12  501                 Total   2,098 104,857    Total   2,110105,358   Total   23,355 684,379
- ------------------------  -------------------------------   ----------------------   ---------------------  -----------------------

*CO specific parts include:  seat covers, carpet, cushions, curtains, fabric, cloth, placards



SH&E INTERNATIONAL AIR TRANSPORT CONSULTANCY























                                                                      APPENDIX C
                                                   PROPORTION OF SERVICEABLE AND
                                                             UNSERVICEABLE PARTS



COMPARISON OF THE SELECTED PARTS INVENTORY VALUATIONS

DOLLARS IN (000)

- -----------------------------------------------------------------------------------------------------------------------
                   CONTINENTAL AIRLINES SELECTED SPARE PARTS VALUATION SUMMARY ($000) DECEMBER 2002
- -----------------------------------------------------------------------------------------------------------------------
                  UNADJUSTED CURRENT MARKET VALUE                        ADJUSTED CURRENT MARKET VALUE
- -----------------------------------------------------------------------------------------------------------------------
Value Group  Serviceable   Unserviceable      Total       Serviceable    Unserviceable      Total     % Unserviceable
            -----------------------------------------------------------------------------------------------------------

737-7/8/9      $157,991.7    $56,175.8      $214,167.6     $157,991.7      $27,980.8      $185,972.6        15%
757-200         $62,373.7    $17,599.7       $79,973.4      $62,373.7       $6,979.1       $69,352.8        10%
757-300          $2,944.5       $434.0        $3,378.4       $2,944.5         $172.2        $3,116.7         6%
767-200          $6,340.1     $7,193.2       $13,533.3       $6,340.1       $2,606.6        $8,946.7        29%
767-400         $51,935.1     $9,576.8       $61,511.8      $51,935.1       $3,806.1       $55,741.2         7%
777-200         $97,444.4    $32,665.2      $130,109.6      $97,444.4      $16,267.6      $113,712.0        14%
- -----------------------------------------------------------------------------------------------------------------------
TOTAL          $379,029.5   $123,644.7      $502,674.2     $379,029.5      $57,812.4      $436,841.9        13%
- -----------------------------------------------------------------------------------------------------------------------



- -----------------------------------------------------------------------------------------------------------------------
                    CONTINENTAL AIRLINES SELECTED SPARE PARTS VALUATION SUMMARY ($000) AUGUST 2002
- -----------------------------------------------------------------------------------------------------------------------
                  UNADJUSTED CURRENT MARKET VALUE                        ADJUSTED CURRENT MARKET VALUE
- -----------------------------------------------------------------------------------------------------------------------
Value Group  Serviceable   Unserviceable      Total       Serviceable    Unserviceable      Total     % Unserviceable
            -----------------------------------------------------------------------------------------------------------

737-7/8/9      $158,726.5    $33,816.2      $192,542.7     $158,726.5      $16,811.8      $175,538.3        10%
757-200         $62,627.8    $15,171.1       $77,799.0      $62,627.8       $6,009.3       $68,637.2         9%
757-300          $2,927.8       $372.3        $3,300.1       $2,927.8         $147.6        $3,075.4         5%
767-200          $6,948.4     $4,070.4       $11,018.7       $6,948.4       $1,407.8        $8,356.1        17%
767-400         $50,651.2     $5,196.2       $55,847.3      $50,651.2       $2,056.1       $52,707.3         4%
777-200        $100,107.0    $14,129.3      $114,236.3     $100,107.0       $7,007.5      $107,114.6         7%
- -----------------------------------------------------------------------------------------------------------------------
TOTAL          $381,988.8    $72,755.4      $454,744.2     $381,988.8      $33,440.2      $415,429.0         8%
- -----------------------------------------------------------------------------------------------------------------------



- -----------------------------------------------------------------------------------------------------------------------
                                   DIFFERENCES (DECEMBER 2002 - AUGUST 2002) ($000)
- -----------------------------------------------------------------------------------------------------------------------
                  UNADJUSTED CURRENT MARKET VALUE                ADJUSTED CURRENT MARKET VALUE
- -----------------------------------------------------------------------------------------------------------------------
Value Group  Serviceable   Unserviceable      Total       Serviceable    Unserviceable      Total
- -----------------------------------------------------------------------------------------------------------------------

737-7/8/9         ($734.8)   $22,359.6       $21,624.9        ($734.8)     $11,169.0       $10,434.2
757-200           ($254.1)    $2,428.6        $2,174.5        ($254.1)        $969.8          $715.7
757-300             $16.6        $61.6           $78.3          $16.6          $24.6           $41.3
767-200           ($608.3)    $3,122.8        $2,514.5        ($608.3)      $1,198.8          $590.6
767-400          $1,283.9     $4,380.6        $5,664.5       $1,283.9       $1,750.0        $3,033.9
777-200         ($2,662.6)   $18,535.9       $15,873.3      ($2,662.6)      $9,260.0        $6,597.4
            -----------------------------------------------------------------------------------------------------------
TOTAL           ($2,959.3)   $50,889.3       $47,930.0      ($2,959.3)     $24,372.3       $21,413.0
- -----------------------------------------------------------------------------------------------------------------------



                                     PART II


                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.

     The Company's  Certificate  of  Incorporation  and Bylaws  provide that the
Company will  indemnify  each of its  directors  and officers to the full extent
permitted by the laws of the State of Delaware and may  indemnify  certain other
persons as  authorized  by the  Delaware  General  Corporation  Law (the "GCL").
Section 145 of the GCL provides as follows:

          "(a) A corporation shall have power to indemnify any person who was or
     is a party or is threatened to be made a party to any  threatened,  pending
     or  completed  action,  suit  or  proceeding,   whether  civil,   criminal,
     administrative or investigative (other than an action by or in the right of
     the  corporation)  by  reason  of the  fact  that  the  person  is or was a
     director,  officer,  employee  or  agent of the  corporation,  or is or was
     serving at the request of the corporation as a director,  officer, employee
     or agent of another corporation, partnership, joint venture, trust or other
     enterprise,  against expenses (including attorneys' fees), judgments, fines
     and amounts  paid in  settlement  actually and  reasonably  incurred by the
     person in  connection  with such action,  suit or  proceeding if the person
     acted in good faith and in a manner the person reasonably believed to be in
     or not opposed to the best interests of the corporation,  and, with respect
     to any criminal  action or proceeding,  had no reasonable  cause to believe
     the person's conduct was unlawful.  The termination of any action,  suit or
     proceeding by judgment,  order, settlement,  conviction,  or upon a plea of
     nolo  contendere  or  its  equivalent,  shall  not,  of  itself,  create  a
     presumption that the person did not act in good faith and in a manner which
     the  person  reasonably  believed  to be in or  not  opposed  to  the  best
     interests of the  corporation,  and, with respect to any criminal action or
     proceeding,  had reasonable  cause to believe that the person's conduct was
     unlawful.

          (b) A corporation  shall have power to indemnify any person who was or
     is a party or is threatened to be made a party to any  threatened,  pending
     or  completed  action  or suit by or in the  right  of the  corporation  to
     procure a judgment in its favor by reason of the fact that the person is or
     was a director, officer, employee or agent of the corporation, or is or was
     serving at the request of the corporation as a director,  officer, employee
     or agent of another corporation, partnership, joint venture, trust or other
     enterprise  against  expenses  (including  attorneys'  fees)  actually  and
     reasonably  incurred  by the  person  in  connection  with the  defense  or
     settlement  of such action or suit if the person acted in good faith and in
     a manner the person reasonably believed to be in or not opposed to the best
     interests of the  corporation and except that no  indemnification  shall be
     made in respect of any claim, issue or matter as to which such person shall
     have been adjudged to be liable to the  corporation  unless and only to the
     extent that the Court of Chancery or the court in which such action or suit
     was brought shall determine upon application that, despite the adjudication
     of liability but in view of all the  circumstances of the case, such person
     is fairly and reasonably  entitled to indemnity for such expenses which the
     Court of Chancery or such other court shall deem proper.

          (c) To the extent  that a present or former  director  or officer of a
     corporation  has been  successful  on the merits or otherwise in defense of
     any action,  suit or proceeding  referred to in subsections  (a) and (b) of
     this section,  or in defense of any claim,  issue or matter  therein,  such
     person shall be indemnified  against expenses  (including  attorneys' fees)
     actually and reasonably incurred by such person in connection therewith.

          (d) Any indemnification  under subsections (a) and (b) of this section
     (unless  ordered  by a  court)  shall  be made by the  corporation  only as
     authorized in the specific case upon a determination  that  indemnification
     of the present or former director,  officer, employee or agent is proper in
     the  circumstances  because the person has met the  applicable  standard of
     conduct  set  forth  in  subsections  (a)  and (b) of  this  section.  Such
     determination  shall be made, with respect to a person who is a director or
     officer at the time of such  determination,  (1) by a majority  vote of the
     directors  who are not parties to such  action,  suit or  proceeding,  even
     though  less  than a  quorum,  or  (2) by a  committee  of  such  directors



     designated  by  majority  vote of such  directors,  even though less than a
     quorum,  or (3) if there are no such  directors,  or if such  directors  so
     direct,  by independent  legal counsel in a written opinion,  or (4) by the
     stockholders.

          (e) Expenses  (including  attorneys'  fees)  incurred by an officer or
     director in defending any civil, criminal,  administrative or investigative
     action, suit or proceeding may be paid by the corporation in advance of the
     final  disposition  of such action,  suit or proceeding  upon receipt of an
     undertaking  by or on behalf of such  director  or  officer  to repay  such
     amount  if it shall  ultimately  be  determined  that  such  person  is not
     entitled  to be  indemnified  by the  corporation  as  authorized  in  this
     section.  Such  expenses  (including  attorneys'  fees)  incurred by former
     directors  and officers or other  employees  and agents may be so paid upon
     such terms and conditions, if any, as the corporation deems appropriate.

          (f) The  indemnification  and advancement of expenses  provided by, or
     granted  pursuant to, the other  subsections  of this section  shall not be
     deemed exclusive of any other rights to which those seeking indemnification
     or advancement of expenses may be entitled under any bylaw, agreement, vote
     of stockholders or disinterested directors or otherwise,  both as to action
     in such  person's  official  capacity and as to action in another  capacity
     while holding such office.

          (g) A corporation shall have power to purchase and maintain  insurance
     on behalf of any  person who is or was a  director,  officer,  employee  or
     agent  of the  corporation,  or is or was  serving  at the  request  of the
     corporation  as  a  director,   officer,   employee  or  agent  of  another
     corporation,  partnership, joint venture, trust or other enterprise against
     any liability  asserted  against such person and incurred by such person in
     any such capacity,  or arising out of such person's status as such, whether
     or not the  corporation  would  have the  power to  indemnify  such  person
     against such liability under this section.

          (h) For  purposes of this  section,  references  to "the  corporation"
     shall include,  in addition to the resulting  corporation,  any constituent
     corporation  (including any  constituent  of a  constituent)  absorbed in a
     consolidation  or merger which,  if its separate  existence had  continued,
     would have had power and  authority to indemnify its  directors,  officers,
     and  employees  or agents,  so that any  person  who is or was a  director,
     officer,  employee or agent of such constituent  corporation,  or is or was
     serving  at the  request of such  constituent  corporation  as a  director,
     officer,  employee  or agent of  another  corporation,  partnership,  joint
     venture, trust or other enterprise,  shall stand in the same position under
     this section with respect to the resulting or surviving corporation as such
     person  would have with  respect  to such  constituent  corporation  if its
     separate existence had continued.

          (i) For purposes of this section,  references  to "other  enterprises"
     shall include employee  benefit plans;  references to "fines" shall include
     any excise taxes assessed on a person with respect to any employee  benefit
     plan; and references to "serving at the request of the  corporation"  shall
     include  any  service  as a  director,  officer,  employee  or agent of the
     corporation  which  imposes  duties  on,  or  involves  services  by,  such
     director,  officer,  employee or agent with respect to an employee  benefit
     plan, its  participants  or  beneficiaries;  and a person who acted in good
     faith and in a manner such person reasonably believed to be in the interest
     of the participants and  beneficiaries of an employee benefit plan shall be
     deemed to have acted in a manner "not opposed to the best  interests of the
     corporation" as referred to in this section.

          (j) The  indemnification  and advancement of expenses  provided by, or
     granted  pursuant to, this section shall,  unless  otherwise  provided when
     authorized  or  ratified,  continue  as to a person  who has ceased to be a
     director,  officer, employee or agent and shall inure to the benefit of the
     heirs, executors and administrators of such a person.

          (k) The Court of Chancery is hereby vested with exclusive jurisdiction
     to  hear  and  determine  all  actions  for   advancement  of  expenses  or
     indemnification  brought under this section or under any bylaw,  agreement,
     vote of stockholders or disinterested directors, or otherwise. The Court of
     Chancery may  summarily  determine a  corporation's  obligation  to advance
     expenses (including attorneys' fees)."

     The  Certificate  of  Incorporation  and  Bylaws  also  limit the  personal
liability of directors to the Company and its  stockholders for monetary damages
resulting from certain breaches of the directors'  fiduciary duties.  The bylaws
of the Company provide as follows:



     "No  Director  of  the  Corporation  shall  be  personally  liable  to  the
Corporation  or its  stockholders  for monetary  damages for breach of fiduciary
duty as a Director,  except for liability  (i) for any breach of the  Director's
duty of  loyalty  to the  corporation  or its  stockholders,  (ii)  for  acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation  of  law,  (iii)  under  Section  174 of the  GCL,  or  (iv)  for  any
transaction from which the Director derived any improper  personal  benefit.  If
the GCL is amended ... to authorize  corporate  action  further  eliminating  or
limiting the personal  liability of directors,  then the liability of a Director
of the  Corporation  shall  be  eliminated  or  limited  to the  fullest  extent
permitted by the GCL, as so amended."

     The Company maintains directors' and officers' liability insurance.

ITEM 21.  EXHIBITS.

     The Index to Exhibits to this Registration Statement is incorporated herein
by reference.

ITEM 22.  UNDERTAKINGS.

     The undersigned Registrant hereby undertakes:

          (1) To file,  during  any  period  in which  offers or sales are being
     made, a post-effective amendment to this registration statement:

               (i) To include any prospectus required by Section 10(a)(3) of the
          Securities Act of 1933;

               (ii) To reflect  in the  prospectus  any facts or events  arising
          after the effective  date of the  registration  statement (or the most
          recent post-effective amendment thereof) which, individually or in the
          aggregate, represent a fundamental change in the information set forth
          in the  registration  statement.  Notwithstanding  the foregoing,  any
          increase  or decrease  in volume of  securities  offered (if the total
          dollar  value of  securities  offered  would not exceed that which was
          registered)  and  any  deviation  from  the  low  or  high  end of the
          estimated  maximum  offering  range  may be  reflected  in the form of
          prospectus  filed with the  Commission  pursuant to Rule 424(b) if, in
          the aggregate,  the changes in volume and price represent no more than
          a 20% change in the maximum aggregate  offering price set forth in the
          "Calculation of Registration Fee" table in the effective  registration
          statement; and

               (iii) To include any  material  information  with  respect to the
          plan of  distribution  not  previously  disclosed in the  registration
          statement  or  any  material   change  to  such   information  in  the
          registration statement;

          provided,  however, that paragraphs (1)(i) and (1)(ii) shall not apply
          if  the  information  required  to  be  included  in a  post-effective
          amendment by those  paragraphs is contained in periodic  reports filed
          with or  furnished to the  Commission  by the  registrant  pursuant to
          section 13 or section  15(d) of the  Securities  Exchange  Act of 1934
          that are incorporated by reference in the registration statement.

          (2) That,  for the  purpose of  determining  any  liability  under the
     Securities Act of 1933, each such post-effective  amendment shall be deemed
     to be a new  registration  statement  relating  to the  securities  offered
     therein,  and the offering of such  securities at that time shall be deemed
     to be the initial bona fide offering thereof.

          (3) To remove from registration by means of a post-effective amendment
     any  of  the  securities  being  registered  which  remain  unsold  at  the
     termination of the offering.

     The  undersigned   registrant  hereby  undertakes  that,  for  purposes  of
determining  any liability  under the Securities Act of 1933, each filing of the
registrant's  annual  report  pursuant to section  13(a) or section 15(d) of the
Securities  Exchange  Act of 1934  (and,  where  applicable,  each  filing of an
employee  benefit  plan's  annual  report  pursuant  to  section  15(d)  of  the



Securities  Exchange  Act of 1934)  that is  incorporated  by  reference  in the
registration  statement  shall  be  deemed  to be a new  registration  statement
relating to the securities offered therein,  and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors,  officers and controlling  persons of the
registrant,  pursuant to the foregoing provisions,  or otherwise, the registrant
has been advised that in the opinion of the Securities  and Exchange  Commission
such  indemnification  is against  public policy as expressed in the Act and is,
therefore,  unenforceable. In the event that a claim for indemnification against
such liabilities  (other than the payment by the registrant of expenses incurred
or paid by a director,  officer or  controlling  person of the registrant in the
successful  defense of any action,  suit or  proceeding) is asserted by any such
director,  officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been  settled by  controlling  precedent,  submit to a court of  appropriate
jurisdiction  the  question  of whether or not such  indemnification  is against
public policy as expressed in the Securities Act of 1933 and will be governed by
the final adjudication of such issue.

     The  undersigned  registrant  hereby  undertakes to respond to requests for
information  that is incorporated  by reference into the prospectus  pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request,  and to send the  incorporated  documents  by first class mail or other
equally prompt means.  This includes  information  contained in documents  filed
subsequent to the effective date of the registration  statement through the date
of responding to the request.

     The  undersigned  registrant  hereby  undertakes  to  supply  by means of a
post-effective  amendment  all  information  concerning a  transaction,  and the
company  being  acquired  involved  therein,  that  was not the  subject  of and
included in the registration statement when it became effective.



                                   SIGNATURES

     Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment to the  Registration  Statement to be signed on its behalf
by the undersigned,  thereunto duly authorized, in the City of Houston, State of
Texas, on June 2, 2003.

                                            CONTINENTAL AIRLINES, INC.

                                            By:/s/ JENNIFER L. VOGEL
                                               ------------------------------
                                               Jennifer L. Vogel
                                               Vice President, General
                                               Counsel and Secretary

     Pursuant to the  requirements of the Securities Act of 1933, this Amendment
to the  Registration  Statement has been signed by the following  persons in the
capacities indicated, on June 2, 2003.



             SIGNATURE                                          TITLE
- ---------------------------------------     ----------------------------------------------

         GORDON M. BETHUNE*                 Chairman of the Board, Chief Executive Officer
- ---------------------------------------     (Principal Executive Officer) and Director
         Gordon M. Bethune

        LAWRENCE W. KELLNER*
- ---------------------------------------     President, Chief Operating Officer and Director
        Lawrence W. Kellner

          JEFFREY J. MISNER*                Senior Vice President and Chief Financial Officer
- ---------------------------------------     (Principal Financial Officer)
          Jeffrey J. Misner

           /S/ CHRIS KENNY                  Vice President and Controller (Principal Accounting
- ---------------------------------------     Officer)
               Chris Kenny

        THOMAS J. BARRACK, JR.*
- ---------------------------------------     Director
        Thomas J. Barrack, Jr.

           DAVID BONDERMAN*
- ---------------------------------------     Director
           David Bonderman

          KIRBYJON CALDWELL*
- ---------------------------------------     Director
          Kirbyjon Caldwell

            PATRICK FOLEY*
- ---------------------------------------     Director
            Patrick Foley

       DOUGLAS H. MCCORKINDALE*
- ---------------------------------------    Director
       Douglas H. McCorkindale

         GEORGE G.C. PARKER*
- ---------------------------------------    Director
         George G.C. Parker

          RICHARD W. POGUE*
- ---------------------------------------    Director
          Richard W. Pogue




             SIGNATURE                                          TITLE
- ---------------------------------------     ----------------------------------------------


       WILLIAM S. PRICE III*
- ---------------------------------------    Director
       William S. Price III


- ---------------------------------------    Director
          Donald L. Sturm

       KAREN HASTIE WILLIAMS*
- ---------------------------------------    Director
       Karen Hastie Williams

       CHARLES A. YAMARONE*
- ---------------------------------------    Director
       Charles A. Yamarone

       *BY: /s/ JENNIFER L. VOGEL
- ---------------------------------------
          Jennifer L. Vogel
          Attorney-in-Fact



                                  EXHIBIT INDEX

EXHIBIT                               EXHIBIT DESCRIPTION
NUMBER

4.1                Amended  and  Restated  Indenture,  dated as of May 9,  2003,
                   among Continental  Airlines,  Inc., Wilmington Trust Company,
                   as  Trustee,   Morgan  Stanley  Capital   Services  Inc.,  as
                   Liquidity Provider, and MBIA Insurance Corporation, as Policy
                   Provider,  made with respect to the issuance of Floating Rate
                   Secured   Notes  due  2007  and  the  Floating  Rate  Secured
                   Subordinated Notes due 2007

4.2                Form  of  Exchange   Floating  Rate  Secured  Note  Due  2007
                   (included in Exhibit 4.1)

4.3                Collateral  Maintenance  Agreement,  dated as of  December 6,
                   2002, between Continental  Airlines,  Inc. and MBIA Insurance
                   Corporation*

4.4                Spare Parts Security Agreement, dated as of December 6, 2002,
                   between  Continental  Airlines,  Inc.  and  Wilmington  Trust
                   Company, as Security Agent*

4.5                Reference  Agency  Agreement,  dated as of  December 6, 2002,
                   among Continental  Airlines,  Inc., Wilmington Trust Company,
                   as Trustee, and Wilmington Trust Company, as Reference Agent*

4.6                Revolving  Credit  Agreement,  dated as of  December 6, 2002,
                   between  Wilmington  Trust  Company,  as Trustee,  and Morgan
                   Stanley Capital Services Inc., as Liquidity Provider*

4.7                Guarantee Agreement,  dated as of December 6, 2002, by Morgan
                   Stanley, relating to the Revolving Credit Agreement*

4.8                Financial Guarantee Insurance Policy #39753 of MBIA Insurance
                   Corporation*

4.9                Exchange  and  Registration  Rights  Agreement,  dated  as of
                   December 6, 2002,  between  Continental  Airlines,  Inc.  and
                   Morgan Stanley & Co. Incorporated*

4.10               Purchase  Agreement,  dated as of December  2, 2002,  between
                   Continental   Airlines,   Inc.  and  Morgan   Stanley  &  Co.
                   Incorporated, as Initial Purchaser*

4.11               Amendment No. 1 to Collateral Maintenance Agreement, dated as
                   of May 9, 2003, between Continental  Airlines,  Inc. and MBIA
                   Insurance Corporation

4.12               Amendment No. 1 to Spare Parts Security  Agreement,  dated as
                   of  May 9,  2003,  between  Continental  Airlines,  Inc.  and
                   Wilmington Trust Company, as Security Agent

4.13               Amendment No. 1 to Reference  Agency  Agreement,  dated as of
                   May 9, 2003, between Continental  Airlines,  Inc., Wilmington
                   Trust Company,  as Trustee,  and Wilmington Trust Company, as
                   Reference Agent

5.1                Opinion of Hughes  Hubbard & Reed LLP relating to validity of
                   the New Senior Notes*

12.1               Computation of Ratio of Earnings to Fixed Charges*

23.1               Consent of Ernst & Young LLP

23.2               Consent of PricewaterhouseCoopers LLP*



EXHIBIT                               EXHIBIT DESCRIPTION
NUMBER

23.3               Consent of Hughes Hubbard & Reed LLP (included in its opinion
                   filed as exhibit 5.1)

23.4               Consent of Simat, Helliesen & Eichner, Inc.*

24.1               Powers of Attorney*

25.1               Statement of Eligibility of Wilmington  Trust Company for the
                   Floating Rate Secured Notes Due 2007, on Form T-1

99.1               Form of Letter of Transmittal

99.2               Form of Notice of Guaranteed Delivery*

99.3               Form of Letter to Brokers,  Dealers,  Commercial Banks, Trust
                   Companies and Other Nominees*

99.4               Form of Letter to Clients*
- --------------
*Previously filed

================================================================================


                              AMENDED AND RESTATED


                                    INDENTURE



                             Dated as of May 9, 2003


                                      Among


                           CONTINENTAL AIRLINES, INC.


                            WILMINGTON TRUST COMPANY,
                                   as Trustee


                      MORGAN STANLEY CAPITAL SERVICES INC.,
                              as Liquidity Provider


                                       and


                           MBIA INSURANCE CORPORATION,
                               as Policy Provider



                                  $300,000,000


                      Floating Rate Secured Notes due 2007


                                       and


                Floating Rate Secured Subordinated Notes due 2007



================================================================================



                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

                                   ARTICLE 1.

                      DEFINITIONS AND RULES OF CONSTRUCTION


Section 1.1   Definitions......................................................1

Section 1.2   Rules of Construction............................................1

                                   ARTICLE 2.

                                 THE SECURITIES


Section 2.1   Title, Form, Denomination and Execution of Securities............1

Section 2.2   Restrictive Legends..............................................4

Section 2.3   Authentication of Securities.....................................5

Section 2.4   Transfer and Exchange............................................6

Section 2.5   Book-Entry Provisions for Restricted Global Securities and
              Regulation S Global Securities...................................7

Section 2.6   Special Transfer Provisions......................................8

Section 2.7   Terms of Securities.............................................11

Section 2.8   Registrar and Paying Agent......................................12

Section 2.9   Paying Agent to Hold Payments In Trust..........................12

Section 2.10  Record Dates....................................................13

Section 2.11  Noteholder Lists................................................14

Section 2.12  Mutilated, Defaced, Destroyed, Lost and Stolen Notes............14

Section 2.13  Treasury Notes..................................................15

Section 2.14  Temporary Notes.................................................15

Section 2.15  Cancellation....................................................16

Section 2.16  Defaulted Interest..............................................16

Section 2.17  CUSIP Numbers...................................................16

                                   ARTICLE 2A.

                           THE SUBORDINATED SECURITIES


Section 2A.1  Title, Form, Denomination and Execution of Subordinated
              Securities......................................................17



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Section 2A.2  Restrictive Legends.............................................19

Section 2A.3  Authentication of Subordinated Securities.......................20

Section 2A.4  Transfer and Exchange...........................................20

Section 2A.5  Book-Entry Provisions for Restricted Global Subordinated
              Securities and Regulation S Global Subordinated Securities......21

Section 2A.6  Special Transfer Provisions.....................................23

Section 2A.7  Terms of Subordinated Securities................................26

                                   ARTICLE 3.

       LIQUIDITY PROVIDER AND POLICY PROVIDER; PRIORITY OF DISTRIBUTIONS


Section 3.1   Written Notice of Distribution..................................27

Section 3.2   Priority of Distributions; Subordination........................28

Section 3.3   Other Payments..................................................30

Section 3.4   Payments to Liquidity Provider and Policy Provider..............31

Section 3.5   Liquidity Facility..............................................31

Section 3.6   The Policy......................................................38

Section 3.7   Designated Representatives......................................42

Section 3.8   Controlling Party...............................................43

Section 3.9   Company's Payment Obligations...................................44

Section 3.10  Execution of Support Documents..................................44

Section 3.11  Right of Subordinated Securityholders to Direct Policy
              Provider........................................................44

                                   ARTICLE 4.

                                   REDEMPTIONS


Section 4.1   Optional Redemption.............................................46

Section 4.2   Redemption Notice to Trustee....................................46

Section 4.3   Selection of Notes to be Redeemed...............................47

Section 4.4   Notice of Redemption............................................47

Section 4.5   Effect of Notice of Redemption..................................48

Section 4.6   Deposit of Redemption Price.....................................48

Section 4.7   Notes Redeemed in Part..........................................48



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                                   ARTICLE 5.

                                    COVENANTS


Section 5.1   Payment of Notes................................................48

Section 5.2   Maintenance of Office or Agency.................................49

Section 5.3   Corporate Existence.............................................49

Section 5.4   Company Not to Consolidate, Merge, Convey or Transfer Except
              Under Certain Conditions........................................50

Section 5.5   Reports by the Company..........................................51

                                   ARTICLE 6.

                                 INDEMNIFICATION

Section 6.1   General Indemnity...............................................51

Section 6.2   Separate Agreement..............................................54

Section 6.3   Notice..........................................................54

Section 6.4   Notice of Proceedings; Defense of Claims; Limitations...........54

Section 6.5   Information.....................................................55

Section 6.6   Subrogation; Further Assurances.................................55

Section 6.7   Refunds.........................................................56

                                   ARTICLE 7.

                              DEFAULT AND REMEDIES


Section 7.1   Events of Default...............................................56

Section 7.2   Acceleration....................................................57

Section 7.3   Other Remedies..................................................58

Section 7.4   Waiver of Past Defaults.........................................58

Section 7.5   Control of Remedies.............................................59

Section 7.6   Limitation on Suits.............................................59

Section 7.7   Rights of Holders to Receive Payment............................60

Section 7.8   Collection Suit by Trustee......................................60

Section 7.9   Trustee May File Proofs of Claim................................60

Section 7.10  Application of Proceeds.........................................61



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Section 7.11  Undertaking for Costs...........................................61

Section 7.12  Restoration of Rights on Abandonment of Proceedings.............61

Section 7.13  Powers and Remedies Cumulative; Delay or Omission Not Waiver
              of Default......................................................62

Section 7.14  Certain Limits on Remedies by Policy Provider...................62

                                   ARTICLE 8.

                                     TRUSTEE


Section 8.1   Duties of Trustee...............................................63

Section 8.2   Rights of Trustee...............................................64

Section 8.3   Individual Rights of Trustee....................................64

Section 8.4   Trustee's Disclaimer............................................64

Section 8.5   Notice of Defaults..............................................65

Section 8.6   Reports by Trustee to Holders...................................65

Section 8.7   Compensation and Indemnity......................................65

Section 8.8   Replacement of Trustee..........................................66

Section 8.9   Successor Trustee by Merger, etc................................67

Section 8.10  Eligibility; Disqualification...................................67

Section 8.11  Preferential Collection of Claims Against Company...............67

Section 8.12  Other Capacities................................................67

Section 8.13  Trust Accounts..................................................68

Section 8.14  Deposits to the Collection Account..............................69

Section 8.15  Certain Payments................................................69

                                   ARTICLE 9.

                             DISCHARGE OF INDENTURE


Section 9.1   Discharge of Liability on Notes.................................69

Section 9.2   Application of Trust Money......................................70

Section 9.3   Repayment to Company............................................70

Section 9.4   Reinstatement...................................................70



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                                   ARTICLE 10.

                       AMENDMENTS, SUPPLEMENTS AND WAIVERS


Section 10.1  Without Consent of the Controlling Party or Holders.............71

Section 10.2  With Consent of the Controlling Party, Liquidity Provider
              and Holders.....................................................72

Section 10.3  Compliance with Trust Indenture Act.............................74

Section 10.4  Revocation and Effect of Consents...............................74

Section 10.5  Notation on or Exchange of Notes................................75

Section 10.6  Trustee to Sign Amendments, etc.................................75

Section 10.7  Effect of Supplement and/or Amendment...........................75

                                   ARTICLE 11.

                                    SECURITY


Section 11.1  Other Operative Documents.......................................75

Section 11.2  Opinions, Certificates and Appraisals...........................76

Section 11.3  Authorization of Actions to be Taken by the Trustee Under
              the Operative Documents.........................................77

Section 11.4  Authorization of Receipt of Funds by the Trustee Under the
              Operative Documents and the Support Documents...................77

Section 11.5  Agreement as to Fair Market Value...............................77

                                   ARTICLE 12.

                                  MISCELLANEOUS


Section 12.1  Conflict with Trust Indenture Act of 1939.......................78

Section 12.2  Notices; Waivers................................................78

Section 12.3  Communications By Holders With Other Holders....................80

Section 12.4  Certificate and Opinion as to Conditions Precedent..............80

Section 12.5  Statements Required In Certificate or Opinion...................80

Section 12.6  Rules By Trustee, Paying Agent, Registrar.......................81

Section 12.7  Effect of Headings..............................................81

Section 12.8  Governing Law...................................................81



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Section 12.9  Quiet Enjoyment.................................................82

Section 12.10 No Recourse Against Others......................................82

Section 12.11 Benefits of Indenture and the Securities Restricted.............82

Section 12.12 Successors and Assigns..........................................82

Section 12.13 Counterpart Originals...........................................82

Section 12.14 Severability....................................................82

APPENDIX I    Definitions
EXHIBIT A     Form of Security
EXHIBIT B     Form of Certificate to Request Removal of Restricted  Legend
EXHIBIT C     Form of  Certificate  to be  Delivered  by an  Institutional
              Accredited Investor
EXHIBIT D     Form of Subordinated Security



     AMENDED AND RESTATED  INDENTURE dated as of May 9, 2003, among  CONTINENTAL
AIRLINES,  INC.,  a  Delaware  corporation  (the  "COMPANY"),  WILMINGTON  TRUST
COMPANY, a Delaware banking corporation  ("WTC"), not in its individual capacity
but solely as Trustee (the  "TRUSTEE"),  MORGAN STANLEY CAPITAL SERVICES INC., a
Delaware  corporation  ("MSCS"),  as  Liquidity  Provider,  and  MBIA  INSURANCE
CORPORATION,  a New York insurance company, as Policy Provider, which amends and
restates the Indenture, dated as of December 6, 2002 (the "ORIGINAL INDENTURE"),
among the Company, the Trustee, the Liquidity Provider and the Policy Provider.

     Pursuant to the Original Indenture,  the Company issued,  authenticated and
delivered  the  Initial  Securities.  Now,  the  Company  has  elected to issue,
authenticate and deliver a series of Subordinated Securities as permitted by the
Original  Indenture,  and in connection  with such issuance,  the parties hereto
wish to amend and  restate  the  Original  Indenture  as set forth  herein.  The
Company has obtained  Ratings  Confirmation  with  respect to such  issuance and
amendment.

     Each party  agrees as follows for the benefit of the other  parties and for
the equal and ratable  benefit of the Holders of the Notes  (except as otherwise
provided herein).


                                   ARTICLE 1.

                      DEFINITIONS AND RULES OF CONSTRUCTION

     Section 1.1 DEFINITIONS.

     Capitalized  terms used herein and not otherwise  defined herein shall have
the  meanings  ascribed to such terms in Section 1 of the  Definitions  Appendix
attached  hereto as Appendix I, which  shall be a part of this  Indenture  as if
fully set forth in this place.

     Section 1.2 RULES OF CONSTRUCTION.

     The rules of construction  for this Indenture are set forth in Section 2 of
the Definitions Appendix.

                                   ARTICLE 2.

                                 THE SECURITIES

     Section 2.1 TITLE, FORM, DENOMINATION AND EXECUTION OF SECURITIES.

     (a) The Initial  Securities  shall be known as the "INITIAL  FLOATING  RATE
SECURED  NOTES  DUE  2007"  and the  Exchange  Securities  shall be known as the
"EXCHANGE  FLOATING RATE SECURED NOTES DUE 2007",  in each case, of the Company.
Each Security shall be  substantially in the form set forth as Exhibit A hereto,
with such appropriate insertions, omissions,  substitutions and other variations



as are  required  or  permitted  by this  Indenture  and may have such  letters,
numbers or other marks of identification and such legends or endorsements placed
thereon as may be required to comply with the rules of any  securities  exchange
or as may,  consistently  herewith, be determined by the Company or the Officers
executing  the  Securities,  as  evidenced  by the  Company's  or the  Officers'
execution of the Securities.

     (b) The Initial  Securities  shall be issued only in fully  registered form
without coupons and only in denominations  of $100,000 or integral  multiples of
$1,000 in excess thereof,  except that one Security may be issued in a different
denomination.  The Exchange Securities will be issued in denominations of $1,000
or  integral  multiples  thereof,  except that one  Security  may be issued in a
different   denomination.   Each  Security  shall  be  dated  the  date  of  its
authentication.  The  aggregate  principal  amount  of  Securities  which may be
authenticated  and  delivered  under this  Indenture is limited to  $200,000,000
except for Securities  authenticated and delivered upon registration of transfer
of, or in exchange  for, or in lieu of,  other  Securities  pursuant to Sections
2.4, 2.6, 2.12, 2.14 or 10.5. The issuance of the Securities  hereunder shall be
collectively considered a single extension of credit to the Company.

     (c) The Initial  Securities offered and sold in reliance on Rule 144A shall
be  issued,  and  will  only be  available,  in the  form of one or more  global
Securities  substantially  in the form of Exhibit A hereto with such  applicable
legends  as  are  provided  for in  Section  2.2  (each,  a  "RESTRICTED  GLOBAL
SECURITY") duly executed by the Company and duly authenticated by the Trustee as
herein provided. The Restricted Global Securities shall be in definitive,  fully
registered  form without  interest  coupons and be registered in the name of DTC
and deposited with the Trustee,  at its Corporate Trust office, as custodian for
DTC. The aggregate  principal amount of any Restricted  Global Security may from
time to time be increased or decreased by adjustments made on the records of the
Trustee,  as custodian for DTC for such Restricted Global Security,  as provided
in Section 2.6 hereof, which adjustments shall be conclusive as to the aggregate
principal amount of any such Global Security.

     (d) The Initial  Securities  offered and sold outside the United  States in
reliance on  Regulation S shall be issued,  and will only be  available,  in the
form of one or more  global  Securities  substantially  in the form of Exhibit A
hereto (each, a "REGULATION S GLOBAL SECURITY") duly executed by the Company and
duly  authenticated by the Trustee as herein  provided.  The Regulation S Global
Securities  shall be in  definitive,  fully  registered  form  without  interest
coupons and be registered in the name of DTC and deposited with the Trustee,  at
its  Corporate  Trust  Office,  as custodian  for DTC, for credit  initially and
during the Restricted Period to the respective  accounts of beneficial owners of
such  Securities  (or to such  other  accounts  as they may  direct)  at  Morgan
Guaranty Trust Company of New York, Brussels office, as operator of Euroclear or
Clearstream.  As used herein, the term "RESTRICTED PERIOD",  with respect to the
Regulation S Global  Securities  offered and sold in reliance on  Regulation  S,
means the period of 40 consecutive  days beginning on and including the later of
(i) the day on which the  Securities  are first  offered to  persons  other than
distributors  (as defined in  Regulation S) in reliance on Regulation S and (ii)
the Closing Date.  The  aggregate  principal  amount of any  Regulation S Global



Security may from time to time be increased or decreased by adjustments  made on
the records of the Trustee,  as custodian for DTC for such Global  Security,  as
provided in Section 2.6 hereof,  which adjustments shall be conclusive as to the
aggregate  principal amount of any such Global Security.  The Restricted  Global
Security and Regulation S Global Security are sometimes collectively referred to
herein as the "GLOBAL SECURITIES".

     (e) Initial  Securities  offered and sold to any  Institutional  Accredited
Investor that is not a QIB in a transaction  exempt from registration  under the
Securities  Act (and other than as described in Section  2.1(d)) shall be issued
substantially  in the form of Exhibit A hereto in definitive,  fully  registered
form without interest  coupons with such applicable  legends as are provided for
in Section 2.2 (the  "RESTRICTED  DEFINITIVE  SECURITIES")  duly executed by the
Company and duly  authenticated  by the Trustee as herein  provided.  Securities
issued  pursuant to Section  2.5(b) in exchange for  interests in a Regulation S
Global  Security shall be issued in definitive,  fully  registered  form without
interest  coupons (the  "REGULATION S DEFINITIVE  SECURITIES").  The  Restricted
Definitive  Securities and the Regulation S Definitive  Securities are sometimes
collectively referred to herein as the "DEFINITIVE SECURITIES".

     (f) The  Exchange  Securities  shall be  issued  in the form of one or more
global Securities substantially in the form of Exhibit A hereto (each, a "GLOBAL
EXCHANGE SECURITY"),  except that (i) the Restricted Legend shall be omitted and
(ii)  the  Exchange  Securities  shall  contain  such  appropriate   insertions,
omissions, substitutions and other variations from the form set forth in Exhibit
A hereto  relating to the nature of the Exchange  Securities  as the Officers of
the Company  executing  such  Exchange  Securities  on behalf of the Company may
determine,  as evidenced by such Officers' execution on behalf of the Company of
such Exchange Securities.  The Global Exchange Securities shall be in registered
form and be registered in the name of DTC and deposited with the Trustee, at its
Corporate Trust Office, as custodian for DTC. The aggregate  principal amount of
any Global Exchange  Security may from time to time be increased or decreased by
adjustments  made on the records of the Trustee,  as custodian  for DTC for such
Global  Exchange  Security,  which  adjustments  shall be  conclusive  as to the
aggregate  principal  amount of any such Global  Exchange  Security.  Subject to
clauses (i) and (ii) of the first  sentence of this  Section  2.1(f),  the terms
hereof  applicable to the Global  Securities  shall apply to the Global Exchange
Securities, MUTATIS MUTANDIS, unless the context otherwise requires.

     (g) The  definitive  Securities  shall be in  registered  form and shall be
typed, printed, lithographed or engraved or produced by any combination of these
methods  or may be  produced  in any  other  manner,  all as  determined  by the
Officers  executing  such  Securities,  as evidenced by their  execution of such
Securities.

     (h) The  Securities  shall be  signed  for the  Company  by the  manual  or
facsimile  signatures  of two Officers.  If an Officer  whose  signature is on a
Security no longer holds that office at the time the Trustee  authenticates  the
Security, the Security shall be valid nevertheless.



     Section 2.2 RESTRICTIVE LEGENDS.

     All  Initial   Securities  issued  pursuant  to  this  Indenture  shall  be
"RESTRICTED  SECURITIES"  and shall bear a legend to the  following  effect (the
"RESTRICTED LEGEND") except as provided in Section 2.6 or unless the Company and
the Trustee determine otherwise consistent with applicable law:

          "THIS SECURITY HAS NOT BEEN REGISTERED  UNDER THE U.S.  SECURITIES ACT
     OF 1933, AS AMENDED (THE "SECURITIES  ACT"),  AND  ACCORDINGLY,  MAY NOT BE
     OFFERED  OR SOLD  WITHIN  THE  UNITED  STATES OR TO, OR FOR THE  ACCOUNT OR
     BENEFIT OF, ANY PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING  SENTENCE.  BY
     ITS  ACQUISITION  HEREOF,  THE  HOLDER  (1)  REPRESENTS  THAT  (A)  IT IS A
     "QUALIFIED  INSTITUTIONAL  BUYER"  (AS  DEFINED  IN  RULE  144A  UNDER  THE
     SECURITIES  ACT),  (B) IT IS AN  INSTITUTIONAL  "ACCREDITED  INVESTOR"  (AS
     DEFINED  IN RULE  501(a)(1),  (2),  (3) OR (7) OF  REGULATION  D UNDER  THE
     SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A
     U.S.  PERSON AND IS ACQUIRING  THIS SECURITY IN AN OFFSHORE  TRANSACTION IN
     COMPLIANCE  WITH  REGULATION S UNDER THE SECURITIES ACT; (2) AGREES THAT IT
     WILL NOT WITHIN TWO YEARS AFTER THE LATER OF THE ORIGINAL  ISSUANCE OF THIS
     SECURITY OR THE LAST DATE ON WHICH THIS  SECURITY  WAS HELD BY  CONTINENTAL
     AIRLINES,  INC. OR ANY AFFILIATE OF CONTINENTAL  AIRLINES,  INC.  RESELL OR
     OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO CONTINENTAL AIRLINES,  INC.,
     (B) TO A QUALIFIED  INSTITUTIONAL  BUYER IN COMPLIANCE WITH RULE 144A UNDER
     THE  SECURITIES   ACT,  (C)  OUTSIDE  THE  UNITED  STATES  IN  AN  OFFSHORE
     TRANSACTION  IN  COMPLIANCE  WITH RULE 904 UNDER THE  SECURITIES  ACT,  (D)
     PURSUANT TO THE EXEMPTION FROM REGISTRATION  PROVIDED BY RULE 144 UNDER THE
     SECURITIES ACT (IF AVAILABLE) OR (E) PURSUANT TO AN EFFECTIVE  REGISTRATION
     STATEMENT UNDER THE SECURITIES ACT; AND (3) AGREES THAT IF IT SHOULD RESELL
     OR OTHERWISE  TRANSFER THIS SECURITY IT WILL DELIVER TO EACH PERSON TO WHOM
     THIS SECURITY IS TRANSFERRED A NOTICE  SUBSTANTIALLY  TO THE EFFECT OF THIS
     LEGEND.  IN CONNECTION  WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO YEARS
     AFTER THE LATER OF THE ORIGINAL  ISSUANCE OF THIS SECURITY OR THE LAST DATE
     ON WHICH  THIS  SECURITY  WAS HELD BY  CONTINENTAL  AIRLINES,  INC.  OR ANY
     AFFILIATE  OF  CONTINENTAL  AIRLINES,  INC.,  THE  HOLDER  MUST  CHECK  THE
     APPROPRIATE  BOX SET FORTH ON THE REVERSE HEREOF  RELATING TO THE MANNER OF
     SUCH TRANSFER AND SUBMIT THIS SECURITY TO CONTINENTAL AIRLINES, INC. OR ITS
     AGENT. AS USED HEREIN,  THE TERMS "OFFSHORE  TRANSACTION",  "UNITED STATES"
     AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
     SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO





     REFUSE TO REGISTER  ANY  TRANSFER  OF THIS  SECURITY  IN  VIOLATION  OF THE
     FOREGOING RESTRICTIONS."

     Each Global Security and Global Exchange  Security shall bear the following
legend on the face thereof:

          "UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED  REPRESENTATIVE OF
     THE  DEPOSITORY  TRUST  COMPANY,  A  NEW  YORK  CORPORATION   ("DTC"),   TO
     CONTINENTAL  AIRLINES,  INC.  OR ITS AGENT FOR  REGISTRATION  OF  TRANSFER,
     EXCHANGE OR PAYMENT,  AND ANY SECURITY ISSUED IN EXCHANGE FOR THIS SECURITY
     IS  REGISTERED  IN THE  NAME OF  CEDE & CO.  OR IN  SUCH  OTHER  NAME AS IS
     REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS
     MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
     REPRESENTATIVE OF DTC), ANY TRANSFER,  PLEDGE OR OTHER USE HEREOF FOR VALUE
     OR  OTHERWISE  BY OR TO ANY PERSON IS WRONGFUL  INASMUCH AS THE  REGISTERED
     OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

          TRANSFERS  OF THIS GLOBAL  SECURITY  SHALL BE LIMITED TO  TRANSFERS IN
     WHOLE,  BUT NOT IN PART,  TO NOMINEES  OF DTC OR TO A SUCCESSOR  THEREOF OR
     SUCH SUCCESSOR'S  NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
     SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE  RESTRICTIONS SET
     FORTH IN SECTIONS 2.5 AND 2.6 OF THE INDENTURE REFERRED TO HEREIN."

     Section 2.3 AUTHENTICATION OF SECURITIES.

     (a) Subject to the limits set forth herein,  the Trustee shall authenticate
Securities  for original  issue upon written order of the Company  signed by two
Officers.  The order shall specify the amount of Securities to be  authenticated
and the date on which the original  issue of Securities is to be  authenticated,
shall  provide  instructions  with respect to the delivery  thereof and shall be
accompanied by the documents specified in Section 12.4.

     The Trustee may appoint an  authenticating  agent acceptable to the Company
to authenticate Securities.  An authenticating agent may authenticate Securities
whenever  the  Trustee  may  do  so.  Each   reference  in  this   Indenture  to
authentication  by  the  Trustee  includes  authentication  by  such  agent.  An
authenticating agent has the same rights as an Agent to deal with the Company or
any Affiliate of the Company.

     (b) No Security shall be entitled to any benefit under this Indenture or be
valid or  obligatory  for any purpose,  unless there  appears on such Security a
certificate  of  authentication  substantially  in the form  provided for herein



executed  by  the  Trustee  by the  manual  signature  of one of its  authorized
signatories,  and  such  certificate  upon  any  Security  shall  be  conclusive
evidence, and the only evidence,  that such Security has been duly authenticated
and delivered hereunder.

     Section 2.4 TRANSFER AND EXCHANGE.

     All  Securities  issued  upon any  registration  of transfer or exchange of
Securities  shall be  valid  obligations  of the  Company,  evidencing  the same
interest therein, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.

     A  Securityholder  may  transfer a Security,  or request that a Security be
exchanged for Securities (including,  without limitation, subject to the proviso
to this sentence,  Exchange  Securities) in authorized  denominations  and in an
aggregate  principal  amount  equal to the  principal  amount  of such  Security
surrendered for exchange of other authorized denominations, by surrender of such
Security to the Trustee with the form of transfer  notice thereon duly completed
and  executed,  and  otherwise  complying  with  the  terms  of this  Indenture,
including providing evidence of compliance with any restrictions on transfer, in
form satisfactory to the Company,  the Trustee and the Registrar;  PROVIDED that
exchanges of Initial  Securities for Exchange  Securities shall occur only after
an Exchange Offer  Registration  Statement shall have been declared effective by
the SEC (notice of which shall be  provided to the Trustee by the  Company)  and
otherwise  only in  accordance  with the terms of the  Exchange  Offer.  No such
transfer  shall be effected  until,  and such  transferee  shall  succeed to the
rights of a  Securityholder  only upon, final acceptance and registration of the
transfer by the  Registrar in the  Register.  Prior to the  registration  of any
transfer of a Security by a Securityholder as provided herein, the Company,  the
Registrar,  the Paying Agent and the Trustee  shall deem and treat the person in
whose name the Security is registered on the Register as the absolute  owner and
holder thereof for the purpose of receiving  payment of all amounts payable with
respect to such  Security and for all other  purposes,  and none of the Company,
the  Registrar,  the Paying Agent or the Trustee shall be affected by any notice
to the contrary.  Furthermore,  DTC shall,  by acceptance of a Global  Security,
agree that  transfers of  beneficial  interests  in such Global  Security may be
effected only through a book-entry  system  maintained by DTC (or its agent) and
that ownership of a beneficial  interest in the Security shall be required to be
reflected in a book-entry. When Securities are presented to the Registrar with a
request  to  register  the  transfer  thereof  or to  exchange  them  for  other
authorized  denominations  of a  Security  in a  principal  amount  equal to the
aggregate principal amount of Securities surrendered for exchange, the Registrar
shall   register  the  transfer  or  make  the  exchange  as  requested  if  its
requirements for such transactions are met.

     To permit  registrations  of transfers and exchanges in accordance with the
terms,  conditions and restrictions  hereof, the Company shall execute,  and the
Trustee shall  authenticate,  Securities at the Registrar's  request. No service
charge shall be made to a  Securityholder  for any  registration  of transfer or
exchange of Securities,  but the Company may require payment of a sum sufficient
to cover any tax or  governmental  charge that may be imposed in connection with
any  transfer  or  exchange  of  Securities.   All  Securities  surrendered  for



registration  of  transfer  or  exchange  shall  be  canceled  and  subsequently
destroyed by the Trustee.

     Section 2.5  BOOK-ENTRY  PROVISIONS FOR  RESTRICTED  GLOBAL  SECURITIES AND
REGULATION S GLOBAL SECURITIES.

     (a) Members of, or  participants  in, DTC ("AGENT  MEMBERS")  shall have no
rights under this  Indenture  with respect to any Global  Security held on their
behalf by DTC,  or the Trustee as its  custodian,  and DTC may be treated by the
Company,  the Trustee and any agent of the Trustee as the absolute owner of such
Global  Security for all purposes  whatsoever.  Notwithstanding  the  foregoing,
nothing  herein  shall  prevent  the  Company,  the  Trustee or any agent of the
Trustee  from  giving  effect  to any  written  certification,  proxy  or  other
authorization  furnished  by DTC or shall  impair,  as between DTC and its Agent
Members,  the  operation of customary  practices  governing  the exercise of the
rights of a holder of any  Security.  Upon the issuance of any Global  Security,
the  Registrar or its duly  appointed  agent shall record DTC as the  registered
holder of such Global Security.

     (b) Transfers of any Global  Security shall be limited to transfers of such
Restricted  Global Security or Regulation S Global Security in whole, but not in
part, to DTC.  Beneficial  interests in the Restricted  Global  Security and any
Regulation S Global Security may be transferred in accordance with the rules and
procedures of DTC and the provisions of Section 2.6.  Beneficial  interests in a
Restricted  Global Security or a Regulation S Global Security shall be delivered
to all beneficial owners thereof in the form of Restricted Definitive Securities
or Regulation S Definitive  Securities,  as the case may be, if (i) DTC notifies
the Trustee that it is unwilling  or unable to continue as  depositary  for such
Restricted Global Security or Regulation S Global Security,  as the case may be,
and a successor  depositary  is not  appointed by the Trustee  within 90 days of
such notice,  and (ii) after the  occurrence  and during the  continuance  of an
Event of Default,  owners of  beneficial  interests in a Global  Security with a
principal  amount  aggregating  not  less  than a  majority  of the  outstanding
principal amount of the Global Security advise the Trustee,  the Company and DTC
through Agent Members in writing that the  continuation  of a book-entry  system
through DTC or its successor is no longer in their best interests.

     (c)  Any  beneficial  interest  in one of the  Global  Securities  that  is
transferred to a Person who takes delivery in the form of an interest in another
Global Security will, upon such transfer, cease to be an interest in such Global
Security and become an interest in the other Global  Security and,  accordingly,
will  thereafter  be subject to all  transfer  restrictions,  if any,  and other
procedures  applicable to beneficial interests in such other Global Security for
as long as it remains such an interest.

     (d) In connection with the transfer of an entire Restricted Global Security
or an entire  Regulation  S Global  Security to the  beneficial  owners  thereof
pursuant to paragraph (b) of this Section 2.5, such  Restricted  Global Security
or  Regulation  S Global  Security,  as the case may be,  shall be  deemed to be
surrendered to the Trustee for cancellation,  and the Company shall execute, and



the Trustee shall  authenticate,  to each beneficial  owner identified by DTC in
exchange  for its  beneficial  interest in such  Restricted  Global  Security or
Regulation S Global Security,  as the case may be, an equal aggregate  principal
amount  of   Restricted   Definitive   Securities  or  Regulation  S  Definitive
Securities,  as the  case  may  be,  of  authorized  denominations.  None of the
Company, the Registrar,  the Paying Agent or the Trustee shall be liable for any
delay in delivery of such  instructions and may conclusively  rely on, and shall
be protected in relying on, such registration instructions. Upon the issuance of
Definitive Securities, the Company and the Trustee shall recognize the Person in
whose  name  the  Definitive  Securities  are  registered  in  the  Register  as
Securityholders hereunder.

     (e) Any  Definitive  Security  delivered in exchange for an interest in the
Restricted  Global Security pursuant to paragraph (b) of this Section 2.5 shall,
except  as  otherwise  provided  by  paragraph  (e) of  Section  2.6,  bear  the
Restricted Legend.

     (f) Prior to the  expiration of the  Restricted  Period,  any  Regulation S
Definitive  Security  delivered  in exchange  for an interest in a  Regulation S
Global  Security  pursuant to  paragraph  (b) of this Section 2.5 shall bear the
Restricted Legend.

     (g) The registered holder of any Restricted Global Security or Regulation S
Global Security may grant proxies and otherwise authorize any Person,  including
Agent Members and Persons that may hold interests through Agent Members, to take
any  action  which a Holder is  entitled  to take under  this  Indenture  or the
Securities.

     (h) Neither  the Company nor the Trustee  shall be liable if the Trustee or
the Company is unable to locate a qualified successor clearing agency.

     Section 2.6 SPECIAL TRANSFER PROVISIONS.

     Unless and until (i) an Initial  Security is sold under an effective  Shelf
Registration Statement, or (ii) an Initial Security is exchanged for an Exchange
Security pursuant to an effective Exchange Offer Registration Statement, in each
case pursuant to the terms of the Registration  Rights Agreement,  the following
provisions shall apply to such Initial Securities:

     (a) TRANSFERS TO NON-QIB INSTITUTIONAL  ACCREDITED INVESTORS. The following
provisions shall apply with respect to the registration of any proposed transfer
of a Security to any Institutional Accredited Investor that is neither a QIB nor
a Non-U.S. Person:

          (i) The Registrar shall register the transfer of any Security, whether
     or not bearing the Restricted Legend, only if (x) the requested transfer is
     at least two years after the later of the (A) Closing Date and (B) the last
     date on which such Security was held by the Company or any affiliate of the
     Company  or (y) the  proposed  transferor  is an Initial  Purchaser  who is
     transferring  Securities  purchased  under the Purchase  Agreement  and the
     proposed  transferee has delivered to the Registrar a letter  substantially
     in the form of Exhibit C hereto and the aggregate  principal  amount of the
     Securities  being  transferred is at least $100,000.  Except as provided in
     the foregoing  sentence,  the Registrar  shall not register the transfer of



     any Security to any Institutional Accredited Investor that is neither a QIB
     nor a Non-U.S. Person.

          (ii)  If  the  proposed  transferor  is  an  Agent  Member  holding  a
     beneficial  interest in a Restricted  Global Security,  upon receipt by the
     Registrar of (x) the documents,  if any,  required by paragraph (i) and (y)
     instructions given in accordance with DTC's and the Registrar's procedures,
     the  Registrar  shall  reflect  on its  books and  records  the date of the
     transfer and a decrease in the principal  amount of such Restricted  Global
     Security  in an amount  equal to the  principal  amount  of the  beneficial
     interest in such  Restricted  Global  Security to be  transferred,  and the
     Company shall execute and the Trustee shall authenticate and deliver to the
     transferor  or  at  its  direction,   one  or  more  Restricted  Definitive
     Securities of like tenor and amount.

     (b) TRANSFERS TO QIBS. The following provisions shall apply with respect to
the  registration  of any  proposed  transfer  of an Initial  Security  to a QIB
(excluding Non-U.S. Persons):

          (i)  If  the  Security  to be  transferred  consists  of a  Restricted
     Definitive Security,  or of an interest in any Regulation S Global Security
     during the Restricted  Period, the Registrar shall register the transfer if
     such  transfer is being made by a proposed  transferor  who has checked the
     box provided for on the form of Initial Security stating,  or has otherwise
     advised the Company,  the Trustee and the  Registrar  in writing,  that the
     sale has been  made in  compliance  with the  provisions  of Rule 144A to a
     transferee  who has signed the  certification  provided  for on the form of
     Initial Security stating, or has otherwise advised the Company, the Trustee
     and the Registrar in writing,  that it is purchasing  the Initial  Security
     for its own account or an account with  respect to which it exercises  sole
     investment  discretion  and that it, or the  Person  on whose  behalf it is
     acting  with  respect to any such  account,  is a QIB within the meaning of
     Rule 144A,  and is aware that the sale to it is being made in  reliance  on
     Rule 144A and acknowledges that it has received such information  regarding
     the Company as it has requested pursuant to Rule 144A or has determined not
     to request such  information  and that it is aware that the  transferor  is
     relying upon its foregoing  representations in order to claim the exemption
     from registration provided by Rule 144A.

          (ii) Upon receipt by the Registrar of the documents required by clause
     (i)  above  and  instructions  given  in  accordance  with  DTC's  and  the
     Registrar's  procedures therefor,  the Registrar shall reflect on its books
     and records  the date of such  transfer  and an  increase in the  principal
     amount of a Restricted  Global Security in an amount equal to the principal
     amount  of the  Restricted  Definitive  Securities  or  interests  in  such
     Regulation S Global Security,  as the case may be, being  transferred,  and
     the Trustee shall cancel such Definitive  Securities or decrease the amount
     of such Regulation S Global Security so transferred.

     (c)  TRANSFERS  OF  INTERESTS  IN  THE  REGULATION  S  GLOBAL  SECURITY  OR
REGULATION S  DEFINITIVE  SECURITIES.  After the  expiration  of the  Restricted



Period, the Registrar shall register any transfer of interests in any Regulation
S Global  Security or  Regulation S Definitive  Security  without  requiring any
additional  certification.  Until  the  expiration  of  the  Restricted  Period,
interests  in the  Regulation S Global  Security may only be held through  Agent
Members acting for and on behalf of Euroclear and Clearstream.

     (d) TRANSFERS TO NON-U.S.  PERSONS AT ANY TIME.  The  following  provisions
shall  apply with  respect to any  registration  of any  transfer  of an Initial
Security to a Non-U.S. Person:

          (i) Prior to the  expiration of the Restricted  Period,  the Registrar
     shall register any proposed  transfer of an Initial  Security to a Non-U.S.
     Person upon receipt of a certificate substantially in the form set forth as
     Exhibit B hereto from the proposed transferor.

          (ii) After the  expiration  of the  Restricted  Period,  the Registrar
     shall register any proposed transfer to any Non-U.S. Person if the Security
     to be transferred is a Restricted  Definitive  Security or an interest in a
     Restricted Global Security, upon receipt of a certificate  substantially in
     the form of Exhibit B from the proposed  transferor.  The  Registrar  shall
     promptly send a copy of such certificate to the Company.

          (iii) Upon  receipt by the  Registrar  of (x) the  documents,  if any,
     required by clause (ii) and (y)  instructions  in accordance with DTC's and
     the  Registrar's  procedures,  the Registrar shall reflect on its books and
     records the date of such transfer and a decrease in the principal amount of
     such Restricted  Global Security in an amount equal to the principal amount
     of the  beneficial  interest  in  such  Restricted  Global  Security  to be
     transferred,  and, upon receipt by the Registrar of  instructions  given in
     accordance with DTC's and the Registrar's  procedures,  the Registrar shall
     reflect on its books and records the date and an increase in the  principal
     amount  of the  Regulation  S Global  Security  in an  amount  equal to the
     principal  amount of the Restricted  Definitive  Security or the Restricted
     Global  Security,  as the case may be, to be  transferred,  and the Trustee
     shall cancel the  Definitive  Security,  if any, so transferred or decrease
     the amount of such Restricted Global Security.

     (e)  RESTRICTED  LEGEND.  Upon the  transfer,  exchange or  replacement  of
Securities  not bearing the  Restricted  Legend,  the  Registrar  shall  deliver
Securities that do not bear the Restricted Legend.  Upon the transfer,  exchange
or replacement of Securities  bearing the Restricted Legend, the Registrar shall
deliver only  Securities  that bear the Restricted  Legend unless either (i) the
circumstances  contemplated  by  paragraph  (d)(ii) of this Section 2.6 exist or
(ii) there is  delivered  to the  Registrar  an opinion of counsel to the effect
that neither such legend nor the related  restrictions  on transfer are required
in order to maintain compliance with the provisions of the Securities Act.

     (f) GENERAL.  By acceptance of any Security bearing the Restricted  Legend,
each Holder of such Security  acknowledges  the restrictions on transfer of such
Security set forth in such Restricted Legend and otherwise in this Indenture and



agrees that it will transfer  such Security only as provided in such  Restricted
Legend and  otherwise  in this  Indenture.  The  Registrar  shall not register a
transfer of any Security unless such transfer  complies with the restrictions on
transfer,  if any,  of such  Security  set forth in such  Restricted  Legend and
otherwise in this Indenture. In connection with any transfer of Securities, each
Securityholder  agrees  by its  acceptance  of the  Securities  to  furnish  the
Registrar  or  the  Trustee  such   certifications,   legal  opinions  or  other
information  as either  of them may  reasonably  require  to  confirm  that such
transfer is being made  pursuant to an  exemption  from,  or a  transaction  not
subject  to,  the  registration  requirements  of  the  Securities  Act  and  in
accordance  with the terms and  provisions  of this Article 2; PROVIDED that the
Registrar  shall  not be  required  to  determine  the  sufficiency  of any such
certifications, legal opinions or other information.

     Until such time as no Securities  remain  Outstanding,  the Registrar shall
retain copies of all letters,  notices and other written communications received
pursuant to Section 2.5 or this Section 2.6. The Trustee,  if not the  Registrar
at such  time,  shall  have the  right to  inspect  and make  copies of all such
letters, notices or other written communications at any reasonable time upon the
giving of reasonable written notice to the Registrar.

     Section 2.7 TERMS OF SECURITIES.

     The outstanding principal amount of the Securities shall be due on December
6, 2007.  The  Securities  shall bear  interest on the unpaid  principal  amount
thereof from time to time outstanding from the most recent Interest Payment Date
to which  interest  has been paid (or,  if no interest  has been paid,  from the
Closing Date) at the rate per annum for each  Interest  Period equal to the Debt
Rate for such Interest Period (calculated on the basis of a year of 360 days and
actual days elapsed  during the period for which such amount  accrues).  Accrued
interest on the Securities  shall be payable in arrears on each Interest Payment
Date,  until  the  principal  amount  of the  Securities  has been paid in full,
PROVIDED  that if such payment in full is not made on an Interest  Payment Date,
accrued  interest  shall be paid on the date of such payment in full rather than
the next Interest  Payment Date.  Interest on the  Securities  shall accrue with
respect  to the  first  but  not  the  last  day of each  Interest  Period.  The
Securities  shall bear  interest,  payable on demand,  at the  Payment  Due Rate
(calculated  on the basis of a year of 360 days and actual days  elapsed  during
the period for which such amount  accrues) on any part of the principal  amount,
and, to the extent  permitted by applicable Law,  interest and any other amounts
payable  thereunder  not paid when due,  in each case for the period the same is
overdue.  Amounts  under  any  Security  shall be  overdue  if not paid when due
(whether at stated  maturity,  by  acceleration  or otherwise).  Notwithstanding
anything to the contrary  contained herein, if any date on which a payment under
any  Security  becomes due and payable is not a Business  Day then such  payment
shall  not be  made  on such  scheduled  date  but  shall  be  made on the  next
succeeding  Business  Day,  and such  extension of time shall be included in the
computation of interest payable thereunder.



     Section 2.8 REGISTRAR AND PAYING AGENT.

     The Company  shall  maintain an office or agency  where Notes  eligible for
transfer  or  exchange  may be  presented  for  registration  of transfer or for
exchange  ("REGISTRAR") and an office or agency where Notes may be presented for
payment ("PAYING  AGENT").  The Registrar shall keep a register of the Notes and
of their transfer and exchange  ("REGISTER").  Such Register shall be in written
form in the English  language.  At all  reasonable  times such Register shall be
open  for  inspection  by  the  Trustee.  The  Company  may  have  one  or  more
co-Registrars and one or more additional paying agents.  The term "Paying Agent"
includes any additional paying agent.

     The Company may enter into an appropriate  agency  agreement with any Agent
not a party to this  Indenture.  The agreement shall implement the provisions of
this Indenture  that relate to such Agent.  The Company shall notify the Trustee
of the name and  address of any such Agent.  If the Company  fails to maintain a
Registrar or Paying Agent, the Trustee shall act as such.

     The Company initially appoints WTC as Registrar and Paying Agent.

     Section 2.9 PAYING AGENT TO HOLD PAYMENTS IN TRUST.

     Each Paying  Agent shall hold in trust for the benefit of  Noteholders  all
Payments held by the Paying Agent for the payment of principal of,  interest on,
and Premium,  if any, and Break  Amount,  if any, with respect to, the Notes and
shall  notify  the  Trustee  of any  default  by the  Company in making any such
payment.  The Company at any time may require a Paying Agent to pay all Payments
held by it to the Trustee and  account for any funds  disbursed  and the Trustee
may at any time during the  continuance  of any Payment  Default,  upon  written
request to a Paying Agent, require such Paying Agent to pay all Payments held by
it to the Trustee and to account for any Payments  distributed.  Upon receipt of
such  Payment,  the Trustee  shall  immediately  deposit all such amounts in the
Collection  Account.  Upon  doing so the  Paying  Agent  shall  have no  further
liability for the Payments.

     The Paying Agent,  as agent for the Company,  shall exclude and withhold at
the appropriate rate from each payment of principal of, interest on, Premium, if
any,  Break  Amount,  if any, and other amounts due hereunder or under each Note
(and such exclusion and withholding shall constitute  payment in respect of such
Note) any and all United States withholding taxes applicable thereto as required
by Law.  The  Paying  Agent  agrees to act as such  withholding  agent  and,  in
connection  therewith,  whenever  any present or future  United  States taxes or
similar  charges are required to be withheld with respect to any amounts payable
hereunder  or in respect of the Notes,  to withhold  such amounts and timely pay
the  same to the  appropriate  authority  in the  name of and on  behalf  of the
Noteholders,  that it will file any  necessary  United  States  withholding  tax
returns or  statements  when due,  and that as promptly  as  possible  after the
payment thereof it will deliver to each Noteholder  (with a copy to the Company)
appropriate receipts showing the payment thereof,  together with such additional
documentary  evidence as any such Noteholder may reasonably request from time to
time.



     The Company  will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an  instrument in which such Paying Agent shall agree
with the Trustee,  subject to the  provisions of this Section,  that such Paying
Agent will:

     (a) hold all  Payments  received by it as such agent for the payment of the
principal  of,  interest on,  Premium,  if any, or Break  Amount,  if any,  with
respect to the Notes in trust for the  benefit of the Persons  entitled  thereto
until such  Payments  shall be paid to such Persons or otherwise  disposed of as
herein provided;

     (b) promptly give the Trustee  notice of any failure by the Company to make
any payment of the principal of, interest on, Premium,  if any, or Break Amount,
if any, with respect to, the Notes when the same shall be due and payable; and

     (c) at any  time  during  the  continuance  of any such  failure,  upon the
written  request of the  Trustee,  forthwith  pay to the Trustee all Payments so
held in trust by such Paying Agent.

     The Company may at any time, for the purpose of obtaining the  satisfaction
and  discharge  of this  Indenture or for any other  purpose,  direct any Paying
Agent to pay to the Trustee  all  Payments  held in trust by such Paying  Agent,
such Payments to be held by the Trustee upon the same trusts as those upon which
such  Payments  were held by such Paying  Agent;  and,  upon such payment by any
Paying  Agent to the  Trustee,  such Paying  Agent  shall be  released  from all
further liability with respect to such Payments held by it as Paying Agent.

     Any  Payments  deposited  with the Trustee or any Paying Agent in trust for
the payment of the  principal  of,  interest  on, or  Premium,  if any, or Break
Amount,  if any, with respect to, any Note and unclaimed for two (2) years after
such principal,  interest,  Premium, if any, or Break Amount, if any, has become
due and payable  shall be paid to the Company on its request,  unless  otherwise
required by mandatory provisions of applicable escheat or abandoned or unclaimed
property  law,  and the Holder of such Note shall  thereafter,  as an  unsecured
general creditor, look only to the Company for payment thereof and all liability
of the Trustee or such Paying Agent with regard to such Payments shall thereupon
cease.

     Section 2.10 RECORD DATES.

     The Person in whose name any Note is registered at the close of business on
any Record Date with respect to any  Interest  Payment Date shall be entitled to
receive  the  interest  payable  on such  Interest  Payment  Date to the  extent
provided by such Note,  except if and to the extent the Company shall default in
the payment of the interest due on such  Interest  Payment  Date,  in which case
defaulted  interest  shall be paid to the Person in whose  name the  Outstanding
Note is registered at the close of business on the subsequent record date (which
shall be not less than five (5)  Business  Days  prior to the date of payment of
such defaulted interest)  established by notice given by mail by or on behalf of
the Company to the  Holders of Notes of the Series  suffering  such  default not



less than fifteen (15) days  preceding such  subsequent  record date (a "SPECIAL
RECORD DATE") pursuant to Section 2.16.

     Section 2.11 NOTEHOLDER LISTS.

     The  Trustee  shall  preserve  in  as  current  a  form  as  is  reasonably
practicable  the most recent list  available to it of the names and addresses of
Noteholders  of each Series.  If the Trustee is not the  Registrar,  the Company
shall  furnish to the  Trustee on or before each  Distribution  Date and at such
other  times as the Trustee may request in writing a list in such form and as of
such date as the Trustee may  reasonably  require of the names and  addresses of
Noteholders of each Series.

     Section 2.12 MUTILATED, DEFACED, DESTROYED, LOST AND STOLEN NOTES.

     In case any temporary or definitive Note shall become mutilated, defaced or
be  apparently  destroyed,  lost or  stolen,  subject  to  compliance  with  the
following  sentence  and in the  absence of notice to the Company or the Trustee
that such Note has been  acquired by a bona fide  purchaser,  the Company  shall
execute,  and the Trustee shall authenticate and deliver, a new Note of the same
Series,  bearing a number not  contemporaneously  outstanding,  in exchange  and
substitution  for the mutilated or defaced Note, or in lieu of and  substitution
for the  Note so  apparently  destroyed,  lost or  stolen.  In  every  case  the
applicant for a substitute  Note shall furnish to the Company and to the Trustee
and any agent of the Company or the Trustee such security or indemnity as may be
required by them to indemnify  and defend and to save each of them harmless and,
in every case of destruction,  loss or theft,  evidence to their satisfaction of
the  apparent  destruction,  loss or  theft of such  Note  and of the  ownership
thereof.

     Upon  the  issuance  of any  substitute  Note  pursuant  to  the  preceding
paragraph,  the Company may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and any
other  expenses  (including  the fees and  expenses  of the  Trustee)  connected
therewith.  In case any Note  which has  matured  or is about to  mature,  shall
become  mutilated or defaced or be  apparently  destroyed,  lost or stolen,  the
Company may,  instead of issuing a substitute Note, pay or authorize the payment
of such Note  (without  surrender of such Note except in the case of a mutilated
or defaced Note), as applicable, if the applicant for such payment shall furnish
to the  Company  and to the  Trustee and any agent of the Company or the Trustee
such  security  or  indemnity  as any of them may  require  to save each of them
harmless  from  all  risks,  however  remote,  and,  in every  case of  apparent
destruction,  loss or theft, the applicant shall also furnish to the Company and
the  Trustee  and any agent of the  Company  or the  Trustee  evidence  to their
satisfaction of the apparent destruction,  loss or theft of such Note and of the
ownership thereof.

     Every  substitute Note issued pursuant to the provisions of this Section by
virtue of the fact that any Note is apparently  destroyed,  lost or stolen shall
constitute an additional contractual  obligation of the Company,  whether or not
the apparently  destroyed,  lost or stolen Note shall be at any time enforceable
by anyone  and shall be  entitled  to all the  benefits  of (but  shall  also be
subject to all the  limitations of rights set forth in) this  Indenture  equally



and  proportionately  with  any and all  other  Notes of the  same  Series  duly
authenticated and delivered hereunder.  Every substitute Note issued pursuant to
the  provisions  of this  Section  2.12 by  virtue  of the fact that any Note is
mutilated or defaced shall  constitute an additional  contractual  obligation of
the  Company  and shall be  entitled  to all the  benefits of (but shall also be
subject to all the  limitations of rights set forth in) this  Indenture  equally
and  proportionately  with  any and all  other  Notes of the  same  Series  duly
authenticated  and delivered  hereunder.  All Securities shall be held and owned
upon the express  condition that, to the extent  permitted by law, the foregoing
provisions are exclusive with respect to the replacement or payment of mutilated
or defaced or apparently destroyed, lost or stolen Securities and shall preclude
any and all other rights or remedies notwithstanding any law or statute existing
or hereafter  enacted to the contrary with respect to the replacement or payment
of negotiable instruments or other securities without their surrender.

     Section 2.13 TREASURY NOTES.

     In  determining  whether the Holders of the  required  principal  amount of
Notes or Series of Notes  have given or  concurred  in any  amendment,  request,
demand, authorization, direction, notice, consent or waiver under this Indenture
or any  other  Operative  Document,  Notes  owned by the  Company  or any of its
Affiliates shall be disregarded and deemed not to be Outstanding for the purpose
of any such determination,  except that, for the purposes of determining whether
the  Trustee  shall be  protected  in  relying on any such  amendment,  request,
demand,  authorization,  direction,  notice, consent or waiver, only Notes which
the  Trustee  knows are so owned shall be so  disregarded.  Notes so owned which
have been  pledged in good faith may be regarded as  Outstanding  if the pledgee
establishes to the  satisfaction of the Trustee that neither the Company nor any
of its Affiliates is affiliated with the pledgee or any Affiliate of the pledgee
and that the pledgee has the present right (subject to no contrary obligation or
understanding) so to act with respect to the Notes as a Holder  independently of
any direction by or interest of the Company or any of its Affiliates. In case of
a dispute as to such right,  the Trustee in good faith shall be entitled to rely
upon the advice of counsel,  including counsel for the Company.  Upon request of
the Trustee,  the Company shall promptly furnish to the Trustee a certificate of
an Officer listing and identifying all Notes, if any, known by the Company to be
owned or held by or for the account of the Company or any of its Affiliates; and
subject to Sections 8.1 and 8.2 herein,  the Trustee shall be entitled to accept
such  certificate  as conclusive  evidence of the facts therein set forth and of
the fact that all Notes not listed  therein are  Outstanding  for the purpose of
any such determination.

     Section 2.14 TEMPORARY NOTES.

     Until  definitive  Notes of any Series are ready for delivery,  the Company
may  prepare,  and,  upon  written  order  of the  Company,  the  Trustee  shall
authenticate,  temporary Notes of such Series, in any authorized  denominations.
Temporary  Notes  of any  Series  shall  be  substantially  of the  tenor of the
definitive  Notes of such  Series in lieu of which  they are issued but may have
variations that the Company considers  appropriate for temporary Notes.  Without
unreasonable delay, the Company shall prepare and the Trustee shall authenticate



and  deliver  definitive  Notes  in  exchange  for  temporary  Notes.  Until  so
exchanged, the temporary Notes shall be entitled to the same benefits under this
Indenture as definitive Notes of the same Series.

     Section 2.15 CANCELLATION.

     The Company may at any time deliver Notes to the Trustee for  cancellation.
The  Registrar  and the Paying  Agent  shall  forward to the  Trustee  any Notes
surrendered  to them for transfer,  exchange or payment.  The Trustee and no one
else shall  cancel all Notes  surrendered  for  transfer,  exchange,  payment or
cancellation.  The Company may not issue new Notes to replace  Notes it has paid
or which have been delivered to the Trustee for cancellation.  The Trustee shall
destroy all canceled  Notes and, if  requested,  deliver a  certificate  of such
destruction to the Company.  If the Company shall acquire any of the Notes, such
acquisition shall not operate as a satisfaction of the indebtedness  represented
by such  Notes  unless  and  until the same are  delivered  to the  Trustee  for
cancellation.

     Section 2.16 DEFAULTED INTEREST.

     If any payment of interest on the Notes due on any  Interest  Payment  Date
becomes an Overdue  Scheduled  Payment,  the  Company  shall pay such  defaulted
interest,  plus interest on the defaulted interest,  at the Payment Due Rate (in
the case of the Securities) or the Subordinated Payment Due Rate (in the case of
the  Subordinated  Securities)  to the  extent  permitted  by law and the  terms
thereof, to the persons who are Noteholders of the Series suffering such default
on a subsequent  Special  Record Date.  The Company shall fix the Special Record
Date and payment date. If there is an Overdue  Scheduled Payment with respect to
both  Series  of  Notes  attributable  to  interest  originally  due on the same
Interest  Payment Date, the Special  Record Date and payment date  applicable to
each Series  shall be the same.  At least  fifteen  (15) days before the Special
Record Date, the Company shall mail to each  Noteholder of the Series  suffering
such default a notice that states the Special  Record Date, the payment date and
the amount of defaulted interest to be paid.

     Section 2.17 CUSIP NUMBERS.

     The Company in issuing the Notes may use "CUSIP" numbers (if then generally
in use) and,  if so,  the  Trustee  shall use  "CUSIP"  numbers  in  notices  of
redemption as a convenience to Holders; PROVIDED,  HOWEVER, that any such notice
may state that no  representation  is made as to the correctness of such numbers
either as printed on the Notes or as contained in any notice of a redemption and
that reliance may be placed only on the other identification  numbers printed on
the Notes,  and any such  redemption  shall not be  affected by any defect in or
omission of such numbers.



                                   ARTICLE 2A.

                           THE SUBORDINATED SECURITIES

     Section  2A.1 TITLE,  FORM,  DENOMINATION  AND  EXECUTION  OF  SUBORDINATED
SECURITIES.

     (a) The  Initial  Subordinated  Securities  shall be known as the  "INITIAL
FLOATING RATE SECURED SUBORDINATED NOTES DUE 2007" and the Exchange Subordinated
Securities  shall be known as the "EXCHANGE  FLOATING RATE SECURED  SUBORDINATED
NOTES DUE 2007", in each case, of the Company.  Each Subordinated Security shall
be  substantially  in the  form  set  forth  as  Exhibit  D  hereto,  with  such
appropriate  insertions,  omissions,  substitutions  and other variations as are
required or permitted by this  Indenture and may have such  letters,  numbers or
other marks of identification and such legends or endorsements placed thereon as
may be required to comply with the rules of any  securities  exchange or as may,
consistently  herewith,  be determined by the Company or the Officers  executing
the  Subordinated  Securities,  as evidenced by the  Company's or the  Officers'
execution of the Subordinated Securities.

     (b) The  Initial  Subordinated  Securities  shall be  issued  only in fully
registered  form  without  coupons  and only in  denominations  of  $100,000  or
integral  multiples of $1,000 in excess  thereof,  except that one  Subordinated
Security may be issued in a different  denomination.  The Exchange  Subordinated
Securities  will be issued in  denominations  of  $1,000 or  integral  multiples
thereof,  except  that one  Subordinated  Security  may be issued in a different
denomination.  Each  Subordinated  Security  shall  be  dated  the  date  of its
authentication.  The aggregate principal amount of Subordinated Securities which
may  be  authenticated   and  delivered  under  this  Indenture  is  limited  to
$100,000,000 except for Subordinated Securities authenticated and delivered upon
registration  of  transfer  of,  or in  exchange  for,  or  in  lieu  of,  other
Subordinated Securities pursuant to Sections 2.12, 2.14, 2A.4, 2A.6 or 10.5. The
issuance  of  the  Subordinated   Securities  hereunder  shall  be  collectively
considered a single extension of credit to the Company.

     (c) The  Initial  Subordinated  Securities  offered and sold in reliance on
Rule 144A shall be  issued,  and will only be  available,  in the form of one or
more  global  Subordinated  Securities  substantially  in the form of  Exhibit D
hereto with such applicable legends as are provided for in Section 2A.2 (each, a
"RESTRICTED GLOBAL SUBORDINATED SECURITY") duly executed by the Company and duly
authenticated  by  the  Trustee  as  herein  provided.   The  Restricted  Global
Subordinated  Securities  shall be in definitive,  fully registered form without
interest  coupons and be registered  in the name of DTC and  deposited  with the
Trustee,  at its  Corporate  Trust  office,  as custodian for DTC. The aggregate
principal amount of any Restricted Global Subordinated Security may from time to
time be  increased  or  decreased  by  adjustments  made on the  records  of the
Trustee, as custodian for DTC for such Restricted Global Subordinated  Security,
as provided in Section 2A.6 hereof,  which adjustments shall be conclusive as to
the aggregate principal amount of any such Global Subordinated Security.



     (d) The Initial Subordinated Securities offered and sold outside the United
States in reliance on Regulation S shall be issued,  and will only be available,
in the form of one or more global Subordinated  Securities  substantially in the
form of Exhibit D hereto (each, a "REGULATION S GLOBAL  SUBORDINATED  SECURITY")
duly  executed by the Company  and duly  authenticated  by the Trustee as herein
provided.   The  Regulation  S  Global  Subordinated   Securities  shall  be  in
definitive,  fully registered form without interest coupons and be registered in
the name of DTC and deposited with the Trustee,  at its Corporate  Trust Office,
as custodian for DTC, for credit  initially and during the Restricted  Period to
the respective accounts of beneficial owners of such Subordinated Securities (or
to such other  accounts as they may direct) at Morgan  Guaranty Trust Company of
New York,  Brussels  office,  as operator of Euroclear or  Clearstream.  As used
herein,  the term "RESTRICTED  PERIOD",  with respect to the Regulation S Global
Subordinated  Securities offered and sold in reliance on Regulation S, means the
period of 40  consecutive  days  beginning on and including the later of (i) the
day on which the Subordinated Securities are first offered to persons other than
distributors  (as defined in  Regulation S) in reliance on Regulation S and (ii)
the Subordinated  Closing Date. The aggregate principal amount of any Regulation
S Global  Subordinated  Security may from time to time be increased or decreased
by adjustments made on the records of the Trustee, as custodian for DTC for such
Global  Subordinated  Security,  as  provided  in  Section  2A.6  hereof,  which
adjustments shall be conclusive as to the aggregate principal amount of any such
Global Subordinated  Security.  The Restricted Global Subordinated  Security and
Regulation S Global Subordinated Security are sometimes collectively referred to
herein as the "GLOBAL SUBORDINATED SECURITIES".

     (e) Initial  Subordinated  Securities offered and sold to any Institutional
Accredited  Investor that is not a QIB in a transaction exempt from registration
under the Securities Act (and other than as described in Section  2A.1(d)) shall
be issued  substantially  in the form of Exhibit D hereto in  definitive,  fully
registered form without  interest  coupons with such  applicable  legends as are
provided  for  in  Section  2A.2  (the   "RESTRICTED   DEFINITIVE   SUBORDINATED
SECURITIES") duly executed by the Company and duly  authenticated by the Trustee
as herein provided.  Subordinated  Securities issued pursuant to Section 2A.5(b)
in exchange for interests in a Regulation S Global  Subordinated  Security shall
be issued in definitive,  fully  registered form without  interest  coupons (the
"REGULATION S DEFINITIVE  SUBORDINATED  SECURITIES").  The Restricted Definitive
Subordinated  Securities and the Regulation S Definitive Subordinated Securities
are sometimes  collectively  referred to herein as the "DEFINITIVE  SUBORDINATED
SECURITIES".

     (f) The Exchange Subordinated Securities shall be issued in the form of one
or more global  Subordinated  Securities  substantially in the form of Exhibit D
hereto (each, a "GLOBAL EXCHANGE  SUBORDINATED  SECURITY"),  except that (i) the
Restricted Legend shall be omitted and (ii) the Exchange Subordinated Securities
shall contain such appropriate  insertions,  omissions,  substitutions and other
variations from the form set forth in Exhibit D hereto relating to the nature of
the Exchange  Subordinated  Securities as the Officers of the Company  executing
such Exchange Subordinated Securities on behalf of the Company may determine, as
evidenced by such Officers'  execution on behalf of the Company of such Exchange
Subordinated Securities. The Global Exchange Subordinated Securities shall be in
registered  form and be  registered  in the name of DTC and  deposited  with the



Trustee,  at its  Corporate  Trust  Office,  as custodian for DTC. The aggregate
principal amount of any Global Exchange  Subordinated  Security may from time to
time be  increased  or  decreased  by  adjustments  made on the  records  of the
Trustee,  as custodian for DTC for such Global Exchange  Subordinated  Security,
which  adjustments  shall be conclusive as to the aggregate  principal amount of
any such Global Exchange Subordinated Security.  Subject to clauses (i) and (ii)
of the first sentence of this Section  2A.1(f),  the terms hereof  applicable to
the  Global   Subordinated   Securities  shall  apply  to  the  Global  Exchange
Subordinated  Securities,   MUTATIS  MUTANDIS,   unless  the  context  otherwise
requires.

     (g) The definitive  Subordinated Securities shall be in registered form and
shall be typed, printed, lithographed or engraved or produced by any combination
of these  methods or may be produced in any other  manner,  all as determined by
the  Officers  executing  such  Subordinated  Securities,  as evidenced by their
execution of such Subordinated Securities.

     (h) The  Subordinated  Securities  shall be signed  for the  Company by the
manual or facsimile signatures of two Officers. If an Officer whose signature is
on a  Subordinated  Security no longer holds that office at the time the Trustee
authenticates  the Subordinated  Security,  the  Subordinated  Security shall be
valid nevertheless.

     Section 2A.2 RESTRICTIVE LEGENDS.

     All Initial Subordinated Securities issued pursuant to this Indenture shall
be "RESTRICTED SUBORDINATED SECURITIES" and shall bear the Restricted Legend.

     Each Global Subordinated Security and Global Exchange Subordinated Security
shall bear the following legend on the face thereof:

          "UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED  REPRESENTATIVE OF
     THE  DEPOSITORY  TRUST  COMPANY,  A  NEW  YORK  CORPORATION   ("DTC"),   TO
     CONTINENTAL  AIRLINES,  INC.  OR ITS AGENT FOR  REGISTRATION  OF  TRANSFER,
     EXCHANGE OR PAYMENT,  AND ANY SECURITY ISSUED IN EXCHANGE FOR THIS SECURITY
     IS  REGISTERED  IN THE  NAME OF  CEDE & CO.  OR IN  SUCH  OTHER  NAME AS IS
     REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS
     MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
     REPRESENTATIVE OF DTC), ANY TRANSFER,  PLEDGE OR OTHER USE HEREOF FOR VALUE
     OR  OTHERWISE  BY OR TO ANY PERSON IS WRONGFUL  INASMUCH AS THE  REGISTERED
     OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

          TRANSFERS  OF THIS GLOBAL  SECURITY  SHALL BE LIMITED TO  TRANSFERS IN
     WHOLE,  BUT NOT IN PART,  TO NOMINEES  OF DTC OR TO A SUCCESSOR  THEREOF OR
     SUCH SUCCESSOR'S  NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY



     SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE  RESTRICTIONS SET
     FORTH IN SECTIONS 2A.5 AND 2A.6 OF THE INDENTURE REFERRED TO HEREIN."

     Section 2A.3 AUTHENTICATION OF SUBORDINATED SECURITIES.

     (a) Subject to the limits set forth herein,  the Trustee shall authenticate
Subordinated  Securities  for original  issue upon written  order of the Company
signed by two  Officers.  The order  shall  specify  the amount of  Subordinated
Securities  to be  authenticated  and the date on which  the  original  issue of
Subordinated Securities is to be authenticated,  shall provide instructions with
respect  to the  delivery  thereof  and shall be  accompanied  by the  documents
specified in Section 12.4.

     The Trustee may appoint an  authenticating  agent acceptable to the Company
to  authenticate   Subordinated   Securities.   An   authenticating   agent  may
authenticate  Subordinated  Securities  whenever  the  Trustee  may do so.  Each
reference  in  this  Indenture  to   authentication   by  the  Trustee  includes
authentication by such agent. An authenticating  agent has the same rights as an
Agent to deal with the Company or any Affiliate of the Company.

     (b) No  Subordinated  Security  shall be entitled to any benefit under this
Indenture or be valid or  obligatory  for any purpose,  unless there  appears on
such Subordinated Security a certificate of authentication  substantially in the
form provided for herein executed by the Trustee by the manual  signature of one
of its  authorized  signatories,  and such  certificate  upon  any  Subordinated
Security  shall  be  conclusive  evidence,  and the  only  evidence,  that  such
Subordinated Security has been duly authenticated and delivered hereunder

     Section 2A.4 TRANSFER AND EXCHANGE.

     All  Subordinated  Securities  issued upon any  registration of transfer or
exchange of Subordinated  Securities shall be valid  obligations of the Company,
evidencing  the same interest  therein,  and entitled to the same benefits under
this  Indenture,   as  the   Subordinated   Securities   surrendered  upon  such
registration of transfer or exchange.

     A  Subordinated  Securityholder  may transfer a Subordinated  Security,  or
request that a Subordinated  Security be exchanged for  Subordinated  Securities
(including,  without  limitation,  subject  to the  proviso  to  this  sentence,
Exchange  Subordinated   Securities)  in  authorized  denominations  and  in  an
aggregate  principal amount equal to the principal  amount of such  Subordinated
Security  surrendered  for  exchange  of  other  authorized  denominations,   by
surrender of such Subordinated Security to the Trustee with the form of transfer
notice  thereon duly  completed and executed,  and otherwise  complying with the
terms of this  Indenture,  including  providing  evidence of compliance with any
restrictions on transfer,  in form satisfactory to the Company,  the Trustee and
the Registrar;  PROVIDED that exchanges of Initial  Subordinated  Securities for
Exchange  Subordinated  Securities  shall  occur  only after an  Exchange  Offer
Registration  Statement shall have been declared effective by the SEC (notice of



which shall be provided to the Trustee by the  Company)  and  otherwise  only in
accordance  with the terms of the  Exchange  Offer.  No such  transfer  shall be
effected  until,   and  such  transferee  shall  succeed  to  the  rights  of  a
Subordinated  Securityholder only upon, final acceptance and registration of the
transfer by the  Registrar in the  Register.  Prior to the  registration  of any
transfer of a Subordinated Security by a Subordinated Securityholder as provided
herein, the Company, the Registrar,  the Paying Agent and the Trustee shall deem
and treat the person in whose name the  Subordinated  Security is  registered on
the  Register  as the  absolute  owner and  holder  thereof  for the  purpose of
receiving  payment of all  amounts  payable  with  respect to such  Subordinated
Security and for all other purposes, and none of the Company, the Registrar, the
Paying  Agent or the Trustee  shall be  affected by any notice to the  contrary.
Furthermore,  DTC shall, by acceptance of a Global Subordinated Security,  agree
that transfers of beneficial interests in such Global Subordinated  Security may
be effected  only through a book-entry  system  maintained by DTC (or its agent)
and that ownership of a beneficial  interest in the Subordinated  Security shall
be required to be reflected in a book-entry.  When  Subordinated  Securities are
presented to the Registrar with a request to register the transfer thereof or to
exchange them for other authorized denominations of a Subordinated Security in a
principal  amount  equal  to the  aggregate  principal  amount  of  Subordinated
Securities  surrendered for exchange,  the Registrar shall register the transfer
or make the exchange as requested if its requirements for such  transactions are
met.

     To permit  registrations  of transfers and exchanges in accordance with the
terms,  conditions and restrictions  hereof, the Company shall execute,  and the
Trustee shall authenticate,  Subordinated Securities at the Registrar's request.
No  service  charge  shall  be made  to a  Subordinated  Securityholder  for any
registration of transfer or exchange of Subordinated Securities, but the Company
may require payment of a sum sufficient to cover any tax or governmental  charge
that may be imposed in connection  with any transfer or exchange of Subordinated
Securities. All Subordinated Securities surrendered for registration of transfer
or exchange shall be canceled and subsequently destroyed by the Trustee.

     Section 2A.5  BOOK-ENTRY  PROVISIONS  FOR  RESTRICTED  GLOBAL  SUBORDINATED
SECURITIES AND REGULATION S GLOBAL SUBORDINATED SECURITIES.

     (a) Agent Members shall have no rights under this Indenture with respect to
any Global Subordinated  Security held on their behalf by DTC, or the Trustee as
its custodian,  and DTC may be treated by the Company, the Trustee and any agent
of the Trustee as the absolute  owner of such Global  Subordinated  Security for
all purposes  whatsoever.  Notwithstanding  the foregoing,  nothing herein shall
prevent the Company,  the Trustee or any agent of the Trustee from giving effect
to any written certification,  proxy or other authorization  furnished by DTC or
shall impair,  as between DTC and its Agent Members,  the operation of customary
practices  governing the exercise of the rights of a holder of any  Subordinated
Security.  Upon the issuance of any Global Subordinated  Security, the Registrar
or its duly appointed  agent shall record DTC as the  registered  holder of such
Global Subordinated Security.



     (b)  Transfers  of any  Global  Subordinated  Security  shall be limited to
transfers of such Restricted Global Subordinated Security or Regulation S Global
Subordinated Security in whole, but not in part, to DTC. Beneficial interests in
the  Restricted  Global  Subordinated  Security  and  any  Regulation  S  Global
Subordinated  Security  may be  transferred  in  accordance  with the  rules and
procedures of DTC and the provisions of Section 2A.6.  Beneficial interests in a
Restricted Global  Subordinated  Security or a Regulation S Global  Subordinated
Security  shall be delivered  to all  beneficial  owners  thereof in the form of
Restricted  Definitive   Subordinated  Securities  or  Regulation  S  Definitive
Subordinated  Securities,  as the case may be, if (i) DTC  notifies  the Trustee
that it is unwilling  or unable to continue as  depositary  for such  Restricted
Global Subordinated  Security or Regulation S Global Subordinated  Security,  as
the case may be, and a  successor  depositary  is not  appointed  by the Trustee
within 90 days of such  notice,  and (ii)  after the  occurrence  and during the
continuance of an Event of Default,  owners of beneficial  interests in a Global
Subordinated  Security  with a  principal  amount  aggregating  not less  than a
majority of the outstanding principal amount of the Global Subordinated Security
advise the Trustee,  the Company and DTC through  Agent  Members in writing that
the  continuation  of a  book-entry  system  through DTC or its  successor is no
longer in their best interests.

     (c) Any beneficial  interest in one of the Global  Subordinated  Securities
that is transferred to a Person who takes delivery in the form of an interest in
another Global  Subordinated  Security will, upon such transfer,  cease to be an
interest  in such  Global  Subordinated  Security  and become an interest in the
other Global Subordinated Security and, accordingly,  will thereafter be subject
to all  transfer  restrictions,  if any,  and  other  procedures  applicable  to
beneficial  interests in such other Global Subordinated  Security for as long as
it remains such an interest.

     (d)  In  connection  with  the  transfer  of an  entire  Restricted  Global
Subordinated  Security or an entire Regulation S Global Subordinated Security to
the beneficial  owners  thereof  pursuant to paragraph (b) of this Section 2A.5,
such Restricted Global Subordinated Security or Regulation S Global Subordinated
Security,  as the case may be, shall be deemed to be  surrendered to the Trustee
for  cancellation,  and  the  Company  shall  execute,  and  the  Trustee  shall
authenticate,  to each  beneficial  owner  identified by DTC in exchange for its
beneficial  interest  in  such  Restricted  Global   Subordinated   Security  or
Regulation  S  Global  Subordinated  Security,  as the  case  may be,  an  equal
aggregate principal amount of Restricted Definitive  Subordinated  Securities or
Regulation  S  Definitive  Subordinated  Securities,  as the  case  may  be,  of
authorized  denominations.  None of the Company, the Registrar, the Paying Agent
or the Trustee  shall be liable for any delay in  delivery of such  instructions
and may  conclusively  rely on,  and shall be  protected  in  relying  on,  such
registration   instructions.   Upon  the  issuance  of  Definitive  Subordinated
Securities, the Company and the Trustee shall recognize the Person in whose name
the  Definitive  Subordinated  Securities  are  registered  in the  Register  as
Subordinated Securityholders hereunder.

     (e) Any  Definitive  Subordinated  Security  delivered  in exchange  for an
interest in the Restricted  Global  Subordinated  Security pursuant to paragraph



(b) of this Section 2A.5 shall, except as otherwise provided by paragraph (e) of
Section 2A.6, bear the Restricted Legend.

     (f) Prior to the  expiration of the  Restricted  Period,  any  Regulation S
Definitive  Subordinated  Security  delivered  in exchange  for an interest in a
Regulation S Global  Subordinated  Security  pursuant to  paragraph  (b) of this
Section 2A.5 shall bear the Restricted Legend.

     (g) The registered holder of any Restricted Global Subordinated Security or
Regulation  S Global  Subordinated  Security  may grant  proxies  and  otherwise
authorize  any  Person,  including  Agent  Members  and  Persons  that  may hold
interests  through Agent Members,  to take any action which a Holder is entitled
to take under this Indenture or the Subordinated Securities.

     (h) Neither  the Company nor the Trustee  shall be liable if the Trustee or
the Company is unable to locate a qualified successor clearing agency.

     Section 2A.6 SPECIAL TRANSFER PROVISIONS.

     Unless  and until (i) an  Initial  Subordinated  Security  is sold under an
effective Shelf Registration Statement, or (ii) an Initial Subordinated Security
is  exchanged  for an Exchange  Subordinated  Security  pursuant to an effective
Exchange Offer Registration Statement, in each case pursuant to the terms of the
Subordinated  Security  Registration Rights Agreement,  the following provisions
shall apply to such Initial Subordinated Securities:

     (a) TRANSFERS TO NON-QIB INSTITUTIONAL  ACCREDITED INVESTORS. The following
provisions shall apply with respect to the registration of any proposed transfer
of a  Subordinated  Security to any  Institutional  Accredited  Investor that is
neither a QIB nor a Non-U.S. Person:

          (i) The  Registrar  shall  register the  transfer of any  Subordinated
     Security,  whether or not bearing the  Restricted  Legend,  only if (x) the
     requested  transfer  is at  least  two  years  after  the  later of the (A)
     Subordinated  Closing Date and (B) the last date on which such Subordinated
     Security was held by the Company or any affiliate of the Company or (y) the
     proposed   transferor  is  an  Initial   Purchaser   who  is   transferring
     Subordinated  Securities purchased under the Subordinated Security Purchase
     Agreement  and the proposed  transferee  has  delivered to the  Registrar a
     letter  substantially  in the form of  Exhibit C hereto  and the  aggregate
     principal  amount of the Subordinated  Securities  being  transferred is at
     least $100,000. Except as provided in the foregoing sentence, the Registrar
     shall  not  register  the  transfer  of any  Subordinated  Security  to any
     Institutional  Accredited  Investor  that is  neither a QIB nor a  Non-U.S.
     Person.

          (ii)  If  the  proposed  transferor  is  an  Agent  Member  holding  a
     beneficial  interest in a Restricted  Global  Subordinated  Security,  upon
     receipt  by the  Registrar  of (x)  the  documents,  if  any,  required  by
     paragraph (i) and (y)  instructions  given in accordance with DTC's and the



     Registrar's  procedures,  the  Registrar  shall  reflect  on its  books and
     records the date of the transfer and a decrease in the principal  amount of
     such  Restricted  Global  Subordinated  Security in an amount  equal to the
     principal  amount of the  beneficial  interest  in such  Restricted  Global
     Subordinated Security to be transferred,  and the Company shall execute and
     the Trustee  shall  authenticate  and deliver to the  transferor  or at its
     direction,  one or more Restricted  Definitive  Subordinated  Securities of
     like tenor and amount.

     (b) TRANSFERS TO QIBS. The following provisions shall apply with respect to
the registration of any proposed transfer of an Initial Subordinated Security to
a QIB (excluding Non-U.S. Persons):

          (i) If the  Subordinated  Security  to be  transferred  consists  of a
     Restricted  Definitive  Subordinated  Security,  or of an  interest  in any
     Regulation S Global Subordinated Security during the Restricted Period, the
     Registrar  shall  register the transfer if such transfer is being made by a
     proposed  transferor  who has checked the box  provided  for on the form of
     Initial  Subordinated  Security  stating,  or  has  otherwise  advised  the
     Company,  the Trustee and the Registrar in writing,  that the sale has been
     made in compliance with the provisions of Rule 144A to a transferee who has
     signed the certification  provided for on the form of Initial  Subordinated
     Security stating, or has otherwise advised the Company, the Trustee and the
     Registrar  in  writing,  that it is  purchasing  the  Initial  Subordinated
     Security  for its own  account  or an  account  with  respect  to  which it
     exercises  sole  investment  discretion and that it, or the Person on whose
     behalf it is acting with respect to any such  account,  is a QIB within the
     meaning  of Rule  144A,  and is aware  that the sale to it is being made in
     reliance  on  Rule  144A  and  acknowledges   that  it  has  received  such
     information regarding the Company as it has requested pursuant to Rule 144A
     or has determined not to request such information and that it is aware that
     the  transferor is relying upon its foregoing  representations  in order to
     claim the exemption from registration provided by Rule 144A.

          (ii) Upon receipt by the Registrar of the documents required by clause
     (i)  above  and  instructions  given  in  accordance  with  DTC's  and  the
     Registrar's  procedures therefor,  the Registrar shall reflect on its books
     and records  the date of such  transfer  and an  increase in the  principal
     amount of a Restricted Global  Subordinated  Security in an amount equal to
     the principal amount of the Restricted Definitive  Subordinated  Securities
     or interests in such Regulation S Global Subordinated Security, as the case
     may be, being  transferred,  and the Trustee  shall cancel such  Definitive
     Subordinated  Securities or decrease the amount of such Regulation S Global
     Subordinated Security so transferred.

     (c) TRANSFERS OF INTERESTS IN THE REGULATION S GLOBAL SUBORDINATED SECURITY
OR REGULATION S DEFINITIVE SUBORDINATED SECURITIES.  After the expiration of the
Restricted Period, the Registrar shall register any transfer of interests in any
Regulation   S  Global   Subordinated   Security  or   Regulation  S  Definitive
Subordinated Security without requiring any additional certification.  Until the



expiration  of the  Restricted  Period,  interests  in the  Regulation  S Global
Subordinated  Security may only be held through Agent Members  acting for and on
behalf of Euroclear and Clearstream.

     (d) TRANSFERS TO NON-U.S.  PERSONS AT ANY TIME.  The  following  provisions
shall  apply with  respect to any  registration  of any  transfer  of an Initial
Subordinated Security to a Non-U.S. Person:

          (i) Prior to the  expiration of the Restricted  Period,  the Registrar
     shall register any proposed transfer of an Initial Subordinated Security to
     a Non-U.S.  Person upon receipt of a certificate  substantially in the form
     set forth as Exhibit B hereto from the proposed transferor.

          (ii) After the  expiration  of the  Restricted  Period,  the Registrar
     shall  register  any  proposed  transfer  to  any  Non-U.S.  Person  if the
     Subordinated   Security  to  be  transferred  is  a  Restricted  Definitive
     Subordinated  Security or an interest in a Restricted  Global  Subordinated
     Security,  upon  receipt  of a  certificate  substantially  in the  form of
     Exhibit B from the proposed transferor. The Registrar shall promptly send a
     copy of such certificate to the Company.

          (iii) Upon  receipt by the  Registrar  of (x) the  documents,  if any,
     required by clause (ii) and (y)  instructions  in accordance with DTC's and
     the  Registrar's  procedures,  the Registrar shall reflect on its books and
     records the date of such transfer and a decrease in the principal amount of
     such  Restricted  Global  Subordinated  Security in an amount  equal to the
     principal  amount of the  beneficial  interest  in such  Restricted  Global
     Subordinated Security to be transferred, and, upon receipt by the Registrar
     of  instructions  given  in  accordance  with  DTC's  and  the  Registrar's
     procedures,  the Registrar  shall reflect on its books and records the date
     and an  increase  in  the  principal  amount  of the  Regulation  S  Global
     Subordinated  Security in an amount  equal to the  principal  amount of the
     Restricted  Definitive  Subordinated  Security  or  the  Restricted  Global
     Subordinated  Security,  as the case  may be,  to be  transferred,  and the
     Trustee  shall  cancel the  Definitive  Subordinated  Security,  if any, so
     transferred or decrease the amount of such Restricted  Global  Subordinated
     Security.

     (e)  RESTRICTED  LEGEND.  Upon the  transfer,  exchange or  replacement  of
Subordinated  Securities not bearing the Restricted  Legend, the Registrar shall
deliver Subordinated Securities that do not bear the Restricted Legend. Upon the
transfer,  exchange  or  replacement  of  Subordinated  Securities  bearing  the
Restricted Legend, the Registrar shall deliver only Subordinated Securities that
bear the Restricted Legend unless either (i) the  circumstances  contemplated by
paragraph  (d)(ii) of this  Section 2A.6 exist or (ii) there is delivered to the
Registrar  an opinion of counsel to the effect that  neither such legend nor the
related  restrictions  on transfer are required in order to maintain  compliance
with the provisions of the Securities Act.

     (f)  GENERAL.  By  acceptance  of any  Subordinated  Security  bearing  the
Restricted Legend,  each Holder of such Subordinated  Security  acknowledges the
restrictions  on  transfer  of such  Subordinated  Security  set  forth  in such



Restricted  Legend and  otherwise  in this  Indenture  and  agrees  that it will
transfer such  Subordinated  Security only as provided in such Restricted Legend
and otherwise in this Indenture.  The Registrar shall not register a transfer of
any Subordinated Security unless such transfer complies with the restrictions on
transfer,  if any, of such  Subordinated  Security set forth in such  Restricted
Legend and  otherwise  in this  Indenture.  In  connection  with any transfer of
Subordinated  Securities,   each  Subordinated   Securityholder  agrees  by  its
acceptance of the Subordinated  Securities to furnish the Company, the Registrar
or the Trustee such  certifications,  legal opinions or other information as any
of them may  reasonably  require to  confirm  that such  transfer  is being made
pursuant to an exemption from, or a transaction not subject to, the registration
requirements  of the  Securities  Act  and in  accordance  with  the  terms  and
provisions of this Article 2A; PROVIDED that the Registrar shall not be required
to determine the sufficiency of any such certifications, legal opinions or other
information.

     Until  such time as no  Subordinated  Securities  remain  Outstanding,  the
Registrar  shall  retain  copies  of all  letters,  notices  and  other  written
communications  received  pursuant to Section  2A.5 or this  Section  2A.6.  The
Trustee,  if not the Registrar at such time, shall have the right to inspect and
make copies of all such letters,  notices or other written communications at any
reasonable time upon the giving of reasonable written notice to the Registrar.

     Section 2A.7 TERMS OF SUBORDINATED SECURITIES.

     The outstanding  principal amount of the  Subordinated  Securities shall be
due on December 6, 2007. The Subordinated  Securities shall bear interest on the
unpaid  principal  amount  thereof from time to time  outstanding  from the most
recent Interest Payment Date to which interest has been paid (or, if no interest
has been paid,  from the  Subordinated  Closing  Date) at the rate per annum for
each  Interest  Period  equal to the  Subordinated  Debt Rate for such  Interest
Period  (calculated  on the basis of a year of 360 days and actual days  elapsed
during the  period  for which such  amount  accrues).  Accrued  interest  on the
Subordinated  Securities  shall be payable in arrears on each  Interest  Payment
Date, until the principal amount of the Subordinated Securities has been paid in
full,  PROVIDED that if such payment in full is not made on an Interest  Payment
Date,  accrued interest shall be paid on the date of such payment in full rather
than the next Interest  Payment Date.  Interest on the  Subordinated  Securities
shall  accrue  with  respect to the first but not the last day of each  Interest
Period. The Subordinated  Securities shall bear interest,  payable on demand, at
the Subordinated Payment Due Rate (calculated on the basis of a year of 360 days
and actual days elapsed during the period for which such amount  accrues) on any
part of the principal  amount,  and, to the extent  permitted by applicable Law,
interest and any other  amounts  payable  thereunder  not paid when due, in each
case for the period the same is overdue. Amounts under any Subordinated Security
shall  be  overdue  if not  paid  when  due  (whether  at  stated  maturity,  by
acceleration or otherwise).  Notwithstanding  anything to the contrary contained
herein,  if any date on which a payment under any Subordinated  Security becomes
due and  payable is not a Business  Day then such  payment  shall not be made on
such scheduled date but shall be made on the next  succeeding  Business Day, and
such extension of time shall be included in the computation of interest  payable
thereunder.



                                   ARTICLE 3.

        LIQUIDITY PROVIDER AND POLICY PROVIDER; PRIORITY OF DISTRIBUTIONS

     Section 3.1 WRITTEN NOTICE OF DISTRIBUTION.

     (a) No later  than 3:00  p.m.  (New York  City  time) on the  Business  Day
immediately  preceding each  Distribution  Date,  each of the following  Persons
shall  deliver  to the  Trustee a Written  Notice  setting  forth the  following
information as at the close of business on such Business Day:

          (i) The Liquidity  Provider  shall set forth the amounts to be paid to
     it in accordance  with clauses  "first",  "second",  "third",  "fourth" and
     "fifth" of Section 3.2; and

          (ii) The Policy  Provider shall set forth the amounts to be paid to it
     in  accordance  with  clauses  "first",  "second",  "third",  "fourth"  and
     "eighth" of Section 3.2.

     The  notices  required  under this  Section  3.1(a) may be in the form of a
schedule or similar document  provided to the Trustee by the Persons  referenced
therein or by any one of them,  which  schedule  or similar  document  may state
that,  unless there has been a prepayment  of the  Securities,  such schedule or
similar document is to remain in effect until any substitute notice or amendment
shall be given to the Trustee by the Person  providing such notice.  Any amounts
requested  and  received  under the Policy  Fee  Letter or the  Policy  Provider
Agreement  or any  amounts for which the Policy  Provider is not  entitled to be
reimbursed  pursuant to the provisions of the Policy Provider  Agreement may not
be requested by the Policy Provider under this Section 3.1(a) nor distributed to
the Policy Provider under Section 3.2.

     (b) At such time as the  Liquidity  Provider or the Policy  Provider  shall
have  received  all  amounts  owing to it pursuant to Section 3.2 hereof and its
commitment or  obligations  under the Liquidity  Facility or the Policy,  as the
case may be, shall have  terminated or expired,  such Person shall, by a Written
Notice, so inform the Trustee.

     (c)  The  Trustee  shall  be  fully  protected  in  relying  on  any of the
information set forth in a Written Notice provided by the Liquidity  Provider or
the Policy  Provider  pursuant to paragraphs  (a) or (b) above and shall have no
independent obligation to verify,  calculate or recalculate any amount set forth
in any Written Notice delivered in accordance with such paragraphs.

     (d) In the  event  the  Trustee  shall  not  receive  from any  Person  any
information  set forth in  paragraph  (a) above  which is required to enable the
Trustee to make a  distribution  to such  Person  pursuant to Section  3.2,  the
Trustee  shall  request  such  information  and,  failing  to  receive  any such
information,  the Trustee shall not make such distribution(s) to such Person. In
such event,  the Trustee shall make  distributions  pursuant to clauses  "FIRST"
through  "ELEVENTH"  of  Section  3.2 to the  extent  it shall  have  sufficient



information to enable it to make such distributions,  and shall continue to hold
any funds remaining,  after making such  distributions,  until the Trustee shall
receive  all  necessary  information  to  enable it to  distribute  any funds so
withheld.

     (e) On such dates (but not more  frequently  than monthly) as the Liquidity
Provider or the Policy Provider shall request, but in any event automatically at
the end of each  calendar  quarter,  the  Trustee  shall  send to such  Person a
written statement reflecting all amounts on deposit with the Trustee pursuant to
Section 3.1(d) hereof.

     Section 3.2 PRIORITY OF DISTRIBUTIONS; SUBORDINATION.

     Except as otherwise  provided in Sections 3.1(d),  3.3, 3.5(b),  3.5(k) and
3.6, amounts on deposit in the Collection Account on any Distribution Date shall
be promptly  distributed  in the  following  order of priority and in accordance
with the information provided to the Trustee pursuant to Section 3.1(a) hereof:

          FIRST, if an Event of Default shall have occurred and be continuing on
     such  Distribution  Date, such amount as shall be required to reimburse (i)
     the Trustee for any reasonable  out-of-pocket  costs and expenses  actually
     incurred by it (to the extent not previously  reimbursed) in the protection
     of, or the realization of the value of, the Collateral, shall be applied by
     the Trustee in  reimbursement  of such costs and expenses,  (ii) the Policy
     Provider  for any  amounts  of the  nature  described  in clause  (i) above
     actually incurred by it under the Policy Provider  Agreement (to the extent
     not previously  reimbursed),  shall be distributed to the Policy  Provider,
     and (iii) the Liquidity Provider, the Policy Provider or any Securityholder
     for  payments,  if any,  made by it to the  Trustee  in  respect of amounts
     described  in clause  (i)  above,  shall be  distributed  to the  Liquidity
     Provider,  the Policy  Provider  or to the  Trustee for the account of such
     Securityholder,  in each such  case,  pro rata on the basis of all  amounts
     described in clauses (i) through (iii) above.

          SECOND,  such  amount as shall be  required to pay (i) all accrued and
     unpaid  Liquidity  Expenses  owed to the  Liquidity  Provider  and (ii) all
     accrued and unpaid Policy  Expenses owed to the Policy  Provider,  shall be
     distributed to the Liquidity  Provider and the Policy  Provider pro rata on
     the basis of the amount of Liquidity  Expenses and Policy  Expenses owed to
     the Liquidity Provider and the Policy Provider;

          THIRD,  such  amount  as shall be  required  to pay (i) the  aggregate
     amount of accrued and unpaid interest on all Liquidity  Obligations (at the
     rate, or in the amount,  provided in the Liquidity  Facility and determined
     after application of the proceeds of any Policy Drawing pursuant to Section
     3.6(d) or other payment by the Policy Provider to the Liquidity Provider in
     respect of any interest on Drawings in  accordance  with the  provisions of
     Section  3.8(c)),  (ii) the  aggregate  amount of accrued and unpaid Policy
     Provider  Interest  Obligations  and (iii) if the Policy  Provider has paid
     pursuant  to  Section  3.6(d)  or the  proviso  to  Section  3.8(c)  to the




     Liquidity  Provider all outstanding  Drawings and interest thereon owing to
     the Liquidity  Provider  under the Liquidity  Facility,  the amount of such
     payments made to the Liquidity Provider attributable to interest accrued on
     Drawings  under  the  Liquidity  Facility,  shall  be  distributed  to  the
     Liquidity Provider and the Policy Provider, as the case may be, pro rata on
     the basis of the  amounts  owed to the  Liquidity  Provider  and the Policy
     Provider under subclauses (i), (ii) and (iii) of this clause "third";

          FOURTH, such amount as shall be required (i)(A) if the Cash Collateral
     Account had been previously  funded as provided in Section  3.5(f),  unless
     (1) on such  Distribution  Date the  Securities  are  Non-Performing  and a
     Liquidity Event of Default shall have occurred and be continuing or (2) the
     Final Drawing shall have occurred,  to fund the Cash Collateral  Account up
     to the  Required  Amount  (less the amount of any  repayments  of  Interest
     Drawings under the Liquidity  Facility while  subclause  (i)(A)(1) above is
     applicable) shall be deposited in the Cash Collateral  Account,  (B) if the
     Liquidity  Facility  shall become a Downgraded  Facility or a  Non-Extended
     Facility at a time when unreimbursed  Interest Drawings under the Liquidity
     Facility  have  reduced the  Available  Amount to zero,  unless (1) on such
     Distribution Date the Securities are  Non-Performing  and a Liquidity Event
     of Default  shall have  occurred and be continuing or (2) the Final Drawing
     shall have occurred,  to deposit into the Cash Collateral Account an amount
     equal to the Required Amount (less the amount of any repayments of Interest
     Drawings under the Liquidity  Facility while  subclause  (i)(B)(1) above is
     applicable) shall be deposited in the Cash Collateral  Account,  and (C) if
     neither  subclause  (i)(A) nor subclause  (i)(B) of this clause "fourth" is
     applicable,  to pay or reimburse the Liquidity  Provider in an amount equal
     to the amount of all  Liquidity  Obligations  then due under the  Liquidity
     Facility (other than amounts  payable  pursuant to Section 3.6(d) or clause
     "second" or "third" of this Section 3.2),  net of any and all payments made
     by the  Policy  Provider  to the  Liquidity  Provider  with  respect to the
     principal of any Interest Drawing, and (ii) if the Policy Provider has paid
     pursuant to the proviso to Section  3.8(c) to the  Liquidity  Provider  all
     outstanding  Drawings and interest thereon owing to the Liquidity  Provider
     under the  Liquidity  Facility,  the  amount of such  payments  made to the
     Liquidity  Provider in respect of principal of Drawings under the Liquidity
     Facility,  shall be paid to the Policy  Provider,  pro rata on the basis of
     the  amounts  of  all  such  deficiencies  and/or  unreimbursed   Liquidity
     Obligations  payable  to the  Liquidity  Provider  and the  amount  of such
     unreimbursed Policy Provider Obligations payable to the Policy Provider, in
     each instance, under this clause "fourth";

          FIFTH,  if  any  amounts  are to be  distributed  pursuant  to  either
     subclause  (i)(A) or (i)(B) of clause  "fourth"  above,  then the Liquidity
     Provider shall be paid the excess of (x) the aggregate  outstanding  amount
     of  unreimbursed  Advances  (whether  or not then due) under the  Liquidity
     Facility over (y) the Required Amount (less the amount of any repayments of
     Interest Drawings under the Liquidity Facility while subclause (i)(A)(1) or
     (i)(B)(1), as the case may be, of clause "fourth" above is applicable);



          SIXTH, if an Event of Default shall have occurred and be continuing on
     such Distribution Date and at all times thereafter, such amount as shall be
     required to  reimburse or pay (i) the Trustee for any Tax (other than Taxes
     imposed on compensation paid hereunder), expense, fee, charge or other loss
     incurred by or any other amount  payable to the Trustee in connection  with
     the  transactions   contemplated  hereby  (to  the  extent  not  previously
     reimbursed),  shall be applied  by the  Trustee  in  reimbursement  of such
     amount,  and (ii) each  Securityholder  for  payments,  if any,  made by it
     pursuant to an  indemnity  provided  pursuant to Section  7.6(c)  hereof in
     respect of amounts  described in subclause (i) above,  shall be distributed
     to the Trustee for the account of such  Securityholder,  in each such case,
     pro rata on the basis of all amounts  described in subclauses  (i) and (ii)
     of this clause "sixth";

          SEVENTH,  such amount as shall be required to pay in full  amounts due
     to the Securityholders on such Distribution Date;

          EIGHTH,  such amount as shall be  required to pay the Policy  Provider
     all Policy  Provider  Obligations  then due and unpaid  (other than amounts
     payable pursuant to clauses "first", "second", "third" and "fourth" of this
     Section 3.2) shall be paid to the Policy Provider;

          NINTH,  such amount as shall be required to pay in full amounts due to
     the Subordinated Securityholders on such Distribution Date;

          TENTH,  such amount as shall be required to pay in full the  aggregate
     unpaid amount of fees and expenses payable as of such  Distribution Date to
     the Trustee  pursuant to the terms of this  Indenture  (other than  amounts
     payable pursuant to clauses "first" and "sixth" of this Section 3.2), shall
     be distributed to the Trustee; and

          ELEVENTH, the balance, if any, of any such amount remaining thereafter
     shall be paid to the Company unless on such  Distribution Date (i) an Event
     of Default has  occurred  and is  continuing  or (ii) any amount due to the
     Liquidity  Provider  or the Policy  Provider  from the Company has not been
     paid, in which case such amount shall be held in the Collection Account for
     later distribution in accordance with this Article 3 or paid to the Company
     upon discharge of the Indenture pursuant to Article 9.

     Section 3.3 OTHER PAYMENTS.

     (a) Any  payments  received by the Trustee for which no provision as to the
application  thereof  is made in this  Indenture  shall  be  distributed  by the
Trustee in the order of priority specified in Section 3.2 hereof.

     (b)  Notwithstanding  the priority of payments specified in Section 3.2, in
the event any Investment  Earnings on amounts on deposit in the Cash  Collateral
Account  resulting  from an  Unapplied  Provider  Advance are  deposited  in the



Collection  Account,  such  Investment  Earnings  shall be used to pay  interest
payable  in  respect of such  Unapplied  Provider  Advance to the extent of such
Investment Earnings.

     (c) If the Trustee  receives any Payment after the  Scheduled  Payment Date
relating thereto,  then the Trustee shall deposit such Payment in the Collection
Account and distribute such Payment on the next  Distribution Date in accordance
with the priority of distributions set forth in Section 3.2 hereof.

     Section 3.4 PAYMENTS TO LIQUIDITY PROVIDER AND POLICY PROVIDER.

     Any  amounts  distributed  hereunder  to the  Liquidity  Provider or Policy
Provider  shall be paid to the  Liquidity  Provider  or Policy  Provider by wire
transfer of funds to the address the Liquidity Provider or Policy Provider shall
provide to the Trustee.  The Trustee shall provide a Written  Notice of any such
transfer to the Liquidity  Provider or Policy  Provider,  as the case may be, at
the time of such transfer.

     Section 3.5 LIQUIDITY FACILITY.

     (a) INTEREST DRAWINGS.  If on any Distribution Date, after giving effect to
the  subordination  provisions  of  Section  3.2,  the  Trustee  shall  not have
sufficient  funds for the  payment  of any  amounts  due and owing in respect of
accrued interest on the Securities (at the Debt Rate), then, prior to 12:30 p.m.
(New York City time) on such  Distribution  Date,  the Trustee  shall  request a
drawing (each such drawing,  an "INTEREST DRAWING") under the Liquidity Facility
(and concurrently with the making of such request,  the Trustee will give notice
to the Policy Provider of such insufficiency of funds) in an amount equal to the
lesser of (x) an amount  sufficient  to pay the amount of such accrued  interest
(at the Debt Rate) and (y) the  Available  Amount,  and shall pay such amount to
the  Securityholders  in accordance  with the  provisions  of this  Indenture in
payment of such accrued interest.

     (b)  APPLICATION  OF  INTEREST  DRAWINGS.  Notwithstanding  anything to the
contrary  contained in this Indenture,  all payments  received by the Trustee in
respect of an Interest  Drawing  under the  Liquidity  Facility  and all amounts
withdrawn by the Trustee from the Cash Collateral  Account,  and payable in each
case  to  the   Securityholders,   shall   be   promptly   distributed   to  the
Securityholders  in accordance with the provisions of this  Indenture,  PROVIDED
that if (x) the  Trustee  shall  receive  any amount in  respect of an  Interest
Drawing under the Liquidity  Facility or a withdrawal  from the Cash  Collateral
Account to pay Accrued  Interest after such Accrued Interest has been fully paid
to the  Securityholders by a Policy Drawing under the Policy pursuant to Section
3.6(a) hereof or (y) the Trustee shall receive any amount in respect of a Policy
Drawing under the Policy  pursuant to Section 3.6(a) hereof to fully pay Accrued
Interest  after such Accrued  Interest has been paid (in full or in part) to the
Securityholders  by an  Interest  Drawing  under  the  Liquidity  Facility  or a
withdrawal from the Cash Collateral Account,  the Trustee, in the case of either
clause  (x) or (y),  shall pay an amount  equal to the  amount of such  Interest
Drawing or withdrawal  directly to the Policy Provider as  reimbursement of such
Policy Drawing rather than to the Securityholders.



     (c)  DOWNGRADE  DRAWINGS.  (i) A  Downgrade  Drawing  under  the  Liquidity
Facility  shall be requested by the Trustee as provided in Section  3.5(c)(iii),
if at any time,  (x) so long as MSCS is the Liquidity  Provider,  the short-term
unsecured  debt rating of the Liquidity  Guarantor is lower than the  applicable
Threshold  Rating  issued by either  Moody's or Standard & Poor's or the related
Liquidity  Guarantee ceases to be in full force and effect or becomes invalid or
unenforceable or the Liquidity Guarantor denies its liability thereunder, or (y)
if MSCS is not the Liquidity Provider,  the short-term  unsecured debt rating of
the Liquidity  Provider is lower than the applicable  Threshold Rating issued by
either Moody's or Standard & Poor's (in each case, a "DOWNGRADE  EVENT", and the
Liquidity  Facility,  a  "DOWNGRADED  FACILITY"),  unless an event  described in
Section 3.5(c)(ii) occurs.

          (ii) If at any  time  the  Liquidity  Facility  becomes  a  Downgraded
     Facility,  the Trustee shall not request a Downgrade Drawing  thereunder in
     accordance  with  Section  3.5(c)(iii),  if the  Liquidity  Provider or the
     Company has  arranged  for a  Replacement  Liquidity  Provider to issue and
     deliver a  Replacement  Liquidity  Facility to the  Trustee  within 10 days
     after  receiving  notice  of a  Downgrade  Event  (but not  later  than the
     expiration date of such Downgraded Facility).

          (iii) If the Trustee is required to request a Downgrade  Drawing under
     Section  3.5(c)(i),  the  Trustee  shall,  on the 10th day  referred  to in
     Section  3.5(c)(ii) (or if such 10th day is not a Business Day, on the next
     succeeding  Business  Day) (or, if  earlier,  the  expiration  date of such
     Downgraded  Facility),  request a  drawing  in  accordance  with and to the
     extent  permitted by such Downgraded  Facility (such drawing,  a "DOWNGRADE
     DRAWING") of the Available  Amount.  Amounts drawn  pursuant to a Downgrade
     Drawing  shall be  maintained  and  invested as provided in Section  3.5(f)
     hereof. The Liquidity Provider may also arrange for a Replacement Liquidity
     Provider to issue and deliver a Replacement  Liquidity Facility at any time
     after such Downgrade Drawing so long as such Downgrade Drawing has not been
     reimbursed in full to the Liquidity Provider.

     (d)  NON-EXTENSION  DRAWINGS.  If the  Liquidity  Facility is  scheduled to
expire on a date (the  "STATED  EXPIRATION  DATE")  prior to the date that is 15
days after the Final Legal Maturity Date, then, no earlier than the 60th day and
no later than the 40th day prior to the then Stated Expiration Date, the Trustee
shall  request that the Liquidity  Provider  extend the Stated  Expiration  Date
until  the  earlier  of (i) the date  which is 15 days  after  the  Final  Legal
Maturity Date and (ii) the date that is the day immediately  preceding the 364th
day occurring  after the last day of the  applicable  Consent Period (unless the
obligations of the Liquidity  Provider under the Liquidity  Facility are earlier
terminated  in  accordance  with the  Liquidity  Facility).  Whether  or not the
Liquidity  Provider  has  received a request  from the  Trustee,  the  Liquidity
Provider shall advise the Trustee, no earlier than the 40th day (or, if earlier,
the date of the Liquidity  Provider's receipt of such request,  if any, from the
Trustee) and no later than the 25th day prior to the Stated Expiration Date then
in effect (such period, the "CONSENT PERIOD"),  whether, in its sole discretion,
it agrees to extend such Stated Expiration Date. If (A) on or before the date on
which such  Consent  Period ends,  the  Liquidity  Facility  shall not have been



replaced in accordance with Section 3.5(e) and (B) the Liquidity  Provider fails
irrevocably and  unconditionally  to advise the Trustee on or before the date on
which such Consent Period ends that such Stated  Expiration  Date then in effect
shall be so  extended,  the  Trustee  shall,  on the date on which such  Consent
Period ends (or as soon as possible thereafter), in accordance with the terms of
the expiring Liquidity Facility (a "NON-EXTENDED  FACILITY"),  request a drawing
under such expiring Liquidity Facility (such drawing, a "NON-EXTENSION DRAWING")
of all available and undrawn amounts thereunder. Notwithstanding the immediately
preceding three sentences, so long as MSCS is the Liquidity Provider, the Stated
Expiration Date shall be automatically extended, effective on the 25th day prior
to such Stated  Expiration  Date  (unless such Stated  Expiration  Date is on or
after the date  that is 15 days  after the Final  Legal  Maturity  Date),  for a
period of 364 days after the Stated  Expiration  Date (unless the obligations of
the Liquidity  Provider are earlier  terminated in accordance with the Liquidity
Facility)  without  the  necessity  of any act by the  Trustee or the  Liquidity
Provider,  unless the Liquidity Provider shall advise the Trustee, prior to such
25th day,  that it does not agree to such  extension  of the  Stated  Expiration
Date,  in  which  event,  the  Trustee  shall,  on such  25th day (or as soon as
possible  thereafter),  in  accordance  with and to the extent  permitted by the
terms of the Non-Extended  Facility,  request a Non-Extension  Drawing under the
Non-Extended  Facility of all available and undrawn amounts thereunder.  Amounts
drawn  pursuant to a  Non-Extension  Drawing shall be maintained and invested in
accordance with Section 3.5(f) hereof.

     (e)  ISSUANCE  OF  REPLACEMENT  LIQUIDITY  FACILITY.  (i) At any time,  the
Company  may,  at its  option,  with  cause  or  without  cause,  arrange  for a
Replacement  Liquidity Facility to replace any Liquidity Facility (including any
Replacement  Liquidity Facility provided pursuant to Section 3.5(e)(ii) hereof);
PROVIDED,  HOWEVER, that the initial Liquidity Provider shall not be replaced by
the  Company  as a  Liquidity  Provider  without  the  consent  of such  initial
Liquidity  Provider  unless  (A) there  shall have  become  due to such  initial
Liquidity  Provider,  or such initial  Liquidity  Provider  shall have demanded,
amounts pursuant to Section 3.01, 3.02 or 3.03 of the Liquidity Facility and the
replacement  of such initial  Liquidity  Provider  would reduce or eliminate the
obligation  to pay such  amounts or the  Company  determines  in good faith that
there is a substantial likelihood that such initial Liquidity Provider will have
the right to claim any such  amounts  (unless such  initial  Liquidity  Provider
waives,  in  writing,  any  right  it may  have to claim  such  amounts),  which
determination  shall be set forth in a  certificate  delivered by the Company to
such initial Liquidity  Provider setting forth the basis for such  determination
and  accompanied  by an opinion of outside  counsel  selected by the Company and
reasonably  acceptable to such initial  Liquidity  Provider  verifying the legal
conclusions,  if any, of such certificate relating to such basis, PROVIDED that,
in the case of any likely claim for such  amounts  based upon any  proposed,  or
proposed   change  in,  law,  rule,   regulation,   interpretation,   directive,
requirement,  request or  administrative  practice,  such opinion may assume the
adoption or promulgation of such proposed  matter,  (B) it shall become unlawful
or impossible for such initial  Liquidity  Provider (or its Facility  Office) to
maintain  or fund  its  LIBOR  Advances  as  described  in  Section  3.10 of the
Liquidity Facility, (C) the Liquidity Facility of the initial Liquidity Provider
shall become a  Downgraded  Facility or a  Non-Extended  Facility or a Downgrade
Drawing or a  Non-Extension  Drawing  shall have  occurred  under the  Liquidity



Facility of the initial Liquidity Provider or (D) the initial Liquidity Provider
shall have breached any of its payment (including, without limitation,  funding)
obligations under the Liquidity Facility. If such Replacement Liquidity Facility
is provided at any time after a Downgrade  Drawing or Non-Extension  Drawing has
been made, all funds on deposit in the Cash Collateral  Account will be returned
to the Liquidity Provider being replaced.

          (ii) If the  Liquidity  Provider  shall  determine  not to extend  the
     Liquidity  Facility in accordance with Section  3.5(d),  then the Liquidity
     Provider may, at its option,  arrange for a Replacement  Liquidity Facility
     to replace the Liquidity Facility during the period no earlier than 40 days
     and no later than 25 days  prior to the then  effective  Stated  Expiration
     Date.  In  addition,  so  long as the  initial  Liquidity  Provider  is the
     Liquidity Provider, at any time after a Non-Extension Drawing has been made
     under the Liquidity  Facility,  the Liquidity  Provider may, at its option,
     arrange for a  Replacement  Liquidity  Facility  to replace  the  Liquidity
     Facility.

          (iii) No Replacement  Liquidity  Facility arranged by the Company or a
     Liquidity  Provider in accordance with clause (i) or (ii) above or pursuant
     to  Section  3.5(c),  respectively,  shall  become  effective  and no  such
     Replacement Liquidity Facility shall be deemed a "Liquidity Facility" under
     the  Operative  Documents and the Support  Documents,  unless and until (A)
     each of the  conditions  referred to in  sub-clauses  (iv)(x) and (z) below
     shall have been satisfied, (B) if such Replacement Liquidity Facility shall
     materially adversely affect the rights, remedies,  interests or obligations
     of the Securityholders  under any of the Operative Documents or the Support
     Documents,  the Trustee shall have consented,  in writing, to the execution
     and issuance of such Replacement  Liquidity Facility and (C) in the case of
     a Replacement  Liquidity  Facility  arranged by a Liquidity  Provider under
     Section  3.5(e)(ii)  or  pursuant  to  Section  3.5(c),   such  Replacement
     Liquidity Facility is acceptable to the Company.

          (iv) In  connection  with the issuance of each  Replacement  Liquidity
     Facility,  the Trustee shall (x) prior to the issuance of such  Replacement
     Liquidity  Facility,  obtain written  confirmation  from each Rating Agency
     with respect to the Securities  that such  Replacement  Liquidity  Facility
     will not cause a reduction of any rating then in effect for the  Securities
     by such Rating Agency  (without  regard to any downgrading of any rating of
     any Liquidity Provider being replaced pursuant to Section 3.5(c) hereof and
     without  regard to the Policy) or a withdrawal  or suspension of the rating
     of the  Securities  by such Rating  Agency and the  written  consent of the
     Policy  Provider  (which  consent  will  not be  unreasonably  withheld  or
     delayed),  (y) pay all  Liquidity  Obligations  then owing to the  replaced
     Liquidity  Provider (which payment shall be made first from available funds
     in the Cash  Collateral  Account as  described  in clause  (iii) of Section
     3.5(f) hereof,  and thereafter from any other available source,  including,
     without limitation, a drawing under the Replacement Liquidity Facility) and
     (z) cause the issuer of the Replacement  Liquidity  Facility to deliver the
     Replacement  Liquidity  Facility  to the  Trustee,  together  with a  legal



     opinion opining that such Replacement  Liquidity Facility is an enforceable
     obligation of such Replacement Liquidity Provider.

          (v) Upon satisfaction of the conditions set forth in clauses (iii) and
     (iv) of  this  Section  3.5(e)  with  respect  to a  Replacement  Liquidity
     Facility,  (w) the replaced  Liquidity  Facility shall  terminate,  (x) the
     Trustee  shall,  if and to the extent so  requested  by the  Company or the
     Liquidity  Provider being replaced,  execute and deliver any certificate or
     other  instrument  required in order to terminate  the  replaced  Liquidity
     Facility,  shall surrender the replaced Liquidity Facility to the Liquidity
     Provider  being  replaced  and shall  execute and  deliver the  Replacement
     Liquidity  Facility and any associated Fee Letter,  (y) each of the parties
     hereto shall enter into any amendments to this Indenture  necessary to give
     effect to (1) the replacement of the applicable Liquidity Provider with the
     applicable  Replacement  Liquidity  Provider and (2) the replacement of the
     applicable  Liquidity  Facility with the applicable  Replacement  Liquidity
     Facility and (z) the  applicable  Replacement  Liquidity  Provider shall be
     deemed to be a  Liquidity  Provider  with the rights and  obligations  of a
     Liquidity  Provider  hereunder and under the other Operative  Documents and
     the Support  Documents and such  Replacement  Liquidity  Facility  shall be
     deemed to be a Liquidity  Facility  hereunder and under the other Operative
     Documents and the Support Documents.

     (f) CASH COLLATERAL  ACCOUNT;  WITHDRAWALS;  INVESTMENTS.  In the event the
Trustee shall draw all available  amounts under the Liquidity  Facility pursuant
to Section  3.5(c),  3.5(d) or 3.5(i) hereof,  or in the event amounts are to be
deposited in the Cash Collateral  Account pursuant to subclause (i)(A) or (i)(B)
of clause "fourth" of Section 3.2,  amounts so drawn or to be deposited,  as the
case may be, shall be deposited by the Trustee in the Cash  Collateral  Account.
All amounts on deposit in the Cash  Collateral  Account  shall be  invested  and
reinvested in Eligible Investments in accordance with Section 8.13(b) hereof.

     On each Interest Payment Date, Investment Earnings on amounts on deposit in
the Cash  Collateral  Account shall be deposited in the  Collection  Account and
applied on such Interest  Payment Date in accordance with Section 3.2 or 3.3 (as
applicable).  The Trustee shall deliver a written statement to the Company,  the
Liquidity  Provider  and the  Policy  Provider  one day  prior to each  Interest
Payment Date setting  forth the amount of  Investment  Earnings held in the Cash
Collateral  Account as of such date. In addition,  from and after the date funds
are so  deposited,  the Trustee  shall make  withdrawals  from such  accounts as
follows:

          (i) on each  Distribution  Date, the Trustee  shall,  to the extent it
     shall not have  received  funds to pay accrued and unpaid  interest due and
     owing on the  Securities  (at the Debt  Rate)  after  giving  effect to the
     subordination  provisions of Section 3.2, withdraw from the Cash Collateral
     Account, and pay to the  Securityholders,  an amount equal to the lesser of
     (x) an amount  necessary  to pay accrued and unpaid  interest  (at the Debt
     Rate)  on such  Securities  and (y)  the  amount  on  deposit  in the  Cash
     Collateral  Account  (so  long as the  aggregate  amount  of  unreplenished




     withdrawals, including such withdrawal, does not exceed the Required Amount
     for such Distribution Date);

          (ii) on each date on which principal of the Securities shall have been
     paid to the  Securityholders  pursuant to Section  3.2 hereof,  the Trustee
     shall withdraw from the Cash Collateral Account such amount as is necessary
     so that, after giving effect to such payment of principal on such date (and
     any  reduction  in the  amounts on deposit in the Cash  Collateral  Account
     resulting  from a prior  withdrawal  of  amounts  on  deposit  in the  Cash
     Collateral  Account on such date) and any transfer of  Investment  Earnings
     from such Cash Collateral  Account to the Collection  Account on such date,
     an amount equal to the sum of the Required Amount  (calculated for purposes
     of this clause (ii) on the basis of the Capped Interest Rate) plus (if on a
     Distribution  Date not coinciding with an Interest Payment Date) Investment
     Earnings on deposit in the Cash Collateral  Account (after giving effect to
     any such  transfer of Investment  Earnings)  will be on deposit in the Cash
     Collateral  Account  and  shall  first,  pay such  withdrawn  amount to the
     Liquidity  Provider  until  the  Liquidity  Obligations  owing  to such the
     Liquidity  Provider shall have been paid in full,  and second,  deposit any
     remaining withdrawn amount in the Collection Account;

          (iii) if a Replacement  Liquidity  Facility  shall be delivered to the
     Trustee following the date on which funds have been deposited into the Cash
     Collateral  Account,  the Trustee shall  withdraw all amounts on deposit in
     the Cash  Collateral  Account  and shall pay such  amounts to the  replaced
     Liquidity  Provider  until all  Liquidity  Obligations  owed to such Person
     shall have been paid in full, and shall deposit any remaining amount in the
     Collection Account; and

          (iv)  following  the payment of all sums  payable  with respect to the
     Securities,  on the date on which the Trustee  shall have been  notified by
     the Liquidity Provider that the Liquidity Obligations owed to the Liquidity
     Provider have been paid in full,  the Trustee shall withdraw all amounts on
     deposit in the Cash Collateral Account and shall distribute such amounts in
     accordance with the order of priority set forth in Section 3.2.

     (g) REINSTATEMENT. With respect to any Interest Drawing under the Liquidity
Facility,  upon the reimbursement of the Liquidity  Provider for all or any part
of the amount of such  Interest  Drawing,  together  with any  accrued  interest
thereon,  the Available Amount of the Liquidity  Facility shall be reinstated by
an amount  equal to the amount of such  Interest  Drawing so  reimbursed  to the
Liquidity Provider but not to exceed the Stated Amount; PROVIDED,  HOWEVER, that
the Liquidity Facility shall not be so reinstated in part or in full at any time
if (x) the Securities are  Non-Performing and a Liquidity Event of Default shall
have occurred and be  continuing  or (y) the Final Drawing shall have  occurred;
PROVIDED  FURTHER,  that any  payment by the Policy  Provider  to the  Liquidity
Provider of any amounts  pursuant to the second  proviso to Section 3.8(c) shall
not reinstate the Liquidity Facility, but the Liquidity Facility (so long as the
Liquidity  Facility is in effect) shall be reinstated,  PRO TANTO, to the extent
the Policy Provider  receives any reimbursement in respect of such payment under



clause "FOURTH" of Section 3.2, unless (x) the Securities are Non-Performing and
a Liquidity  Event of Default  shall have  occurred and be continuing or (y) the
Final  Drawing  shall have  occurred.  In the event that (i) funds are withdrawn
from the Cash Collateral Account pursuant to clause (i) of Section 3.5(f) hereof
or  (ii)  the  Liquidity  Facility  shall  become  a  Downgraded  Facility  or a
Non-Extended Facility at a time when unreimbursed Interest Drawings have reduced
the  Available  Amount to zero,  then funds  received by the Trustee at any time
other than (x) any time when the  Securities  are  Non-Performing  and Liquidity
Event of Default shall have occurred and be continuing or (y) any time after the
Final Drawing  shall have  occurred,  shall be deposited in the Cash  Collateral
Account as and to the extent  provided in clause  "FOURTH" of Section  3.2,  and
applied in accordance with Section 3.5(f) hereof.

     (h) REIMBURSEMENT.  The amount of each drawing under the Liquidity Facility
shall be due and payable,  together with interest  thereon,  on the dates and at
the rate, respectively, provided in the Liquidity Facility.

     (i)  FINAL  DRAWING.   Upon  receipt  from  the  Liquidity  Provider  of  a
Termination Notice, the Trustee shall, not later than the date specified in such
Termination  Notice,  in accordance  with the terms of the  Liquidity  Facility,
request a drawing  under the  Liquidity  Facility of all  available  and undrawn
amounts  thereunder  (a "FINAL  DRAWING").  Amounts  drawn  pursuant  to a Final
Drawing  shall be  maintained  and invested in  accordance  with Section  3.5(f)
hereof.

     (j) ADJUSTMENTS OF STATED AMOUNT. Promptly following each date on which the
Required  Amount is reduced as a result of a payment of the principal  amount of
the Securities,  the Stated Amount shall  automatically be adjusted to an amount
equal to the Required  Amount (as  calculated by the Trustee after giving effect
to such payment).

     (k) RELATION TO SUBORDINATION PROVISIONS.  Subject to the proviso contained
in  Section  3.5(b),   Interest  Drawings  under  the  Liquidity   Facility  and
withdrawals from the Cash Collateral Account will be distributed to the Trustee,
and the Trustee will distribute such Interest Drawings and withdrawals  promptly
to the  Securityholders in accordance with the provisions of this Indenture,  in
each case, notwithstanding Section 3.2 hereof.

     (l) ASSIGNMENT OF LIQUIDITY FACILITY.  The Trustee agrees not to consent to
the  assignment  by the Liquidity  Provider of any of its rights or  obligations
under the  Liquidity  Facility or any interest  therein,  unless (i) the Company
shall have consented to such assignment and (ii) each Rating Agency with respect
to the Securities shall have provided a Ratings  Confirmation in respect of such
assignment and (iii) the Policy Provider shall have consented to such assignment
(which consent shall not be unreasonably  withheld or delayed);  PROVIDED,  that
the Trustee shall consent to such  assignment if the conditions in the foregoing
clauses (i), (ii) and (iii) are satisfied,  and the foregoing is not intended to
and shall not be construed to limit the rights of the initial Liquidity Provider
under Section 3.5(e)(ii).

     (m) NO DISCHARGE OF THE COMPANY'S  OBLIGATIONS.  The payment of interest on
the  Securities  with funds drawn under the Liquidity  Facility or from the Cash



Collateral Account shall not be deemed to discharge the Company's  obligation to
make such payment, which obligation shall continue in full force and effect.

     (n) INTEREST COVERAGE. The interest payable by the Liquidity Provider under
the Liquidity  Facility shall include  interest  accruing during the pendency of
any bankruptcy, insolvency, receivership or other similar proceeding, regardless
of whether allowed or allowable in such proceeding.

     (o) CONSENT TO ISSUANCE OF SUBORDINATED SECURITIES. The Liquidity Provider,
by its execution and delivery of this Indenture, (i) consents to the issuance of
the  Subordinated  Securities  hereunder  and the  amendments  to the  Operative
Documents in connection therewith, and (ii) confirms that all of its obligations
under the Liquidity Facility remain unchanged and in full force and effect.

     Section 3.6 THE POLICY.

     (a) INTEREST  DRAWINGS.  If on any Distribution  Date (other than the Final
Legal  Maturity  Date,  the  Election  Distribution  Date,  the Policy  Election
Distribution Date, the Non-Performance  Payment Date or a date on which a Policy
Drawing is to be made  pursuant  to  Section  3.6(b) of this  Indenture),  after
giving  effect  to  the  subordination  provisions  of  Section  3.2  and to the
application  of Prior  Funds,  the Trustee does not then have  sufficient  funds
available for the payment of all amounts due and owing in respect of accrued and
unpaid interest on the Securities at the Debt Rate (without giving effect to any
Acceleration  and  calculated  assuming  that  the  Company  will  not  cure the
nonpayment of interest) ("ACCRUED INTEREST"), then the Trustee (i) prior to 1:00
p.m. (New York City time) on such  Distribution  Date shall deliver a Notice for
Payment,  as provided in the Policy, to the Policy Provider or its fiscal agent,
requesting  a Policy  Drawing  under the  Policy  (for  payment  into the Policy
Account)  in an amount  sufficient  to enable the  Trustee  to pay such  Accrued
Interest and (ii) upon receipt shall pay such amount from the Policy  Account to
the Securityholders in payment of such Accrued Interest.

     (b) PROCEEDS  DEFICIENCY  DRAWING.  If on any Distribution Date (other than
the Final Legal  Maturity  Date,  the  Election  Distribution  Date,  the Policy
Election  Distribution Date or the Non-Performance  Payment Date) established by
the Trustee by reason of its receipt of a payment constituting the proceeds from
the sale of Pledged  Spare  Parts  comprising  all of the  Pledged  Spare  Parts
subject to the Lien of the Security  Agreement  at the time of such sale,  after
giving  effect to the  subordination  provisions  of  Section  3.2 and,  if such
payment is received prior to a Policy Provider  Election,  to the application of
Prior Funds,  the Trustee does not then have sufficient  funds available for the
payment  in full of the then  outstanding  principal  amount  of the  Securities
together with accrued and unpaid  interest  thereon at the Debt Rate  (excluding
any accrued and unpaid Premium or Break Amount and calculated  assuming that the
Company  will  not  cure  the   nonpayment  of  interest)   (collectively,   the
"OUTSTANDING  AMOUNT"),  then the Trustee (i) prior to 1:00 p.m.  (New York City
time) on such Distribution Date shall deliver a Notice for Payment,  as provided
in the Policy,  to the Policy Provider or its fiscal agent,  requesting a Policy
Drawing (the "PROCEEDS  DEFICIENCY  DRAWING") under the Policy (for payment into



the Policy  Account)  in an amount  sufficient  to enable the Trustee to pay the
Outstanding  Amount and (ii) upon receipt  shall pay such amount from the Policy
Account to the Securityholders in payment of the Outstanding Amount.

     (c)  NON-PERFORMANCE  DRAWING.  If  a  Payment  Default  exists  under  the
Securities  (without  giving effect to any  Acceleration  or any payments by the
Liquidity  Provider or the Policy  Provider)  for a period of eight  consecutive
Interest  Periods (such period,  the  "NON-PERFORMING  PERIOD")  (regardless  of
whether any proceeds  from the sale of any  Collateral  are  distributed  by the
Trustee during such period) and continues to exist on the Interest  Payment Date
on which such eighth  Interest  Period ends (or, if such  Interest  Payment Date
falls within the applicable period specified in the proviso to the definition of
"Non-Performing",  continues to exist on the Business Day immediately  following
such period (the "RELEVANT DATE")),  and on the 25th day following such Interest
Payment Date or, if applicable, the Relevant Date (or, if such 25th day is not a
Business Day, the next Business Day) (the "NON-PERFORMANCE  PAYMENT DATE") after
giving  effect  to  the  subordination  provisions  of  Section  3.2  and to the
application  of Prior  Funds,  the Trustee does not then have  sufficient  funds
available  for  the  payment  in  full  of  the  Outstanding  Amount  as of  the
Non-Performance Payment Date, then unless the Policy Provider shall have paid on
any day prior thereto the Outstanding  Amount as of such day pursuant to Section
3.6(b) or 3.6(e) of this Indenture,  the Trustee (i) prior to the 1:00 p.m. (New
York City time) on the  Non-Performance  Payment Date shall deliver a Notice for
Payment,  as provided in the Policy, to the Policy Provider or its fiscal agent,
requesting a Policy  Drawing (the  "NON-PERFORMANCE  DRAWING")  under the Policy
(for  payment  into the Policy  Account) in an amount  sufficient  to enable the
Trustee to pay such  Outstanding  Amount,  and (ii) upon receipt  shall pay such
amount  from the  Policy  Account  to the  Securityholders  in  payment  of such
Outstanding  Amount.  If the  Non-Performance  Payment Date is established,  the
Trustee shall send to the Securityholders  Written Notice thereof promptly,  but
no later than three Business Days,  after the occurrence of the Interest Payment
Date on which the  Non-Performing  Period ends or, if  applicable,  the Relevant
Date.

     Notwithstanding the foregoing, if, and only if, the Non-Performance Payment
Date is scheduled to occur prior to the Final Scheduled Payment Date, the Policy
Provider has the right,  by Written Notice to the Trustee given at least 10 days
prior to the Non-Performance Payment Date, so long as no Policy Provider Default
shall have occurred and be continuing, to elect (the "POLICY PROVIDER ELECTION")
not to pay  the  deficiency  necessary  to pay  the  Outstanding  Amount  on the
Non-Performance  Payment Date pursuant to the preceding paragraph, in which case
the  Policy  Provider  shall  (i) pay on the  Non-Performance  Payment  Date any
shortfall in funds required to pay accrued  interest on the Securities  (without
regard to Acceleration and after giving effect to the  subordination  provisions
of Section 3.2 and to the application of Prior Funds), (ii) thereafter,  on each
Distribution Date until the establishment of an Election  Distribution Date or a
Policy  Election  Distribution  Date,  pay an  amount  equal  to  the  scheduled
principal on the Final  Scheduled  Payment Date and interest  (without regard to
any Acceleration) payable on the Securities on such Distribution Date, and (iii)
(A) on any  Business Day elected by the Policy  Provider  upon at least 20 days'
Written  Notice to the Trustee,  direct the Trustee (such Business Day a "POLICY



ELECTION  DISTRIBUTION  DATE")  or (B)  following  the  occurrence  of a  Policy
Provider Default,  on any Business Day specified by the Trustee upon at least 20
days'  Written  Notice to the Policy  Provider  (such  Business Day an "ELECTION
DISTRIBUTION  DATE") permit the Trustee,  in each case, to make a Policy Drawing
under the Policy for an amount equal to the Outstanding Amount as of such Policy
Election  Distribution Date or Election  Distribution  Date, as applicable.  The
Trustee  shall  (i)  prior to 1:00  p.m.  (New  York  City  time)  on each  such
Distribution  Date  referred to in the  preceding  sentence  deliver a Notice of
Payment,  as provided in the Policy,  to the Policy Provider or its fiscal agent
requesting a Policy Drawing under the Policy for payment into the Policy Account
to pay the amount  then due under this  paragraph  and (ii) upon  receipt of the
proceeds  thereof  pay  the  amount  thereof  from  the  Policy  Account  to the
Securityholders in payment of such amount.

     (d) LIQUIDITY  PROVIDER  DRAWING.  On or after the Business Day which is 24
months from the  earliest to occur of (i) the date on which an Interest  Drawing
shall have been made under the Liquidity Facility and remains  unreimbursed from
payments made by the Company at the end of such 24-month  period,  (ii) the date
on which any Downgrade Drawing,  Non-Extension Drawing or Final Drawing that was
deposited  into the Cash  Collateral  Account shall have been applied to pay any
scheduled  payment of interest on the Securities and remains  unreimbursed  from
payments  made by the Company at the end of such  24-month  period and (iii) the
date on which all of the Securities  have been  accelerated  and such Securities
remain unpaid by the Company at the end of such  24-month  period (in each case,
disregarding  any  reimbursements  from payments by the Policy Provider and from
proceeds  from the sale of  Collateral  distributed  by the Trustee  during such
24-month  period) (such  Business  Day, the  "LIQUIDITY  PROVIDER  REIMBURSEMENT
DATE"),  the  Policy  Provider  (upon at least 20 days'  prior  notice  from the
Trustee  on behalf  of the  Liquidity  Provider,  which  notice  can be given in
advance of the expiry of such  twenty-four  month  period)  will be  required to
honor  drawings  under the  Policy  by the  Trustee  on behalf of the  Liquidity
Provider in an amount  sufficient to repay all  outstanding  drawings  under the
Liquidity  Facility,  together with interest  accrued thereon in accordance with
the Liquidity  Facility.  The Liquidity  Provider hereby appoints the Trustee as
its agent for  purposes  of making the  drawing  pursuant to this clause (d) and
clause  (vii) of the  definition  of  "Deficiency  Amount" in the Policy and the
Trustee hereby accepts such  appointment  and agrees to make such drawing at the
direction  of the  Liquidity  Provider  and to promptly  distribute  all amounts
received in respect of such drawing to the Liquidity Provider.

     (e) FINAL POLICY DRAWING. If on the Final Legal Maturity Date, after giving
effect to the subordination  provisions of Section 3.2 and to the application of
Prior Funds, unless the Policy Provider shall have paid on any day prior thereto
the  Outstanding  Amount as of such day pursuant to Section  3.6(b) or 3.6(c) of
this  Indenture,  the Trustee does not then have  sufficient  funds available on
such date for the  payment  in full of the  Outstanding  Amount as of such date,
then the Trustee  shall (i) prior to 1:00 p.m. (New York City time) on such date
deliver a Notice for Payment,  as provided in the Policy, to the Policy Provider
or its fiscal agent,  requesting a Policy  Drawing under the Policy (for payment
into the Policy  Account) in an amount  sufficient  to enable the Trustee to pay
such Outstanding  Amount,  and (ii) upon receipt pay such amount from the Policy
Account to Securityholders in payment of such amount.



     (f)  AVOIDANCE  DRAWINGS.  If at any time the  Trustee  shall  have  actual
knowledge of the issuance of any Final Order,  the Trustee  shall  promptly give
notice thereof to the Liquidity  Provider and the Policy  Provider.  The Trustee
shall thereupon  calculate the relevant Avoided Payments resulting therefrom and
shall promptly: (a) send to the Securityholders a Written Notice of such amounts
and (b) prior to the expiration of the Policy, deliver to the Policy Provider or
its fiscal agent a Notice of Avoided  Payment under the Policy,  together with a
copy  of  the  documentation  required  by  the  Policy  with  respect  thereto,
requesting  a  Policy   Drawing   thereunder   (for  payment  to  the  receiver,
conservator,  debtor-in-possession,  trustee in  bankruptcy  or the Trustee (for
deposit  into the Policy  Account),  as  applicable)  in an amount  equal to the
amount of  relevant  Avoided  Payment.  To the extent  that any  portion of such
Avoided Payment is to be paid to the Trustee, such Written Notice shall also set
the date for the  distribution  of such  portion of the  proceeds of such Policy
Drawing which date shall constitute a Distribution Date and shall be the earlier
of three  Business  Days after the date of the  expiration of the Policy and the
Business  Day that  immediately  follows  the 25th  day  after  the date of such
Written  Notice.  Upon  receipt,  the  Trustee  shall  pay the  proceeds  of the
specified  Policy  Drawing  under  the  Policy  to  the  Securityholders  or the
Liquidity Provider, as applicable on such Distribution Date.

     (g)  APPLICATION  OF  POLICY  DRAWINGS.  Notwithstanding  anything  to  the
contrary contained in this Indenture (including, without limitation, Section 3.2
hereof),  except as provided in Section 3.6(d) hereof,  all payments received by
the Trustee in respect of a Policy Drawing (including,  without limitation, that
portion,  if any, of the  proceeds of a Policy  Drawing for any Avoided  Payment
that  is to be  paid  to the  Trustee  and  not to  any  receiver,  conservator,
debtor-in-possession  or trustee in  bankruptcy as provided in the Policy) shall
be promptly paid from the Policy Account to the Securityholders.

     (h)  LIMITATION  TO  OUTSTANDING  PRINCIPAL  AMOUNT;   INTEREST  ON  POLICY
DRAWINGS.  Notwithstanding  anything to the contrary in this Section 3.6, except
as provided  in Section  3.6(f),  at no time shall the  Trustee  make any Policy
Drawing  under the Policy  under  clause (b),  (c) or (e) of this Section 3.6 in
excess of the then outstanding  principal amount of the Securities,  and accrued
and unpaid interest at the Debt Rate.  Nothing contained in this Indenture shall
alter or amend the liabilities,  obligations,  requirements or procedures of the
Policy Provider under the Policy, and the Policy Provider shall not be obligated
to  make  payment  except  at the  times  and  in  the  amounts  and  under  the
circumstances  expressly  set forth in the  Policy.  Except for Policy  Provider
Interest  Obligations,  no interest  shall  accrue on any Policy  Drawing or any
other payment made by the Policy Provider.

     (i) RESUBMISSION OF NOTICE FOR PAYMENT.  If the Policy Provider at any time
informs the Trustee in  accordance  with the Policy that a Notice for Payment or
Notice  of  Avoided  Payment   submitted  by  the  Trustee  does  not  meet  the
requirements  of the Policy,  the Trustee  shall,  as promptly as possible after
being so informed,  submit to the Policy  Provider an amended and revised Notice
for Payment or Notice of Avoided  Payment,  as the case may be, and shall pay to
Securityholders  out of the Policy Account the amount received  pursuant to such
amended or revised Notice for Payment or Notice of Avoided Payment,  as the case
may be, when received.



     (j) NO DISCHARGE OF THE COMPANY'S OBLIGATIONS.  The payment of principal of
or interest  on the  Securities  with funds drawn under the Policy  shall not be
deemed  to  discharge  the  Company's  obligation  to make such  payment,  which
obligation shall continue in full force and effect.

     (k) INTEREST  COVERAGE.  The interest  payable by the Policy Provider under
the  Policy  shall  include  interest   accruing  during  the  pendency  of  any
bankruptcy, insolvency,  receivership or other similar proceeding, regardless of
whether allowed or allowable in such proceeding.

     (l) CONSENT TO ISSUANCE OF SUBORDINATED SECURITIES. The Policy Provider, by
its  execution and delivery of this  Indenture,  (i)  consents,  as  Controlling
Party,  to the  issuance  of  the  Subordinated  Securities  hereunder  and  the
amendments to the Operative Documents in connection therewith, and (ii) confirms
that all of its obligations  under the Policy remain unchanged and in full force
and effect.

     Section 3.7 DESIGNATED REPRESENTATIVES.

     (a) With the delivery of the Original  Indenture,  the Trustee furnished to
the Liquidity Provider and the Policy Provider, and from time to time thereafter
may furnish to the Liquidity Provider and the Policy Provider,  at the Trustee's
discretion,  or upon the Liquidity  Provider's or the Policy Provider's  request
(which request shall not be made more than one time in any 12-month  period),  a
certificate (a "TRUSTEE INCUMBENCY CERTIFICATE") of a Responsible Officer of the
Trustee certifying as to the incumbency and specimen  signatures of the officers
of the Trustee and the  attorney-in-fact and agents of the Trustee (the "TRUSTEE
REPRESENTATIVES")  authorized  to give Written  Notices on behalf of the Trustee
hereunder.  Until the  Liquidity  Provider  and the Policy  Provider  receives a
subsequent Trustee Incumbency  Certificate,  it shall be entitled to rely on the
last Trustee Incumbency Certificate delivered to it hereunder.

     (b) With the delivery of the Original Indenture, the Liquidity Provider and
the Policy Provider  furnished to the Trustee,  and from time to time thereafter
may furnish to the Trustee,  at the Liquidity  Provider's  or Policy  Provider's
discretion,  or upon the Trustee's request (which request shall not be made more
than  one  time in any  12-month  period),  a  certificate  (each,  a  "PROVIDER
INCUMBENCY  CERTIFICATE") of any Responsible  Officer of such Liquidity Provider
or Policy  Provider  certifying as to the incumbency and specimen  signatures of
any officer, attorney-in-fact,  agent or other designated representative of such
Liquidity   Provider  or  Policy   Provider   (in  each  case,   the   "PROVIDER
REPRESENTATIVES" and, together with the Trustee Representatives, the "DESIGNATED
REPRESENTATIVES")  authorized to give Written Notices on behalf of the Liquidity
Provider or Policy Provider  hereunder.  Until the Trustee receives a subsequent
Provider  Incumbency  Certificate,  it  shall  be  entitled  to rely on the last
Provider  Incumbency  Certificate  delivered to it  hereunder  by the  Liquidity
Provider or the Policy Provider.



     Section 3.8 CONTROLLING PARTY.

     (a)  Subject to the rights of the  Holders  hereunder  (including,  without
limitation, Sections 7.4, 7.6, 7.7 and 10.2) and the requirements of the TIA, in
taking,  or refraining  from taking,  any action under this  Indenture,  whether
before or after the  occurrence  of an Event of  Default,  the  Trustee  will be
directed by the Controlling Party. In particular,  in taking, or refraining from
taking,  any action  under this  Indenture  pursuant to the exercise of remedies
hereunder as provided in Article 7 and under the Security  Agreement pursuant to
the exercise of remedies  thereunder as provided in Article 6 thereof (including
foreclosing the Lien on the Collateral),  the Trustee and the Collateral  Agents
will be directed by the Controlling  Party. The provisions of Section  316(a)(1)
of the TIA and,  except  during  any  period  that the  Required  Holders or the
Required  Subordinated  Holders are the  Controlling  Party,  the  provisions of
Section 315(d)(3) of the TIA are expressly excluded from this Indenture.

     (b) The Person who shall be the "CONTROLLING PARTY" shall be (x) the Policy
Provider  (or,  if any  Policy  Provider  Default  shall  have  occurred  and be
continuing, (i) the Required Holders or (ii) if the Securities have been paid in
full,  the  Required  Subordinated  Holders) and (y) upon payment in full of the
Securities,  the  Policy  Expenses  and the  Policy  Provider  Obligations,  the
Required Subordinated Holders.

     The  Trustee  shall  give  Written  Notice to the Policy  Provider  and the
Liquidity  Provider  promptly  upon a change in the identity of the  Controlling
Party. Each of the Securityholders,  by their acceptance of the Securities, each
of the  Subordinated  Securityholders,  by their  acceptance of the Subordinated
Securities, the Policy Provider, by entering into the Policy Provider Agreement,
and the Liquidity Provider, by entering into the Liquidity Facility,  has agreed
that it shall not  exercise any of the rights of the  Controlling  Party at such
time as it is not the  Controlling  Party  hereunder;  PROVIDED,  HOWEVER,  that
nothing herein  contained  shall prevent or prohibit any  Non-Controlling  Party
from  exercising   such  rights  as  shall  be  specifically   granted  to  such
Non-Controlling  Party hereunder and under the other Operative  Documents or the
Support Documents.

     (c)  Notwithstanding  the  foregoing,  if at any time  after the  Liquidity
Provider  Reimbursement Date a Policy Provider Default attributable to a failure
to make a payment  referred  to in Section  3.6(d)  shall have  occurred  and be
continuing,  the Liquidity  Provider (so long as the Liquidity  Provider has not
defaulted in its  obligation to make any Drawing  under the Liquidity  Facility)
shall have the right to elect,  by Written  Notice to the Trustee and the Policy
Provider,  to  become  the  Controlling  Party  hereunder  at any time  from and
including the Liquidity Provider Reimbursement Date; PROVIDED,  HOWEVER, that if
the Policy Provider  subsequently pays to the Liquidity Provider all outstanding
Drawings,  together with accrued interest thereon, under the Liquidity Facility,
and no other Policy Provider  Default has occurred and is continuing,  then, the
Policy  Provider  rather than the Liquidity  Provider  shall be the  Controlling
Party, subject to Section 3.8(b).

     (d) The Controlling  Party shall not be entitled to require or obligate any
Non-Controlling Party to provide funds necessary to exercise any right or remedy
hereunder.



     Section 3.9 COMPANY'S PAYMENT OBLIGATIONS.

     The Company  agrees to pay to the Trustee for  distribution  in  accordance
with  Section  3.2  hereof:  (a)(i) an amount  equal to the fees  payable to the
Liquidity  Provider under Section 2.03 of the Liquidity Facility and the related
Fee Letter;  (ii) the amount equal to interest on any Downgrade  Advance  (other
than any Applied Downgrade  Advance) payable under Section 3.07 of the Liquidity
Facility minus Investment Earnings from such Downgrade Advance; (iii) the amount
equal  to  interest  on  any  Non-Extension  Advance  (other  than  any  Applied
Non-Extension  Advance)  payable under  Section 3.07 of the  Liquidity  Facility
minus Investment Earnings from such Non-Extension  Advance;  (iv) if any payment
default shall have  occurred and be  continuing  with respect to interest on any
Securities, the excess, if any, of (1) an amount equal to interest on any Unpaid
Advance,  Applied  Downgrade  Advance or Applied  Non-Extension  Advance payable
under  Section 3.07 of the Liquidity  Facility  (or, if the Policy  Provider has
made a payment  equivalent to such an Advance,  as would have been payable under
Section 3.07 of the Liquidity  Facility had such Advance been made) over (2) the
sum of Investment Earnings from any Final Advance plus any amount of interest at
the  Payment  Due Rate  actually  payable  (whether  or not in fact paid) by the
Company on the overdue scheduled  interest on the Securities in respect of which
such Unpaid Advance,  Applied Downgrade Advance or Applied Non-Extension Advance
was made by the Liquidity  Provider (or an equivalent payment made by the Policy
Provider);  (v) any other amounts owed to the Liquidity  Provider by the Trustee
as borrower under the Liquidity  Facility other than amounts due as repayment of
advances  thereunder  or as  interest  on such  advances,  except to the  extent
payable  pursuant to clause (ii),  (iii) or (iv) above, and (vi) an amount equal
to the fees payable to the Policy  Provider under Section  3.02(d) of the Policy
Provider  Agreement and all other compensation and reimbursement of expenses and
disbursements  (but excluding  reimbursement of advances)  payable to the Policy
Provider  under the Policy  Provider  Agreement  (but excluding all such amounts
actually paid by the Company to the Policy  Provider  under the Policy  Provider
Agreement or the Policy Fee Letter).  The Trustee shall  immediately  deposit in
the Collection  Account all payments from the Company received  pursuant to this
Section.

     Section 3.10. EXECUTION OF SUPPORT DOCUMENTS.

     The  Trustee  was  authorized   and  directed,   for  the  benefit  of  the
Securityholders,  to enter into the Support  Documents on the  Original  Closing
Date.  The  Trustee  shall not amend or  supplement,  or grant any  waiver  with
respect to, any Support  Document,  except pursuant to the provisions of Article
10.

     Section  3.11  RIGHT  OF  SUBORDINATED  SECURITYHOLDERS  TO  DIRECT  POLICY
PROVIDER.

     (a)  Subject to the  provisions  of Section  3.11 (b) below and Section 3.8
hereof,  the  Subordinated  Securityholders  shall  have the right to direct the
Policy  Provider in taking (or refraining from taking) any action as Controlling
Party  during  the  continuance  of an  Event  of  Default  if the  Subordinated
Securityholders:



          (i) deposit with the Policy  Provider  cash in United  States  tender,
     U.S. Government  Obligations or other investments  acceptable to the Policy
     Provider  (or any  combination  thereof) in the amount  specified in clause
     (ii) below as collateral security for amounts owed to and to become due and
     payable  to the  Policy  Provider  under the  Operative  Documents  and the
     Support Documents; and

          (ii) deliver to the Policy  Provider a  certificate  from a nationally
     recognized firm of independent  certified public accountants  acceptable to
     the Policy Provider expressing their opinion that the payments of principal
     and  interest  when due and  without  reinvestment  on the  deposited  U.S.
     Government  Obligations  or  other  investments  plus any  deposited  money
     without investment will provide cash sufficient to pay: (i) all accrued and
     unpaid Policy  Expenses and Policy  Provider  Obligations as of the date of
     such deposit, (ii) the then outstanding principal amount of the Securities,
     (iii) interest accruing and payable on the Securities from the date of such
     deposit to the Final Legal Maturity Date (or,  alternatively,  the interest
     calculated  at the rate of  interest  of 12% per  annum  for a period of 24
     months  (or, if  shorter,  the period from the date of such  deposit to the
     Final Legal  Maturity  Date)) and (iv) the premium  payable with respect to
     the Policy for a period of 24 months from the date of such  deposit (or, if
     shorter,  the  period  from the date of such  deposit  to the  Final  Legal
     Maturity Date).

     (b) In order to participate in such deposit, a Subordinated  Securityholder
must  contribute  its  proportionate  share of such  deposit  which  will be the
proportion that the principal amount of its Subordinated Securities bears to the
principal   amount  of  the   Subordinated   Securities   of  all   Subordinated
Securityholders  participating  in such deposit.  A Subordinated  Securityholder
shall  not  be  obligated  to  contribute  to  such  deposit.  The  Subordinated
Securityholders  contributing their proportionate share of such deposit shall be
entitled,  subject to the provisions of Section 3.8 hereof, to direct the Policy
Provider in taking action (or refraining  from taking action) as the Controlling
Party  during  the  continuance  of an  Event  of  Default  by  consent  of  the
contributing Subordinated Securityholders holding more than 50% of the aggregate
unpaid  principal  amount  of the  Subordinated  Securities  held  by  all  such
contributing  Subordinated  Securityholders.  If  the  Company  or  any  of  its
Affiliates is a Subordinated  Securityholder,  such Person shall not be entitled
to participate in making such deposit or directing the Controlling Party.

     (c) The Policy  Provider may apply the deposited cash and the cash from the
U.S. Government Obligations and other investments to the reimbursement of Policy
Expenses and Policy Provider Obligations outstanding from time to time. From and
after such  application  and after the Policy  Provider  shall have been paid in
full all amounts then due and payable to it under the  Operative  Documents  and
the Support  Documents,  amounts otherwise  distributable to the Policy Provider
under Section 3.2 hereof shall be distributed to such contributing  Subordinated
Securityholders in the same proportion as their respective contributions to such
deposit until their  proportionate  share of such deposit not otherwise returned
by the Policy Provider hereunder shall have been repaid in full.



     (d) The  Policy  Provider  shall  promptly  turn  over to the  contributing
Subordinated   Securityholders  in  the  same  proportion  as  their  respective
contributions  to such deposit,  upon the request  accompanied  by a certificate
from a nationally recognized firm of independent  accountants  acceptable to the
Policy  Provider  expressing  their  opinion  that any money or U.S.  Government
Obligations or other  investments then held by the Policy Provider are in excess
of the amounts sufficient to pay the amounts referred to in Section 3.11 (a)(ii)
above, any such excess money or investments held by it.

     (e) Upon a Policy Provider  Default (in which case, the  Controlling  Party
shall be determined in accordance  with Section 3.8 hereof),  such deposit shall
be immediately released to the contributing Subordinated Securityholders and the
Policy  Provider  hereby   indemnifies  and  holds  harmless  each  contributing
Subordinated  Securityholders  for any and all costs and  expenses  incurred  in
connection with such deposit and release.


                                   ARTICLE 4.

                                   REDEMPTIONS

     Section 4.1 OPTIONAL REDEMPTION.

     The Notes may be  redeemed  at any time in whole or (so long as no  Payment
Default has occurred  and is  continuing)  in part (in any integral  multiple of
$1,000) by the Company at its sole option at a redemption price equal to the sum
of 100% of the principal amount of, accrued and unpaid interest on, and Premium,
if any, and Break  Amount,  if any,  with respect to, the redeemed  Notes to and
including the Redemption Date, PROVIDED that the Subordinated Securities may not
be redeemed at the option of the Company  prior to May 9, 2004.  Notwithstanding
the foregoing,  so long as the Policy  Provider is the  Controlling  Party,  the
Company shall not redeem any Subordinated  Securities (i) if an Event of Default
has  occurred and is  continuing  as of the  Redemption  Date or (ii) unless the
Company shall have furnished to the Policy  Provider within 60 days prior to the
Redemption  Date a certificate  of an Officer  certifying  that,  based upon the
Pledged Spare Parts included in the Collateral determined as of a date within 10
days prior to the date of such  certificate  valued using the Appraised Value of
such Pledged Spare Parts (but without  requiring a new  Independent  Appraiser's
Certificate),  the  Maximum  Collateral  Ratio  and  Minimum  Rotable  Ratio are
satisfied (after giving effect to any scheduled redemption of Securities on such
Redemption Date), PROVIDED that the Policy Provider may, in its sole discretion,
waive compliance with the requirements of this sentence.

     Section 4.2 REDEMPTION NOTICE TO TRUSTEE.

     If the Company  elects to redeem Notes as provided in Section 4.1, it shall
notify the Trustee of the Redemption Date, the principal amount of Notes of each
Series to be  redeemed  and all other  information  needed  for the notice to be
given by the Trustee pursuant to Section 4.4.



     The Company shall give the notice provided for in this Section at least ten
(10) days (unless a shorter notice shall be  satisfactory  to the Trustee) prior
to the date the Trustee must give notice pursuant to Section 4.4.

     Section 4.3 SELECTION OF NOTES TO BE REDEEMED.

     If less  than all the Notes of a Series  are to be  redeemed,  the  Trustee
shall  select the Notes of such Series to be redeemed on either a PRO RATA basis
or by lot or by any other equitable manner determined by the Trustee in its sole
discretion.  The  Trustee  shall make the  selection  from Notes of such  Series
outstanding  not previously  called for  redemption.  The Trustee may select for
redemption  portions of the  principal of Notes that have  denominations  larger
than $1,000. Notes and portions of them it selects shall be in amounts of $1,000
or whole  multiples of $1,000.  Provisions of this Indenture that apply to Notes
called for redemption also apply to portions of Notes called for redemption, and
references to such Notes shall also refer to such portions of such Notes.

     Section 4.4 NOTICE OF REDEMPTION.

     At least 15 days but not more than 60 days before a  Redemption  Date,  the
Trustee  shall mail by  first-class  mail a notice of  redemption to each Holder
whose Notes are to be redeemed.

     The notice shall identify the Notes and the principal  amount thereof to be
redeemed and shall state:

          (1) the Redemption Date;

          (2) the redemption  price  (including the amount of accrued and unpaid
     interest,  and  Premium,  if  any,  to be  paid  on the  Notes  called  for
     redemption);

          (3) if any  Note  is  being  redeemed  in  part,  the  portion  of the
     principal amount of such Note to be redeemed and that, after the Redemption
     Date, upon surrender of such Note, a new Note or Notes in principal  amount
     equal to the unredeemed portion will be issued;

          (4) the name and address of the Paying Agent;

          (5) that Notes called for redemption must be surrendered to the Paying
     Agent to collect the redemption price; and

          (6) that,  unless the Company  fails to make the  redemption  payment,
     interest  on the  Notes to be  redeemed  ceases  to accrue on and after the
     Redemption  Date and the only remaining  right of the Holders of such Notes
     is to receive  payment of the  redemption  price  (including  the amount of
     accrued and unpaid interest,  and Premium,  if any, to be paid on the Notes
     called for redemption) upon surrender to the Paying Agent of the Notes.



     At the Company's  request,  the Trustee shall give the notice of redemption
in the Company's name and at the Company's expense.

     Section 4.5 EFFECT OF NOTICE OF REDEMPTION.

     Once a notice of redemption is mailed,  Notes called for redemption  become
due and payable on the Redemption Date at the redemption price and, on and after
such date (unless the Company  shall fail to make the payment of the  redemption
price),  such Notes shall cease to bear  interest.  Upon surrender to the Paying
Agent,  such Notes shall be paid at the redemption  price.  Notwithstanding  the
foregoing,  if the Trustee gives notice of redemption,  but the Company fails to
pay when due all amounts  necessary to effect such  redemption,  such redemption
shall be  deemed  revoked  and no  amount  shall be due as a result of notice of
redemption having been given.

     Section 4.6 DEPOSIT OF REDEMPTION PRICE.

     On or before 12:30 p.m.,  Eastern Time, on the Redemption Date, the Company
shall deposit with the Paying Agent money in funds immediately  available on the
Redemption Date sufficient to pay the principal  amount of and accrued  interest
on and Premium,  if any, and Break Amount, if any, with respect to, all Notes to
be  redeemed  on that date,  PROVIDED  that the  Company's  failure to make such
deposit  shall result in the  revocation of such  redemption in accordance  with
Section 4.5.

     Section 4.7 NOTES REDEEMED IN PART.

     Upon  surrender  of a Note that is  redeemed  in part,  the  Trustee  shall
authenticate  for the Holder a new Note of the same  Series  equal in  principal
amount of the unredeemed portion of the Note surrendered.


                                   ARTICLE 5.

                                    COVENANTS

     Section 5.1 PAYMENT OF NOTES.

     The Company shall pay the principal  of,  interest on and Premium,  if any,
and Break  Amount,  if any,  with  respect to, the Notes on the dates and in the
manner  provided in this  Indenture  and in the Notes.  The Company  will, on or
before each due date for the payment of the principal of,  interest on, Premium,
if any, or Break  Amount,  if any, due under any of the Notes,  deposit with the
Trustee payments sufficient to pay the principal,  interest, Premium, if any, or
Break Amount, if any, so becoming due, and the Trustee shall immediately deposit
all such payments in the Collection Account.

     The principal of, interest on, Premium,  if any, Break Amount,  if any, and
other amounts due under any of the Notes or hereunder will be payable in Dollars
by wire transfer of immediately  available  funds not later than 12:30 p.m., New
York  time,  on the due date of payment to the  Trustee at the  Corporate  Trust



Office for  distribution  in the manner provided  herein.  The Trustee will make
funds deposited in the Collection Account on a Distribution Date and required to
be distributed  to  Noteholders  pursuant to Section 3.2 available to the Paying
Agent for such  distribution.  The Paying Agent shall distribute amounts payable
to each Noteholder by check mailed to such  Noteholder at its address  appearing
in the Register,  except that with respect to Notes registered on the applicable
Record Date in the name of a Clearing Agency (or its nominee), such distribution
shall be made by wire  transfer in  immediately  available  funds to the account
designated by such Clearing Agency (or such nominee). The Company shall not have
any responsibility for the distribution of such payments to any Noteholder.  Any
payment made hereunder shall be made without any presentment or surrender of any
Notes,  except  that,  in the case of the final  payment in respect of any Note,
such Note shall be  surrendered  to the Paying  Agent for  cancellation  against
receipt of such payment.

     Section 5.2 MAINTENANCE OF OFFICE OR AGENCY.

     The Company  shall  maintain in the Borough of  Manhattan,  The City of New
York, an office or agency where Notes may be  surrendered  for  registration  of
transfer  or  exchange or for  presentation  for  payment and where  notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. At the request of the Company, said office or agency may be an office of
the Trustee or an agent  appointed by the Trustee for such purpose.  The Company
shall give prompt written notice to the Trustee of the location,  and any change
in the  location,  of such office or agency not  designated  or appointed by the
Trustee.  If at any time the Company  shall fail to maintain  any such  required
office or agency or shall fail to furnish the Trustee with the address  thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office.

     The Company may also from time to time  designate one or more other offices
or agencies where the Notes may be presented or surrendered  for any or all such
purposes and may from time to time rescind such designations; PROVIDED, HOWEVER,
that no such  designation or rescission  shall in any manner relieve the Company
of its  obligation  to maintain an office or agency in the Borough of Manhattan,
The City of New York,  for such  purposes.  The Company will give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.  The Company hereby  designates
the  Corporate  Trust  Office as one such  office or  agency of the  Company  in
accordance with Section 2.8.

     Section 5.3 CORPORATE EXISTENCE.

     Except as otherwise  provided in Section 5.4, the Company shall do or cause
to be done all things  necessary  to preserve  and keep in full force and effect
its corporate existence and shall at all times remain a U.S. Air Carrier.



     Section 5.4 COMPANY NOT TO  CONSOLIDATE,  MERGE,  CONVEY OR TRANSFER EXCEPT
UNDER CERTAIN CONDITIONS.

     (a) The Company  shall not  consolidate  with,  or merge  into,  or convey,
transfer or lease all or substantially all of its assets to any Person unless:

          (i)  the  resulting,  surviving,  transferee  or  lessee  Person  (the
     "SUCCESSOR  COMPANY")  shall be a Person  organized and existing  under the
     laws of the U.S.,  any state thereof or the District of Columbia and a U.S.
     Air Carrier,  and the  Successor  Company  shall  expressly  assume,  by an
     indenture  supplemental  hereto,  executed and delivered to the Trustee, in
     form satisfactory to the Trustee,  all the obligations of the Company under
     the Notes,  the Indenture,  the other  Operative  Documents and the Support
     Documents to which the Company is a party;

          (ii) the Company  shall have  delivered  to the  Trustee an  Officers'
     Certificate  and  an  Opinion  of  Counsel,  each  stating  that  (i)  such
     consolidation,  merger, conveyance, transfer or lease and such supplemental
     indenture  comply with the terms of this Indenture and (ii) this Indenture,
     each  other  Operative  Document  and the  Notes  constitute  the valid and
     legally binding obligations of the Successor Company;

          (iii)  the  Company  or  the  Successor   Company  complies  with  the
     requirements of Section 4.04(c) of the Security Agreement; and

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

     (b) The  Successor  Company shall be the successor to the Company and shall
succeed to, and be  substituted  for,  and be bound by and  obligated to pay the
obligations of, and may exercise every right and power of, the Company under the
Indenture, each other Operative Document, the Notes and the Support Documents to
which the  Company  is a party,  but the  predecessor  Company  in the case of a
conveyance,  transfer or lease shall not be released from the  obligation to pay
the principal of,  interest on, and Premium,  if any, and Break Amount,  if any,
with  respect  to,  the Notes  and any  other  amounts  payable  by the  Company
hereunder.

     (c) The Successor  Company may cause to be signed,  and may issue either in
its own name or in the name of the Company prior to such  succession  any or all
of the Notes issuable  hereunder which theretofore shall not have been signed by
the Company and  delivered to the Trustee;  and upon the order of the  Successor
Company,  instead of the Company,  and subject to all the terms,  conditions and
limitations in this Indenture  prescribed,  the Trustee shall  authenticate  and
shall deliver any Notes which previously shall have been signed and delivered by
the  officers of the Company to the  Trustee for  authentication,  and any Notes
which such Successor  Company  thereafter shall cause to be signed and delivered
to the  Trustee  for  that  purpose.  All of the  Notes so  issued  shall in all
respects have the same legal rank and benefit under this Indenture as though all
of such Notes had been issued at the date of the execution hereof.



     (d) In case of any such consolidation,  merger, sale, conveyance,  transfer
or lease such changes in phraseology and form (but not in substance) may be made
in the Notes thereafter to be issued as may be appropriate.

     Section 5.5 REPORTS BY THE COMPANY.

     (a) The  Company  shall  file with the  Trustee,  within 15 days  after the
Company is required to file the same with the SEC,  copies of the annual reports
and of the information, documents, and other reports (or copies of such portions
of any of the  foregoing  as the  SEC  may  from  time  to  time  by  rules  and
regulations  prescribe)  that the  Company  may be required to file with the SEC
pursuant to Section 13 or Section  15(d) of the Exchange Act; or, if the Company
is not required to file information, documents, or reports pursuant to either of
said  sections,  then to file with the Trustee and the SEC, in  accordance  with
rules  and  regulations  prescribed  from  time to time by the SEC,  such of the
supplementary  and  periodic  information,  documents,  and reports  that may be
required  pursuant  to Section 13 of the  Exchange  Act in respect of a security
listed and  registered  on a national  securities  exchange as may be prescribed
from time to time in such rules and regulations.

     (b) So long as  required  by the TIA,  the  Company  shall  deliver  to the
Trustee,  within 120 days after the end of each  calendar  year,  a  certificate
signed by the Company's principal executive officer, principal financial officer
or principal  accounting officer (which certificate need not comply with Section
12.4  or  12.5)  stating  that to his or her  knowledge  during  such  preceding
calendar  year no Default or Event of Default has occurred  (or, if a Default or
Event of Default shall have occurred,  describing all such Defaults or Events of
Default of which he or she may have knowledge).


                                   ARTICLE 6.

                                 INDEMNIFICATION

     Section 6.1 GENERAL INDEMNITY.

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

          (i)  The  Operative  Documents  or  the  Support  Documents,   or  the
     enforcement  of any of the terms of any of the  Operative  Documents or the
     Support Documents;

          (ii) The Spare Parts Collateral,  including,  without limitation, with
     respect  thereto,  (A)  the  manufacture,   design,  purchase,  acceptance,
     nonacceptance  or  rejection,   ownership,  delivery,  nondelivery,  lease,
     sublease, assignment,  possession, use or non-use, operation,  maintenance,



     testing, repair, overhaul, condition, alteration,  modification,  addition,
     improvement,    storage,   airworthiness,    replacement,   repair,   sale,
     substitution,  return, abandonment,  redelivery or other disposition of any
     Spare Parts Collateral,  (B) any claim or penalty arising out of violations
     of  applicable  Laws by the Company  (or any  Permitted  Lessee),  (C) tort
     liability,  whether or not arising out of the  negligence of any Indemnitee
     (whether  active,  passive or  imputed),  (D) death or  property  damage of
     passengers,  shippers  or  others,  (E)  environmental  control,  noise  or
     pollution and (F) any Liens in respect of the Spare Parts Collateral;

          (iii) The  offer,  sale,  or  delivery  of any  Notes or any  interest
     therein or represented thereby; and

          (iv) Any breach of or failure  to  perform  or  observe,  or any other
     noncompliance  with,  any covenant or agreement or other  obligation  to be
     performed by the Company under any Operative  Document or Support  Document
     to which it is party or the  falsity of any  representation  or warranty of
     the Company in any  Operative  Document or Support  Document to which it is
     party.

     (b) Notwithstanding anything contained in Section 6.1(a), the Company shall
not be required to indemnify,  protect,  defend and hold harmless any Indemnitee
pursuant to Section 6.1(a) in respect of any Expense of such Indemnitee:

          (i) For any Taxes or a loss of Tax benefit;

          (ii)  Except to the extent  attributable  to acts or events  occurring
     prior  thereto,  acts or events  (other than acts or events  related to the
     performance by the Company of its obligations  pursuant to the terms of the
     Operative  Documents or the Support  Documents to which it is a party) that
     occur after the Indenture is required to be  terminated in accordance  with
     Section 9.1 of this Indenture;  PROVIDED,  that nothing in this clause (ii)
     shall be deemed to exclude or limit any claim that any  Indemnitee may have
     under  applicable  Law by reason of an Event of Default or for damages from
     the  Company  for  breach  of  the  Company's  covenants  contained  in the
     Operative  Documents or the Support  Documents to which it is a party or to
     release  the  Company  from  any of its  obligations  under  the  Operative
     Documents or the Support  Documents  to which it is a party that  expressly
     provide for performance after termination of the Indenture;

          (iii)  To the  extent  attributable  to  any  transfer  (voluntary  or
     involuntary) by or on behalf of such  Indemnitee or any related  Indemnitee
     of any Note or interest therein;

          (iv) To the extent  attributable  to the gross  negligence  or willful
     misconduct of such Indemnitee or any related  Indemnitee (as defined below)
     (other than gross negligence or willful  misconduct  imputed to such person
     by reason of its interest in the Spare Parts  Collateral  or any  Operative
     Document);

          (v) To the extent  attributable to the  incorrectness or breach of any
     representation  or warranty of such  Indemnitee  or any related  Indemnitee



     contained  in or made  pursuant  to any  Operative  Document or any Support
     Document;

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

          (vii)  To the  extent  attributable  to the  offer  or  sale  by  such
     Indemnitee  or any related  Indemnitee  of any  interest in the Spare Parts
     Collateral,  any  Note,  or  any  similar  interest,  in  violation  of the
     Securities Act or other  applicable  federal,  state or foreign  securities
     Laws (other than any thereof caused by acts or omissions of the Company);

          (viii) (x) With respect to any Indemnitee (other than the Trustee, any
     Agent or any Collateral  Agent), to the extent  attributable to the failure
     of the  Trustee,  any Agent or any  Collateral  Agent to  distribute  funds
     received and  distributable  by it in  accordance  with the  Indenture or a
     Collateral  Agreement,  as the case  may be,  or (y)  with  respect  to the
     Trustee,  any Agent or any Collateral Agent, to the extent  attributable to
     the  negligence  or willful  misconduct  of the  Trustee,  any Agent or any
     Collateral Agent in the distribution of funds received and distributable by
     it in accordance with the Indenture or a Collateral Agreement,  as the case
     may be;

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

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

          (xi) To the  extent  that it is an  ordinary  and usual  operating  or
     overhead expense;

          (xii) For any Lien  attributable  to such  Indemnitee  or any  related
     Indemnitee;

          (xiii) If another  provision  of an  Operative  Document  or a Support
     Document specifies the extent of the Company's responsibility or obligation
     with respect to such Expense, to the extent arising from other than failure
     of the Company to comply with such specified  responsibility or obligation;
     or



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

     For purposes of this Section 6.1, a Person shall be  considered a "related"
Indemnitee  with  respect to an  Indemnitee  if such Person is an  Affiliate  or
employer of such Indemnitee, a director, officer, employee, agent, or servant of
such  Indemnitee or any such  Affiliate or a successor or permitted  assignee of
any of the foregoing.

     Section 6.2 SEPARATE AGREEMENT.

     This  Article 6  constitutes  a  separate  agreement  with  respect to each
Indemnitee and is enforceable directly by each such Indemnitee.

     Section 6.3 NOTICE.

     If a claim for any Expense that an Indemnitee shall be indemnified  against
under this Article 6 is made, such  Indemnitee  shall give prompt written notice
thereof  to the  Company.  Notwithstanding  the  foregoing,  the  failure of any
Indemnitee  to notify the Company as provided in this Section 6.3, or in Section
6.4, shall not release the Company from any of its obligations to indemnify such
Indemnitee  hereunder,  except to the  extent  that such  failure  results in an
additional  Expense to the  Company  (in which  event the  Company  shall not be
responsible  for such  additional  expense) or materially  impairs the Company's
ability to contest such claim.

     Section 6.4 NOTICE OF PROCEEDINGS; DEFENSE OF CLAIMS; LIMITATIONS.

     (a) In case any action,  suit or  proceeding  shall be brought  against any
Indemnitee  for which the  Company is  responsible  under  this  Article 6, such
Indemnitee shall notify the Company of the commencement  thereof and the Company
may,  at its  expense,  participate  in and to the  extent  that it  shall  wish
(subject to the provisions of the following  paragraph),  assume and control the
defense thereof and, subject to Section 6.4(c), settle or compromise the same.

     (b) The  Company or its  insurer(s)  shall have the right,  at its or their
expense,  to investigate or, if the Company or its insurer(s) shall agree not to
dispute  liability  to the  Indemnitee  giving  notice of such  action,  suit or
proceeding  under this  Section 6.4 for  indemnification  hereunder or under any
insurance policies pursuant to which coverage is sought, control the defense of,
any   action,   suit  or   proceeding,   relating   to  any  Expense  for  which
indemnification  is sought pursuant to this Article 6, and each Indemnitee shall
cooperate with the Company or its  insurer(s)  with respect  thereto;  PROVIDED,
that the  Company  shall not be  entitled  to  control  the  defense of any such
action,  suit,  proceeding or compromise any such Expense during the continuance
of any Event of Default.  In connection with any such action, suit or proceeding
being  controlled  by the  Company,  such  Indemnitee  shall  have the  right to
participate  therein,  at its sole cost and  expense,  with  counsel  reasonably
satisfactory to the Company; PROVIDED, that such Indemnitee's participation does
not, in the  reasonable  opinion of the  independent  counsel  appointed  by the



Company or its insurers to conduct such proceedings,  interfere with the defense
of such case.

     (c) In no event  shall any  Indemnitee  enter  into a  settlement  or other
compromise  with respect to any Expense without the prior written consent of the
Company,  which consent shall not be  unreasonably  withheld or delayed,  unless
such Indemnitee  waives its right to be indemnified with respect to such Expense
under this Article 6.

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

     (e) If an  Indemnitee  is not a party to this  Indenture,  the  Company may
require such Indemnitee to agree in writing to the terms of this Article 6 prior
to making any payment to such Indemnitee under this Article 6.

     (f)  Nothing  contained  in this  Section 6.4 shall be deemed to require an
Indemnitee to contest any Expense or to assume  responsibility for or control of
any judicial proceeding with respect thereto.

     Section 6.5 INFORMATION.

     The Company will provide the relevant  Indemnitee with such information not
within the  control of such  Indemnitee,  as is in the  Company's  control or is
reasonably  available  to the  Company,  which such  Indemnitee  may  reasonably
request and will otherwise  cooperate with such  Indemnitee so as to enable such
Indemnitee to fulfill its  obligations  under Section 6.4. The Indemnitee  shall
supply the Company with such  information not within the control of the Company,
as  is  in  such  Indemnitee's  control  or  is  reasonably  available  to  such
Indemnitee,  which the Company may reasonably  request to control or participate
in any proceeding to the extent permitted by Section 6.4.

     Section 6.6 SUBROGATION; FURTHER ASSURANCES.

     Upon the payment in full by the Company of any indemnity provided for under
this Article 6, the Company,  without any further  action and to the full extent
permitted by Law,  will be  subrogated  to all rights and remedies of the person
indemnified  (other  than with  respect  to any of such  Indemnitee's  insurance
policies)  in respect of the matter as to which such  indemnity  was paid.  Each
Indemnitee  will give such further  assurances or agreements  and cooperate with
the Company to permit the Company to pursue such  claims,  if any, to the extent
reasonably requested by the Company and at the Company's expense.



     Section 6.7 REFUNDS.

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


                                   ARTICLE 7.

                              DEFAULT AND REMEDIES

     Section 7.1 EVENTS OF DEFAULT.

     The  term  "EVENT  OF  DEFAULT"  shall  mean  any of the  following  events
(whatever  the reason for such Event of Default and whether  such event shall be
voluntary  or  involuntary  or come about or be effected by  operation of law or
pursuant to or in compliance with any judgment,  decree or order of any court or
any order, rule or regulation of any administration or governmental body):

     (a) the  Company  shall  fail to pay (i)  principal  of,  interest  on,  or
Premium, if any, or Break Amount, if any, with respect to any Note when due, and
such  failure  shall  continue  unremedied  for a  period  of 10  Business  Days
thereafter (it being understood that any amount  distributed to  Securityholders
in respect of the  foregoing  from funds  provided by the Policy  Provider,  the
Liquidity  Provider or the Cash  Collateral  Account shall not be deemed to cure
such Default),  or (ii) any other amount payable by it to the Noteholders  under
this  Indenture or any  Operative  Document  when due,  and such  failure  shall
continue  for a period in excess  of 10  Business  Days  after the  Company  has
received  written  notice from the  Trustee of the failure to make such  payment
when due;

     (b) the Company  shall fail to observe or perform (or caused to be observed
and  performed)  in any  material  respect  any  other  covenant,  agreement  or
obligation  set forth  herein or in any other  Operative  Document  to which the
Company is a party and such failure shall continue unremedied for a period of 30
days from and after the date of written  notice  thereof to the Company from the
Trustee, unless such failure is capable of being corrected and the Company shall
be diligently  proceeding to correct such failure,  in which case there shall be
no Event of Default unless and until such failure shall continue  unremedied for
a period of 270 days after receipt of such notice;

     (c) any  representation  or warranty  made by the Company  herein or in any
other Operative Document to which the Company is a party (a) shall prove to have
been untrue or inaccurate in any material  respect as of the date made, (b) such
untrue or  inaccurate  representation  or  warranty  is  material at the time in
question,  and (c) the same shall  remain  uncured (to the extent of the adverse
impact of such  incorrectness  on the  interest of the  Trustee) for a period in



excess of 30 days from and after the date of written notice thereof from Trustee
to the Company;

     (d) the Company shall consent to the appointment of or taking possession by
a receiver,  trustee or  liquidator  of itself or of a  substantial  part of its
property,  or the Company  shall admit in writing its inability to pay its debts
generally as they come due or shall make a general assignment for the benefit of
its creditors, or the Company shall file a voluntary petition in bankruptcy or a
voluntary  petition or an answer  seeking  reorganization,  liquidation or other
relief under any bankruptcy laws or insolvency laws (as in effect at such time),
or an answer  admitting the material  allegations of a petition filed against it
in any such case, or the Company shall seek relief by voluntary petition, answer
or  consent,  under  the  provisions  of any other  bankruptcy  or  similar  law
providing for the  reorganization or winding-up of corporations (as in effect at
such time),  or the Company shall seek an agreement,  composition,  extension or
adjustment  with  its  creditors  under  such  laws or the  Company's  board  of
directors shall adopt a resolution  authorizing  corporate action in furtherance
of any of the foregoing;

     (e) an order, judgment or decree shall be entered by any court of competent
jurisdiction appointing, without the consent of the Company, a receiver, trustee
or liquidator of the Company or of any substantial part of its property,  or any
substantial  part of the  property  of the  Company  shall  be  sequestered,  or
granting  any other  relief in  respect  of the  Company  as a debtor  under any
bankruptcy laws or other  insolvency  laws (as in effect at such time),  and any
such order,  judgment,  decree, or decree of appointment or sequestration  shall
remain in force undismissed, unstayed or unvacated for a period of 90 days after
the date of entry thereof; or

     (f) a petition  against the Company in a  proceeding  under any  bankruptcy
laws or other  insolvency  laws (as in  effect  at such  time) is filed  and not
withdrawn or dismissed within 90 days thereafter, or if, under the provisions of
any law providing for  reorganization  or winding-up of  corporations  which may
apply  to  the  Company,  any  court  of  competent  jurisdiction  shall  assume
jurisdiction,  custody or control of the Company 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 90 days.

     Section 7.2 ACCELERATION.

     If an Event of Default (other than an Event of Default specified in Section
7.1(d), (e) or (f) with respect to the Company) occurs,  and is continuing,  the
Controlling Party may, by notice to the Company and the Trustee, and the Trustee
shall, upon the request of such Controlling Party,  declare all unpaid principal
of, accrued but unpaid interest on, and Premium,  if any, Break Amount,  if any,
with  respect  to the Notes  Outstanding  and other  amounts  otherwise  payable
hereunder,  if any, to the date of  acceleration  to be due and payable and upon
any such declaration,  the same shall become and be immediately due and payable.
If an Event of Default  specified  in  Section  7.1(d),  (e) or (f) occurs  with
respect to the Company, all unpaid principal of, accrued but unpaid interest on,
and  Premium,  if any,  Break  Amount,  if  any,  with  respect  to,  the  Notes
Outstanding  and  other  amounts  otherwise  payable  hereunder,  if any,  shall



automatically  become and be immediately due and payable without any declaration
or  other  act  on the  part  of  the  Trustee,  the  Controlling  Party  or any
Noteholder.  Upon payment of such principal amount,  interest,  Premium, if any,
Break Amount, if any, and other amounts, all of the Company's  obligations under
the Notes and this Indenture, other than obligations under Article 6 and Section
8.7, shall terminate. The Controlling Party by notice to the Trustee may rescind
an  acceleration  and its  consequences  if (a) all existing  Events of Default,
other than the non-payment as to the Notes of the principal,  interest, Premium,
if any,  and Break  Amount,  if any,  with  respect  thereto  and other  amounts
otherwise  payable  hereunder,  if any,  which  has  become  due  solely by such
declaration of  acceleration,  have been cured or waived,  (b) to the extent the
payment of such interest is permitted by law,  interest on overdue  installments
of interest and on overdue principal which has become due otherwise than by such
declaration  of  acceleration,  has been  paid,  (c) the  rescission  would  not
conflict with any judgment or decree of a court of competent  jurisdiction,  and
(d) all payments due to the Trustee and any  predecessor  Trustee  under Section
8.7 have been made. No such  rescission  shall affect any subsequent  default or
impair any right arising from any subsequent default.

     Section 7.3 OTHER REMEDIES.

     If an Event of Default occurs and is continuing, the Trustee may pursue any
available  remedy by  proceeding  at law or in equity to collect  the payment of
principal of,  interest on, or Premium,  if any, or Break  Amount,  if any, with
respect to the Notes or other amounts otherwise payable hereunder, if any, or to
enforce  the  performance  of any  provision  of the  Notes  or  this  Indenture
including,  without  limitation,  instituting  proceedings  and  exercising  and
enforcing,  or directing exercise and enforcement of, all rights and remedies of
the Trustee and the  Collateral  Agent under the other  Operative  Documents and
directing  the  Collateral  Agent to deposit  with the  Trustee  all cash and/or
Investment Securities held by the Collateral Agent.

     The Trustee may  maintain a  proceeding  even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or omission
by the Trustee or any Noteholder in exercising any right or remedy accruing upon
an Event of Default  shall not impair the right or remedy or constitute a waiver
of or acquiescence in the Event of Default.  No remedy is exclusive of any other
remedy. All available remedies are cumulative.

     Section 7.4 WAIVER OF PAST DEFAULTS.

     Subject to Sections 7.7, 10.2 and 10.6, the Controlling  Party by notice to
the Trustee may authorize  the Trustee to waive an existing  Default or Event of
Default  and its  consequences,  except a Default or Event of Default (i) in the
payment of principal of,  interest on, or Premium,  if any, or Break Amount,  if
any, with respect to, any Note as specified in Section  7.1(a) that has not been
paid from funds provided by the Policy Provider,  the Liquidity  Provider or the
Cash  Collateral  Account or (ii) in respect of a covenant or  provision  hereof
which  cannot be  modified  or amended  without  the  consent  of the  Liquidity
Provider,  the Policy  Provider  and the  Holder of each  Security  affected  or
without the consent of the Holder of each Subordinated Security affected. When a



Default  or Event of  Default  is so  waived,  it is cured and  ceases,  and the
Company,  the  Liquidity  Provider,  the Policy  Provider,  the  Holders and the
Trustee  shall be  restored  to their  former  positions  and  rights  hereunder
respectively; but no such waiver shall extend to any subsequent or other Default
or Event of Default or impair any right consequent thereon.

     Section 7.5 CONTROL OF REMEDIES.

     The Controlling  Party may direct the time,  method and place of conducting
any proceeding for any remedy available to the Trustee (as Trustee or Collateral
Agent, subject, in the case of any actions based on the status of the Trustee as
Collateral  Agent, to any limitations  otherwise  expressly  provided for in the
other  Operative  Documents) or exercising  any trust or power  conferred on it;
provided that the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.  The Trustee may refuse to follow
any direction  hereunder or authorization  under Section 7.4 that conflicts with
law or this  Indenture,  that the Trustee  determines may subject the Trustee to
personal  liability or, after a Policy Provider Default or after the Securities,
the Policy Expenses and the Policy Provider  Obligations have been paid in full,
that the Trustee  determines may be unduly  prejudicial to the rights of another
Noteholder.  However,  the Trustee  shall have no  liability  for any actions or
omissions  to  act  which  are  in  accordance   with  any  such   direction  or
authorization.  The  Controlling  Party  shall not  direct  the  Trustee  or any
Collateral  Agent to sell or  otherwise  dispose  of any  Collateral  unless all
unpaid  principal of, accrued but unpaid  interest on, and Premium,  if any, and
Break Amount,  if any, with respect to, the Outstanding  Notes and other amounts
otherwise  payable under this Indenture,  if any, shall be declared or otherwise
become due and payable immediately.

     Section 7.6 LIMITATION ON SUITS.

     A Noteholder  may not pursue any remedy with  respect to this  Indenture or
the Notes unless:

     (a) the Holder gives to the Trustee written notice of a continuing Event of
Default;

     (b) the Holders of at least  twenty-five  percent (25%) in principal amount
of a Series of Notes Outstanding make a written request to the Trustee to pursue
the remedy;

     (c) such Holder or Holders offer to the Trustee  indemnity  satisfactory to
the Trustee against any loss, liability or expense;

     (d) the Trustee  does not comply with the  request  within  sixty (60) days
after receipt of the request and the offer of indemnity;

     (e)  during  such  60-day  period the  Controlling  Party does not give the
Trustee a direction which, in the opinion of the Trustee,  is inconsistent  with
such request; and



     (f) in  the  case  of a  Subordinated  Securityholder,  the  principal  of,
interest on, and Premium,  if any,  Break Amount,  if any, and all other amounts
payable under this Indenture  with respect to the  Securities  have been paid in
full.

     A Noteholder  may not use this Indenture to prejudice the rights of another
Noteholder  or to obtain a  preference  or priority  over such other  Noteholder
(except  for  the   preferences  and  priorities  of  the  Securities  over  the
Subordinated Securities provided for in this Indenture).

     Section 7.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT.

     Notwithstanding  any other  provision of this  Indenture,  the right of any
Holder of a Note to receive  payment of principal of,  interest on, and Premium,
if any, and Break Amount, if any, with respect to, the Note in cash, on or after
the  respective  due  dates  expressed  in the  Note,  or to bring  suit for the
enforcement of any such payment on or after such respective dates,  shall not be
impaired or affected without the consent of the Holder.

     It is hereby  expressly  understood,  intended  and agreed that any and all
actions  which a Holder of the Notes may take to enforce the  provisions of this
Indenture  and/or collect  Payments due hereunder or under the Notes,  except to
the extent that such action is  determined to be on behalf of all Holders of the
Notes, shall be in addition to and shall not in any way change, adversely affect
or impair the rights and remedies of the Trustee,  the Controlling  Party or any
other  Holder  of the  Notes  thereunder  or under  this  Indenture,  the  other
Operative Documents and the Support Documents,  including the right to foreclose
upon and sell the  Collateral  or any part  thereof  and to apply  any  proceeds
realized in accordance with the provisions of this Indenture.

     Section 7.8 COLLECTION SUIT BY TRUSTEE.

     If an Event of Default in payment of principal,  interest, Premium or Break
Amount  specified in Section  7.1(a) occurs and is  continuing,  the Trustee may
recover  judgment in its own name and as trustee of an express trust against the
Company  or any other  obligor on the Notes for the whole  amount of  principal,
accrued interest,  Premium,  if any, or Break Amount, if any,  remaining unpaid,
together with interest on overdue principal and on overdue interest,  Premium or
Break Amount to the extent that payment of such interest is permitted by law, in
each case at the rate per annum  provided  for by the  Notes,  and such  further
amount as shall be  sufficient  to cover the costs and  expenses of  collection,
including the reasonable compensation,  expenses,  disbursements and advances of
the Trustee, its agents and counsel.

     Section 7.9 TRUSTEE MAY FILE PROOFS OF CLAIM.

     The Trustee may file such proofs of claim and other  papers or documents as
may be  necessary  or  advisable  in  order to have the  claims  of the  Trustee
(including any claim for the reasonable  compensation,  expenses,  disbursements
and advances of the Trustee, its agents and counsel) and the Noteholders allowed
in any judicial  proceedings  relative to the Company (or any other obligor upon



the Notes), its creditors or its property and shall be entitled and empowered to
collect and receive any moneys or other  property  payable or deliverable on any
such claims and to distribute  the same,  and any Custodian in any such judicial
proceedings is hereby authorized by each Noteholder to make such payments to the
Trustee and, in the event that the Trustee  shall  consent to the making of such
payments directly to the Noteholders, to pay to the Trustee any amount due to it
for the reasonable  compensation,  expenses,  disbursements  and advances of the
Trustee,  its agent and  counsel,  and any other  amounts due the Trustee  under
Section 8.7, and unless  prohibited by law or applicable  regulations to vote on
behalf of the Holders of Notes for the  election of a trustee in  bankruptcy  or
other person  performing  similar  functions.  Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Noteholder any plan of reorganization,  arrangement, adjustment or
composition  affecting  the Notes or the  rights of any  Holder  thereof,  or to
authorize  the Trustee to vote in respect of the claim of any  Noteholder in any
such  proceeding  except,  as  aforesaid,  for  the  election  of a  trustee  in
bankruptcy or person performing similar functions.

     Section 7.10 APPLICATION OF PROCEEDS.

     Any moneys  collected  by the Trustee  pursuant to this Article 7 or by the
Security Agent under Section 6.02 of the Security Agreement shall be distributed
in the order  provided  in Section 3.2 at the date or dates fixed by the Trustee
and,  in case of the  distribution  of such  moneys  on  account  of  principal,
interest,  Premium,  if any, or Break Amount,  if any, upon  presentation of the
several Notes and stamping (or otherwise noting) thereon the payment, or issuing
Notes in reduced  principal  amounts in exchange for the presented Notes if only
partially paid, or upon surrender thereof if fully paid.

     The  Trustee  may fix a record  date and  payment  date for any  payment to
Noteholders  pursuant  to this  Section  7.10,  and the  Trustee  shall give the
Company and the Noteholders written notice thereof no less than 15 days prior to
any such record date.

     Section 7.11 UNDERTAKING FOR COSTS.

     All  parties to this  Indenture  agree,  and each Holder of any Note by his
acceptance  thereof  shall be  deemed  to have  agreed,  that  any  court in its
discretion  may require in any suit for the  enforcement  of any right or remedy
under this  Indenture or in any suit against the Trustee for any action taken or
omitted by it as  Trustee,  the filing by any party  litigant  in the suit of an
undertaking  to pay the costs of the suit,  and the court in its  discretion may
assess reasonable costs, including reasonable attorneys' fees, against any party
litigant  in the suit,  having  due  regard to the  merits and good faith of the
claims or defenses made by the party litigant.  This Section 7.11 does not apply
to a suit by the Trustee,  a suit by a Holder pursuant to Section 7.7, or a suit
by Holders of more than ten percent (10%) in principal  amount of the Notes of a
Series Outstanding.

     Section 7.12 RESTORATION OF RIGHTS ON ABANDONMENT OF PROCEEDINGS.

     In case the Trustee  shall have  proceeded  to enforce any right under this
Indenture and such proceedings shall have been discontinued or abandoned for any



reason,  or shall have been  determined  adversely to the  Trustee,  then and in
every such case the Company,  the Trustee and the Noteholders  shall be restored
respectively  to their former  positions and rights  hereunder,  and all rights,
remedies  and powers of the  Company,  the  Trustee  and the  Noteholders  shall
continue as though no such proceedings had been taken.

     Section 7.13 POWERS AND REMEDIES  CUMULATIVE;  DELAY OR OMISSION NOT WAIVER
OF DEFAULT.

     No right or remedy herein  conferred  upon or reserved to the Trustee or to
any  Noteholder  is intended to be exclusive  of any other right or remedy,  and
every right and remedy shall, to the extent  permitted by law, be cumulative and
in addition to every other right and remedy given  hereunder or now or hereafter
existing at law or in equity or  otherwise.  The  assertion or employment of any
right or remedy  hereunder,  or  otherwise,  shall not  prevent  the  concurrent
assertion or employment of any other appropriate right or remedy.

     No delay or omission of the Trustee or of any Holder of any of the Notes to
exercise any right or power  accruing  upon any Event of Default  occurring  and
continuing  as  aforesaid  shall  impair  any  such  right  or power or shall be
construed  to be a  waiver  of any  such  Event of  Default  or an  acquiescence
therein;  and,  subject to the other  applicable  provisions of this  Indenture,
every  power and remedy  given by this  Indenture  or by law to the  Trustee,  a
Liquidity  Provider,  the Policy  Provider or to any Noteholder may be exercised
from time to time, and as often as shall be deemed expedient,  by the Trustee or
by such Noteholder.

     Any right or remedy herein conferred upon or reserved to the Trustee may be
exercised by it in its capacity as Trustee and/or as Collateral Agent, as it may
deem most efficacious, if it is then acting in such capacity.

     Section 7.14 CERTAIN LIMITS ON REMEDIES BY POLICY PROVIDER.

     The  Policy  Provider   agrees,   for  the  benefit  of  the   Subordinated
Securityholders,  that, so long as the Policy Provider is the Controlling Party,
if the Company is a debtor in a proceeding  under  Chapter 11 of the  Bankruptcy
Code and (i) the 60-day period under  Section  1110(a)(2)(A)  of the  Bankruptcy
Code (or such longer period as may apply under Section 1110(b) of the Bankruptcy
Code) shall expire  without the Company  having entered into an agreement of the
kind  described  in Section  1110(a)(2)(A)  of the  Bankruptcy  Code (a "SECTION
1110(A)  AGREEMENT")  with  respect  to the  Indenture  and the other  Operative
Documents,  (ii) the Company shall have entered into a Section 1110(a) Agreement
and thereafter shall have failed to perform its obligations thereunder such that
the Security  Agent is entitled to take  possession  of the Pledged  Spare Parts
pursuant to the Security Agreement, or (iii) a plan of reorganization shall have
been confirmed in such proceeding that does not provide for the  continuation of
the terms and conditions of the Operative  Documents in full force and effect in
accordance with their original stated terms without  modification or impairment,
the Policy  Provider  shall not permit  (and will not permit the  Trustee or any
Collateral  Agent to  permit)  the sale or  lease of all or any  portion  of the
Collateral to the Company or any of its  Affiliates  for an amount less than the



then current fair market value thereof (as determined by a nationally recognized
appraiser  selected by the Trustee and acceptable to the Policy  Provider).  The
Policy Provider further agrees to give the Subordinated Securityholders at least
30 days'  prior  written  notice  of its  intention  to sell or lease all or any
portion of the Collateral.


                                   ARTICLE 8.

                                     TRUSTEE

     Section 8.1 DUTIES OF TRUSTEE.

     (a) If an Event of Default  has  occurred  and is  continuing,  the Trustee
shall  exercise such of the rights and powers vested in it by this Indenture and
use the same  degree of care and  skill in their  exercise  as a prudent  person
would exercise or use under the circumstances in the conduct of his own affairs.

     (b) Except during the continuance of an Event of Default:

          (i) The Trustee need perform only those duties as are specifically set
     forth in this  Indenture,  the other  Operative  Documents  and the Support
     Documents and no others.

          (ii)  In the  absence  of bad  faith  on its  part,  the  Trustee  may
     conclusively rely, as to the truth of the statements and the correctness of
     the opinions expressed therein,  upon certificates or opinions furnished to
     the Trustee and conforming to the requirements of this Indenture.  However,
     the  Trustee  shall  examine the  certificates  and  opinions to  determine
     whether or not they conform to the requirements of this Indenture.

     (c) The Trustee may not be relieved  from  liability  for its own negligent
action, its own negligent failure to act, or its own willful misconduct,  except
that:

          (i) This  paragraph  (c) does not limit the effect of paragraph (b) of
     this Section 8.1 or of Section 8.2.

          (ii) The Trustee shall not be liable for any error of judgment made in
     good faith by a Trust  Officer,  unless it is proved  that the  Trustee was
     negligent in ascertaining the pertinent facts.

          (iii) The Trustee  shall not be liable  with  respect to any action it
     takes  or  omits  to take in good  faith  in  accordance  with a  direction
     received by it pursuant to Section 7.5.

     (d) The Trustee  may refuse to perform  any duty or  exercise  any right or
power  unless  it  receives  indemnity  satisfactory  to it  against  any  loss,
liability or expense.



     (e)  Every  provision  of this  Indenture  that in any way  relates  to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 8.1.

     (f) Funds held in trust for the  benefit of the Holders of the Notes by the
Trustee or any Paying Agent on deposit with itself or elsewhere,  and Investment
Securities  held in trust for the  benefit  of the  Holders  of the Notes by the
Trustee,  shall be held in distinct,  identifiable  accounts, and other funds or
investments  of any  nature or from any  source  whatsoever  may be held in such
accounts, except, in each case, to the extent required by law. The Trustee shall
not be liable for interest on any money received by it except as the Trustee may
agree with the Company.

     Section 8.2 RIGHTS OF TRUSTEE.

     (a) The Trustee may rely on any  document  believed by it to be genuine and
to have been signed or  presented  by the proper  person.  The Trustee  need not
investigate any fact or matter stated in the document.

     (b) Before the Trustee  acts or  refrains  from  acting,  it may require an
Officers'  Certificate or an Opinion of Counsel,  which shall conform to Section
12.5.  The Trustee  shall not be liable for any action it takes or omits to take
in good faith in reliance on such certificate or opinion.

     (c) The  Trustee  may  execute  any of the  trusts or powers  hereunder  or
perform any duties  hereunder either directly or by or through its attorneys and
agents and the Trustee shall not be responsible for the misconduct or negligence
of any agent or attorney appointed with due care.

     (d) The  Trustee  shall not be liable  for any  action it takes or omits to
take in good faith which it  reasonably  believes to be authorized or within its
rights or powers.

     Section 8.3 INDIVIDUAL RIGHTS OF TRUSTEE.

     The Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with and collect  obligations owed to it
by the Company or  Affiliates  of the Company with the same rights it would have
if it were not Trustee. Any Agent may do the same with like rights. However, the
Trustee is subject to Sections 8.10 and 8.11.

     Section 8.4 TRUSTEE'S DISCLAIMER.

     The Trustee makes no  representation as to the validity or adequacy of this
Indenture or the Notes, it shall not be accountable for the Company's use of the
proceeds from the Notes,  and it shall not be  responsible  for any statement in
the Notes or in this Indenture other than its certificate of authentication.



     Section 8.5 NOTICE OF DEFAULTS.

     If a Default  occurs and is  continuing  and if it is known to the Trustee,
the Trustee shall mail to each Noteholder, the Liquidity Provider and the Policy
Provider a notice of the Default  within  ninety (90) days after the  occurrence
thereof  except  as  otherwise  permitted  by the TIA.  Except  in the case of a
Default in payment of principal of, or interest on, or Premium, if any, or Break
Amount,  if any, with respect to, any Note,  the Trustee may withhold the notice
if and so long as it, in good faith,  determines that  withholding the notice is
in the interests of the Noteholders.

     Section 8.6 REPORTS BY TRUSTEE TO HOLDERS.

     If  circumstances  require any report to Holders under TIA ss.  313(a),  it
shall be  mailed  to  Noteholders  within  sixty  (60)  days  after  each May 15
(beginning  with the May 15 following  the date of this  Indenture)  as of which
such  circumstances  exist.  The Trustee also shall comply with the remainder of
TIA ss. 313.

     The  Company  shall  notify the  Trustee if the Notes  become  listed on or
delisted from any stock exchange or other recognized trading market.

     The  Trustee  shall,  upon the  written  request of any Holder of Notes but
subject to applicable laws and contractual  limitations,  provide to such Holder
copies of any reports, certificates,  opinions or other materials of any kind or
nature  required to be  delivered to the Trustee  (including  in its capacity as
Collateral Agent if it is acting as such) under this Indenture, any of the other
Operative  Documents or the Support  Documents  or otherwise  delivered by or on
behalf of the Company to the Trustee  (including  in its capacity as  Collateral
Agent if it is acting as such).

     Section 8.7 COMPENSATION AND INDEMNITY.

     The  Company  shall  pay  to the  Trustee  from  time  to  time  reasonable
compensation,  as agreed upon from time to time, for its services,  including as
Collateral Agent if its acting as such. The Trustee's  compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall  reimburse  the Trustee  upon  request for all  reasonable  disbursements,
expenses  and  advances  incurred  or made by it in any  such  capacities.  Such
expenses shall include the reasonable  compensation,  disbursements and expenses
of the  Trustee's  agents  and  counsel  and all agents  and other  persons  not
regularly in its employ.

     The Company shall  indemnify the Trustee (in its capacities as Trustee and,
if it is acting as such, Collateral Agent) and each predecessor Trustee for, and
hold each of them harmless  against,  any loss or liability  incurred by each of
them in  connection  with  the  administration  of  this  trust  and its  duties
hereunder.  In connection with any defense of such a claim, the Trustee may have
separate  counsel and the Company shall pay the reasonable  fees and expenses of
such counsel.  The Company need not  reimburse any expense or indemnify  against
any loss or liability incurred by the Trustee or any predecessor Trustee through
the negligence or bad faith of such Trustee or each such predecessor Trustee.



     To secure the  Company's  payment  obligations  in this  Section  8.7,  the
Trustee shall have a Lien (legal and equitable)  prior to the Notes on all money
or property  held or collected by the  Trustee,  in its capacity as Trustee,  or
otherwise  distributable  to Noteholders,  except money,  securities or property
held in trust to pay  principal  of,  interest on or  Premium,  if any, or Break
Amount, if any, with respect to the particular Notes.

     When the  Trustee  incurs  expenses or renders  services  after an Event of
Default  specified in Section  7.1(d),  (e) or (f) occurs,  the expenses and the
compensation   for  the  services  are  intended  to   constitute   expenses  of
administration  under the Bankruptcy Code or any similar law of any jurisdiction
other than the U.S.

     Section 8.8 REPLACEMENT OF TRUSTEE.

     The  Trustee for any Series may resign by so  notifying  the  Company,  the
Liquidity Provider and the Policy Provider in writing. The Controlling Party may
remove the Trustee for any Series by so notifying the Trustee in writing and may
appoint a successor Trustee with the Company's consent,  which consent shall not
be unreasonably  refused or delayed.  The Company may remove the Trustee for any
Series if:

     (a) such Trustee fails to comply with Section 8.10;

     (b) such Trustee is adjudged a bankrupt or an insolvent;

     (c) a receiver or other public  officer takes charge of such Trustee or its
property;

     (d) such Trustee becomes incapable of acting; or

     (e) no Default or Event of Default has occurred and is  continuing  and the
Company determines in good faith to remove such Trustee.

     If the Trustee for any Series  resigns or is removed or if a vacancy exists
in the  office of  Trustee  for any Series for any  reason,  the  Company  shall
promptly appoint a successor Trustee for such Series.  Within one year after the
successor Trustee for any Series takes office, the Controlling Party may appoint
a successor  Trustee for such Series to replace the  successor  Trustee for such
Series appointed by the Company.

     A successor  Trustee for any Series shall  deliver a written  acceptance of
its  appointment  to the  retiring  Trustee for such Series and to the  Company.
Immediately  after that, the retiring Trustee for such Series shall transfer all
property held by it as Trustee for such Series to the successor Trustee for such
Series,  subject to the Lien provided in Section 8.7, the resignation or removal
of the  retiring  Trustee  for  such  Series  shall  become  effective,  and the
successor  Trustee for such Series shall have all the rights,  powers and duties
of the Trustee for such Series under this Indenture. A successor Trustee for any
Series shall mail notice of its succession to each Noteholder of such Series. If
there is a successor  Security Agent under the Security  Agreement,  the Trustee
shall mail notice of such succession to each Noteholder.



     No  resignation or removal of the Trustee and no appointment of a successor
Trustee,  pursuant to this Article,  shall become effective until the acceptance
of appointment  by the successor  Trustee under this Section 8.8. If a successor
Trustee  for any Series does not take  office  within  sixty (60) days after the
retiring  Trustee for such Series resigns or is removed,  the retiring  Trustee,
the Company,  the Liquidity  Provider,  the Policy Provider or the Holders of at
least  ten  percent  (10%) in  principal  amount  of the  Notes  of such  Series
Outstanding may petition any court of competent jurisdiction for the appointment
of a successor Trustee for such Series.

     If the Trustee for any Series fails to comply with Section 8.10, any Holder
of Notes of such Series may petition any court of competent jurisdiction for the
removal of the  Trustee  for such  Series  and the  appointment  of a  successor
Trustee for such Series.

     Notwithstanding  replacement  of the Trustee  pursuant to this Section 8.8,
the Company's  obligations  under Section 8.7 shall  continue for the benefit of
the retiring  Trustee  (whether in its capacity as Trustee or Collateral  Agent)
which shall retain its claim pursuant to Section 8.7.

     The resignation,  removal and replacement of each Collateral Agent shall be
governed by the applicable Collateral Agreement.

     Section 8.9 SUCCESSOR TRUSTEE BY MERGER, ETC.

     If the Trustee consolidates with, merges or converts into, or transfers all
or  substantially  all of its corporate trust business to, another  corporation,
the resulting, surviving or transferee corporation without any further act shall
be the successor Trustee.

     Section 8.10 ELIGIBILITY; DISQUALIFICATION.

     This Indenture  shall always have a Trustee who satisfies the  requirements
of TIA ss.  310(a)(1)  and ss.  310(a)(5).  The  Trustee  shall  have a combined
capital and  surplus of at least  $50,000,000  as set forth in its most  recent,
published  annual  report of  condition.  The Trustee  shall comply with TIA ss.
310(b);  PROVIDED,  HOWEVER,  that there shall be excluded from the operation of
TIA ss. 310(b)(1) any indenture or indentures under which other  securities,  or
certificates of interest or  participation in other  securities,  of the Company
are  outstanding,  if the  requirements  for such exclusion set forth in TIA ss.
310(b)(1) are met.

     Section 8.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.

     The  Trustee  shall  comply with TIA ss.  311(a),  excluding  any  creditor
relationship  listed in TIA ss.  311(b).  A  Trustee  who has  resigned  or been
removed shall be subject to TIA ss. 311(a) to the extent indicated.

     Section 8.12 OTHER CAPACITIES.

     If the Trustee shall serve as the Collateral  Agent,  the Person serving in
such capacities shall have and may effectively exercise all the rights, remedies



and powers, and be entitled to all protections and indemnifications, provided to
such Person in whatever  capacities such Person then serves under any and all of
the  Indenture,  the  other  Operative  Documents  and  the  Support  Documents,
regardless  of the  capacity or  capacities  in which such Person may purport to
take or omit any action. The Trustee agrees to and shall have the benefit of all
provisions of the  Operative  Documents  stated  therein to be applicable to the
Trustee.

     Section 8.13 TRUST ACCOUNTS.

     (a) Upon the execution of this  Indenture,  the Trustee shall establish and
maintain in its name (i) the Collection  Account as an Eligible Deposit Account,
bearing a designation  clearly  indicating that the funds deposited  therein are
held in trust for the benefit of the Noteholders, the Liquidity Provider and the
Policy  Provider,  and (ii) a Policy  Account  as an  Eligible  Deposit  Account
bearing a designation  clearly  indicating that the funds deposited  therein are
held in trust for the  benefit  of the  Securityholders  and,  with  respect  to
amounts paid by the Policy Provider under Section 3.6(d) and clause (vii) of the
definition of "Deficiency  Amount" in the Policy,  the Liquidity  Provider.  The
Trustee shall establish and maintain the Cash Collateral Account pursuant to and
under  the  circumstances  set  forth  in  Section  3.5(f)  hereof.   Upon  such
establishment and maintenance  under Section 3.5(f) hereof,  the Cash Collateral
Account  shall,  together with the  Collection  Account and the Policy  Account,
constitute the "TRUST ACCOUNTS" hereunder.

     (b) Funds on deposit in the Trust Accounts shall be invested and reinvested
by the  Trustee  in  Eligible  Investments  selected  by  the  Trustee  if  such
investments  are  reasonably  available  and have  maturities  no later than the
earlier  of (i) 90 days  following  the  date of such  investment  and  (ii) the
Business Day immediately  preceding the Interest Payment Date next following the
date of such  investment;  PROVIDED,  HOWEVER,  that  following  the making of a
Downgrade Drawing or a Non-Extension  Drawing under the Liquidity Facility,  the
Trustee  shall invest and reinvest such amounts in Eligible  Investments  at the
direction  of the Company  (or, if and to the extent so specified to the Trustee
by the Company,  the  Liquidity  Provider);  PROVIDED  FURTHER,  HOWEVER,  that,
notwithstanding  the foregoing proviso,  following the making of a Non-Extension
Drawing  under the initial  Liquidity  Facility,  the Trustee  shall  invest and
reinvest  the  amounts  in the Cash  Collateral  Account  with  respect  to such
Liquidity Facility in Eligible  Investments pursuant to the written instructions
of the Liquidity Provider;  PROVIDED FURTHER,  HOWEVER, that upon the occurrence
and during the continuation of an Event of Default, the Trustee shall invest and
reinvest  such  amounts  in  accordance  with the  written  instructions  of the
Controlling  Party.  Unless  otherwise  expressly  provided  in  this  Indenture
(including,  without limitation,  with respect to Investment Earnings on amounts
on deposit in the Cash  Collateral  Account  pursuant to Section 3.5(f) hereof),
any  Investment  Earnings  shall be  deposited  in the  Collection  Account when
received  by the  Trustee and shall be applied by the Trustee in the same manner
as the other amounts on deposit in the Collection  Account are to be applied and
any losses shall be charged against the principal amount invested,  in each case
net of the Trustee's  reasonable  fees and expenses in making such  investments.
The  Trustee  shall not be liable for any loss  resulting  from any  investment,
reinvestment or liquidation  required to be made under this Indenture other than



by reason of its willful  misconduct or gross negligence.  Eligible  Investments
and any other  investment  required to be made hereunder  shall be held to their
maturities  except that any such  investment may be sold (without  regard to its
maturity) by the Trustee without instructions whenever such sale is necessary to
make  a  distribution  required  under  the  Indenture.  Uninvested  funds  held
hereunder shall not earn or accrue interest.

     (c) The Trustee shall possess all right, title and interest in all funds on
deposit  from time to time in the Trust  Accounts  and in all  proceeds  thereof
(including all income thereon, except as otherwise expressly provided in Section
3.3(b) with respect to Investment Earnings). The Trust Accounts shall be held in
trust by the Trustee  under the sole dominion and control of the Trustee for the
benefit of the Noteholders,  the Liquidity Provider and the Policy Provider,  as
the case may be.  If, at any time,  any of the  Trust  Accounts  ceases to be an
Eligible  Deposit  Account,  the Trustee  shall within 10 Business Days (or such
longer period, not to exceed 30 calendar days, for which a Ratings  Confirmation
for the Notes of each  Series  and the  consent of the  Policy  Provider  (which
consent shall not be unreasonably withheld or delayed) shall have been obtained)
establish a new Collection  Account,  Policy Account or Cash Collateral Account,
as the case may be, as an Eligible  Deposit  Account and shall transfer any cash
and/or any  investments to such new Collection  Account,  Policy Account or Cash
Collateral  Account,  as the  case  may  be.  So  long  as  WTC  is an  Eligible
Institution,  the Trust Accounts shall be maintained with it as Eligible Deposit
Accounts.

     Section 8.14 DEPOSITS TO THE COLLECTION ACCOUNT.

     The Trustee shall, upon receipt thereof,  deposit in the Collection Account
all Payments  received by it (other than any Payment  which by the express terms
hereof is to be deposited in the Policy Account or the Cash Collateral Account).

     Section 8.15 CERTAIN PAYMENTS.

     Except for amounts constituting Liquidity  Obligations,  Policy Expenses or
Policy Provider  Obligations which shall be deposited in the Collection  Account
and distributed as provided in Section 3.2, the Trustee will distribute promptly
upon receipt  thereof to the Person  entitled  thereto any indemnity  payment or
expense  reimbursement  received  by it  from  the  Company  in  respect  of the
Liquidity Provider or the Policy Provider.


                                   ARTICLE 9.

                             DISCHARGE OF INDENTURE

     Section 9.1 DISCHARGE OF LIABILITY ON NOTES.

     (a) When (i) the Company  delivers to the  Trustee  all  Outstanding  Notes
(other than Notes replaced  pursuant to Section 2.12) for  cancellation  or (ii)
all Outstanding  Notes have become due and payable,  whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article 4 hereof and



the Company  irrevocably  deposits with the Trustee  funds  sufficient to pay at
maturity or upon redemption all Outstanding Notes, including interest thereon to
maturity or such redemption date (other than Notes replaced  pursuant to Section
2.12),  Premium,  if any,  and Break  Amount,  if any, and if in either case the
Company pays all other sums payable hereunder by the Company and due on or prior
to such maturity or  redemption  date,  then this  Indenture  shall,  subject to
Section  9.1(b),  cease to be of further effect.  The Trustee shall  acknowledge
satisfaction  and discharge of this Indenture by executing and delivering to the
Company on demand of the Company accompanied by an Officers'  Certificate and an
Opinion of Counsel,  a written instrument to such effect prepared by the Company
at its sole cost and expense.

     (b)  Notwithstanding  clause (a) above,  the  provisions  of  Sections  2.1
through 2.17, inclusive,  2A.1 through 2A.7, inclusive,  6.1, 8.7 and 8.8 and in
this Article 9 shall survive until the Outstanding Notes have been paid in full.
Thereafter,  the Company's  obligations  in Sections 6.1, 8.7, 9.3 and 9.4 shall
survive.

     Section 9.2 APPLICATION OF TRUST MONEY.

     The  Trustee  shall hold in trust cash  deposited  with it pursuant to this
Article 9. It shall apply the  deposited  cash  through the Paying  Agent and in
accordance  with this  Indenture  to the payment of principal  of,  interest on,
Premium, if any, and Break Amount, if any, on the Notes.

     Section 9.3 REPAYMENT TO COMPANY.

     The Trustee and the Paying Agent shall  promptly  turn over to the Company,
upon request  accompanied by a certificate from a nationally  recognized firm of
independent  accountants expressing their opinion that any cash then held by the
Trustee  is in  excess  of the  amounts  sufficient  to pay  when due all of the
principal of, interest on, and Premium,  if any, and Break Amount,  if any, with
respect to the Notes to  redemption  or  maturity,  as the case may be, any such
excess cash held by them.

     Subject to any  applicable  abandoned  property  law,  the  Trustee and the
Paying Agent shall pay to the Company upon request any cash held by them for the
payment of principal,  interest,  Premium or Break Amount that remains unclaimed
for two years, and,  thereafter,  Noteholders  entitled to the cash must look to
the Company for payment as general creditors.

     Section 9.4 REINSTATEMENT.

     If the  Trustee or Paying  Agent is unable to apply any cash in  accordance
with this Article 9 by reason of any legal  proceeding or by reason of any order
or judgment of any court or  governmental  authority  enjoining,  restraining or
otherwise  prohibiting such  application,  the Company's  obligations under this
Indenture,  the other Operative  Documents,  the Support Documents and the Notes
shall be revived and  reinstated  as though no deposit had occurred  pursuant to
this  Article 9 until such time as the Trustee or Paying  Agent is  permitted to
apply all such cash in accordance with this Article 9; PROVIDED,  HOWEVER, that,
if the Company has made any payment of principal of, interest on, or Premium, if
any,  or  Break  Amount,  if any,  with  respect  to any  Notes  because  of the



reinstatement of its obligations,  the Company shall be subrogated to the rights
of the Holders of such Notes to receive  such  payment from the cash held by the
Trustee or Paying Agent.


                                   ARTICLE 10.

                       AMENDMENTS, SUPPLEMENTS AND WAIVERS

     Section 10.1 WITHOUT CONSENT OF THE CONTROLLING PARTY OR HOLDERS.

     The Company and the Trustee or the  Collateral  Agent,  as the case may be,
may amend or  supplement  this  Indenture,  the  Notes  and the other  Operative
Documents  and,  upon  request  of the  Company,  the  Trustee  shall  amend  or
supplement the Support  Documents,  in each case without notice to or consent of
any  Noteholder  and,  except as  otherwise  provided in the Support  Documents,
without notice to or consent of the Liquidity Provider or the Policy Provider:

          (i) to provide for  uncertificated  Notes of any Series in addition to
     or in place of certificated Notes of such Series;

          (ii) to provide for the assumption of the Company's  obligations under
     the  Operative  Documents  and  the  Notes  in  the  case  of a  merger  or
     consolidation or conveyance,  transfer or lease of all or substantially all
     of the assets of the Company or otherwise to comply with Section 5.4;

          (iii) to comply with any  requirements  of the SEC in connection  with
     the qualification of this Indenture under the TIA;

          (iv) to effect the amendments contemplated by Section 3.5(e)(v)(y);

          (v)  to  provide  for  the  effectiveness  of a  Collateral  Agreement
     pursuant to Section 3.1 of the Collateral Maintenance Agreement;

          (vi) to comply with the requirements of DTC,  Euroclear or Clearstream
     or the Trustee with respect to the provisions of the Indenture or the Notes
     of any Series  relating  to  transfers  and  exchanges  of the Notes of any
     Series or beneficial interests therein;

          (vii) to provide for any  successor  Collateral  Agent or Trustee with
     respect  to the Notes of one or more  Series and to add to or change any of
     the  provisions  of the  Indenture  as shall be  necessary  or advisable to
     provide for or facilitate  the  administration  of the trusts  hereunder by
     more than one Trustee;

          (viii) to cure any ambiguity, defect or inconsistency; or



          (ix) to make any other  change not  inconsistent  with the  provisions
     hereof,  PROVIDED that such action does not materially adversely affect the
     interests of any Noteholder.

     Section 10.2 WITH CONSENT OF THE CONTROLLING PARTY,  LIQUIDITY PROVIDER AND
HOLDERS.

     (a) The Company and the Trustee or the  Collateral  Agent,  as the case may
be, may amend or supplement  this  Indenture,  the Notes and the other Operative
Documents  and,  upon  request  of the  Company,  the  Trustee  shall  amend  or
supplement the Support  Documents,  in each case without notice to or consent of
the  Liquidity  Provider  or the  Policy  Provider  and  without  notice  to any
Noteholder but with the written consent of the Controlling Party,  PROVIDED that
(i) Sections 3.5, 3.6, 3.8 and 3.9 of this Indenture may not be modified without
the  consent  of the  Liquidity  Provider  and the  Policy  Provider,  (ii)  the
Collateral  Maintenance  Agreement and the Support Documents may not be modified
other than in accordance  with the provisions  thereof,  (iii) Sections  3.8(b),
3.8(c) and 7.14 of this Indenture,  this clause (iii), the following clause (iv)
and the definition of "Event of Default" may not be modified without the consent
of the Required  Subordinated  Holders (it being  understood  that the foregoing
does not affect the right of the Controlling Party to waive an Event of Default)
and (iv) an  amendment of any defined  term used in the  definition  of "Maximum
Subordinated Collateral Ratio" or "Subordinated Collateral Ratio" or in any such
defined term will not be effective for purposes of the  definitions  of "Maximum
Subordinated  Collateral  Ratio"  or  "Subordinated   Collateral  Ratio"  unless
consented to by the Required Subordinated Holders.  Subject to Sections 7.4, 7.5
and 7.7,  unless  any Event of  Default  has  occurred  and is  continuing,  the
Controlling  Party may  authorize  the Trustee to, and the  Trustee,  subject to
Section 10.6, upon such  authorization  shall,  waive  compliance by the Company
with  any  provision  of  this  Indenture,  the  Notes  or the  other  Operative
Documents,  PROVIDED that  compliance by the Company with the  provisions of the
Collateral Maintenance Agreement may not be waived other than in accordance with
the provisions thereof. However, an amendment, supplement or waiver, including a
waiver  pursuant to any provision of Section 7.4, may not without the consent of
the Liquidity Provider, the Policy Provider and each Securityholder affected:

          (i) reduce the amount of  Securities  whose Holders must consent to an
     amendment, supplement or waiver;

          (ii) reduce the rate or extend the time for payment of interest on any
     Security;

          (iii) reduce the amount or extend the time for payment of principal of
     or Premium,  if any or Break Amount, if any, with respect to (in each case,
     whether on redemption or otherwise) any Security;

          (iv)  change the place of payment  where,  or the coin or  currency in
     which, any Security (or the redemption price thereof), interest thereon, or
     Premium, if any, or Break Amount, if any, with respect thereto is payable;



          (v) change the  distribution  and application of payments as described
     in Section 3.2 of this Indenture;

          (vi) waive a default in the payment of the principal of,  interest on,
     or Premium, if any, or Break Amount, if any, with respect to any Security;

          (vii)  make any  changes  in  Sections  7.4,  7.7 or 7.10 or the third
     sentence of this Section 10.2(a); or

          (viii)  impair  the  right of any  Holder  to  institute  suit for the
     enforcement of any amount payable on any Security when due.

In addition, an amendment,  supplement or waiver, including a waiver pursuant to
any  provision of Section 7.4, may not without the consent of each  Subordinated
Securityholder affected:

          (i) reduce the amount of  Subordinated  Securities  whose Holders must
     consent to an amendment, supplement or waiver;

          (ii) reduce the rate or extend the time for payment of interest on any
     Subordinated Security;

          (iii) reduce the amount or extend the time for payment of principal of
     or Premium,  if any or Break Amount, if any, with respect to (in each case,
     whether on redemption or otherwise) any Subordinated Security;

          (iv) change the definitions of "Maximum Subordinated Collateral Ratio"
     or "Subordinated Collateral Ratio";

          (v) increase the principal  amount of, or the rate of interest on, the
     Securities;

          (vi)  change the place of payment  where,  or the coin or  currency in
     which,  any  Security or  Subordinated  Security (or the  redemption  price
     thereof),  interest thereon,  or Premium,  if any, or Break Amount, if any,
     with respect thereto is payable;

          (vii) change the distribution and application of payments as described
     in Section 3.2 of this Indenture;

          (viii) waive a default in the payment of the  principal  of,  interest
     on, or  Premium,  if any,  or Break  Amount,  if any,  with  respect to any
     Subordinated Security;

          (ix) make any  changes  in  Sections  7.4,  7.7 or 7.10 or the  fourth
     sentence of this Section 10.2(a); or



          (x)  impair  the  right  of any  Holder  to  institute  suit  for  the
     enforcement of any amount payable on any Subordinated Security when due;

PROVIDED that an  amendment,  supplement or waiver with respect to the foregoing
clauses  (i),  (ii),  (iii),  (iv),  (vi),  (viii) or (x) shall not  require the
consent of the Controlling Party or of the Liquidity Provider or Policy Provider
(if not then the Controlling Party).

     (b) It shall not be  necessary  for the consent of the  Holders  under this
Section to approve the particular form of any proposed amendment,  supplement or
waiver,  but it shall be  sufficient  if such  consent  approves  the  substance
thereof.

     (c) After an  amendment,  supplement  or waiver  under  this  Section  10.2
becomes  effective,  the Company  shall mail to the Holders  affected  thereby a
brief notice describing such amendment, supplement or waiver. Any failure of the
Company to mail such notice,  or any defect therein,  shall not,  however in any
way impair or affect the validity of any such amendment, supplement or waiver.

     Section 10.3 COMPLIANCE WITH TRUST INDENTURE ACT.

     Every  amendment to or supplement of this  Indenture,  any other  Operative
Document or the Notes shall comply with the TIA as then in effect.

     Section 10.4 REVOCATION AND EFFECT OF CONSENTS.

     (a) Until an amendment or waiver  becomes  effective,  a consent to it by a
Holder is a continuing  consent by the Holder and every  subsequent  Holder of a
Note or  portion  of a Note  that  evidences  the  same  debt as the  consenting
Holder's Note, even if notation of the consent is not made on any Note. However,
any such  Holder or  subsequent  Holder may revoke the consent as to his Note or
portion  of a Note.  Such  revocation  shall be  effective  only if the  Trustee
receives the notice of revocation  before the date the amendment,  supplement or
waiver becomes effective.

     (b) After an amendment,  supplement or waiver becomes  effective,  it shall
bind every Noteholder,  unless it makes a change described in any of clauses (i)
through  (viii) of the third  sentence of Section  10.2(a) or any of clauses (i)
through  (viii) of the  fourth  sentence  of Section  10.2(a).  In that case the
amendment,  supplement  or waiver  shall  bind (x) each  Holder of a Note  whose
consent was required under Section 10.2(a) and who has consented to it and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the  consenting  Holder's  Note and (y) each other Holder whose  consent was not
required under Section 10.2(a); PROVIDED, HOWEVER, that no amendment, supplement
or  waiver  relating  to any  impairment  of the  right  to  receive  principal,
interest,  Premium,  if any,  or Break  Amount,  if any,  when  due and  payable
consented to by a Holder shall be binding upon any  subsequent  Holder of a Note
or a portion of a Note that evidences the same debt as the  consenting  Holder's
Note  unless  notation  with  regard  thereto is made upon such Note or the Note
representing such portion.



     Section 10.5 NOTATION ON OR EXCHANGE OF NOTES.

     If an  amendment,  supplement  or waiver  changes the terms of a Note,  the
Trustee  may require  the Holder of the Note to deliver it to the  Trustee.  The
Trustee may place an  appropriate  notation on the Note about the changed  terms
and return it to the  Holder.  Alternatively,  if the  Company or the Trustee so
determines,  the  Company in  exchange  for the Note shall issue and the Trustee
shall  authenticate  a new Note of the same  Series  that  reflects  the changed
terms.

     Section 10.6 TRUSTEE TO SIGN AMENDMENTS, ETC.

     Upon the Request of the Company,  the Trustee shall execute any  amendment,
supplement or waiver  authorized  pursuant to this Article 10; PROVIDED that the
Trustee  shall not be obligated  to execute any such  amendment,  supplement  or
waiver which affects the Trustee's own rights,  duties or immunities  under this
Indenture or otherwise.

     Section 10.7 EFFECT OF SUPPLEMENT AND/OR AMENDMENT.

     Upon the execution of any supplemental  indenture and/or any such amendment
or supplement to the Operative  Documents or the Support  Documents  pursuant to
the provisions of this Article 10, this Indenture,  such Operative Documents and
such  Support  Documents  shall be and be deemed to be  modified  and amended in
accordance   therewith  and  the  respective  rights,   limitations  of  rights,
obligations,  duties and immunities  under this  Indenture,  the other Operative
Documents and the Support  Documents of the Trustee,  the Collateral  Agent, the
Liquidity  Provider,  the Policy Provider,  the Company and the Holders of Notes
shall thereafter be determined,  exercised and enforced hereunder and thereunder
subject in all respects to such modifications and amendments,  and all terms and
conditions  of any such  supplemental  indenture  and/or any such  amendment  or
supplement to the other  Operative  Documents or the Support  Documents shall be
and be  deemed to be part of the terms and  conditions  of this  Indenture,  the
other Operative Documents and the Support Documents for any and all purposes.


                                   ARTICLE 11.

                                    SECURITY

     Section 11.1 OTHER OPERATIVE DOCUMENTS.

     (a) To secure the due and punctual  payment,  performance and observance of
the Obligations,  the Company  simultaneously with the execution of the Original
Indenture  entered  into the  Security  Agreement  and has  granted  a  security
interest on the Spare Parts  Collateral to the Security  Agent in the manner and
to the extent therein  provided and,  simultaneously  with the execution of this
Indenture, the Company has entered into Amendment No. 1 to Security Agreement to
secure,  among other  things,  the  Company's  obligations  with  respect to the
Subordinated Securities.  WTC was appointed as Security Agent and authorized and
directed to enter into the Security Agreement on the Original Closing Date. Each
Noteholder,  by accepting a Note,  agrees to all of the terms and  provisions of



each Operative Document (including, without limitation, the provisions providing
for the release of  Collateral),  as the same may be in effect or may be amended
from time to time pursuant to its terms and the terms  hereof.  The Company will
execute,  acknowledge  and deliver to the Trustee or the  Collateral  Agent such
further assignments,  transfers,  assurances or other instruments as the Trustee
may require or request, and will do or cause to be done all such acts and things
as may be necessary or proper,  or as may be reasonably  required by the Trustee
or the  Collateral  Agent to assure and confirm to the Trustee or the Collateral
Agent the security  interest in the  Collateral  contemplated  hereby and by the
other Operative Documents, as from time to time constituted, so as to render the
same  available  for the  security  and  benefit  of this  Indenture  and of the
Securities  secured  hereby,   according  to  the  intent  and  purposes  herein
expressed.

     (b) The Trustee  acknowledges  that it is a third-party  beneficiary of the
Trustee Provisions and agrees to perform its obligations  expressly set forth in
the Collateral Maintenance Agreement.

     Section 11.2 OPINIONS, CERTIFICATES AND APPRAISALS.

     (a) The Company shall furnish to the Trustee  promptly  after the execution
and delivery of the Original Indenture an Opinion of Counsel stating that in the
opinion of such counsel the Original  Indenture or Security  Agreement  has been
properly  recorded  and filed so as to make  effective  the Lien  intended to be
created  thereby and reciting the details of such  actions,  or stating that, in
the  opinion of such  counsel,  no such  action is  necessary  to make such Lien
effective. The Company shall furnish to the Trustee promptly after the execution
and delivery of this Indenture an Opinion of Counsel stating that in the opinion
of such counsel  Amendment No. 1 to Security  Agreement has been properly  filed
and recorded with the FAA and reciting the details of such actions.

     (b) The Company shall furnish to the Trustee not later than one hundred and
twenty (120) days after January 1 in each year  beginning  with January 1, 2003,
an Opinion of Counsel,  dated as of such date,  either (a) stating  that, in the
opinion  of such  counsel,  such  action  has been  taken  with  respect  to the
recording,  filing,  rerecording,  and refiling of the Indenture, any Collateral
Agreement,  any amendment or supplement thereto,  and all financing  statements,
continuation  statements  or  other  instruments  of  further  assurance  as  is
necessary to maintain the Lien created by the Collateral Agreements (if not then
terminated  pursuant to its terms) and reciting  the details of such action,  or
(b) stating that, in the opinion of such counsel, no such action is necessary to
maintain such Lien.

     (c)  The  release  of any  Collateral  from  the  terms  of any  Collateral
Agreement,  will not be deemed to impair the  security  under this  Indenture in
contravention  of the  provisions  hereof if and to the extent the Collateral is
released  pursuant  to  the  applicable  Collateral  Agreement.  To  the  extent
applicable,  the Company shall cause TIA ss.  314(d)  relating to the release of
property or securities from the Lien of any Collateral  Agreement,  and relating
to the  substitution  therefor of any property or  securities to be subjected to
the Lien of such Collateral Agreement,  to be complied with. With respect to any
such  substitution,  the Company  shall  furnish to the  Trustee an  Independent




Appraiser's  Certificate  if  required by TIA ss.  314(d).  Any  certificate  or
opinion  required  by TIA ss.  314(d) may be made by an Officer of the  Company,
except in cases where TIA ss. 314(d)  requires that such  certificate or opinion
be made by an independent  person,  which person shall meet the requirements set
forth in clause (ii) of the definition of the term "Independent Appraiser."

     Section 11.3  AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE TRUSTEE UNDER THE
OPERATIVE DOCUMENTS.

     The Trustee (in its  capacities  as such or, if it is acting as such,  as a
Collateral  Agent)  may, in its sole  discretion  and without the consent of the
Noteholders,  take all actions it deems  necessary or appropriate to (a) enforce
any of the terms of the Operative  Documents  and the Support  Documents and (b)
collect and receive any and all amounts payable in respect of the obligations of
the Company  hereunder.  Subject to the provisions of this Indenture,  the other
Operative Documents and the Support Documents,  the Trustee (in such capacities)
shall have power to institute and to maintain such suits and  proceedings  as it
may deem expedient to prevent any impairment of the Collateral by any acts which
may be  unlawful  or in  violation  of the  other  Operative  Documents  or this
Indenture,  and such suits and  proceedings as it may deem expedient to preserve
or protect its interest and the interests of the  Noteholders  in the Collateral
(including  power to institute and maintain suits or proceedings to restrain the
enforcement  of  or  compliance  with  any  legislative  or  other  governmental
enactment,  rule or order that may be  unconstitutional  or otherwise invalid if
the  enforcement of, or compliance  with,  such  enactment,  rule or order would
impair the security interest hereunder or be prejudicial to the interests of the
Noteholders or of the Trustee in any such capacity).

     Section  11.4  AUTHORIZATION  OF RECEIPT OF FUNDS BY THE TRUSTEE  UNDER THE
OPERATIVE DOCUMENTS AND THE SUPPORT DOCUMENTS.

     The  Trustee  is  authorized  to  receive  any  funds  for the  benefit  of
Noteholders  distributed under the Collateral  Agreements and for the benefit of
the Securityholders distributed under the Support Documents, and to make further
distributions  of such funds to the Holders  according to the provisions of this
Indenture.

     Section 11.5 AGREEMENT AS TO FAIR MARKET VALUE.

     The Company and the Trustee  acknowledge  that the use of Fair Market Value
herein  or  in  the  other  Operative  Documents  is  strictly  and  solely  for
convenience  in  establishing  the amount of  Collateral  and any  substitutions
therefor under the Operative  Documents.  Accordingly,  the Fair Market Value of
any  Collateral  subjected  to the  Lien  of a  Collateral  Agreement  is not an
indication  of and shall not be deemed an  agreement by the parties as the basis
for valuation of such  Collateral for purposes of  determining  the value of the
Trustee's  secured  claim  against  the  Company,  adequate  protection  of  the
Trustee's interest in the Collateral or for any other purpose in any bankruptcy,
receivership  or  insolvency  proceeding  involving  the Company or any remedial
action  brought by the Trustee or  Collateral  Agent,  except to the extent such
valuations are mandated by applicable law, or any court with  jurisdiction  over



such  proceedings,  in either case  without  regard to the use of the concept of
Fair Market Value by the parties hereto.


                                   ARTICLE 12.

                                  MISCELLANEOUS

     Section 12.1 CONFLICT WITH TRUST INDENTURE ACT OF 1939.

     If  and to  the  extent  that  any  provision  of  this  Indenture  limits,
qualifies,  or  conflicts  with  the  duties  imposed  by  Sections  310 to 317,
inclusive, of the TIA, such imposed duties shall control.

     Section 12.2 NOTICES; WAIVERS.

     Any request, demand,  authorization,  direction, notice, consent, waiver or
other document provided or permitted by this Indenture to be made upon, given or
furnished to, or filed with

     (a) the Company  shall be  sufficient  for every  purpose  hereunder  if in
writing and sent by personal delivery, by telecopier, by registered or certified
mail or by nationally recognized overnight courier,  postage or courier charges,
as the case may be, prepaid, to the Company at:

               Continental Airlines, Inc.
               1600 Smith Street
               Dept. HQS-FN
               Houston, TX  77002
               Attention:  Treasurer

               Telecopier No.:  (713) 324-2447

     (b) the Trustee  shall be  sufficient  for every  purpose  hereunder  if in
writing and sent by personal delivery, by telecopier, by registered or certified
mail or by nationally recognized overnight courier,  postage or courier charges,
as the case may be, prepaid, to the Trustee at:

               Wilmington Trust Company
               Rodney Square North
               1100 North Market Street
               Wilmington, Delaware  19890
               Attention:  Corporate Trust Administration

               Telecopier No.:  (302) 651-8882

     (c) the Liquidity  Provider shall be sufficient for every purpose hereunder
if in writing and sent by personal  delivery,  by  telecopier,  by registered or




certified mail or by nationally recognized overnight courier, postage or courier
charges, as the case may be, prepaid, to the Liquidity Provider at:

               Morgan Stanley Capital Services Inc.
               1585 Broadway
               New York, New York  10036
               Attention:  David Rogers

               Telecopier No.:  (212) 761-0350

     (d) the Policy Provider shall be sufficient for every purpose  hereunder if
in writing  and sent by personal  delivery,  by  telecopier,  by  registered  or
certified mail or by nationally recognized overnight courier, postage or courier
charges, as the case may be, prepaid, to the Policy Provider at:

               MBIA Insurance Corporation
               113 King Street
               Armonk, New York  10504
               Attention:  Insured Portfolio Management,
                           Structured Finance

               Telecopier No.:  (914) 765-3163

or to any of the  above  parties  at any  other  address  or  telecopier  number
subsequently  furnished  in  writing by it to each of the other  parties  listed
above.  An  affidavit  by any  person  representing  or  acting on behalf of the
Company, the Trustee,  Liquidity Provider or Policy Provider as to such mailing,
having  any  registry  receipt  required  by this  Section  attached,  shall  be
conclusive evidence of the giving of such demand, notice or communication.

     Any notice or communication mailed to a Holder shall be sent to such Holder
by first-class mail or by nationally  recognized  overnight courier,  postage or
courier  charges,  as the case may be, prepaid,  at such Holder's  address as it
appears on the  Register  and shall be  sufficiently  given to such Holder if so
sent within the time prescribed.  Any notice or communication  shall comply with
TIA ss. 313(c) to the extent required by the TIA.

     Failure to mail a notice or send a communication  to a Holder or any defect
in it shall not affect its  sufficiency  with respect to other Holders.  Notices
under this Indenture to the Trustee,  to the Policy  Provider,  to the Liquidity
Provider  or to the  Company  are deemed  given only when  received.  Where this
Indenture  provides  for  notice in any  manner,  such  notice  may be waived in
writing by the Person  entitled to receive such notice,  either  before or after
the event,  and such waiver shall be the  equivalent of such notice.  Waivers of
notice by the Holders shall be filed with the Trustee, but such filing shall not
be a condition  precedent to the  validity of any action taken in reliance  upon
such waiver.



     Section 12.3 COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.

     Noteholders  may  communicate   pursuant  to  TIA  ss.  312(b)  with  other
Noteholders  with respect to their rights under this Indenture or the Notes. The
Company,  the  Trustee,  the  Registrar  and any  other  person  shall  have the
protection of TIA ss. 312(c).

     Section 12.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.

     Upon any Request or  application  by the Company to the Trustee to take any
action under this  Indenture or another  Operative  Document,  the Company shall
furnish  to the  Trustee:  (a) an  Officers'  Certificate  and (b) an Opinion of
Counsel,  each  stating  that,  in the opinion of the  signers,  all  conditions
precedent, if any, provided for in this Indenture or such Operative Document, as
the case may be,  relating  to the  proposed  action  have been  complied  with,
provided,  that in the case of any such  application  or Request as to which the
furnishing  of an Officers'  Certificate  or Opinion of Counsel is  specifically
required  by any  provision  of this  Indenture  or another  Operative  Document
relating to such particular application or Request, no additional certificate or
opinion, as the case may be, need be furnished.

     Section 12.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.

     Each  certificate  or opinion  provided for and delivered to the Trustee or
the  Collateral  Agent with respect to  compliance  with a condition or covenant
provided for in this Indenture or another Operative Document shall include:  (a)
a statement  that the Person  signing such  certificate or opinion has read such
condition or covenant and the definitions  herein or therein  relating  thereto;
(b) a  brief  statement  as to  the  nature  and  scope  of the  examination  or
investigation   upon  which  the  statements  or  opinions   contained  in  such
certificate or opinion are based;  (c) a statement  that, in the opinion of such
Person,  he has made such examination or investigation as is necessary to enable
him to express an  informed  opinion  as to  whether  or not such  condition  or
covenant has been complied with; and (d) a statement as to whether or not in the
opinion of such Person, such condition or covenant has been complied with.

     Any certificate or opinion of an Officer or an engineer,  insurance broker,
accountant or other expert may be based, insofar as it relates to legal matters,
upon a certificate or opinion of or upon representations by counsel, unless such
officer,  engineer,  insurance broker, accountant or other expert knows that the
certificate or opinion or representations with respect to the matters upon which
his opinion  may be based as  aforesaid  are  erroneous,  or in the  exercise of
reasonable care should have known that the same were erroneous.

     Any  certificate or Opinion of Counsel may be based,  insofar as it relates
to factual matters,  upon the certificate or opinion of or representations by an
officer or officers of the Company stating that the information  with respect to
such factual matters is in possession of the Company,  unless such counsel knows
that the certificate or opinion or  representations  with respect to the matters
upon which his opinion may be based as aforesaid are erroneous and insofar as it
relates to legal matters in a  jurisdiction  or area of law beyond the expertise



of such counsel,  such counsel may rely upon the opinion of counsel qualified in
such other jurisdiction or area of law.

     Wherever in this Indenture or another Operative Document in connection with
any application, certificate or report to the Trustee or the Collateral Agent it
is provided  that the Company  shall  deliver any document as a condition of the
granting of such application or as evidence of the Company's compliance with any
term  hereof,  it is  intended  that the truth and  accuracy  at the time of the
granting of such  application  or at the effective  date of such  certificate or
report,  as the case may be, of the facts and opinions  stated in such  document
shall in each such case be a condition  precedent to the right of the Company to
have such  application  granted or to the  sufficiency  of such  certificate  or
report.  Nevertheless,  in the  case of any  such  application,  certificate  or
report,  any document  required by any  provision  of this  Indenture or another
Operative  Document to be delivered to the Trustee or the Collateral  Agent as a
condition of the granting of such  application or as evidence of such compliance
may be received by the Trustee or the Collateral Agent as conclusive evidence of
any  statement  therein  contained  and  shall be full  warrant,  authority  and
protection to the Trustee or the Collateral Agent acting on the faith thereof.

     In any case where  several  matters  are  required to be  certified  by, or
covered by an opinion of, any specified  Person,  it is not  necessary  that all
such  matters  be  certified  by, or covered by the  opinion  of,  only one such
Person,  or that they be so certified or covered by only one  document,  but one
such Person may certify or give an opinion  with respect to some matters and one
or more other such Persons as to other matters,  and any such Person may certify
or give an opinion as to such matters in one or several documents.

     Whenever  any  Person is  required  to make,  give or  execute  two or more
applications, requests, consents, certificates,  statements or opinions or other
instruments under this Indenture or another Operative  Document he may, but need
not, consolidate such instruments into one.

     Section 12.6 RULES BY TRUSTEE, PAYING AGENT, REGISTRAR.

     The  Trustee  may make  reasonable  rules for  action by or at a meeting of
Noteholders.  The Registrar or Paying Agent may make reasonable  rules for their
respective functions.

     Section 12.7 EFFECT OF HEADINGS.

     The Article and Section  headings  and the Table of Contents  contained  in
this Indenture have been inserted for convenience of reference only, and are and
shall be without  substantive  meaning or content of any kind whatsoever and are
not a part of this Indenture.

     Section 12.8 GOVERNING LAW.

     THIS INDENTURE IS BEING  DELIVERED IN THE STATE OF NEW YORK. THIS INDENTURE
AND THE NOTES ISSUED HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.



     Section 12.9 QUIET ENJOYMENT.

     The Trustee,  the Policy Provider and the Liquidity Provider each agrees as
to itself  with the  Company  that,  so long as no Event of  Default  shall have
occurred and be  continuing,  such Person shall not (and shall not permit any of
its  Affiliates or other Person  claiming by,  through or under it to) interfere
with the  Company's  rights  in  accordance  with the  Indenture  and the  other
Operative  Documents  to  the  quiet  enjoyment,   possession  and  use  of  the
Collateral.

     Section 12.10 NO RECOURSE AGAINST OTHERS.

     A director, officer, employee or stockholder, as such, of the Company shall
not have any personal  liability  for any  obligations  of the Company under the
Notes,  the Indenture or the other  Operative  Documents by reason of his or her
status as such director,  officer,  employee or stockholder.  Each Noteholder by
accepting a Note waives and releases all such liability.  The waiver and release
are part of the consideration for the issue of the Notes.

     Section 12.11 BENEFITS OF INDENTURE AND THE SECURITIES RESTRICTED.

     Subject  to the  provisions  of  Section  12.12  hereof,  nothing  in  this
Indenture or the Notes,  express or implied,  shall give or be construed to give
to any  Person,  firm or  corporation,  other  than the  parties  hereto and the
Holders,  any legal or equitable  right,  remedy or claim under or in respect of
this Indenture or under any covenant,  condition, or provision herein contained,
all such covenants,  conditions and provisions, subject to Section 12.12 hereof,
being for the sole benefit of the parties hereto and of the Holders.

     Section 12.12 SUCCESSORS AND ASSIGNS.

     This  Indenture  and all  obligations  of the  Company  hereunder  shall be
binding upon the  successors  and permitted  assigns of the Company,  and shall,
together  with the rights and  remedies of the Trustee  hereunder,  inure to the
benefit  of the  Trustee,  the  Holders,  and their  respective  successors  and
assigns. Any assignment in violation of this Indenture shall be null and void ab
initio.

     Section 12.13 COUNTERPART ORIGINALS.

     This  Indenture  may be signed in two or more  counterparts,  each of which
shall be deemed an original,  but all of which shall together constitute one and
the same agreement.

     Section 12.14 SEVERABILITY.

     The  provisions  of this  Indenture  are  severable,  and if any  clause or
provision shall be held invalid, illegal or unenforceable in whole or in part in



any jurisdiction,  then such invalidity or unenforceability shall affect in that
jurisdiction  only such clause or provision,  or part thereof,  and shall not in
any manner  affect such clause or  provision  in any other  jurisdiction  or any
other clause or provision of this  Indenture in any  jurisdiction,  and a Holder
shall have no claim therefor against any party hereto.



     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Indenture to be
duly executed and delivered all as of the date first written above.

                                       CONTINENTAL AIRLINES, INC.


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


                                       WILMINGTON TRUST COMPANY,
                                       as Trustee


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


                                       MORGAN STANLEY CAPITAL SERVICES INC.,
                                       as Liquidity Provider


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


                                       MBIA INSURANCE CORPORATION,
                                       as Policy Provider


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



                                   Appendix I

                              DEFINITIONS APPENDIX


SECTION 1. DEFINED TERMS.

     "ACCELERATION" means, with respect to the amounts payable in respect of the
Notes issued under the  Indenture,  such amounts  becoming  immediately  due and
payable  pursuant to Section 7.2 of the Indenture.  "ACCELERATE",  "ACCELERATED"
and "ACCELERATING" have meanings correlative to the foregoing.

     "ACCRUED INTEREST" is defined in Section 3.6(a) of the Indenture.

     "ADDITIONAL  PARTS" is  defined  in  Section  3.1(a)(i)  of the  Collateral
Maintenance Agreement.

     "ADDITIONAL  ROTABLES" is defined in Section  3.1(b)(i)  of the  Collateral
Maintenance Agreement.

     "ADVANCE" means any Advance as defined in the Liquidity Facility.

     "AFFILIATE"  of any specified  Person means any other  Person,  directly or
indirectly,  controlling  or  controlled  by or under direct or indirect  common
control  with  such  specified  Person.  For the  purposes  of this  definition,
"CONTROL"  when used with  respect to any  Person  means the power to direct the
management and policies of such Person, directly or indirectly,  whether through
the  ownership of voting  securities,  by contract or  otherwise;  and the terms
"CONTROLLING" and "CONTROLLED" have meanings correlative to the foregoing.

     "AGENT"  means any  Registrar,  Paying Agent or  co-Registrar  or co-Paying
Agent.

     "AGENT MEMBERS" is defined in Section 2.5(a) of the Indenture.

     "AIRCRAFT" means any contrivance  invented,  used, or designed to navigate,
or fly in, the air.

     "AMENDMENT NO. 1 TO COLLATERAL  MAINTENANCE  AGREEMENT" means Amendment No.
1, dated as of the  Subordinated  Issuance Date, to the  Collateral  Maintenance
Agreement.

     "AMENDMENT  NO. 1 TO REFERENCE  AGENCY  AGREEMENT"  means  Amendment No. 1,
dated as of the Subordinated Issuance Date, to the Reference Agency Agreement.

     "AMENDMENT NO. 1 TO SECURITY  AGREEMENT" means Amendment No. 1, dated as of
the Subordinated Issuance Date, to the Security Agreement.

     "ANNUAL METHODOLOGY" means, in determining an opinion as to the Fair Market
Value of the Spare Parts Collateral,  taking at least the following actions: (i)
reviewing the Parts Inventory Report



prepared as of the applicable  Valuation  Date;  (ii) reviewing the  Independent
Appraiser's  internal  value database for values  applicable to Qualified  Spare
Parts included in the Spare Parts Collateral;  (iii) developing a representative
sampling of a reasonable number of the different  Qualified Spare Parts included
in Spare  Parts  Collateral  for which a market  check will be  conducted;  (iv)
checking other sources, such as manufacturers,  other airlines,  U.S. government
procurement  data and airline  parts  pooling  price lists,  for current  market
prices of the sample parts  referred to in clause  (iii);  (v)  establishing  an
assumed ratio of Serviceable  Parts to Unserviceable  Parts as of the applicable
Valuation  Date  based  upon  information   provided  by  the  Company  and  the
Independent  Appraiser's  limited  physical review of the Spare Parts Collateral
referred to in the following  clause (vi);  (vi) visiting at least two locations
selected by the Independent  Appraiser where the Pledged Spare Parts are kept by
the Company  (neither of which was  visited for  purposes of the last  appraisal
under Section 2.1 or 2.2 of the Collateral Maintenance Agreement,  whichever was
most recent),  PROVIDED that at least one such location  shall be one of the top
three  locations at which the Company keeps the largest  number of Pledged Spare
Parts, to conduct a limited physical  inspection of the Spare Parts  Collateral;
(vii) conducting a limited review of the inventory  reporting system  applicable
to the Pledged  Spare Parts,  including  checking  information  reported in such
system against  information  determined through physical  inspection pursuant to
the  preceding  clause  (vi) and (viii)  reviewing a sampling of the Spare Parts
Documents (including tear-down reports).

     "ANNUAL  VALUATION  DATE"  is  defined  in  Section  2.1 of the  Collateral
Maintenance Agreement.

     "APPLIANCE"  means  an  instrument,   equipment,   apparatus,  a  part,  an
appurtenance,  or an accessory  used,  capable of being used,  or intended to be
used,  in operating or  controlling  Aircraft in flight,  including a parachute,
communication  equipment,  and  another  mechanism  installed  in or attached to
Aircraft during flight, and not a part of an Aircraft, Engine, or Propeller.

     "APPLICABLE MARGIN" means 0.90%.

     "APPLICABLE PERIOD" is defined in Section 3.2 of the Collateral Maintenance
Agreement.

     "APPRAISAL  COMPLIANCE  REPORT" means,  as of any date, a report  providing
information   relating  to  the  calculation  of  the  Collateral   Ratio,   the
Subordinated  Collateral  Ratio,  Rotable Ratio and Subordinated  Rotable Ratio,
which  shall be  substantially  in the  form of  Appendix  II to the  Collateral
Maintenance Agreement.

     "APPRAISED  VALUE" means,  with respect to any Collateral,  the Fair Market
Value of such Collateral as most recently  determined pursuant to (i) the report
attached  as  Appendix  II to the  Offering  Memo  or  (ii)  Article  2 and,  if
applicable, Section 3.1 of the Collateral Maintenance Agreement.

     "AVAILABLE AMOUNT" means, as of any date, the Maximum Available  Commitment
(as defined in the Liquidity Facility) on such date.

     "AVOIDED PAYMENT" has the meaning assigned to such term in the Policy.

     "BANKRUPTCY  CODE"  means the  United  States  Bankruptcy  Code,  11 U.S.C.
Section 101 ET SEQ.



     "BOARD OF  DIRECTORS"  means the Board of  Directors  of the Company or any
committee  of such board  duly  authorized  to act in respect of any  particular
matter.

     "BREAK AMOUNT" means, as of any date of payment, redemption or acceleration
of any Note (the "APPLICABLE DATE"), an amount determined by the Reference Agent
on the date that is two Business Days prior to the  Applicable  Date pursuant to
the formula set forth  below;  PROVIDED,  HOWEVER,  that no Break Amount will be
payable (x) if the Break Amount, as calculated pursuant to the formula set forth
below,  is equal to or less than zero or (y) on or in respect of any  Applicable
Date that is an Interest  Payment Date (or, if such an Interest  Payment Date is
not a Business Day, the next succeeding Business Day)

     Break Amount = Z-Y

     Where:

     X = with  respect to any  applicable  Interest  Period,  the sum of (i) the
         amount of the outstanding principal amount of such Note as of the first
         day of the then applicable  Interest Period plus (ii) interest  payable
         thereon during such entire Interest Period at then effective LIBOR.

     Y = X, discounted to present value from the last day of the then applicable
         Interest Period to the Applicable  Date,  using then effective LIBOR as
         the discount rate.

     Z = X, discounted to present value from the last day of the then applicable
         Interest  Period  to the  Applicable  Date,  using a rate  equal to the
         applicable London interbank offered rate for a period commencing on the
         Applicable  Date and  ending  on the  last  day of the then  applicable
         Interest  Period,  determined by the Reference Agent as of two Business
         Days prior to the Applicable Date as the discount rate.

     "BUSINESS DAY" means any day that is a day for trading by and between banks
in the London interbank  Eurodollar  market and that is other than a Saturday or
Sunday or a day on which commercial banks are required or authorized to close in
Houston,  Texas, New York, New York, or, so long as any Security is outstanding,
the city and state in which the Trustee maintains its Corporate Trust Office or,
solely with  respect to draws under any Policy,  the city and state in which the
office of the Policy  Provider at which notices,  presentations,  transmissions,
deliveries and  communications  are to be made under the Policy is located,  and
that,  solely with  respect to draws  under the  Liquidity  Facility,  also is a
"Business Day" as defined in the Liquidity Facility.

     "CAPPED INTEREST RATE" means a rate per annum equal to 12%.

     "CASH COLLATERAL" means cash and/or Investment  Securities  deposited or to
be deposited with the Collateral Agent or an Eligible Institution and subject to
the Lien of any Collateral Agreement.

     "CASH COLLATERAL  ACCOUNT" means an Eligible Deposit Account in the name of
the Trustee maintained at an Eligible Institution, which shall be the Trustee if



it shall so qualify,  into which all amounts drawn under the Liquidity  Facility
pursuant  to  Section  3.5(c),  3.5(d)  or  3.5(i)  of the  Indenture  shall  be
deposited.

     "CITIZEN OF THE UNITED STATES" is defined in 49 U.S.C.ss. 40102(a)(15).

     "CLEARING  AGENCY" means an organization  registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.

     "CLEARSTREAM" means Clearstream Banking societe anonyme, Luxembourg.

     "CLOSING DATE" means the Issuance Date.

     "CODE" means the Internal Revenue Code of 1986, as amended.

     "COLLATERAL"  means the Spare Parts  Collateral and all other collateral in
which the Collateral  Agent has a security  interest  pursuant to the Collateral
Agreements.

     "COLLATERAL AGENT" means the Security Agent and each other Person acting as
agent on behalf of the Holders under any other Collateral Agreement.

     "COLLATERAL AGREEMENT" means the Security Agreement and any agreement under
which a security interest has been granted pursuant to Section 3.1(a)(ii) of the
Collateral Maintenance Agreement.

     "COLLATERAL   MAINTENANCE   AGREEMENT"  means  the  Collateral  Maintenance
Agreement,  dated as of the  Issuance  Date,  between the Company and the Policy
Provider.

     "COLLATERAL  RATIO" shall mean a percentage  determined by dividing (i) the
aggregate  principal amount of all Securities  Outstanding  minus the sum of the
Cash  Collateral  held by the Collateral  Agent by (ii) the Fair Market Value of
all Collateral (excluding any Cash Collateral),  as set forth in the most recent
Independent Appraiser's Certificate delivered by the Company pursuant to Article
2 of the Collateral Maintenance  Agreement,  as supplemented pursuant to Section
3.1 of the Collateral Maintenance Agreement, if applicable.

     "COLLECTION  ACCOUNT" means the Eligible Deposit Account established by the
Trustee  pursuant to Section 8.13 of the Indenture  which the Trustee shall make
deposits in and withdrawals from in accordance with the Indenture.

     "COMPANY"  means the party named as such in the Indenture or any obligor on
the Notes until a successor replaces it pursuant to the Indenture and thereafter
means the successor.

     "CONSENT PERIOD" is defined in Section 3.5(d) of the Indenture.

     "CONTINENTAL  BANKRUPTCY EVENT" means the occurrence and continuation of an
Event of Default under Section 7.1(d), (e) or (f) of the Indenture.

     "CONTINENTAL CASH BALANCE" means the sum of (a) the amount of cash and cash
equivalents  that would have been shown on the balance sheet of Continental  and



its  consolidated  subsidiaries  prepared  in  accordance  with  GAAP  as of any
Valuation  Date,  plus (b) the amount of marketable  securities  that would have
been  reflected on such balance  sheet which had, as of such  Valuation  Date, a
maturity  of less than one year and which,  but for their  maturity,  would have
qualified to be reflected on such balance sheet as cash equivalents.

     "CONTROLLING  PARTY" means the Person  entitled to act as such  pursuant to
the terms of Section 3.8 of the Indenture.

     "CORPORATE  TRUST  OFFICE" when used with respect to the Trustee  means the
office  of the  Trustee  at which at any  particular  time its  corporate  trust
business  is  administered  and  which,  at the  Closing  Date,  is  located  at
Wilmington  Trust  Company,  as Trustee,  Rodney  Square North 1100 North Market
Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administration.

     "DEBT BALANCE" means 110% of the principal amount of the Outstanding Notes.

     "DEBT RATE" means a rate per annum equal, in the case of the first Interest
Period for the Securities,  to 2.32% and, in the case of any subsequent Interest
Period,  LIBOR for such Interest Period, as determined pursuant to the Reference
Agency Agreement, plus the Applicable Margin, PROVIDED that, solely in the event
no Registration  Event (as defined in the Registration  Rights Agreement) occurs
on or prior to the  210th day after the  Closing  Date,  the Debt Rate  shall be
increased by an additional  margin equal to 0.50% per annum,  from and including
such  210th  day to and  excluding  the  earlier  of (i) the date on which  such
Registration  Event  occurs  and (ii) the date on which  there  ceases to be any
Registrable Securities (as defined in the Registration Rights Agreement)); or if
the  Shelf  Registration  Statement  (as  defined  in  the  Registration  Rights
Agreement) (if it is filed),  after being declared  effective by the SEC, ceases
to be  effective at any time during the period  specified by Section  2(b)(B) of
the  Registration  Rights  Agreement  for  more  than 60  days,  whether  or not
consecutive,  during any 12-month period, the Debt Rate shall be increased by an
additional  margin equal to 0.50% per annum from and  including  the 61st day of
the applicable  12-month period such Shelf  Registration  Statement ceases to be
effective to and  excluding the date on which the Shelf  Registration  Statement
again  becomes  effective  (or, if earlier,  the end of the period  specified by
Section  2(b)(B)  of the  Registration  Rights  Agreement),  PROVIDED  that  the
additional margin added to the Debt Rate pursuant to the preceding proviso shall
never  exceed  0.50% at any time,  PROVIDED  FURTHER  that,  if a default in the
payment of interest on the  Securities  occurs and is continuing on any Interest
Payment Date,  then the Debt Rate  applicable  to the Interest  Period ending on
such Interest  Payment Date shall not exceed the Capped  Interest  Rate,  except
that for  purposes  of any  payment  made by the  Company  intended to cure such
default, this proviso shall not apply.

     "DEFAULT"  means any event which is, or after notice or passage of time, or
both, would be, an Event of Default.

     "DEFINITIONS  APPENDIX" means the Definitions Appendix attached as Appendix
I to the Indenture and constituting a part of the Indenture.

     "DEFINITIVE SECURITIES" is defined in Section 2.1(e) of the Indenture.

     "DEFINITIVE  SUBORDINATED  SECURITIES" is defined in Section 2A.1(e) of the
Indenture.



     "DESIGNATED LOCATIONS" means the locations in the U.S. designated from time
to time by the Company at which the Pledged  Spare Parts may be maintained by or
on behalf of the Company,  which  initially  shall be the locations set forth on
Schedule 1 to the Security Agreement and shall include the additional  locations
designated by the Company pursuant to Section 4.04(d) of the Security Agreement.

     "DESIGNATED REPRESENTATIVES" is defined in Section 3.7(b) of the Indenture.

     "DISTRIBUTION  DATE"  means (i) each  Scheduled  Payment  Date  (and,  if a
Payment  required to be paid to the Trustee for  distribution  on such Scheduled
Payment Date has not been so paid by 12:30 p.m.,  New York time,  in whole or in
part, on such Scheduled Payment Date, the next Business Day on which the Trustee
receives some or all of such Payment by 12:30 p.m., New York time,  except for a
defaulted  payment  of  interest  that is not paid  within  five days  after the
Scheduled  Payment Date therefor),  (ii) each day established for payment by the
Trustee pursuant to Section 7.10, (iii) the  Non-Performance  Payment Date, (iv)
the Final Legal  Maturity  Date, (v) the Election  Distribution  Date,  (vi) the
Policy Election  Distribution Date, (vii) the date established as a Distribution
Date pursuant to Section  3.6(f) of the Indenture and (viii) solely for purposes
of payments to be made by the Policy Provider  pursuant to Section 3.6(d) of the
Indenture  and not for purposes of any other payment or  distribution  under the
Indenture, the date established for such payment in accordance with the Policy.

     "DOWNGRADE DRAWING" is defined in Section 3.5(c) of the Indenture.

     "DOWNGRADE  EVENT" has the meaning  assigned to such term in Section 3.5(c)
of the Indenture.

     "DOWNGRADED FACILITY" is defined in Section 3.5(c) of the Indenture.

     "DRAWING"  means an Interest  Drawing,  a Final  Drawing,  a  Non-Extension
Drawing or a Downgrade Drawing, as the case may be.

     "DTC" means The Depository Trust Company, its nominees and their respective
successors.

     "ELECTION DISTRIBUTION DATE" is defined in Section 3.6(c) of the Indenture.

     "ELIGIBLE  ACCOUNT"  means an account  established  by and with an Eligible
Institution at the request of the Security Agent, which institution  agrees, for
all  purposes  of the New York UCC  including  Article 8 thereof,  that (a) such
account shall be a "securities  account" (as defined in Section 8-501 of the New
York UCC), (b) such  institution is a "securities  intermediary"  (as defined in
Section  8-102(a)(14)  of the New York UCC), (c) all property  (other than cash)
credited to such account shall be treated as a "financial  asset" (as defined in
Section  8-102(9)  of the New York UCC),  (d) the  Security  Agent  shall be the
"entitlement  holder"  (as  defined in Section  8-102(7) of the New York UCC) in
respect of such account,  (e) it will comply with all entitlement  orders issued
by the Security  Agent to the  exclusion  of the  Company,  (f) it will waive or
subordinate  in  favor of the  Security  Agent  all  claims  (including  without
limitation,  claims by way of  security  interest,  lien or right of  set-off or



right of recoupment),  and (g) the "securities intermediary jurisdiction" (under
Section 8-110(e) of the New York UCC) shall be the State of New York.

     "ELIGIBLE  DEPOSIT  ACCOUNT" means either (a) a segregated  account with an
Eligible  Institution or (b) a segregated trust account with the corporate trust
department of a depository  institution  organized  under the laws of the United
States of America or any one of the states  thereof or the  District of Columbia
(or any U.S. branch of a foreign bank), having corporate trust powers and acting
as trustee for funds deposited in such account, so long as any of the securities
of such depository  institution has a long-term  unsecured debt rating or issuer
credit  rating,  as the  case  may  be,  from  Moody's  of at  least  A-3 or its
equivalent.  An Eligible  Deposit  Account may be maintained  with the Liquidity
Provider so long as the Liquidity Provider is an Eligible Institution;  provided
that such  Liquidity  Provider  shall have  waived  all  rights of  set-off  and
counterclaim with respect to such account.

     "ELIGIBLE  INSTITUTION"  means (a) the  Security  Agent or (b) a depository
institution  organized under the laws of the United States of America or any one
of the states  thereof or the  District  of  Columbia  (or any U.S.  branch of a
foreign  bank),  which has a long-term  unsecured  debt rating or issuer  credit
rating, as the case may be, from Moody's of at least A-3 or its equivalent.

     "ELIGIBLE   INVESTMENTS"  means  (a)  investments  in  obligations  of,  or
guaranteed  by,  the U.S.  Government  having  maturities  no later than 90 days
following the date of such investment, (b) investments in open market commercial
paper of any  corporation  incorporated  under the laws of the United  States of
America or any state thereof with a short-term  unsecured  debt rating issued by
Moody's of at least P-1 and a short-term issuer credit rating issued by Standard
& Poor's of at least A-1 having  maturities no later than 90 days  following the
date of  such  investment  or (c)  investments  in  negotiable  certificates  of
deposit, time deposits,  banker's acceptances,  commercial paper or other direct
obligations of, or obligations  guaranteed by,  commercial banks organized under
the laws of the United  States or of any political  subdivision  thereof (or any
U.S.  branch of a foreign  bank)  with a  short-term  unsecured  debt  rating by
Moody's of at least P-1 and a  short-term  issuer  credit  rating by  Standard &
Poor's of at least A-1,  having  maturities no later than 90 days  following the
date of such investment;  PROVIDED,  HOWEVER,  that (x) all Eligible Investments
that are bank  obligations  shall be  denominated in U.S.  dollars;  and (y) the
aggregate  amount  of  Eligible  Investments  at any  one  time  that  are  bank
obligations  issued by any one bank shall not be in excess of 5% of such  bank's
capital surplus;  PROVIDED FURTHER that any investment of the types described in
clauses (a),  (b) and (c) above may be made  through a  repurchase  agreement in
commercially  reasonable  form  with  a  bank  or  other  financial  institution
qualifying as an Eligible  Institution  so long as such  investment is held by a
third party  custodian  also  qualifying  as an Eligible  Institution;  PROVIDED
FURTHER,  HOWEVER,  that in the  case of any  Eligible  Investment  issued  by a
domestic branch of a foreign bank, the income from such investment shall be from
sources within the United States for purposes of the Code.  Notwithstanding  the
foregoing,  no  investment  of the types  described in clause (b) above which is
issued or guaranteed by the Company or any of its Affiliates,  and no investment
in the  obligations  of any one  bank in  excess  of  $10,000,000,  shall  be an
Eligible  Investment  unless written  approval has been obtained from the Policy
Provider and a Ratings Confirmation shall have been received with respect to the
making of such investment.



     "ENGINE"  means an  engine  used,  or  intended  to be used,  to  propel an
Aircraft, including a part, appurtenance,  and accessory of the Engine, except a
Propeller.

     "ERISA"  means the Employee  Retirement  Income  Security  Act of 1974,  as
amended from time to time

     "EUROCLEAR"  means Euroclear Bank  S.A./N.V.,  as operator of the Euroclear
System.

     "EVENT OF DEFAULT" is defined in Section 7.1 of the Indenture.

     "EVENT OF LOSS" means (i) the loss of any of the Pledged  Spare Parts or of
the use thereof due to destruction,  damage beyond repair or rendition of any of
the  Pledged  Spare  Parts  permanently  unfit  for  normal  use for any  reason
whatsoever (other than the use of Expendables in the Company's operations); (ii)
any damage to any of the Pledged  Spare  Parts  which  results in the receipt of
insurance  proceeds  with respect to such Pledged Spare Parts on the basis of an
actual  or  constructive  loss;  or (iii) the loss of  possession  of any of the
Pledged Spare Parts by the Company for ninety (90)  consecutive days as a result
of the theft or disappearance of such Pledged Spare Parts.

     "EXCHANGE ACT" means the  Securities  Exchange Act of 1934, as amended from
time to time.

     "EXCHANGE  FLOATING  RATE  SECURED  NOTES DUE 2007" is  defined  in Section
2.1(a) of the Indenture.

     "EXCHANGE FLOATING RATE SECURED  SUBORDINATED NOTES DUE 2007" is defined in
Section 2A.1(a) of the Indenture.

     "EXCHANGE  OFFER"  means (i) with respect to the  Securities,  the exchange
offer  which  may be made  pursuant  to the  Registration  Rights  Agreement  to
exchange Initial Securities for Exchange Securities and (ii) with respect to the
Subordinated  Securities,  the exchange  offer which may be made pursuant to the
Subordinated   Security   Registration  Rights  Agreement  to  exchange  Initial
Subordinated Securities for Exchange Subordinated Securities.

     "EXCHANGE  OFFER  REGISTRATION  STATEMENT"  means (i) with  respect  to the
Securities, the registration statement that, pursuant to the Registration Rights
Agreement,  is filed by the Company with the SEC with respect to the exchange of
Initial Securities for Exchange Securities and (ii) with respect to Subordinated
Securities,  the  registration  statement  that,  pursuant  to the  Subordinated
Security  Registration  Rights  Agreement,  is filed by the Company with the SEC
with respect to the  exchange of Initial  Subordinated  Securities  for Exchange
Subordinated Securities.

     "EXCHANGE  SECURITIES"  means the securities  substantially  in the form of
Exhibit  A to the  Indenture  issued  in  exchange  for the  Initial  Securities
pursuant to the Registration Rights Agreement and authenticated  pursuant to the
Indenture.

     "EXCHANGE  SUBORDINATED  SECURITIES" means the securities  substantially in
the form of  Exhibit D to the  Indenture  issued  in  exchange  for the  Initial
Subordinated Securities pursuant to the



Subordinated Security  Registration Rights Agreement and authenticated  pursuant
to the Indenture.

     "EXCLUDED  PARTS" means Spare Parts and Appliances held by the Company at a
location not a Designated Location.

     "EXPENDABLES" means Qualified Spare Parts other than Rotables.

     "EXPENSES" means any and all  liabilities,  obligations,  losses,  damages,
settlements,   penalties,   claims,   actions,   suits,   costs,   expenses  and
disbursements (including, without limitation,  reasonable fees and disbursements
of legal counsel,  accountants,  appraisers,  inspectors or other professionals,
and costs of investigation).

     "FAA"  means the  Federal  Aviation  Administration  or similar  regulatory
authority established to replace it.

     "FAA FILED DOCUMENTS"  means the Security  Agreement and Amendment No. 1 to
Security Agreement.

     "FACILITY OFFICE" means, with respect to any Liquidity Facility, the office
of the Liquidity Provider  thereunder,  presently located at 1585 Broadway,  New
York, New York 10036, or such other office as such Liquidity  Provider from time
to time  shall  notify  the  Trustee  as its  "Facility  Office"  under any such
Liquidity  Facility;  provided that such Liquidity Provider shall not change its
Facility Office to another  Facility Office outside the United States of America
except in accordance  with  Sections  3.01,  3.02 or 3.03 of any such  Liquidity
Facility.

     "FAIR MARKET VALUE" means, with respect to any Collateral,  its fair market
value  determined  on the basis of a  hypothetical  sale  negotiated in an arm's
length free market  transaction  between a willing and able seller and a willing
and able  buyer,  neither  of whom is  under  undue  pressure  to  complete  the
transaction,  under then current market conditions,  provided that cash shall be
valued at its Dollar amount.

     "FEDERAL   AVIATION  ACT"  means  Title  49  of  the  United  States  Code,
"Transportation",  as amended from time to time, or any similar  legislation  of
the United States enacted in substitution or replacement thereof.

     "FEE  LETTERS"  means,  collectively,  (i) the Fee  Letter  dated as of the
Closing Date between the Trustee and the initial Liquidity Provider with respect
to the initial  Liquidity  Facility and (ii) any fee letter entered into between
the Trustee and any Replacement Liquidity Provider in respect of any Replacement
Liquidity Facility.

     "FINAL DRAWING" is defined in Section 3.5(i) of the Indenture.

     "FINAL LEGAL MATURITY DATE" means December 6, 2009.

     "FINAL ORDER" has the meaning assigned to such term in the Policy.

     "FINAL SCHEDULED PAYMENT DATE" means December 6, 2007.



     "FINANCING  STATEMENTS"  means,  collectively,  UCC-1 financing  statements
covering  the Spare Parts  Collateral,  by the Company,  as debtor,  showing the
Security  Agent as secured  party,  for filing in Delaware,  Guam and each other
jurisdiction that, in the opinion of the Security Agent, is necessary to perfect
its Lien on the Spare Parts Collateral.

     "GAAP" means generally accepted accounting  principles in the United States
of America as in effect as of the Closing Date, including those set forth in (i)
the  opinions  and  pronouncements  of the  Accounting  Principles  Board of the
American  Institute  of  Certified  Public  Accountants,   (ii)  statements  and
pronouncements  of the Financial  Accounting  Standards Board,  (iii) such other
statements  by such other  entity as  approved by a  significant  segment of the
accounting  profession  and (iv) the rules and  regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic  reports required to be filed pursuant to Section 13 of the Exchange
Act,  including  opinions and  pronouncements in staff accounting  bulletins and
similar written statements from the accounting staff of the SEC.

     "GLOBAL EXCHANGE SECURITY" is defined in Section 2.1(f) of the Indenture.

     "GLOBAL  EXCHANGE  SUBORDINATED  SECURITY" is defined in Section 2A.1(f) of
the Indenture.

     "GLOBAL SECURITIES" is defined in Section 2.1(d) of the Indenture.

     "GLOBAL  SUBORDINATED  SECURITIES"  is defined  in  Section  2A.1(d) of the
Indenture.

     "GOVERNMENT  ENTITY"  means (a) any federal,  state,  provincial or similar
government,  and any  body,  board,  department,  commission,  court,  tribunal,
authority,  agency or other  instrumentality of any such government or otherwise
exercising any executive,  legislative,  judicial,  administrative or regulatory
functions  of  such  government  or  (b)  any  other  government  entity  having
jurisdiction over any matter contemplated by the Operative Documents or relating
to the observance or performance of the obligations of any of the parties to the
Operative Documents.

     "HOLDER"  or  "NOTEHOLDER"  means  the  Person  in  whose  name a  Note  is
registered on the Registrar's books.

     "INDEMNITEE" means (i) WTC, the Trustee and the Collateral Agent, (ii) each
separate or  additional  trustee or  security  agent  appointed  pursuant to the
Indenture, (iii) each Liquidity Provider, (iv) the Policy Provider, and (v) each
of the respective directors, officers, employees, agents and servants of each of
the persons described in clauses (i) through (iv) inclusive above.

     "INDENTURE"  means the Amended and  Restated  Indenture  dated as of May 9,
2003,  among the Company,  the Trustee,  the  Liquidity  Provider and the Policy
Provider under which the Notes are issued.

     "INDENTURE  DISCHARGE  DATE"  means  the  date  of the  termination  of the
effectiveness  of the  Indenture  pursuant to Section  9.1(a)  thereof  (without
giving effect to Section 9.1(b) thereof).

     "INDENTURE TRUSTEE" means the Trustee.



     "INDEPENDENT APPRAISER" means Simat, Helliesen & Eichner, Inc. or any other
Person (i) engaged in a business which includes  appraising  Aircraft and assets
related to the operation and  maintenance of Aircraft from time to time and (ii)
who does not have any  material  financial  interest  in the  Company and is not
connected  with the Company or any of its  Affiliates  as an officer,  director,
employee, promoter, underwriter, partner or person performing similar functions.

     "INDEPENDENT  APPRAISER'S  CERTIFICATE"  means a  certificate  signed by an
Independent  Appraiser  and  attached  as Appendix  II to the  Offering  Memo or
delivered  thereafter  pursuant  to Article 2 or Section  3.1 of the  Collateral
Maintenance Agreement.

     "INITIAL CASH COLLATERAL" shall mean cash in the amount of $13,056,950.

     "INITIAL FLOATING RATE SECURED NOTES DUE 2007" is defined in Section 2.1(a)
of the Indenture.

     "INITIAL FLOATING RATE SECURED  SUBORDINATED  NOTES DUE 2007" is defined in
Section 2A.1(a) of the Indenture.

     "INITIAL PURCHASER" means Morgan Stanley & Co. Incorporated.

     "INITIAL SECURITIES" mean the securities issued and authenticated  pursuant
to the Indenture and substantially in the form of Exhibit A thereto,  other than
the Exchange Securities.

     "INITIAL   SUBORDINATED   SECURITIES"   means  the  securities  issued  and
authenticated pursuant to the Indenture and substantially in the form of Exhibit
D thereto, other than the Exchange Subordinated Securities.

     "INSTITUTIONAL ACCREDITED INVESTOR" means an institutional investor that is
an "accredited  investor"  within the meaning set forth in Rule 501(a)(1),  (2),
(3) or (7) of Regulation D under the Securities Act.

     "INTEREST DRAWING" is defined in Section 3.5(a) of the Indenture.

     "INTEREST  PAYMENT DATE" means March 6, June 6,  September 6 and December 6
of each year so long as any Note is Outstanding (commencing March 6, 2003 in the
case of the  Securities  and  June  6,  2003  in the  case  of the  Subordinated
Securities),  PROVIDED  that if any such  day is not a  Business  Day,  then the
relevant Interest Payment Date shall be the next succeeding Business Day.

     "INTEREST  PERIOD" means (i) in the case of the first Interest Period,  the
period  commencing  on (and  including)  the  Closing  Date  (in the case of the
Securities) or the  Subordinated  Closing Date (in the case of the  Subordinated
Securities)  and  ending on (but  excluding)  the first  Interest  Payment  Date
following such date and (ii) in the case of each subsequent Interest Period, the
period  commencing on (and including) the last day of the immediately  preceding
Interest Period, and ending on (but excluding) the next Interest Payment Date.



     "INVESTMENT  EARNINGS" means investment earnings on funds on deposit in the
Trust  Accounts net of losses and  investment  expenses of the Trustee in making
such investments.

     "INVESTMENT SECURITY" means (a) any bond, note or other obligation which is
a direct obligation of or guaranteed by the U.S. or any agency thereof;  (b) any
obligation  which is a direct  obligation  of or  guaranteed by any state of the
U.S. or any subdivision  thereof or any agency of any such state or subdivision,
and which has the highest rating published by Moody's or Standard & Poor's;  (c)
any commercial  paper issued by a U.S. obligor and rated at least P-1 by Moody's
or A-1 by Standard & Poor's; (d) any money market investment  instrument relying
upon the credit and  backing of any bank or trust  company  which is a member of
the Federal Reserve System and which has a combined capital  (including  capital
reserves  to the extent not  included in  capital)  and  surplus  and  undivided
profits of not less than  $250,000,000  (including the Collateral  Agent and its
Affiliates if such  requirements  as to Federal  Reserve  System  membership and
combined  capital and surplus and undivided  profits are satisfied),  including,
without  limitation,  certificates of deposit,  time and other  interest-bearing
deposits,   bankers'   acceptances,   commercial   paper,   loan  and   mortgage
participation   certificates  and  documented   discount  notes  accompanied  by
irrevocable  letters  of  credit  and  money  market  fund  investing  solely in
securities  backed by the full  faith and credit of the  United  States;  or (e)
repurchase agreements collateralized by any of the foregoing.

     "ISSUANCE  DATE"  means  the  date  of  initial  issuance  of  the  Initial
Securities.

     "LAW" means (a) any constitution, treaty, statute, law, decree, regulation,
order,  rule or  directive  of any  Government  Entity,  and (b) any judicial or
administrative  interpretation  or application of, or decision under, any of the
foregoing.

     "LIBOR" has the meaning specified in the Reference Agency Agreement.

     "LIBOR ADVANCE" has the meaning provided in the Liquidity Facility.

     "LIEN" means any mortgage,  pledge, lease, security interest,  encumbrance,
lien or charge of any kind affecting title to or any interest in property.

     "LIQUIDITY  EVENT OF DEFAULT" has the meaning  assigned to such term in the
Liquidity Facility.

     "LIQUIDITY  EXPENSES"  means all Liquidity  Obligations  other than (i) the
principal  amount of any  Drawings  under the  Liquidity  Facility  and (ii) any
interest accrued on any Liquidity Obligations.

     "LIQUIDITY FACILITY" means, initially, the Revolving Credit Agreement dated
as of the Issuance Date, between the Trustee and the initial Liquidity Provider,
and from and after the replacement of such Revolving Credit  Agreement  pursuant
hereto, the Replacement  Liquidity  Facility  therefor,  if any, in each case as
amended, supplemented or otherwise modified from time to time in accordance with
its terms.



     "LIQUIDITY  GUARANTEE" means the Guarantee Agreement,  dated as of the date
of the  Original  Indenture,  providing  for  the  guarantee  by  the  Liquidity
Guarantor of the  obligations  of the  Liquidity  Provider  under the  Liquidity
Facility.

     "LIQUIDITY GUARANTOR" means Morgan Stanley.

     "LIQUIDITY  OBLIGATIONS"  means  all  principal,  interest,  fees and other
amounts owing to the Liquidity  Provider under the Liquidity Facility or the Fee
Letter.

     "LIQUIDITY  PROVIDER" means Morgan Stanley Capital Services Inc.,  together
with any Replacement Liquidity Provider which has issued a Replacement Liquidity
Facility to replace any  Liquidity  Facility  pursuant to Section  3.5(e) of the
Indenture.

     "LIQUIDITY PROVIDER REIMBURSEMENT DATE" is defined in Section 3.6(d) of the
Indenture.

     "LOANS" is defined in Section 3.2 of the Collateral Maintenance Agreement.

     "MATERIAL  ADVERSE  CHANGE" means,  with respect to any person,  any event,
condition or circumstance  that  materially and adversely  affects such person's
business  or  consolidated  financial  condition,  or its  ability to observe or
perform  its  obligations,   liabilities  and  agreements  under  the  Operative
Documents.

     "MAXIMUM COLLATERAL RATIO" means 45%.

     "MAXIMUM SUBORDINATED COLLATERAL RATIO" means 67.5%.

     "MINIMUM ROTABLE RATIO" means 150%.

     "MINIMUM SUBORDINATED ROTABLE RATIO" means 100%.

     "MOODY'S" means Moody's Investors Service, Inc.

     "MOVES" is defined in Section 3.2 of the Collateral Maintenance Agreement.

     "MSCS" has the meaning specified in the first paragraph of the Indenture.

     "NEW YORK UCC" is defined in Section 1.01 of the Security Agreement.

     "NONAPPRAISAL  COMPLIANCE  REPORT"  means a  report  providing  information
relating  to  compliance  by the  Company  with  Section  3.2 of the  Collateral
Maintenance Agreement,  which shall be substantially in the form of Appendix III
to the Collateral Maintenance Agreement.

     "NON-CONTROLLING  PARTY"  means,  at any  time,  the  Securityholders,  the
Subordinated  Securityholders,  the Liquidity  Provider and the Policy Provider,
excluding whichever is the Controlling Party at such time.

     "NON-EXTENDED FACILITY" is defined in Section 3.5(d) of the Indenture.

     "NON-EXTENSION DRAWING" is defined in Section 3.5(d) of the Indenture.



     "NON-PERFORMANCE DRAWING" is defined in Section 3.6(c) of the Indenture.

     "NON-PERFORMANCE  PAYMENT  DATE"  is  defined  in  Section  3.6(c)  of  the
Indenture.

     "NON-PERFORMING"  means,  with respect to any Security,  a Payment  Default
existing thereunder (without giving effect to any Acceleration); PROVIDED, that,
in the event of a bankruptcy  proceeding  under the Bankruptcy Code in which the
Company is a debtor,  any Payment Default  existing at the  commencement of such
bankruptcy proceeding or during the 60-day period under Section 1110(a)(2)(A) of
the Bankruptcy Code (or such longer period as may apply under Section 1110(b) of
the Bankruptcy  Code or as may apply for the cure of such Payment  Default under
Section   1110(a)(2)(B)  of  the  Bankruptcy  Code)  shall  not  be  taken  into
consideration until the expiration of the applicable period.

     "NON-PERFORMING PERIOD" is defined in Section 3.6(c) of the Indenture.

     "NON-U.S.  PERSON" means any Person other than a U.S. person, as defined in
Regulation S.

     "NOTES" means the Securities and the Subordinated Securities.

     "NOTEHOLDER" means any holder of one or more Notes.

     "NOTICE OF AVOIDED  PAYMENT"  has the meaning  assigned to such term in the
Policy.

     "NOTICE FOR PAYMENT"  means a Notice of  Nonpayment as such term is defined
in the Policy.

     "OBLIGATIONS" is defined in Section 2.01 of the Security Agreement.

     "OFFERING MEMO" means the Offering  Memorandum,  dated December 2, 2002, of
the Company relating to the offering of the Securities.

     "OFFICER"  means  the  Chairman  of the  Board,  the  President,  any  Vice
President  of any  grade,  the  Chief  Financial  Officer,  the  Treasurer,  any
Assistant Treasurer, the Secretary, any Assistant Secretary or the Controller of
the Company.

     "OFFICERS'   CERTIFICATE"  means  a  certificate  signed  by  two  Officers
satisfying the requirements of Sections 12.4 and 12.5 of the Indenture.

     "OPERATIVE DOCUMENTS" means the Indenture,  the Collateral Agreements,  the
Collateral Maintenance Agreement and the Reference Agency Agreement.

     "OPINION OF COUNSEL"  means a written  opinion from the General  Counsel of
the  Company,  legal  counsel to the  Company or another  legal  counsel  who is
reasonably acceptable to the Trustee, which Opinion of Counsel shall comply with
Sections 12.4 and 12.5 of the  Indenture.  The counsel may be an employee of the
Company. The acceptance by the Trustee (without written objection to the Company
during the fifteen (15) Business Days  following  receipt) of, or its action on,



an opinion of counsel not  specifically  referred  to above shall be  sufficient
evidence that such counsel is acceptable to the Trustee.

     "OUTSTANDING" or  "OUTSTANDING"  when used with respect to Notes or a Note,
means all Notes  theretofore  authenticated  and delivered  under the Indenture,
except:

          (a) Notes  theretofore  canceled  by the Trustee or  delivered  to the
Trustee for cancellation;

          (b) Notes, or portions thereof,  for whose payment or redemption money
in the necessary amount has been theretofore deposited with the Trustee in trust
for the Holders of such Notes,  PROVIDED that, if such Notes are to be redeemed,
notice of such  redemption  has been duly given  pursuant  to the  Indenture  or
provision therefor satisfactory to the Trustee has been made;

          (c) Notes for which payment has been deposited with the Trustee or any
Paying  Agent in trust  pursuant  to Article 9 of the  Indenture  (except to the
extent provided therein); and

          (d) Notes  which have been paid,  or for which  other Notes shall have
been  authenticated  and delivered in lieu thereof or in  substitution  therefor
pursuant  to  the  terms  of  Section  2.12  of  the  Indenture,   unless  proof
satisfactory  to the Trustee is  presented  that any such Notes are held by bona
fide purchasers in whose hands the Notes are valid obligations of the Company.

     A Note does not cease to be  Outstanding  because the Company or one of its
Affiliates holds the Note;  PROVIDED,  HOWEVER,  that in determining whether the
Holders of the requisite  aggregate  principal amount of Notes  Outstanding have
given any request, demand,  authorization,  direction, notice, consent or waiver
under  the  Indenture  or any  other  Operative  Document,  Section  2.13 of the
Indenture shall be applicable.

     "ORIGINAL  INDENTURE"  has  the  meaning  set  forth  in  the  introductory
paragraph of the Indenture.

     "OUTSTANDING AMOUNT" is defined in Section 3.6(b) of the Indenture.

     "OVERDUE  SCHEDULED  PAYMENT" means any Payment of accrued  interest on any
Notes which is not in fact  received by the Trustee  (whether  from the Company,
the Liquidity Provider, the Policy Provider or otherwise) on or within five days
after the Scheduled  Payment Date relating thereto and which is not subsequently
paid in connection with the redemption or final maturity of a Note.

     "PARTS  INVENTORY  REPORT" means,  as of any date, a list  identifying  the
Pledged  Spare Parts by  manufacturer's  part number and brief  description  and
stating the quantity of each such part included in the Pledged Spare Parts as of
such specified date.

     "PAYING AGENT" has the meaning provided in Section 2.8 of the Indenture.



     "PAYMENT"  means (i) any payment of principal of,  interest on, or Premium,
if any, or Break  Amount,  if any,  with  respect to the Notes from the Company,
(ii) any  payment of  interest  on the  Securities  with funds  drawn  under the
Liquidity  Facility  or from a Cash  Collateral  Account or (iii) any payment of
interest on or principal  of  Securities  with funds drawn under the Policy,  or
(iv) any payment received or amount realized by the Trustee from the exercise of
remedies after the occurrence of an Event of Default.

     "PAYMENT  DEFAULT"  means a Default  referred  to in Section  7.1(a) of the
Indenture.

     "PAYMENT  DUE RATE"  means  (a) the Debt Rate plus 2% or, if less,  (b) the
maximum rate permitted by applicable law.

     "PERMITTED  DAYS" is defined in Section 2.1 of the  Collateral  Maintenance
Agreement.

     "PERMITTED  LESSEE"  has the  meaning  provided  in  Section  3.6(b) of the
Collateral Maintenance Agreement.

     "PERMITTED LIEN" means (a) the rights of Security Agent under the Operative
Documents;  (b) Liens  attributable  to Security  Agent (both in its capacity as
Security Agent and in its individual  capacity);  (c) the rights of others under
agreements or  arrangements  to the extent  expressly  permitted by the terms of
Section 3.6 of the Collateral Maintenance Agreement;  (d) Liens for Taxes of the
Company (and its U.S. federal tax law consolidated group), either not yet due or
being  contested in good faith by appropriate  proceedings so long as such Liens
and such proceedings do not involve any material risk of the sale, forfeiture or
loss of the Pledged  Spare Parts or the  interest of Security  Agent  therein or
impair  the  Lien of the  Security  Agreement;  (e)  materialmen's,  mechanics',
workers',  repairers',  employees'  or other like Liens  arising in the ordinary
course of business for amounts the payment of which is either not yet delinquent
for  more  than 60 days or is  being  contested  in good  faith  by  appropriate
proceedings,  so long as such  Liens and such  proceedings  do not  involve  any
material risk of the sale,  forfeiture or loss of the Pledged Spare Parts or the
interest of Security Agent therein or impair the Lien of the Security Agreement;
(f) Liens arising out of any judgment or award  against the Company,  so long as
such  judgment  shall,  within  60 days  after  the  entry  thereof,  have  been
discharged or vacated,  or execution thereof stayed pending appeal or shall have
been discharged, vacated or reversed within 60 days after the expiration of such
stay, and so long as during any such 60 day period there is not as a result,  or
any such  judgment or award does not  involve,  any  material  risk of the sale,
forfeiture or loss of the Pledged Spare Parts or the interest of Security  Agent
therein or any impairment of the Lien of the Security  Agreement;  (g) any other
Lien  with  respect  to which the  Company  shall  have  provided  a bond,  cash
collateral  or other  security  adequate in the  reasonable  opinion of Security
Agent.

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

     "PLEDGED  SPARE PARTS" has the meaning set forth in clause (1) of the first
paragraph of Section 2.01 of the Security Agreement.



     "POLICY"  means MBIA Insurance  Corporation  Financial  Guaranty  Insurance
Policy No. 39753,  issued as of the Closing Date,  as amended,  supplemented  or
otherwise modified from time to time in accordance with its respective terms.

     "POLICY  ACCOUNT"  means the Eligible  Deposit  Account  established by the
Trustee  pursuant to Section  8.13(a) of the  Indenture  which the Trustee shall
make deposits in and withdrawals from in accordance with the Indenture.

     "POLICY DRAWING" means any payment of a claim under the Policy.

     "POLICY  ELECTION  DISTRIBUTION  DATE" is defined in Section  3.6(c) of the
Indenture.

     "POLICY  EXPENSES"  means all  amounts  (including  amounts  in  respect of
premiums,  fees,  expenses or indemnities)  due to the Policy Provider under the
Policy Provider  Agreement other than (i) any Policy Drawing,  (ii) any interest
accrued on any  Policy  Provider  Obligations,  and (iii)  reimbursement  of and
interest on the Liquidity  Obligations in respect of the Liquidity Facility paid
by the Policy Provider to the Liquidity Provider;  provided that if, at the time
of  determination,  a Policy Provider Default exists,  Policy Expenses shall not
include any indemnity payments owed to the Policy Provider.

     "POLICY FEE LETTER"  means the fee  letter,  dated as of the Closing  Date,
from the Policy Provider to the Company and acknowledged by the Trustee, setting
forth the fees and premiums payable with respect to the Policy.

     "POLICY  PROVIDER" means MBIA Insurance  Corporation,  a New York insurance
company, and its successors and permitted assigns.

     "POLICY  PROVIDER  AGREEMENT"  means the Insurance and Indemnity  Agreement
dated as of the  Closing  Date,  among the  Trustee,  the Company and the Policy
Provider,  as amended,  supplemented or otherwise  modified from time to time in
accordance with its terms.

     "POLICY PROVIDER DEFAULT" shall mean the occurrence of any of the following
events:  (a) the  Policy  Provider  fails to make a payment  required  under the
Policy in accordance with its terms and such failure remains  unremedied for two
Business Days  following  the delivery of Written  Notice of such failure to the
Policy  Provider or (b) the Policy  Provider (i) files any petition or commences
any case or proceeding under any provisions of any federal or state law relating
to insolvency, bankruptcy,  rehabilitation,  liquidation or reorganization, (ii)
makes a general  assignment  for the  benefit of its  creditors  or (iii) has an
order for relief  entered  against it under any federal or state law relating to
insolvency,  bankruptcy,  rehabilitation,  liquidation or reorganization that is
final and nonappealable,  or (c) a court of competent jurisdiction, the New York
Department of Insurance or another competent regulatory authority enters a final
and nonappealable order, judgment or decree (i) appointing a custodian, trustee,
agent or receiver for the Policy Provider or for all or any material  portion of
its  property  or (ii)  authorizing  the taking of  possession  by a  custodian,
trustee,  agent or receiver of the Policy  Provider (or taking of  possession of
all or any material portion of the Policy Provider's property).

     "POLICY PROVIDER ELECTION" is defined in Section 3.6(c) of the Indenture.



     "POLICY  PROVIDER  INTEREST  OBLIGATIONS"  means any interest on any Policy
Drawing made to cover any shortfall attributable to any failure of the Liquidity
Provider to honor any Interest Drawing in accordance with Section 2.02(e) of the
Liquidity  Facility in an amount equal to the amount of interest that would have
accrued on such  Interest  Drawing  if such  Interest  Drawing  had been made in
accordance with Section  2.02(e) of the Liquidity  Facility at the interest rate
applicable to such Interest Drawing until such Policy Drawing has been repaid in
full.

     "POLICY PROVIDER  OBLIGATIONS"  means all  reimbursement and other amounts,
including,  without limitation, fees and indemnities (to the extent not included
in Policy  Expenses),  due to the  Policy  Provider  under the  Policy  Provider
Agreement  but shall not include  any  interest  on Policy  Drawings  other than
Policy Provider Interest Obligations.

     "PREMIUM" means, with respect to any Note redeemed pursuant to Article 4 of
the Indenture,  the following  percentage of the principal  amount of such Note:
(a) with respect to a Security,  (i) if redeemed before the first anniversary of
the Issuance Date, 1.5%; (ii) if redeemed on or after such first anniversary and
before the second  anniversary of the Issuance Date, 1.0%; and (iii) if redeemed
on or after such  second  anniversary  and before the third  anniversary  of the
Issuance Date,  0.5%; and (b) with respect to a  Subordinated  Security,  (i) if
redeemed before the second anniversary of the Subordinated  Issuance Date, 3.0%;
(ii) if  redeemed  on or after  such  second  anniversary  and  before the third
anniversary of the Subordinated Issuance Date, 2.0%; and (iii) if redeemed on or
after  such  third  anniversary  and  before  the  fourth   anniversary  of  the
Subordinated  Issuance Date, 1.0%;  PROVIDED that no Premium shall be payable in
connection  with a  redemption  made  by the  Company  to  satisfy  the  Maximum
Collateral Ratio, Maximum  Subordinated  Collateral Ratio, Minimum Rotable Ratio
or Minimum Subordinated Rotable Ratio requirement pursuant to Section 3.1 of the
Collateral Maintenance Agreement.

     "PRIOR FUNDS" means, on any  Distribution  Date, any Drawing paid under the
Liquidity  Facility on such  Distribution  Date and any funds withdrawn from the
Cash Collateral Account on such Distribution Date in respect of accrued interest
on the Securities.

     "PROCEEDS   DEFICIENCY  DRAWING"  is  defined  in  Section  3.6(b)  of  the
Indenture.

     "PROPELLER" includes a part, appurtenance, and accessory of a propeller.

     "PROVIDER  INCUMBENCY  CERTIFICATE"  is defined  in  Section  3.7(b) of the
Indenture.

     "PROVIDER REPRESENTATIVES" is defined in Section 3.7(b) of the Indenture.

     "PURCHASE AGREEMENT" means the Purchase Agreement dated December 2, 2002 by
and between the Initial Purchaser and the Company.

     "QIB" means a qualified institutional buyer as defined in Rule 144A.

     "QUALIFIED SPARE PARTS" has the meaning provided in clause (1) of the first
paragraph in Section 2.01 of the Security Agreement.

     "RATING AGENCIES" means,  collectively,  at any time, and with respect to a
Series of Notes, each nationally  recognized rating agency which shall have been



requested  by the  Company to rate such  Series of Notes and which shall then be
rating such Series of Notes.  The initial Rating Agency will be Moody's,  in the
case of the  Securities,  and Moody's and Standard & Poor's,  in the case of the
Subordinated Securities.

     "RATINGS  CONFIRMATION"  means,  with respect to any action  proposed to be
taken, a written  confirmation  from each of the Rating Agencies with respect to
the  applicable  Series of Notes  that  such  action  would not  result in (i) a
reduction of the rating for such Series of Notes below the then  current  rating
for such  Series  of Notes  (such  rating,  in the  case of the  Securities,  as
determined  without  regard to the Policy) or (ii) a withdrawal or suspension of
the rating of such Series of Notes.

     "RECORD  DATE"  means the  fifteenth  (15th) day  preceding  any  Scheduled
Interest Payment Date, whether or not a Business Day.

     "REDEMPTION DATE", when used with respect to any Note to be redeemed, means
the date fixed for such  redemption  by or  pursuant to the  Indenture  and such
Note.

     "REFERENCE AGENCY AGREEMENT" means the Reference Agency Agreement, dated as
of the Issuance Date, among the Company, WTC, as the reference agent thereunder,
and the Trustee.

     "REGISTER" has the meaning provided in Section 2.8 of the Indenture.

     "REGISTRAR" has the meaning provided in Section 2.8 of the Indenture.

     "REGISTRATION  RIGHTS  AGREEMENT" means the  Registration  Rights Agreement
dated as of  December  6, 2002,  by and  between  the  Company  and the  Initial
Purchaser.

     "REGULATION S" means Regulation S under the Securities Act.

     "REGULATION S DEFINITIVE  SECURITIES"  is defined in Section  2.1(e) of the
Indenture.

     "REGULATION  S DEFINITIVE  SUBORDINATED  SECURITIES"  is defined in Section
2A.1(e) of the Indenture.

     "REGULATION  S  GLOBAL  SECURITY"  is  defined  in  Section  2.1(d)  of the
Indenture.

     "REGULATION S GLOBAL  SUBORDINATED  SECURITY" is defined in Section 2A.1(d)
of the Indenture.

     "RELEVANT DATE" is defined in Section 3.6(c) of the Indenture.

     "REPLACEMENT  LIQUIDITY  FACILITY"  means an irrevocable  revolving  credit
agreement (or agreements) in  substantially  the form of the replaced  Liquidity
Facility,  including reinstatement  provisions, or in such other form (which may
include a letter of credit) as shall permit the Rating  Agencies with respect to
the Securities to confirm in writing their respective ratings then in effect for
the Securities (before  downgrading of such ratings,  if any, as a result of the
downgrading  of the  Liquidity  Provider),  and be  consented  to by the  Policy
Provider, which consent shall not be unreasonably withheld or delayed, in a face



amount (or in an aggregate face amount) equal to the amount of interest  payable
on the Securities  (at the Capped  Interest Rate, and without regard to expected
future  principal  payments) on the eight Interest  Payment Dates  following the
date of replacement  of such Liquidity  Facility (or if such date is an Interest
Payment Date,  on such day and the seven  Interest  Payment Dates  following the
date of  replacement  of such  Liquidity  Facility)  and  issued by a Person (or
Persons) having unsecured short-term debt rating or issuer credit rating, as the
case may be,  issued by  Moody's  and  Standard  & Poor's  which are equal to or
higher  than  the  Threshold  Rating.  Without  limitation  of the  form  that a
Replacement  Liquidity  Facility  otherwise  may have  pursuant to the preceding
sentence, a Replacement  Liquidity Facility for the Securities may have a stated
expiration date earlier than 15 days after the Final Legal Maturity Date so long
as such Replacement  Liquidity Facility provides for a Non-Extension  Drawing as
contemplated by Section 3.5(d) of the Indenture.

     "REQUEST" means a written request for the action therein  specified  signed
on behalf of the Company by any  Officer  and  delivered  to the  Trustee.  Each
Request shall be  accompanied  by an Officers'  Certificate if and to the extent
required by Section 12.4 of the Indenture.

     "REQUIRED  AMOUNT" means,  for any day, the sum of the aggregate  amount of
interest,  calculated at the Capped  Interest Rate, that would be payable on the
Securities on each of the eight successive  Interest  Payment Dates  immediately
following such day or, if such day is an Interest  Payment Date, on such day and
the succeeding  seven Interest  Payment  Dates,  in each case  calculated on the
basis of the  outstanding  principal  amount of the  Securities on such date and
without regard to expected future payments of principal on the Securities.

     "REQUIRED  HOLDERS" means from time to time the Holders of more than 50% in
aggregate unpaid principal amount of the Securities then Outstanding.

     "REQUIRED SUBORDINATED HOLDERS" means from time to time the holders of more
than 50% in aggregate unpaid  principal  amount of the  Subordinated  Securities
then Outstanding.

     "RESPONSIBLE OFFICER" means (i) with respect to the Trustee, any officer in
the  corporate  trust  administration  department  of the  Trustee  or any other
officer  customarily  performing  functions  similar to those  performed  by the
Persons who at the time shall be such  officers or to whom any  corporate  trust
matter is referred  because of his or her  knowledge of and  familiarity  with a
particular subject, (ii) with respect to the Liquidity Provider,  any authorized
officer  of the  Liquidity  Provider,  and  (iii)  with  respect  to the  Policy
Provider, any authorized officer of the Policy Provider.

     "RESTRICTED  DEFINITIVE  SECURITIES"  is defined  in Section  2.1(e) of the
Indenture.

     "RESTRICTED  DEFINITIVE  SUBORDINATED  SECURITIES"  is  defined  in Section
2A.1(e) of the Indenture.

     "RESTRICTED GLOBAL SECURITY" is defined in Section 2.1(c) of the Indenture.

     "RESTRICTED GLOBAL SUBORDINATED  SECURITY" is defined in Section 2A.1(c) of
the Indenture.

     "RESTRICTED LEGEND" is defined in Section 2.2 of the Indenture.



     "RESTRICTED  PERIOD"  is defined in  Section  2.1(d) of the  Indenture  for
purposes  of  the  Securities  and  in  Section  2A.1(d)  for  purposes  of  the
Subordinated Securities.

     "RESTRICTED SECURITIES" are defined in Section 2.2 of the Indenture.

     "RESTRICTED  SUBORDINATED  SECURITIES"  are defined in Section  2A.2 of the
Indenture.

     "ROTABLE"  means a  Qualified  Spare  Part that  wears over time and can be
repeatedly restored to a serviceable  condition over a period  approximating the
life of the flight equipment to which it relates.

     "ROTABLE RATIO" shall mean a percentage determined by dividing (i) the Fair
Market  Value of the  Rotables,  as set  forth in the  most  recent  Independent
Appraiser's  Certificate  delivered by the Company  pursuant to Article 2 of the
Collateral Maintenance Agreement, as supplemented pursuant to Section 3.1 of the
Collateral Maintenance Agreement, if applicable, by (ii) the aggregate principal
amount of all Securities  Outstanding  minus the sum of the Cash Collateral held
by the Collateral Agent.

     "RULE 144A" means Rule 144A under the Securities Act.

     "SALES" is defined in Section 3.2 of the Collateral Maintenance Agreement.

     "SCHEDULED INTEREST PAYMENT DATE" means each Interest Payment Date, without
giving effect to the proviso to the definition of Interest Payment Date.

     "SCHEDULED PAYMENT DATE" means (i) with respect to any payment of interest,
the Interest Payment Date applicable  thereto,  (ii) with respect to any payment
of defaulted  interest,  the payment date established  pursuant to Section 2.16,
(iii) with respect to amounts due on the  redemption of any Note, the Redemption
Date  applicable  thereto,  and (iv) with  respect to the final  maturity of the
Notes, December 6, 2007.

     "SEC" means the  Securities  and  Exchange  Commission  and any  government
agency succeeding to its functions.

     "SECTION 1110" means Section 1110 of the Bankruptcy Code.

     "SECTION 1110 PERIOD" means the continuous  period of (i) 60 days specified
in Section  1110(a)(2)(A) of the Bankruptcy Code (or such longer period, if any,
agreed to under Section 1110(b) of the Bankruptcy Code), plus (ii) an additional
period,  if any,  commencing  with the trustee or  debtor-in-possession  in such
proceeding agreeing,  with court approval,  to perform its obligations under the
Operative  Documents  within  such 60 days (or  longer  period  as  agreed)  and
continuing  until such time as such  trustee or  debtor-in-possession  ceases to
fully perform its obligations  thereunder with the result that the period during
which the Collateral Agent is prohibited from  repossessing the collateral under
any Collateral Agreement comes to an end.

     "SECURITIES" means the Initial Securities and the Exchange Securities.

     "SECURITIES  ACT" means the Securities Act of 1933, as amended from time to
time.



     "SECURITY AGENT" means the Trustee acting in the capacity of security agent
on behalf of the Holders under the Security Agreement until a successor replaces
it in accordance  with the  provisions of the Security  Agreement and thereafter
means the successor.

     "SECURITY  AGREEMENT" means the Spare Parts Security  Agreement dated as of
the Issuance Date between the Company and the Security Agent.

     "SECURITYHOLDER" means any holder of one or more Securities.

     "SEMIANNUAL  METHODOLOGY" means the Annual  Methodology,  excluding actions
referred to in clauses (iii) and (iv) of the definition of Annual Methodology.

     "SEMIANNUAL  VALUATION  DATE" is defined in Section  2.2 of the  Collateral
Maintenance Agreement.

     "SERIES"  means each of the  Securities  and the  Subordinated  Securities,
considered as a separate class.

     "SERVICEABLE PARTS" means Pledged Spare Parts in condition satisfactory for
incorporation  in,  installation on,  attachment or appurtenance to or use in an
Aircraft, Engine or other Qualified Spare Part.

     "SHELF REGISTRATION STATEMENT" means the shelf registration statement which
may be  required to be filed by the  Company  with the SEC  pursuant to (i) with
respect to Securities, the Registration Rights Agreement, other than an Exchange
Offer Registration Statement,  and (ii) with respect to Subordinated Securities,
the  Subordinated  Securities  Registration  Rights  Agreement,  other  than  an
Exchange Offer Registration Statement.

     "SPARE  PART"  means an  accessory,  appurtenance,  or part of an  Aircraft
(except an Engine or  Propeller),  Engine  (except a Propeller),  Propeller,  or
Appliance,  that is to be  installed  at a later  time in an  Aircraft,  Engine,
Propeller or Appliance.

     "SPARE PARTS  COLLATERAL" has the meaning  specified in Section 2.01 of the
Security Agreement.

     "SPARE  PARTS  DOCUMENTS"  has the  meaning  set forth in clause (6) of the
first paragraph of Section 2.01 of the Security Agreement.

     "SPECIAL  DEFAULT"  means a Payment  Default  or a  Continental  Bankruptcy
Event.

     "SPECIAL  RECORD  DATE" has the  meaning  provided  in Section  2.10 of the
Indenture.

     "SPECIAL  VALUATION  DATE" is  defined  in  Section  2.4 of the  Collateral
Maintenance Agreement.

     "STANDARD & POOR'S" means Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc.



     "STATED  AMOUNT" means the Maximum  Commitment (as defined in the Liquidity
Facility).

     "STATED EXPIRATION DATE" is defined in Section 3.5(d) of the Indenture.

     "SUBORDINATED APPLICABLE MARGIN" means 7.50%.

     "SUBORDINATED CLOSING DATE" means the Subordinated Issuance Date.

     "SUBORDINATED  COLLATERAL  RATIO"  shall mean a  percentage  determined  by
dividing (i) the aggregate  principal amount of all Notes  Outstanding minus the
sum of the Cash Collateral held by the Collateral  Agent by (ii) the Fair Market
Value of all  Collateral  (excluding any Cash  Collateral),  as set forth in the
most  recent  Independent  Appraiser's  Certificate  delivered  by  the  Company
pursuant to Article 2 of the Collateral Maintenance  Agreement,  as supplemented
pursuant to Section 3.1 of the Collateral Maintenance Agreement, if applicable.

     "SUBORDINATED  DEBT RATE" means a rate per annum equal,  in the case of the
first Interest Period for the Subordinated Securities, to 8.78% and, in the case
of any subsequent Interest Period, LIBOR for such Interest Period, as determined
pursuant to the Reference Agency  Agreement,  plus the  Subordinated  Applicable
Margin,  PROVIDED that, solely in the event no Registration Event (as defined in
the Subordinated  Security  Registration Rights Agreement) occurs on or prior to
the 210th day after the Subordinated  Closing Date, the  Subordinated  Debt Rate
shall be increased by an  additional  margin equal to 0.50% per annum,  from and
including  such 210th day to and  excluding the earlier of (i) the date on which
such Registration Event occurs and (ii) the date on which there ceases to be any
Registrable  Securities (as defined in the  Subordinated  Security  Registration
Rights  Agreement));  or if the Shelf Registration  Statement (as defined in the
Subordinated  Security  Registration  Rights Agreement) (if it is filed),  after
being declared  effective by the SEC,  ceases to be effective at any time during
the  period   specified  by  Section  2(b)(B)  of  the   Subordinated   Security
Registration Rights Agreement for more than 60 days, whether or not consecutive,
during any 12-month period,  the Subordinated Debt Rate shall be increased by an
additional  margin equal to 0.50% per annum from and  including  the 61st day of
the applicable  12-month period such Shelf  Registration  Statement ceases to be
effective to and  excluding the date on which the Shelf  Registration  Statement
again  becomes  effective  (or, if earlier,  the end of the period  specified by
Section 2(b)(B) of the Subordinated  Security  Registration  Rights  Agreement),
PROVIDED that the additional margin added to the Subordinated Debt Rate pursuant
to the preceding proviso shall never exceed 0.50% at any time.

     "SUBORDINATED DOCUMENTS" means the Indenture, Amendment No. 1 to Collateral
Maintenance  Agreement,  Amendment  No.  1 to  Reference  Agency  Agreement  and
Amendment No. 1 to Security Agreement.

     "SUBORDINATED  ISSUANCE  DATE"  means the date of initial  issuance  of the
Initial Subordinated Securities.

     "SUBORDINATED  PAYMENT DUE RATE" means (a) the Subordinated  Debt Rate plus
2% or, if less, (b) the maximum rate permitted by applicable law.



     "SUBORDINATED ROTABLE RATIO" shall mean a percentage determined by dividing
(i) the Fair  Market  Value of the  Rotables,  as set  forth in the most  recent
Independent Appraiser's Certificate delivered by the Company pursuant to Article
2 of the Collateral Maintenance  Agreement,  as supplemented pursuant to Section
3.1  of the  Collateral  Maintenance  Agreement,  if  applicable,  by  (ii)  the
aggregate  principal amount of all Notes  Outstanding  minus the sum of the Cash
Collateral held by the Collateral Agent.

     "SUBORDINATED SECURITIES" means the Initial Subordinated Securities and the
Exchange Subordinated Securities.

     "SUBORDINATED SECURITY OFFERING MEMO" means the Offering Memorandum,  dated
May 2,  2003  of  the  Company  relating  to the  offering  of the  Subordinated
Securities.

     "SUBORDINATED  SECURITY  PROVISIONS"  is  defined  in  Section  4.1  of the
Collateral Maintenance Agreement.

     "SUBORDINATED  SECURITY PURCHASE  AGREEMENT" means the Purchase  Agreement,
dated as of May 2, 2003, by and between the Initial Purchaser and the Company.

     "SUBORDINATED   SECURITY   REGISTRATION   RIGHTS   AGREEMENT"   means   the
Registration Rights Agreement dated as of the Subordinated Issuance Date, by and
between the Company and the Initial Purchaser.

     "SUBORDINATED  SECURITYHOLDER" means any holder of one or more Subordinated
Securities.

     "SUCCESSOR COMPANY" is defined in Section 5.4(a)(i) of the Indenture.

     "SUPPLEMENTAL  SECURITY  AGREEMENT"  means  a  supplement  to the  Security
Agreement substantially in the form of Exhibit A to the Security Agreement.

     "SUPPORT  DOCUMENTS" means the Liquidity  Facility,  the Policy, the Policy
Provider Agreement and the Fee Letters.

     "TAX" and "TAXES" mean any and all taxes,  fees, levies,  duties,  tariffs,
imposts,  and other  charges of any kind  (together  with any and all  interest,
penalties,  loss, damage,  liability,  expense,  additions to tax and additional
amounts or costs incurred or imposed with respect  thereto) imposed or otherwise
assessed  by the United  States of  America  or by any  state,  local or foreign
government  (or any  subdivision or agency  thereof) or other taxing  authority,
including,  without  limitation:  taxes or other  charges on or with  respect to
income, franchises,  windfall or other profits, gross receipts, property, sales,
use, capital stock, payroll, employment, social security, workers' compensation,
unemployment  compensation,  or net worth and  similar  charges;  taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer, value
added,  taxes on goods and  services,  gains taxes,  license,  registration  and
documentation fees, customs duties, tariffs, and similar charges.

     "TERMINATION NOTICE" has the meaning assigned to such term in the Liquidity
Facility.

     "THRESHOLD AMOUNT" means $2,000,000.



     "THRESHOLD  RATING" means the  short-term  unsecured  debt rating of P-1 by
Moody's  and A-1 by  Standard  & Poor's;  PROVIDED  that so long as the  initial
Liquidity Provider is the Liquidity  Provider,  the Threshold Rating shall apply
to the Liquidity Guarantor.

     "TIA"  means  the  Trust  Indenture  Act  of  1939  (15  U.S.  Code  ss.ss.
77aaa-77bbbb) as in effect on the date of the Indenture; PROVIDED, HOWEVER, that
in the event the TIA is  amended  after such date,  "TIA"  means,  to the extent
required by any such amendment, the TIA as so amended.

     "TRUST ACCOUNTS" is defined in Section 8.13(a) of the Indenture.

     "TRUST OFFICER" means any officer in the corporate trust  department of the
Trustee,  or any other officer or assistant  officer of the Trustee  assigned by
the Trustee to administer its corporate trust matters.

     "TRUSTEE"  means the party named as such in the Indenture until a successor
replaces it in accordance  with the  provisions of the Indenture and  thereafter
means the successor Trustee and if, at any time, there is more than one Trustee,
"Trustee" as used with respect to the Notes of any Series shall mean the Trustee
with respect to the Notes of that Series.

     "TRUSTEE  INCUMBENCY  CERTIFICATE"  is  defined  in  Section  3.7(a) of the
Indenture.

     "TRUSTEE   PROVISIONS"   is  defined  in  Section  4.1  of  the  Collateral
Maintenance Agreement.

     "TRUSTEE REPRESENTATIVES" is defined in Section 3.7(a) of the Indenture.

     "UCC"  means the  Uniform  Commercial  Code as in effect in any  applicable
jurisdiction.

     "UNAPPLIED PROVIDER ADVANCE" is defined in the Liquidity Facility.

     "UNSERVICEABLE  PARTS" means Pledged  Spare Parts that are not  Serviceable
Parts.

     "U.S." or "UNITED STATES" means the United States of America.

     "U.S. AIR CARRIER" means any United States air carrier that is a Citizen of
the United States holding an air carrier operating  certificate  issued pursuant
to chapter  447 of title 49 of the United  States Code for  aircraft  capable of
carrying 10 or more individuals or 6000 pounds or more of cargo.

     "U.S. GOVERNMENT" means the federal government of the United States, or any
instrumentality or agency thereof the obligations of which are guaranteed by the
full faith and credit of the federal government of the United States.

     "U.S.  GOVERNMENT  OBLIGATIONS"  means direct  obligations (or certificates
representing an ownership  interest in such obligations) of the United States of
America  (including  any agency or  instrumentality  thereof) for the payment of
which the full faith and credit of the United  States of America is pledged  and
which are not callable at the option of the issuer thereof.

     "U.S.  PERSON"  means any Person  described in Section  7701(a)(30)  of the
Code.



     "VALUATION  DATES" is defined in Section 2.4 of the Collateral  Maintenance
Agreement.

     "WARRANTIES"  is  defined in clause  (2) of  Section  2.01 of the  Security
Agreement.

     "WRITTEN  NOTICE" means,  from the Trustee,  the Liquidity  Provider or the
Policy Provider, a written instrument executed by the Designated  Representative
of such Person.  An invoice  delivered  by the  Liquidity  Provider  pursuant to
Section 3.1 of the Indenture in accordance with its normal invoicing  procedures
shall constitute Written Notice under such Section.

     "WTC" has the meaning specified in the first paragraph of the Indenture.

SECTION 2. RULES OF CONSTRUCTION.  Unless the context  otherwise  requires,  the
following  rules of  construction  shall apply for all purposes of the Operative
Documents  (including  this appendix) and of such  agreements as may incorporate
this appendix by reference.

          (a) In each Operative Document, unless otherwise expressly provided, a
reference to:

     (i)   each of the Company,  the Trustee, the Collateral Agent, the Security
           Agent  or  any  other  person  includes,  without  prejudice  to  the
           provisions of any Operative Document, any successor in interest to it
           and  any  permitted  transferee,  permitted  purchaser  or  permitted
           assignee of it;

     (ii)  words  importing the plural include the singular and words  importing
           the singular include the plural;

     (iii) any  agreement,  instrument  or  document, or any annex,  schedule or
           exhibit  thereto,  or  any  other  part  thereof,  includes,  without
           prejudice  to  the  provisions  of  any  Operative   Document,   that
           agreement,  instrument or document, or annex, schedule or exhibit, or
           part, respectively, as amended, modified or supplemented from time to
           time  in  accordance  with  its  terms  and in  accordance  with  the
           Operative  Documents,  and  any  agreement,  instrument  or  document
           entered into in substitution or replacement therefor;

     (iv)  any  provision  of any Law  includes  any such  provision as amended,
           modified, supplemented,  substituted,  reissued or reenacted prior to
           the Closing Date, and thereafter from time to time;

     (v)   the  words  "Agreement",   "this  Agreement",   "hereby",   "herein",
           "hereto",  "hereof" and  "hereunder" and words of similar import when
           used in any Operative  Document refer to such Operative Document as a
           whole and not to any particular provision of such Operative Document;

     (vi)  the words "including",  "including, without limitation",  "including,
           but not limited to", and terms or phrases of similar import when used
           in any Operative Document,  with respect to any matter or thing, mean
           including, without limitation, such matter or thing; and



     (vii) a"Section", an "Exhibit",  an "Annex",  an "Appendix" or a "Schedule"
           in any Operative Document, or in any annex thereto, is a reference to
           a section of, or an exhibit,  an annex, an appendix or a schedule to,
           such Operative Document or such annex, respectively.

          (b) Each  exhibit,  annex,  appendix  and  schedule to each  Operative
Document is incorporated in, and shall be deemed to be a part of, such Operative
Document.

          (c) Unless otherwise  defined or specified in any Operative  Document,
all   accounting   terms  therein   shall  be  construed   and  all   accounting
determinations thereunder shall be made in accordance with GAAP.

          (d) Headings used in any Operative  Document are for convenience  only
and  shall  not  in any  way  affect  the  construction  of,  or be  taken  into
consideration in interpreting, such Operative Document.

          (e) For  purposes  of each  Operative  Document,  the  occurrence  and
continuance of a Default or Event of Default referred to in Section 7.1(d),  (e)
or (f) of the Indenture  shall not be deemed to prohibit the Company from taking
any action or exercising any right that is  conditioned  on no Special  Default,
Default or Event of Default  having  occurred and be  continuing if such Special
Default,   Default  or  Event  of  Default   consists  of  the   institution  of
reorganization  proceedings  with respect to the Company under Chapter 11 of the
Bankruptcy  Code and the  trustee or  debtor-in-possession  in such  proceedings
shall have agreed to perform its obligations under the Operative  Documents with
the approval of the  applicable  court and  thereafter  shall have  continued to
perform such obligations in accordance with Section 1110.



                                                                       EXHIBIT A

                               [FORM OF SECURITY]



[THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE  "SECURITIES  ACT"),  AND  ACCORDINGLY,  MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED  STATES OR TO, OR FOR THE  ACCOUNT OR BENEFIT  OF, ANY PERSONS
EXCEPT AS SET FORTH IN THE FOLLOWING  SENTENCE.  BY ITS ACQUISITION  HEREOF, THE
HOLDER  (1)  REPRESENTS  THAT (A) IT IS A  "QUALIFIED  INSTITUTIONAL  BUYER" (AS
DEFINED  IN RULE 144A  UNDER THE  SECURITIES  ACT),  (B) IT IS AN  INSTITUTIONAL
"ACCREDITED  INVESTOR"  (AS  DEFINED  IN  RULE  501(a)(1),  (2),  (3)  OR (7) OF
REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL  ACCREDITED INVESTOR")
OR (C) IT IS NOT A U.S.  PERSON AND IS  ACQUIRING  THIS  SECURITY IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT; (2) AGREES
THAT IT WILL NOT WITHIN TWO YEARS  AFTER THE LATER OF THE  ORIGINAL  ISSUANCE OF
THIS  SECURITY OR THE LAST DATE ON WHICH THIS  SECURITY WAS HELD BY  CONTINENTAL
AIRLINES,  INC.  OR ANY  AFFILIATE  OF  CONTINENTAL  AIRLINES,  INC.  RESELL  OR
OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO CONTINENTAL  AIRLINES,  INC., (B)
TO A  QUALIFIED  INSTITUTIONAL  BUYER IN  COMPLIANCE  WITH RULE  144A  UNDER THE
SECURITIES  ACT,  (C) OUTSIDE THE UNITED  STATES IN AN OFFSHORE  TRANSACTION  IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION
FROM  REGISTRATION  PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE)
OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT;
AND (3) AGREES THAT IF IT SHOULD  RESELL OR OTHERWISE  TRANSFER THIS SECURITY IT
WILL  DELIVER  TO EACH  PERSON TO WHOM THIS  SECURITY  IS  TRANSFERRED  A NOTICE
SUBSTANTIALLY  TO THE EFFECT OF THIS LEGEND.  IN CONNECTION WITH ANY TRANSFER OF
THIS SECURITY WITHIN TWO YEARS AFTER THE LATER OF THE ORIGINAL  ISSUANCE OF THIS
SECURITY  OR THE  LAST  DATE ON WHICH  THIS  SECURITY  WAS  HELD BY  CONTINENTAL
AIRLINES,  INC. OR ANY AFFILIATE OF CONTINENTAL AIRLINES,  INC., THE HOLDER MUST
CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER
OF SUCH TRANSFER AND SUBMIT THIS SECURITY TO CONTINENTAL  AIRLINES,  INC. OR ITS
AGENT.  AS USED HEREIN,  THE TERMS "OFFSHORE  TRANSACTION",  "UNITED STATES" AND
"U.S.  PERSON"  HAVE  THE  MEANINGS  GIVEN  TO THEM BY  REGULATION  S UNDER  THE



SECURITIES  ACT. THE  INDENTURE  CONTAINS A PROVISION  REQUIRING  THE TRUSTEE TO
REFUSE TO REGISTER ANY TRANSFER OF THIS  SECURITY IN VIOLATION OF THE  FOREGOING
RESTRICTIONS.]*

[UNLESS  THIS  SECURITY IS  PRESENTED  BY AN  AUTHORIZED  REPRESENTATIVE  OF THE
DEPOSITORY  TRUST  COMPANY,  A NEW  YORK  CORPORATION  ("DTC"),  TO  CONTINENTAL
AIRLINES,  INC. OR ITS AGENT FOR REGISTRATION OF TRANSFER,  EXCHANGE OR PAYMENT,
AND ANY SECURITY  ISSUED IN EXCHANGE FOR THIS SECURITY IS REGISTERED IN THE NAME
OF  CEDE  &  CO.  OR  IN  SUCH  OTHER  NAME  AS IS  REQUESTED  BY AN  AUTHORIZED
REPRESENTATIVE  OF DTC (AND ANY PAYMENT  HEREON IS MADE TO CEDE & CO. OR TO SUCH
OTHER  ENTITY AS IS  REQUESTED  BY AN  AUTHORIZED  REPRESENTATIVE  OF DTC),  ANY
TRANSFER,  PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.

TRANSFERS OF THIS GLOBAL  SECURITY  SHALL BE LIMITED TO TRANSFERS IN WHOLE,  BUT
NOT IN PART,  TO NOMINEES OF DTC OR TO A SUCCESSOR  THEREOF OR SUCH  SUCCESSOR'S
NOMINEE AND  TRANSFERS OF PORTIONS OF THIS GLOBAL  SECURITY  SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTIONS 2.5 AND
2.6 OF THE INDENTURE REFERRED TO HEREIN.]**




















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

*  To be included on the face of each Restricted Security.

** To be included on the face of each Global Security.



No. [__]                                             CUSIP/Common Code No. [___]
                                                                        $ [____]


                        [[REGULATION S] GLOBAL SECURITY]*

            [INITIAL] [EXCHANGE] FLOATING RATE SECURED NOTE DUE 2007

     CONTINENTAL  AIRLINES,   INC.,  a  Delaware  corporation  (the  "Company"),
promises  to pay  to  [__________],  or the  registered  assignee  thereof,  the
principal  sum of  $[_______]  Dollars (the  "Principal  Amount") on December 6,
2007,  subject to earlier  payment as  provided  in the  Indenture  referred  to
herein.  This Security shall bear interest on the unpaid  Principal  Amount from
time to time  outstanding  from the most recent  Interest  Payment Date to which
interest  has been paid (or, if no interest  has been paid under the  Indenture,
from December 6, 2002) at a rate per annum for each Interest Period equal to the
Debt Rate for such  Interest  Period  (calculated  on the basis of a year of 360
days and actual days elapsed  during the period for which such amount  accrues).
The  Company  shall pay  accrued  interest  in  arrears on each March 6, June 6,
September 6 and December 6 of each year,  commencing March 6, 2003 (or, if not a
Business Day, the next  succeeding  Business Day) (an "Interest  Payment  Date")
until the Principal Amount has been paid in full,  PROVIDED that if such payment
in full is not made on an Interest Payment Date,  accrued interest shall be paid
on the date of such payment in full rather than the next Interest  Payment Date.
Interest  shall  accrue  with  respect to the first but not the last day of each
Interest Period.  This Security shall bear interest,  payable on demand,  at the
Payment Due Rate  (calculated on the basis of a year of 360 days and actual days
elapsed  during the period for which  such  amount  accrues)  on any part of the
Principal  Amount and, to the extent  permitted by applicable Law,  interest and
any other  amounts  payable  hereunder  not paid when due,  in each case for the
period  the same is  overdue.  Amounts  shall be  overdue  if not paid  when due
(whether at stated  maturity,  by  acceleration  or otherwise).  Notwithstanding
anything to the contrary  contained herein, if any date on which a payment under
this  Security  becomes due and payable is not a Business Day, then such payment
shall  not be  made  on such  scheduled  date  but  shall  be  made on the  next
succeeding  Business  Day,  and such  extension of time shall be included in the
computation of interest payable.

     1. GENERAL.  This Security is one of a duly authorized  issue of securities
of the Company designated as "[Initial]  [Exchange]  Floating Rate Secured Notes
due 2007"  (herein,  called the  "Securities"),  limited in aggregate  principal
amount to  $200,000,000,  issued,  authenticated  and delivered  pursuant to the
Indenture,  dated as of December 6, 2002 (the  "Indenture"),  among the Company,
Wilmington  Trust Company,  as Trustee (the  "Trustee"),  Morgan Stanley Capital
Services Inc., as Liquidity Provider, and MBIA Insurance Corporation,  as Policy
Provider. To the extent not otherwise defined herein, the capitalized terms used
herein have the meanings  assigned to them in the  Indenture.  This  Security is
subject to the terms,  provisions and conditions of the Indenture and those made


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

* To be included on the face of each Global Security.



applicable  to the  Indenture  by the TIA. To the extent any  provision  of this
Security conflicts with the express provisions of the Indenture,  the provisions
of the Indenture  shall govern and be  controlling.  Reference is hereby made to
the Indenture,  the TIA, the Security  Agreement,  the other Operative Documents
and the Support Documents for a complete statement of the rights and obligations
of the holders of, and the nature and extent of the security for, this Security.
By virtue of its acceptance  hereof the  Securityholder of this Security assents
to and agrees to be bound by the provisions of the Indenture.

     2. RECORD DATES. The Person in whose name any Security is registered at the
close of business on the fifteenth day  preceding a Scheduled  Interest  Payment
Date  shall be  entitled  to receive  the  interest  payable  on the  applicable
Interest Payment Date to the extent provided by such Security,  except if and to
the extent the Company  shall default in the payment of the interest due on such
Interest  Payment Date, in which case  defaulted  interest  shall be paid to the
Person in whose name the Security is  registered at the close of business on the
subsequent  record date  established  by notice given by mail by or on behalf of
the Company to the Holders of Securities pursuant to the Indenture.

     3. OPTIONAL  REDEMPTION.  The Company may redeem the Securities at any time
in whole or (so long as no Payment  Default has occurred and is  continuing)  in
part (in any  integral  multiple of $1,000) at its sole  option at a  redemption
price equal to the sum of 100% of the  principal  amount of,  accrued and unpaid
interest on, and Premium, if any, and Break Amount, if any, with respect to, the
redeemed Securities to and including the Redemption Date.  "Premium" means, with
respect to any  Security  redeemed  pursuant  to the  Indenture,  the  following
percentage of the principal amount of such Security:  (i) if redeemed before the
first  anniversary of the Issuance Date, 1.5%; (ii) if redeemed on or after such
first anniversary and before the second  anniversary of the Issuance Date, 1.0%;
and (iii) if redeemed on or after such second  anniversary  and before the third
anniversary  of the  Issuance  Date,  0.5%;  PROVIDED  that no Premium  shall be
payable in  connection  with a  redemption  made by the  Company to satisfy  the
Maximum  Collateral  Ratio or Minimum  Rotable  Ratio  requirement  pursuant  to
Section 3.1 of the Collateral  Maintenance  Agreement.  The Trustee shall mail a
notice of any  redemption  at least 15 days but not more than 60 days before the
Redemption  Date to each  Holder  whose  Securities  are to be  redeemed  at his
registered  address.  If the Trustee gives notice of redemption  but the Company
fails to pay when due all  amounts  necessary  to effect such  redemption,  such
redemption  shall be deemed  revoked  and no amount  shall be due as a result of
notice of redemption  having been given.  Securities called for redemption shall
cease to bear  interest  on and after the  Redemption  Date  (unless the Company
shall fail to pay the  redemption  price).  Upon  surrender to the Paying Agent,
such Securities shall be paid the redemption price.

     4. METHOD OF PAYMENT.  The Paying Agent shall distribute amounts payable to
each  Securityholder  by check  mailed  to such  Securityholder  at its  address
appearing in the Register,  except that with respect to Securities registered on
the  applicable  Record Date in the name of a Clearing  Agency (or its nominee),
such distribution shall be made by wire transfer in immediately  available funds
to the account designated by such Clearing Agency (or such nominee). The Company
shall not have any  responsibility  for the distribution of such payments to any
Securityholder. Any payment made hereunder shall be made without any presentment
or surrender of this Security,  except that, in the case of the final payment in



respect of this Security, this Security shall be surrendered to the Paying Agent
for cancellation against receipt of such payment.

     5. CREDIT SUPPORT. The Company's obligations with respect to the Securities
are secured by a lien on the Pledged Spare Parts and certain  other  property of
the  Company.  In addition,  the Trustee has entered  into a Liquidity  Facility
under which the Liquidity  Provider is obligated to make advances to the Trustee
in an aggregate amount  sufficient to pay interest on the Securities up to eight
successive quarterly Interest Payment Dates. The Trustee is also the beneficiary
of the Policy under which the Policy  Provider is obligated to honor drawings to
cover  interest on the  Securities  when due and principal of the  Securities no
later than 24 months after the Final Scheduled Payment Date of the Securities.

     6.  REGISTRAR  AND PAYING AGENT.  The Company  shall  maintain an office or
agency where  Securities  eligible for transfer or exchange may be presented for
registration  of  transfer  or for  exchange,  and an  office  or  agency  where
Securities  may be  presented  for payment.  Initially,  the Trustee will act as
Registrar  and Paying  Agent.  If the Company  fails to maintain a Registrar  or
Paying Agent, the Trustee shall act as such.

     7.  DENOMINATIONS,  TRANSFER AND EXCHANGE.  The Securities  shall be issued
only in fully  registered  form without  coupons and [only in  denominations  of
$100,000 or integral  multiples of $1,000 in excess thereof,]* [in denominations
of $1,000 or integral  multiples  thereof,]**  except that one  Security  may be
issued in a different denomination. The transfer of Securities may be registered
and Securities may be exchanged as provided in the Indenture.  No transfer shall
be  effected  until,  and such  transferee  shall  succeed  to the  rights  of a
Securityholder  only upon,  final acceptance and registration of the transfer by
the  Registrar  in  the  Register.   No  service  charge  shall  be  made  to  a
Securityholder  for any registration of transfer or exchange of Securities,  but
the  Company  may  require  payment  of a sum  sufficient  to  cover  any tax or
governmental  charge  that may be imposed in  connection  with any  transfer  or
exchange of Securities.

     8. PERSONS DEEMED OWNERS.  Prior to the  registration  of any transfer of a
Security by a  Securityholder  as provided in the  Indenture,  the Company,  the
Registrar,  the Paying Agent and the Trustee  shall deem and treat the person in
whose name the Security is registered on the Register as the absolute  owner and
holder thereof for the purpose of receiving  payment of all amounts payable with
respect to such  Security and for all other  purposes,  and none of the Company,
the  Registrar,  the Paying Agent or the Trustee shall be affected by any notice
to the contrary.

     9.  AMENDMENTS  AND WAIVERS.  The Company and the Trustee or the Collateral
Agent,  as the  case  may  be,  may  amend  or  supplement  the  Indenture,  the

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

*    To be used for Initial Securities.

**   To be used for Exchange Securities.



Securities,  or any of the other  Operative  Documents  and, upon request of the
Company,  the Trustee shall amend or supplement the Support  Documents,  in each
case only with the  written  consent of the  Controlling  Party,  PROVIDED  that
certain amendments,  supplements and waivers may not be made without the consent
of each  Securityholder  affected thereby.  Any consent by the Securityholder of
this Security  shall be conclusive and binding on such  Securityholder  and upon
all future  Securityholders of this Security and of any Security issued upon the
transfer  hereof or in exchange hereof or in lieu hereof whether or not notation
of such  consent  is  made  upon  such  Security.  Without  the  consent  of the
Controlling  Party or any Holder,  the  Indenture,  the  Securities,  any of the
Operative  Documents  and any of the Support  Documents may be amended to, among
other things,  cure any ambiguity,  defect or inconsistency or to make any other
change not inconsistent with the provisions of the Indenture, provided that such
action does not materially adversely affect the interests of any Securityholder.

     10.  DEFAULTS AND REMEDIES.  Events of Default under the Indenture  include
the following:  (a) failure by the Company to pay (1) principal of, interest on,
Premium, if any, or Break Amount, if any, with respect to any Security when due,
and such failure  shall  continue  unremedied  for a period of 10 Business  Days
thereafter (it being understood that any amount  distributed to  Securityholders
in respect of the  foregoing  from funds  provided by the Policy  Provider,  the
Liquidity Provider or a Cash Collateral Account shall not be deemed to cure such
Default)  or (2)  any  other  amount  payable  by it to the  Holders  under  the
Indenture or any Operative  Document  when due, and such failure shall  continue
for a period in excess of 10  Business  Days  after  the  Company  has  received
written  notice from the Trustee of the failure to make such  payment  when due;
(b) failure by the Company to observe  and perform in any  material  respect any
other  covenant,  agreement or  obligation  set forth in the Indenture or in any
other  Operative  Documents,  with such  failure  continuing  after  notice  and
specified cure periods;  (c) any  representation or warranty made by the Company
in the  Indenture or any other  Operative  Document (1) shall prove to have been
untrue or  inaccurate  in any  material  respect as of the date  made,  (2) such
untrue or  inaccurate  representation  or  warranty  is  material at the time in
question and (3) the same shall remain  uncured  following  notice;  and (d) the
occurrence of certain events of bankruptcy,  reorganization or insolvency of the
Company. Subject to certain limitations in the Indenture, if an Event of Default
occurs and is continuing,  the  Controlling  Party may, by notice to Company and
the Trustee,  and the Trustee shall, upon the request of the Controlling  Party,
declare all unpaid principal of, accrued interest on, Premium, if any, and Break
Amount,  if any, with respect to the  Securities  Outstanding  and other amounts
otherwise  payable  under  the  Indenture,   if  any,  to  be  due  and  payable
immediately.  In the case of an Event of Default  arising from certain events of
bankruptcy,  reorganization  or  insolvency,  such amounts  shall  automatically
become and be  immediately  due and payable  without  further  action or notice.
Under certain  circumstance,  the Controlling Party by notice to the Trustee may
rescind an acceleration and its consequences.

     If an Event of Default occurs and is continuing, the Trustee may pursue any
available  remedy by  proceeding  at law or in equity to collect  the payment of
principal of,  interest on, or Premium,  if any, or Break  Amount,  if any, with
respect  to,  the  Securities  or other  amounts  otherwise  payable  under  the
Indenture,  if any. Subject to the Indenture, so long as an Event of Default has
occurred and is continuing,  the Controlling  Party by notice to the Trustee may
authorize  the Trustee to waive an existing  Default or Event of Default and its
consequences.  The  Controlling  Party may direct the time,  method and place of



conducting any proceeding for any remedy available to the Trustee (as Trustee or
Collateral Agent, subject, in the case of any actions based on the status of the
Trustee as Collateral Agent, to any limitations otherwise expressly provided for
in the Operative  Documents) or exercising  any trust or power  conferred on it;
provided that the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.  Securityholders  may not enforce
the Indenture or the Securities except as provided in the Indenture. The Trustee
may require indemnity satisfactory to it before it enforces the Indenture or the
Securities.  The  Trustee  may  withhold  from  Securityholders  notice  of  any
continuing default (except a default in payment of principal,  interest, Premium
or Break Amount) if it determines  in good faith that  withholding  notice is in
their  interests.  The above  description  of Events of Default and  remedies is
qualified  by  reference,  and  subject  in its  entirety  to the more  complete
description thereof contained in the Indenture.

     11.  NO  RECOURSE  AGAINST  OTHERS.  A  director,   officer,   employee  or
stockholder,  as such, of the Company shall not have any personal  liability for
any obligations of the Company under the Securities,  the Indenture or the other
Operative  Documents by reason of his or her status as such  director,  officer,
employee or stockholder.  Each Securityholder by accepting a Security waives and
releases  all  such   liability.   The  waiver  and  release  are  part  of  the
consideration for the issue of the Securities.

     12.  AUTHENTICATION.  This  Security  shall not be  entitled to any benefit
under  the  Indenture  or be valid  or  obligatory  for any  purpose  until  the
certificate of  authentication  attached  hereto has been executed by the manual
signature of an authorized  signatory of the Trustee or an authenticating  agent
appointed by the Trustee.

     13.  UNCLAIMED  MONEY.  If money  deposited  with the Trustee or any Paying
Agent in trust for the payment of the principal of, interest on, or Premium,  if
any, or Break  Amount,  if any,  with respect to, any Security and unclaimed for
two (2) years after such principal,  interest, Premium, if any, or Break Amount,
if any, has become due and payable  shall be paid to the Company on its request,
subject  to any  applicable  abandoned  property  law,  and the  Holder  of such
Security shall thereafter,  as an unsecured  general creditor,  look only to the
Company for payment thereof.

     14.  ABBREVIATIONS.  Customary  abbreviations  may be used in the name of a
Holder or an  assignee,  such as:  TEN COM (=  tenants  in  common),  TEN ENT (=
tenants by the  entireties),  JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian),  and U/G/M/A (= Uniform Gifts
to Minors Act).

     15. CUSIP  NUMBERS.  The Company in issuing this Security may use a "CUSIP"
number (if then  generally  in use) and,  if so, the  Trustee  shall use "CUSIP"
numbers in notices of redemption as a convenience to Holders; PROVIDED, HOWEVER,
that  any  such  notice  may  state  that  no  representation  is made as to the
correctness  of such numbers either as printed on the Securities or as contained
in any notice of a redemption  and that reliance may be placed only on the other
identification numbers printed on the Securities,  and any such redemption shall
not be affected by any defect in or omission of such numbers.



     [16. REGISTRATION.  The Holder of this Security is entitled to the benefits
of the Registration  Rights Agreement.  In the event that no Registration  Event
(as  defined in the  Registration  Rights  Agreement)  occurs on or prior to the
210th day after the  Issuance  Date,  the Debt  Rate  shall be  increased  by an
additional  margin  equal to 0.50%,  from and  including  such  210th day to and
excluding the earlier of (i) the date on which a  Registration  Event occurs and
(ii) the date on which there ceases to be any Registrable Securities (as defined
in the Registration  Rights Agreement);  or if the Shelf Registration  Statement
(as defined in the Registration Rights Agreement) (if it is filed),  after being
declared  effective  by the SEC,  ceases to be  effective at any time during the
period  specified by Section 2(b)(B) of the  Registration  Rights  Agreement for
more than 60 days,  whether or not consecutive,  during any 12-month period, the
Debt Rate shall be  increased  by an  additional  margin equal to 0.50% from and
including the 61st day of the applicable 12-month period such Shelf Registration
Statement  ceases to be effective to and  excluding  the date on which the Shelf
Registration  Statement again becomes effective (or, if earlier,  the end of the
period  specified  by Section  2(b)(B) of the  Registration  Rights  Agreement);
PROVIDED  that the  additional  margin  added to the Debt Rate  pursuant to this
section shall never exceed 0.50% at any time.]*

     [17. HOLDERS' COMPLIANCE WITH REGISTRATION RIGHTS AGREEMENT. Each Holder of
a Security,  by acceptance hereof,  acknowledges and agrees to the provisions of
the  Registration  Rights  Agreement,   including,   without   limitation,   the
obligations   of  the  Holders   with   respect  to  a   registration   and  the
indemnification of the Company to the extent provided therein.]*

     18.  GOVERNING  LAW. THIS  SECURITY  SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

     The  Company  will  furnish to any Holder of this  Security,  upon  written
request and without  charge,  a copy of the  Indenture.  Request may be made to:
Continental Airlines,  Inc., 1600 Smith Street, Houston, Texas 77002, Attention:
Corporate Secretary.












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

* To be included only on each Initial Security.

* To be included only on each Initial Security.



     IN WITNESS  WHEREOF,  the  Company  has  caused  this  Security  to be duly
executed in its corporate name by its officer  thereunto duly  authorized on the
date hereof.

Dated:



                                       CONTINENTAL AIRLINES, INC.


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


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



              [FORM OF THE TRUSTEE'S CERTIFICATE OF AUTHENTICATION]



                     This is one of the Securities referred
                              to in the Indenture.





                                       WILMINGTON TRUST COMPANY,
                                         not in its individual capacity
                                         but solely as Trustee


                                       By:
                                          --------------------------------------
                                                    Authorized Officer



                             FORM OF TRANSFER NOTICE



          FOR VALUE RECEIVED the undersigned  registered  holder hereby sell(s),
assign(s) and transfer(s) unto

INSERT TAXPAYER IDENTIFICATION NO.



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

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

please print or typewrite name and address including zip code of assignee

- ----------------------------------
the within Security and all rights thereunder,  hereby irrevocably  constituting
and appointing




- ---------------------------------
attorney to transfer said Security on the books of the Registrar with full power
of substitution in the premises.




                     [THE FOLLOWING PROVISION TO BE INCLUDED

                               ON ALL SECURITIES,

                           EXCEPT REGULATION S GLOBAL,

           REGULATION S DEFINITIVE SECURITIES AND EXCHANGE SECURITIES]

          In connection with any transfer of this Certificate occurring prior to
the date that is the earlier of the date of an effective  Registration Statement
or the date two years after the later of the original  issuance of this Security
or the last date on which this Security was held by Continental  Airlines,  Inc.
or any affiliate of Continental  Airlines,  Inc., the undersigned  confirms that
without utilizing any general solicitation or general advertising that:



                                   [CHECK ONE]

[__] (a) this Security is being  transferred  in  compliance  with the exemption
from registration under the Securities Act of 1933, as amended, provided by Rule
144A thereunder.

                                       OR

[__] (b) this Security is being  transferred  other than in accordance  with (a)
above and  documents  are being  furnished  that comply with the  conditions  of
transfer set forth in this Security and the Indenture.

If  neither  of the  foregoing  boxes is  checked,  the  Registrar  shall not be
obligated  to register  this  Security in the name of any Person  other than the
Holder  hereof  unless  and  until  the  conditions  to  any  such  transfer  of
registration  set forth  herein and in Section 2.6 of the  Indenture  shall have
been satisfied.

Date:[_________, ___]        [NAME OF TRANSFEROR]
                             --------------------------

                             NOTE: The signature must  correspond  with the name
                             as written  upon the face of the within-  mentioned
                             instrument in every particular  without  alteration
                             or any change whatsoever.


Signature Guarantee:
                     --------------------------

TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.

     The undersigned represents and warrants that it is purchasing this Security
for its own  account  or an account  with  respect  to which it  exercises  sole
investment  discretion  and  that  it  and  any  such  account  is a  "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended,  and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges  that it has received such information  regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request  such  information  and that it is aware that the  transferor  is
relying upon the undersigned's  foregoing  representations in order to claim the
exemption from registration provided by Rule 144A.


Dated:[___________, ___]
                            --------------------------
                            NOTE:  To be executed by an executive officer.



                                                                       EXHIBIT B

             FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH
                   TRANSFERS OF NOTES PURSUANT TO REGULATION S

                                                    [___________, ___]

Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, DE 19890-0001
Attention:  Corporate Trust Administration

          Re: FLOATING RATE SECURED [SUBORDINATED] NOTES DUE 2007
              (THE "SECURITIES")

Ladies and Gentlemen:

     In connection with our proposed sale of US $[__] of the Securities, we
confirm that such sale has been effected pursuant to and in accordance with
Regulation S under the Securities Act of 1933, as amended, and, accordingly, we
represent that:

          (1) the offer of the Securities was not made to a person in the United
     States;

          (2) either (a) at the time the buy order was originated, the
     transferee was outside the United States or we and any person acting on our
     behalf reasonably believed that the transferee was outside the United
     States or (b) the transaction was executed in, on or through the facilities
     of a designated off-shore securities market and neither we nor any person
     acting on our behalf knows that the transaction has been pre-arranged with
     a buyer in the United States;

          (3) no directed selling efforts have been made in the United States in
     contravention of the requirements of Rule 903(a) or Rule 904(a) of
     Regulation S, as applicable; and

          (4) the transaction is not part of a plan or scheme to evade the
     registration requirements of the Securities Act.

     In addition, if the sale is made during a restricted period and the
provisions of Rule 903(b)(2) or Rule 904(b)(1) of Regulation S are applicable
thereto, we confirm that such sale has been made in accordance with the
applicable provisions of Rule 903(b)(2) or Rule 904(b)(1), as the case may be.



     You and Continental Airlines, Inc. are entitled to rely upon this letter
and are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.


                                       Very truly yours,



                                       [Name of Transferor]


                                                                       EXHIBIT C

                FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION
                           WITH TRANSFERS OF NOTES TO
                   NON-QIB INSTITUTIONAL ACCREDITED INVESTORS

                                                    [___________, ___]


Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, DE 19890-0001
Attention:  Corporate Trust Administration

Continental Airlines, Inc.
1600 Smith Street
Houston, Texas 77002

                              CONTINENTAL AIRLINES
     Floating Rate Secured [Subordinated] Notes due 2007 (the "Securities")

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

Ladies and Gentlemen:

     In  connection  with our  proposed  purchase  of U.S.  $[_____________]  of
Securities (the "Purchased Securities"), we confirm that:

          1.  We  understand  that  any  subsequent  transfer  of the  Purchased
     Securities is subject to certain  restrictions  and conditions set forth in
     the Amended and Restated Indenture, dated as of [___________],  2003, among
     Continental Airlines,  Inc. (the "Company"),  Wilmington Trust Company (the
     "Trustee"),  Morgan Stanley Capital  Services Inc., as Liquidity  Provider,
     and  MBIA  Insurance  Corporation,  as  Policy  Provider,  relating  to the
     Securities,  and we agree to be bound  by,  and not to  resell,  pledge  or
     otherwise transfer the Purchased Securities except in compliance with, such
     restrictions and conditions and the Securities Act of 1933, as amended (the
     "Securities Act").

          2. We are purchasing  Securities having an aggregate  principal amount
     of not less  than  $100,000  and  each  account  (if any) for  which we are
     purchasing   Securities  is  purchasing   Securities  having  an  aggregate
     principal amount of not less than $100,000.

          3.  We  understand  that  the  Purchased   Securities  have  not  been
     registered  under the  Securities  Act, that the Purchased  Securities  are
     being  sold to us in a  transaction  that is exempt  from the  registration
     requirements  of the Securities  Act and that the Purchased  Securities may
     not be offered or resold except as permitted in the following sentence.  We
     agree,  on our own  behalf and on behalf of any  accounts  for which we are
     acting  as  hereinafter  stated,  that,  if we  should  sell any  Purchased
     Securities  within two years  after the later of the  original  issuance of
     such  Purchased  Securities  and the  last  date on  which  such  Purchased
     Securities  are owned by the Company or any  affiliate of the  Company,  we
     will do so only (A) to the Company,  (B) in accordance with Rule 144A under



     the  Securities  Act  to a  "qualified  institutional  buyer"  (as  defined
     therein),  (C) outside  the United  States in  accordance  with Rule 904 of
     Regulation S under the  Securities  Act, (D) pursuant to the exemption from
     registration  provided by Rule 144 under the Securities Act or (E) pursuant
     to an effective  registration  statement  under the Securities  Act, and we
     further  agree to  provide to any person  purchasing  any of the  Purchased
     Securities  from us a notice  advising such  purchaser  that resales of the
     Purchased Securities are restricted as stated herein.

          4.  We  understand  that,  on any  proposed  resale  of any  Purchased
     Securities,  we will be  required to furnish to the Company and the Trustee
     such  certifications,  legal opinions and other  information as the Company
     and the Trustee may  reasonably  require to confirm that the proposed  sale
     complies with the foregoing  restrictions.  We further  understand that the
     Purchased  Securities  purchased by us will bear a legend to the  foregoing
     effect.

          5. We are an institutional  "accredited  investor" (as defined in Rule
     501(a)(1),  (2), (3) or (7) of Regulation D under the  Securities  Act) and
     have such knowledge and experience in financial and business  matters as to
     be capable of  evaluating  the  merits and risks of our  investment  in the
     Purchased  Securities,  and we and any accounts for which we are acting are
     each able to bear the economic risk of our or their investments.

          6. We are acquiring the  Purchased  Securities  for our own account or
     for one or more  accounts  (each of which is an  institutional  "accredited
     investor") as to each of which we exercise sole  investment  discretion and
     not with a view to any distribution of the Purchased  Securities,  subject,
     nevertheless  to the  understanding  that the  disposition  of our property
     shall at all times be and remain within our control.

     You are entitled to rely upon this letter and are irrevocably authorized to
produce  this  letter  or  a  copy  thereof  to  any  interested  party  in  any
administrative  or legal  proceedings  or official  inquiry  with respect to the
matters covered hereby.


                                       Very truly yours,



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



                                                                       EXHIBIT D

                         [FORM OF SUBORDINATED SECURITY]



[THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE  "SECURITIES  ACT"),  AND  ACCORDINGLY,  MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED  STATES OR TO, OR FOR THE  ACCOUNT OR BENEFIT  OF, ANY PERSONS
EXCEPT AS SET FORTH IN THE FOLLOWING  SENTENCE.  BY ITS ACQUISITION  HEREOF, THE
HOLDER  (1)  REPRESENTS  THAT (A) IT IS A  "QUALIFIED  INSTITUTIONAL  BUYER" (AS
DEFINED  IN RULE 144A  UNDER THE  SECURITIES  ACT),  (B) IT IS AN  INSTITUTIONAL
"ACCREDITED  INVESTOR"  (AS  DEFINED  IN  RULE  501(a)(1),  (2),  (3)  OR (7) OF
REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL  ACCREDITED INVESTOR")
OR (C) IT IS NOT A U.S.  PERSON AND IS  ACQUIRING  THIS  SECURITY IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT; (2) AGREES
THAT IT WILL NOT WITHIN TWO YEARS  AFTER THE LATER OF THE  ORIGINAL  ISSUANCE OF
THIS  SECURITY OR THE LAST DATE ON WHICH THIS  SECURITY WAS HELD BY  CONTINENTAL
AIRLINES,  INC.  OR ANY  AFFILIATE  OF  CONTINENTAL  AIRLINES,  INC.  RESELL  OR
OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO CONTINENTAL  AIRLINES,  INC., (B)
TO A  QUALIFIED  INSTITUTIONAL  BUYER IN  COMPLIANCE  WITH RULE  144A  UNDER THE
SECURITIES  ACT,  (C) OUTSIDE THE UNITED  STATES IN AN OFFSHORE  TRANSACTION  IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION
FROM  REGISTRATION  PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE)
OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT;
AND (3) AGREES THAT IF IT SHOULD  RESELL OR OTHERWISE  TRANSFER THIS SECURITY IT
WILL  DELIVER  TO EACH  PERSON TO WHOM THIS  SECURITY  IS  TRANSFERRED  A NOTICE
SUBSTANTIALLY  TO THE EFFECT OF THIS LEGEND.  IN CONNECTION WITH ANY TRANSFER OF
THIS SECURITY WITHIN TWO YEARS AFTER THE LATER OF THE ORIGINAL  ISSUANCE OF THIS
SECURITY  OR THE  LAST  DATE ON WHICH  THIS  SECURITY  WAS  HELD BY  CONTINENTAL
AIRLINES,  INC. OR ANY AFFILIATE OF CONTINENTAL AIRLINES,  INC., THE HOLDER MUST
CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER
OF SUCH TRANSFER AND SUBMIT THIS SECURITY TO CONTINENTAL  AIRLINES,  INC. OR ITS
AGENT.  AS USED HEREIN,  THE TERMS "OFFSHORE  TRANSACTION",  "UNITED STATES" AND
"U.S.  PERSON"  HAVE  THE  MEANINGS  GIVEN  TO THEM BY  REGULATION  S UNDER  THE
SECURITIES  ACT. THE  INDENTURE  CONTAINS A PROVISION  REQUIRING  THE TRUSTEE TO
REFUSE TO REGISTER ANY TRANSFER OF THIS  SECURITY IN VIOLATION OF THE  FOREGOING
RESTRICTIONS.]*


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

* To be included on the face of each Restricted Subordinated Security.



[UNLESS  THIS  SECURITY IS  PRESENTED  BY AN  AUTHORIZED  REPRESENTATIVE  OF THE
DEPOSITORY  TRUST  COMPANY,  A NEW  YORK  CORPORATION  ("DTC"),  TO  CONTINENTAL
AIRLINES,  INC. OR ITS AGENT FOR REGISTRATION OF TRANSFER,  EXCHANGE OR PAYMENT,
AND ANY SECURITY  ISSUED IN EXCHANGE FOR THIS SECURITY IS REGISTERED IN THE NAME
OF  CEDE  &  CO.  OR  IN  SUCH  OTHER  NAME  AS IS  REQUESTED  BY AN  AUTHORIZED
REPRESENTATIVE  OF DTC (AND ANY PAYMENT  HEREON IS MADE TO CEDE & CO. OR TO SUCH
OTHER  ENTITY AS IS  REQUESTED  BY AN  AUTHORIZED  REPRESENTATIVE  OF DTC),  ANY
TRANSFER,  PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.

TRANSFERS OF THIS GLOBAL  SECURITY  SHALL BE LIMITED TO TRANSFERS IN WHOLE,  BUT
NOT IN PART,  TO NOMINEES OF DTC OR TO A SUCCESSOR  THEREOF OR SUCH  SUCCESSOR'S
NOMINEE AND  TRANSFERS OF PORTIONS OF THIS GLOBAL  SECURITY  SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE  WITH THE  RESTRICTIONS  SET FORTH IN SECTIONS 2A.5
AND 2A.6 OF THE INDENTURE REFERRED TO HEREIN.]**


























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

** To be included on the face of each Global Subordinated Security.



No. [__]                                             CUSIP/Common Code No. [___]
                                                                         $[____]


                 [[REGULATION S] GLOBAL SUBORDINATED SECURITY]*

          [INITIAL] [EXCHANGE] FLOATING RATE SECURED SUBORDINATED NOTE
                                    DUE 2007

          This note was issued with  "original  issue  discount."  The
          total  amount  of  original  issue  discount  is 5%  of  its
          principal  amount,  the issue date is May 9,  2003,  and the
          yield to  maturity  on the  issue  date  would  be  10.143%,
          compounded  quarterly,   assuming  LIBOR  remains  at  1.28%
          throughout the term of the note.

     CONTINENTAL  AIRLINES,   INC.,  a  Delaware  corporation  (the  "Company"),
promises  to pay  to  [__________],  or the  registered  assignee  thereof,  the
principal  sum of  $[_______]  Dollars (the  "Principal  Amount") on December 6,
2007,  subject to earlier  payment as  provided  in the  Indenture  referred  to
herein.  This Subordinated  Security shall bear interest on the unpaid Principal
Amount from time to time  outstanding from the most recent Interest Payment Date
to which  interest  has been paid (or,  if no  interest  has been paid under the
Indenture,  from May 9, 2003) at a rate per annum for each Interest Period equal
to the Subordinated Debt Rate for such Interest Period  (calculated on the basis
of a year of 360 days and actual days  elapsed  during the period for which such
amount accrues). The Company shall pay accrued interest in arrears on each March
6, June 6, September 6 and December 6 of each year, commencing June 6, 2003 (or,
if not a Business Day, the next succeeding  Business Day) (an "Interest  Payment
Date") until the Principal  Amount has been paid in full,  PROVIDED that if such
payment in full is not made on an Interest Payment Date,  accrued interest shall
be paid on the date of such  payment  in full  rather  than  the  next  Interest
Payment Date.  Interest  shall accrue with respect to the first but not the last
day of each Interest  Period.  This  Subordinated  Security shall bear interest,
payable on demand, at the Subordinated Payment Due Rate (calculated on the basis
of a year of 360 days and actual days  elapsed  during the period for which such
amount accrues) on any part of the Principal Amount and, to the extent permitted
by applicable  Law,  interest and any other amounts  payable  hereunder not paid
when due,  in each case for the period  the same is  overdue.  Amounts  shall be
overdue if not paid when due (whether at stated  maturity,  by  acceleration  or
otherwise).  Notwithstanding  anything to the contrary  contained herein, if any
date on which a payment under this Subordinated Security becomes due and payable
is not a Business  Day,  then such payment  shall not be made on such  scheduled
date but shall be made on the next  succeeding  Business Day, and such extension
of time shall be included in the computation of interest payable.

     1. GENERAL. This Subordinated Security is one of a duly authorized issue of
securities  of the Company  designated as  "[Initial]  [Exchange]  Floating Rate


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

* To be included on the face of each Global Subordinated Security.



Secured   Subordinated  Notes  due  2007"  (herein,   called  the  "Subordinated
Securities"),  limited in aggregate  principal amount to  $100,000,000,  issued,
authenticated  and  delivered  pursuant to the Amended and  Restated  Indenture,
dated as of May 9, 2003 (the "Indenture"),  among the Company,  Wilmington Trust
Company,  as Trustee (the  "Trustee"),  Morgan Stanley Capital Services Inc., as
Liquidity Provider, and MBIA Insurance  Corporation,  as Policy Provider. To the
extent not otherwise defined herein,  the capitalized terms used herein have the
meanings  assigned  to them in the  Indenture.  This  Subordinated  Security  is
subject to the terms,  provisions and conditions of the Indenture and those made
applicable  to the  Indenture  by the TIA.  The  indebtedness  evidenced by this
Subordinated  Security is, to the extent provided in the Indenture,  subordinate
and subject in right of payment to the prior payment in full of the  Securities,
and this  Subordinated  Security is issued  subject to such  provisions.  To the
extent any provision of this  Subordinated  Security  conflicts with the express
provisions of the Indenture, the provisions of the Indenture shall govern and be
controlling.  Reference is hereby made to the  Indenture,  the TIA, the Security
Agreement  and the other  Operative  Documents  for a complete  statement of the
rights  and  obligations  of the  holders  of,  and the nature and extent of the
security for, this Subordinated Security. By virtue of its acceptance hereof the
Subordinated  Securityholder of this Subordinated Security assents to and agrees
to be bound by the provisions of the Indenture.

     2.  RECORD  DATES.  The Person in whose name any  Subordinated  Security is
registered  at the close of business on the  fifteenth day preceding a Scheduled
Interest  Payment Date shall be entitled to receive the interest  payable on the
applicable  Interest  Payment Date to the extent  provided by such  Subordinated
Security,  except if and to the extent the Company  shall default in the payment
of the interest  due on such  Interest  Payment  Date,  in which case  defaulted
interest shall be paid to the Person in whose name the Subordinated  Security is
registered at the close of business on the subsequent record date established by
notice  given  by  mail  by or on  behalf  of  the  Company  to the  Holders  of
Subordinated Securities pursuant to the Indenture.

     3.  OPTIONAL  REDEMPTION.  The  Company  may not  redeem  the  Subordinated
Securities  prior to May 9,  2004.  The  Company  may  redeem  the  Subordinated
Securities  on or after such date at any time in whole or (so long as no Payment
Default has occurred  and is  continuing)  in part (in any integral  multiple of
$1,000) at its sole option at a redemption price equal to the sum of 100% of the
principal  amount of, accrued and unpaid  interest on, and Premium,  if any, and
Break Amount, if any, with respect to, the redeemed  Subordinated  Securities to
and  including  the  Redemption  Date.  "Premium"  means,  with  respect  to any
Subordinated  Security  redeemed  pursuant  to  the  Indenture,   the  following
percentage  of the  principal  amount  of  such  Subordinated  Security:  (i) if
redeemed before the second anniversary of the Subordinated  Issuance Date, 3.0%;
(ii) if  redeemed  on or after  such  second  anniversary  and  before the third
anniversary of the Subordinated Issuance Date, 2.0%; and (iii) if redeemed on or
after  such  third  anniversary  and  before  the  fourth   anniversary  of  the
Subordinated  Issuance Date, 1.0%;  PROVIDED that no Premium shall be payable in
connection  with a  redemption  made  by the  Company  to  satisfy  the  Maximum
Subordinated   Collateral  Ratio  or  the  Minimum  Subordinated  Rotable  Ratio
requirement pursuant to Section 3.1 of the Collateral Maintenance Agreement. The
Trustee shall mail a notice of any redemption at least 15 days but not more than
60 days before the Redemption Date to each Holder whose Subordinated  Securities
are to be redeemed at his  registered  address.  If the Trustee  gives notice of
redemption but the Company fails to pay when due all amounts necessary to effect
such redemption,  such redemption shall be deemed revoked and no amount shall be
due as a  result  of  notice  of  redemption  having  been  given.  Subordinated



Securities  called for redemption  shall cease to bear interest on and after the
Redemption  Date (unless the Company  shall fail to pay the  redemption  price).
Upon surrender to the Paying Agent, such  Subordinated  Securities shall be paid
the redemption price.

     4. METHOD OF PAYMENT.  The Paying Agent shall distribute amounts payable to
each   Subordinated   Securityholder   by  check  mailed  to  such  Subordinated
Securityholder  at its  address  appearing  in the  Register,  except  that with
respect to Subordinated  Securities  registered on the applicable Record Date in
the name of a Clearing Agency (or its nominee),  such distribution shall be made
by wire transfer in  immediately  available  funds to the account  designated by
such  Clearing  Agency  (or  such  nominee).  The  Company  shall  not  have any
responsibility  for  the  distribution  of  such  payments  to any  Subordinated
Securityholder. Any payment made hereunder shall be made without any presentment
or  surrender of this  Subordinated  Security,  except that,  in the case of the
final  payment in  respect  of this  Subordinated  Security,  this  Subordinated
Security  shall be  surrendered  to the Paying  Agent for  cancellation  against
receipt of such payment.

     5. COLLATERAL. The Company's obligations with respect to the Securities and
the Subordinated Securities are secured by a lien on the Pledged Spare Parts and
certain other property of the Company.

     6.  REGISTRAR  AND PAYING AGENT.  The Company  shall  maintain an office or
agency where  Subordinated  Securities  eligible for transfer or exchange may be
presented for registration of transfer or for exchange,  and an office or agency
where  Subordinated  Securities  may be presented  for payment.  Initially,  the
Trustee will act as Registrar and Paying Agent. If the Company fails to maintain
a Registrar or Paying Agent, the Trustee shall act as such.

     7. DENOMINATIONS,  TRANSFER AND EXCHANGE. The Subordinated Securities shall
be  issued  only  in  fully   registered  form  without  coupons  and  [only  in
denominations of $100,000 or integral  multiples of $1,000 in excess  thereof,]*
[in denominations of $1,000 or integral  multiples  thereof,] ** except that one
Subordinated Security may be issued in a different denomination. The transfer of
Subordinated  Securities  may be registered and  Subordinated  Securities may be
exchanged as provided in the Indenture. No transfer shall be effected until, and
such  transferee  shall succeed to the rights of a  Subordinated  Securityholder
only upon, final acceptance and registration of the transfer by the Registrar in
the Register.  No service charge shall be made to a Subordinated  Securityholder
for any registration of transfer or exchange of Subordinated Securities, but the
Company may require payment of a sum sufficient to cover any tax or governmental
charge  that may be imposed in  connection  with any  transfer  or  exchange  of
Subordinated Securities.



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

* To be used for Initial Subordinated Securities.

** To be used for Exchange Subordinated Securities.



     8. PERSONS DEEMED OWNERS.  Prior to the  registration  of any transfer of a
Subordinated  Security  by a  Subordinated  Securityholder  as  provided  in the
Indenture,  the Company,  the Registrar,  the Paying Agent and the Trustee shall
deem and treat the person in whose name the Subordinated  Security is registered
on the  Register  as the  absolute  owner and holder  thereof for the purpose of
receiving  payment of all  amounts  payable  with  respect to such  Subordinated
Security and for all other purposes, and none of the Company, the Registrar, the
Paying Agent or the Trustee shall be affected by any notice to the contrary.

     9.  AMENDMENTS  AND WAIVERS.  The Company and the Trustee or the Collateral
Agent,  as the  case  may  be,  may  amend  or  supplement  the  Indenture,  the
Subordinated  Securities,  or any of the other Operative Documents, in each case
only with the written  consent of the Controlling  Party,  PROVIDED that certain
amendments,  supplements and waivers relating to the Subordinated Securities may
not be made  without the consent of each  Subordinated  Securityholder  affected
thereby  and,  in  certain  cases,  may  be  made  without  the  consent  of the
Controlling  Party.  Any  consent  by the  Subordinated  Securityholder  of this
Subordinated  Security  shall be  conclusive  and  binding on such  Subordinated
Securityholder  and  upon  all  future  Subordinated   Securityholders  of  this
Subordinated  Security and of any Subordinated Security issued upon the transfer
hereof or in exchange  hereof or in lieu hereof  whether or not notation of such
consent is made upon such  Subordinated  Security.  Without  the  consent of the
Controlling Party or any Holder, the Indenture,  the Subordinated Securities and
any of the Operative  Documents may be amended to, among other things,  cure any
ambiguity,  defect or inconsistency or to make any other change not inconsistent
with the  provisions  of the  Indenture,  provided  that  such  action  does not
materially adversely affect the interests of any Subordinated Securityholder.

     10.  DEFAULTS AND REMEDIES.  Events of Default under the Indenture  include
the following:  (a) failure by the Company to pay (1) principal of, interest on,
Premium, if any, or Break Amount, if any, with respect to any Note when due, and
such  failure  shall  continue  unremedied  for a  period  of 10  Business  Days
thereafter (it being understood that any amount  distributed to  Securityholders
in respect of the  foregoing  from funds  provided by the Policy  Provider,  the
Liquidity Provider or a Cash Collateral Account shall not be deemed to cure such
Default)  or (2)  any  other  amount  payable  by it to the  Holders  under  the
Indenture or any Operative  Document  when due, and such failure shall  continue
for a period in excess of 10  Business  Days  after  the  Company  has  received
written  notice from the Trustee of the failure to make such  payment  when due;
(b) failure by the Company to observe  and perform in any  material  respect any
other  covenant,  agreement or  obligation  set forth in the Indenture or in any
other  Operative  Documents,  with such  failure  continuing  after  notice  and
specified cure periods;  (c) any  representation or warranty made by the Company
in the  Indenture or any other  Operative  Document (1) shall prove to have been
untrue or  inaccurate  in any  material  respect as of the date  made,  (2) such
untrue or  inaccurate  representation  or  warranty  is  material at the time in
question and (3) the same shall remain  uncured  following  notice;  and (d) the
occurrence of certain events of bankruptcy,  reorganization or insolvency of the
Company. Subject to certain limitations in the Indenture, if an Event of Default
occurs and is continuing,  the  Controlling  Party may, by notice to Company and
the Trustee,  and the Trustee shall, upon the request of the Controlling  Party,
declare all unpaid principal of, accrued interest on, Premium, if any, and Break
Amount,  if any,  with  respect  to the  Notes  Outstanding  and  other  amounts
otherwise  payable  under  the  Indenture,   if  any,  to  be  due  and  payable
immediately.  In the case of an Event of Default  arising from certain events of



bankruptcy,  reorganization  or  insolvency,  such amounts  shall  automatically
become and be  immediately  due and payable  without  further  action or notice.
Under certain circumstances,  the Controlling Party by notice to the Trustee may
rescind an acceleration and its consequences.

     If an Event of Default occurs and is continuing, the Trustee may pursue any
available  remedy by  proceeding  at law or in equity to collect  the payment of
principal of,  interest on, or Premium,  if any, or Break  Amount,  if any, with
respect to, the Notes or other amounts otherwise payable under the Indenture, if
any.  Subject to the Indenture,  so long as an Event of Default has occurred and
is continuing,  the Controlling Party by notice to the Trustee may authorize the
Trustee to waive an existing  Default or Event of Default and its  consequences.
The  Controlling  Party may direct the time,  method and place of conducting any
proceeding  for any remedy  available  to the Trustee (as Trustee or  Collateral
Agent, subject, in the case of any actions based on the status of the Trustee as
Collateral  Agent, to any limitations  otherwise  expressly  provided for in the
Operative  Documents) or exercising any trust or power conferred on it; provided
that the Trustee may take any other action deemed proper by the Trustee which is
not inconsistent with such direction.  Noteholders may not enforce the Indenture
or the Notes  except as  provided  in the  Indenture.  The  Trustee  may require
indemnity  satisfactory to it before it enforces the Indenture or the Notes. The
Trustee may withhold from Noteholders notice of any continuing default (except a
default in  payment  of  principal,  interest,  Premium  or Break  Amount) if it
determines  in good faith that  withholding  notice is in their  interests.  The
above  description  of Events of Default and remedies is qualified by reference,
and subject in its entirety to the more complete  description  thereof contained
in the Indenture.

     11.  NO  RECOURSE  AGAINST  OTHERS.  A  director,   officer,   employee  or
stockholder,  as such, of the Company shall not have any personal  liability for
any  obligations  of  the  Company  under  the  Securities,   the   Subordinated
Securities,  the Indenture or the other Operative  Documents by reason of his or
her status as such director, officer, employee or stockholder. Each Subordinated
Securityholder by accepting a Subordinated Security waives and releases all such
liability. The waiver and release are part of the consideration for the issue of
the Subordinated Securities.

     12. AUTHENTICATION. This Subordinated Security shall not be entitled to any
benefit under the Indenture or be valid or obligatory  for any purpose until the
certificate of  authentication  attached  hereto has been executed by the manual
signature of an authorized  signatory of the Trustee or an authenticating  agent
appointed by the Trustee.

     13.  UNCLAIMED  MONEY.  If money  deposited  with the Trustee or any Paying
Agent in trust for the payment of the principal of, interest on, or Premium,  if
any, or Break  Amount,  if any, with respect to, any  Subordinated  Security and
unclaimed for two (2) years after such principal,  interest, Premium, if any, or
Break Amount, if any, has become due and payable shall be paid to the Company on
its request, subject to any applicable abandoned property law, and the Holder of
such Subordinated  Security shall thereafter,  as an unsecured general creditor,
look only to the Company for payment thereof.

     14.  ABBREVIATIONS.  Customary  abbreviations  may be used in the name of a
Holder or an  assignee,  such as:  TEN COM (=  tenants  in  common),  TEN ENT (=



tenants by the  entireties),  JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian),  and U/G/M/A (= Uniform Gifts
to Minors Act).

     15. CUSIP NUMBERS.  The Company in issuing this  Subordinated  Security may
use a "CUSIP"  number (if then  generally in use) and, if so, the Trustee  shall
use  "CUSIP"  numbers in notices of  redemption  as a  convenience  to  Holders;
PROVIDED, HOWEVER, that any such notice may state that no representation is made
as to the  correctness  of such  numbers  either as printed on the  Subordinated
Securities  or as contained in any notice of a redemption  and that reliance may
be placed only on the other  identification  numbers printed on the Subordinated
Securities,  and any such  redemption  shall not be affected by any defect in or
omission of such numbers.

     [16. REGISTRATION.  The Holder of this Subordinated Security is entitled to
the benefits of the Subordinated Security Registration Rights Agreement.  In the
event  that no  Registration  Event (as  defined  in the  Subordinated  Security
Registration  Rights  Agreement)  occurs  on or prior to the 210th day after the
Subordinated  Issuance Date, the Subordinated Debt Rate shall be increased by an
additional  margin  equal to 0.50%,  from and  including  such  210th day to and
excluding the earlier of (i) the date on which a  Registration  Event occurs and
(ii) the date on which there ceases to be any Registrable Securities (as defined
in the Subordinated  Security  Registration  Rights Agreement);  or if the Shelf
Registration  Statement (as defined in the  Subordinated  Security  Registration
Rights Agreement) (if it is filed),  after being declared  effective by the SEC,
ceases to be  effective  at any time  during  the  period  specified  by Section
2(b)(B) of the Subordinated Security Registration Rights Agreement for more than
60  days,   whether  or  not  consecutive,   during  any  12-month  period,  the
Subordinated Debt Rate shall be increased by an additional margin equal to 0.50%
from and including  the 61st day of the  applicable  12-month  period such Shelf
Registration Statement ceases to be effective to and excluding the date on which
the Shelf  Registration  Statement again becomes effective (or, if earlier,  the
end of the period  specified  by Section  2(b)(B) of the  Subordinated  Security
Registration Rights Agreement); PROVIDED that the additional margin added to the
Subordinated  Debt Rate pursuant to this section shall never exceed 0.50% at any
time.]*

     [17. HOLDERS' COMPLIANCE WITH REGISTRATION RIGHTS AGREEMENT. Each Holder of
a Subordinated  Security,  by acceptance hereof,  acknowledges and agrees to the
provisions  of  the  Subordinated   Security   Registration   Rights  Agreement,
including,  without limitation, the obligations of the Holders with respect to a
registration  and the  indemnification  of the  Company to the  extent  provided
therein.]*

     18.  GOVERNING  LAW. THIS  SUBORDINATED  SECURITY SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.


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

* To be included only on each Initial Subordinated Security.

* To be included only on each Initial Subordinated Security.



     The Company will furnish to any Holder of this Subordinated Security,  upon
written request and without charge, a copy of the Indenture. Request may be made
to:  Continental  Airlines,  Inc.,  1600 Smith  Street,  Houston,  Texas  77002,
Attention: Corporate Secretary.



     IN WITNESS WHEREOF, the Company has caused this Subordinated Security to be
duly executed in its corporate name by its officers thereunto duly authorized on
the date hereof.

Dated:  May ___, 2003



                                       CONTINENTAL AIRLINES, INC.


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


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



              [FORM OF THE TRUSTEE'S CERTIFICATE OF AUTHENTICATION]



               This is one of the Subordinated Securities referred
                              to in the Indenture.





                                       WILMINGTON TRUST COMPANY,
                                         not in its individual capacity
                                         but solely as Trustee


                                       By:
                                          --------------------------------------
                                                    Authorized Officer



                            FORM OF TRANSFER NOTICE



          FOR VALUE RECEIVED the undersigned  registered  holder hereby sell(s),
assign(s) and transfer(s) unto

INSERT TAXPAYER IDENTIFICATION NO.



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

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

please print or typewrite name and address including zip code of assignee


- ----------------------------------
the within Subordinated  Security and all rights thereunder,  hereby irrevocably
constituting and appointing




- ----------------------------------
attorney to transfer  said  Subordinated  Security on the books of the Registrar
with full power of substitution in the premises.




                     [THE FOLLOWING PROVISION TO BE INCLUDED

                         ON ALL SUBORDINATED SECURITIES,

                           EXCEPT REGULATION S GLOBAL,

               REGULATION S DEFINITIVE SUBORDINATED SECURITIES AND
                        EXCHANGE SUBORDINATED SECURITIES]

            In connection with any transfer of this Certificate  occurring prior
to the  date  that  is the  earlier  of the  date of an  effective  Registration
Statement or the date two years after the later of the original issuance of this
Subordinated  Security or the last date on which this Subordinated  Security was
held by Continental  Airlines,  Inc. or any affiliate of  Continental  Airlines,
Inc., the undersigned  confirms that without utilizing any general  solicitation
or general advertising that:



                                   [CHECK ONE]

[__] (a) this Subordinated  Security is being transferred in compliance with the
exemption  from  registration  under the  Securities  Act of 1933,  as  amended,
provided by Rule 144A thereunder.

                                       OR

[__]  (b)  this  Subordinated  Security  is  being  transferred  other  than  in
accordance with (a) above and documents are being furnished that comply with the
conditions  of  transfer  set  forth  in  this  Subordinated  Security  and  the
Indenture.

If  neither  of the  foregoing  boxes is  checked,  the  Registrar  shall not be
obligated to register this Subordinated Security in the name of any Person other
than the Holder hereof  unless and until the  conditions to any such transfer of
registration  set forth herein and in Section 2A.6 of the  Indenture  shall have
been satisfied.

Date:[___________, __]       [NAME OF TRANSFEROR]
                             ----------------------------------

                             NOTE: The signature must  correspond with
                             the name as written  upon the face of the
                             within-mentioned   instrument   in  every
                             particular,  without  alteration  or  any
                             change whatsoever.


Signature Guarantee:
                     ----------------------------------

TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.

     The  undersigned  represents  and warrants  that it is purchasing
this  Subordinated  Security  for its own  account or an account  with
respect to which it exercises sole  investment  discretion and that it
and any such account is a "qualified  institutional  buyer" within the
meaning of Rule 144A under the Securities Act of 1933, as amended, and
is aware  that the sale to it is being made in  reliance  on Rule 144A
and acknowledges  that it has received such information  regarding the
Company as the undersigned has requested  pursuant to Rule 144A or has
determined not to request such  information  and that it is aware that
the   transferor   is  relying   upon  the   undersigned's   foregoing
representations  in order to claim  the  exemption  from  registration
provided by Rule 144A.


Dated:[___________, __]
                            ----------------------------------
                            NOTE:  To be executed by an executive officer.


                               AMENDMENT NO. 1 TO
                        COLLATERAL MAINTENANCE AGREEMENT


     AMENDMENT NO. 1, dated as of May 9, 2003 (this "AMENDMENT"), to Collateral
Maintenance Agreement, dated as of December 6, 2002 (the "AGREEMENT"), between
CONTINENTAL AIRLINES, INC., a Delaware corporation (the "COMPANY"), and MBIA
INSURANCE CORPORATION, a New York insurance company (the "POLICY PROVIDER").
Certain terms used herein have the defined meanings referred to in Section 1
hereof.


                              W I T N E S S E T H :
                              - - - - - - - - - -

     WHEREAS, in connection with the issuance and sale of the Company's Floating
Rate Secured Notes due 2007 pursuant to the Original Indenture, the Company and
the Security Agent entered into the Agreement to set forth certain agreements
relating to the Spare Parts Collateral; and

     WHEREAS, in connection with the issuance and sale of the Company's Floating
Rate Secured Subordinated Notes due 2007 pursuant to the Indenture, the Company
has requested that the Agreement be amended to provide, among other things, for
certain matters with respect to such Subordinated Securities; and

     WHEREAS, the Original Indenture, as amended and restated to provide for the
issuance of the Subordinated Securities, provides for the issuance of
$300,000,000 aggregate principal amount of the Notes.

     NOW, THEREFORE, in consideration of the premises and for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

     SECTION 1. DEFINITIONS. Unless otherwise defined or provided herein, terms
used herein that are defined in the Agreement, as amended by this Amendment,
have such respective defined meanings.

     SECTION 2. AMENDMENTS. Effective as of the date hereof, the Agreement is
hereby amended as follows:

     Section 2.1 CERTAIN REFERENCES TO SECURITIES. Each reference to
"Securities" in the first sentence of Section 2.1 and the first sentence of
Section 2.2 is deleted and replaced with "Notes".

     Section 2.2 ANNUAL APPRAISAL. Section 2.1 is amended as follows:

          (a) The second sentence of the second paragraph is amended to delete
     the phrase "and the Rotable Ratio" and to replace it with the following: ",
     the Subordinated Collateral Ratio, the Rotable Ratio and the Subordinated
     Rotable Ratio".



          (b) The second sentence of the second paragraph is further amended to
     delete "and" before the phrase "the principal amount of the Securities
     Outstanding" and to insert following such phrase the following: "and the
     principal amount of the Subordinated Securities Outstanding".

     Section 2.3 SEMIANNUAL APPRAISAL. Section 2.2 is amended as follows:

          (a) The first sentence of the second paragraph is amended to delete
     the phrase "and Minimum Rotable Ratio" and to replace it with the
     following: ", the Maximum Subordinated Collateral Ratio, Minimum Rotable
     Ratio and Minimum Subordinated Rotable Ratio".

          (b) The second sentence of the second paragraph is amended to delete
     the phrase "and the Rotable Ratio" in the two instances where such phrase
     appears and to replace it with the following: ", the Subordinated
     Collateral Ratio, the Rotable Ratio and the Subordinated Rotable Ratio".

          (c) The second sentence of the second paragraph is further amended to
     delete "and" before the phrase "the principal amount of the Securities
     Outstanding" and to insert following such phrase the following: "and the
     principal amount of the Subordinated Securities Outstanding".

     Section 2.4 INFORMATION FROM THE TRUSTEE. Section 2.5 is amended to insert
in the second sentence after "Securities Outstanding" the following: ", the
principal amount of the Subordinated Securities Outstanding".

     Section 2.5 COLLATERAL RATIO. Subsections (a) and (b) of Section 3.1 are
amended and restated to read in their entirety as follows:

          "(a) If the Collateral Ratio, as most recently determined pursuant to
     an Appraisal Compliance Report, is greater than the Maximum Collateral
     Ratio or the Subordinated Collateral Ratio, as most recently determined
     pursuant to an Appraisal Compliance Report, is greater than the Maximum
     Subordinated Collateral Ratio, the Company shall within 90 days after the
     date of the Appraisal Compliance Report setting forth the calculation of
     such Collateral Ratio or Subordinated Collateral Ratio:

               (i) subject additional Qualified Spare Parts (the "ADDITIONAL
          PARTS") to the Lien of the Security Agreement in accordance with
          Section 3.1(c);

               (ii) grant a security interest to a Collateral Agent in other
          property to secure the Obligations for the benefit of the Holders and
          the Indemnitees, provided that the Company shall have received, with
          respect to the use for purposes of this Section 3.1(a) of such
          additional collateral and the applicable Collateral Agreement, (x)
          approval of the Policy Provider and (y) Rating Agency Confirmation
          with respect to the Securities and the Subordinated Securities;

               (iii) provide additional cash and/or Investment Securities to the
          Collateral Agent under the Security Agreement, provided that if the



          Continental Cash Balance as of the applicable Valuation Date was less
          than $600,000,000, then the amount of Cash Collateral included in the
          Collateral, after giving effect to the action taken pursuant to
          Sections 3.1(a) and 3.1(b) with respect to such Valuation Date, shall
          not exceed $20,000,000;

               (iv) deliver Notes to the Trustee for cancellation;

               (v) redeem some or all of the Notes pursuant to Article 4 of the
          Indenture; or

               (vi) any combination of the foregoing;

such that, the Collateral Ratio and the Subordinated Collateral Ratio, as
recalculated giving effect to such action taken pursuant to this Section 3.1(a)
and, in the case of clauses (i), (ii) and (iii) of this Section 3.1(a), using
the Fair Market Value of any such additional Collateral determined pursuant to
Section 3.1(d) (but otherwise using the information used to determine the
Collateral Ratio and the Subordinated Collateral Ratio as most recently
determined pursuant to Article 2), would not be greater than the Maximum
Collateral Ratio or the Maximum Subordinated Collateral Ratio, respectively.

     (b) If the Rotable Ratio, as most recently determined pursuant to an
Appraisal Compliance Report, is less than the Minimum Rotable Ratio or the
Subordinated Rotable Ratio, as most recently determined pursuant to an Appraisal
Compliance Report, is less than the Minimum Subordinated Rotable Ratio, the
Company shall within 90 days after the date of the Appraisal Compliance Report
setting forth the calculation of such Rotable Ratio or Subordinated Rotable
Ratio:

               (i) subject additional Rotables (the "ADDITIONAL ROTABLES") to
          the Lien of the Security Agreement in accordance with Section 3.1(c);

               (ii) provide additional cash and/or Investment Securities to the
          Collateral Agent under the Security Agreement; PROVIDED that if the
          Continental Cash Balance as of the applicable Valuation Date was less
          than $600,000,000, then the amount of Cash Collateral included in the
          Collateral, after giving effect to the action taken pursuant to
          Sections 3.1(a) and 3.1(b) with respect to such Valuation Date, shall
          not exceed $20,000,000;

               (iii) deliver Notes to the Trustee for cancellation;

               (iv) redeem some or all of the Notes pursuant to Article 4 of the
          Indenture; or

               (v) any combination of the foregoing.

such that, the Rotable Ratio and the Subordinated Rotable Ratio, as recalculated
giving effect to such action taken pursuant to this Section 3.1(b) and, in the
case of clauses (i) and (ii) of this Section 3.1(b), using the Fair Market Value
of any such additional Collateral determined pursuant to Section 3.1(d) (but
otherwise using the information used to determine the Rotable Ratio and the



Subordinated Rotable Ratio as most recently determined pursuant to Article 2),
would not be less than the Minimum Rotable Ratio or the Minimum Subordinated
Rotable Ratio, respectively."

     Section 2.6 FLEET REDUCTION. Section 3.3 is amended to insert after the
first sentence the following:

          "If at any time after the Subordinated Closing Date so long as any
     Subordinated Securities are Outstanding the total number of Aircraft of any
     Aircraft Model (as defined below) in the Company's in-service fleet during
     any period of 60 consecutive days is less than the Specified Minimum (as
     defined below) for such Aircraft Model (other than due to restrictions on
     operating such Aircraft imposed by the FAA or any other instrumentality or
     agency of the United States), then within 90 days after such occurrence the
     Company shall redeem Subordinated Securities pursuant to Article 4 of the
     Indenture or deliver Subordinated Securities to the Trustee for
     cancellation, or a combination of the foregoing, in an aggregate principal
     amount not less than the principal amount of the Subordinated Securities
     Outstanding at the end of such 60 day period multiplied by a fraction, the
     numerator of which shall be the Appraised Value of the Pledged Spare Parts
     that are appropriate for incorporation in, installation on, attachment or
     appurtenance to, or use in only Aircraft of such Aircraft Model or Engines
     utilized only on such Aircraft, and the denominator of which shall be the
     Appraised Value of the Collateral."

     Section 2.7 BENEFITS OF AGREEMENT RESTRICTED. Section 4.1 is amended to
insert at the end of the first sentence the following:

          ", PROVIDED, FURTHER, that the Trustee on behalf of the Subordinated
     Securityholders is an intended third-party beneficiary of the following
     provisions of this Agreement (collectively, the "SUBORDINATED SECURITY
     PROVISIONS"): (i) the requirement that appraisals of the Collateral be
     obtained for purposes of determining the Maximum Subordinated Collateral
     Ratio by the fifth Business Day of February and the fifth Business Day of
     August in each year, commencing in August 2003; (ii) the requirement that
     the Maximum Subordinated Collateral Ratio be complied with in connection
     with such appraisals; (iii) the second sentence of Section 3.3; and (iv)
     clause (z) of the proviso to Section 4.4 (it being understood that the
     other provisions of this Agreement not expressly included within clauses
     (i), (ii), (iii) and (iv) of this proviso, including without limitation
     defined terms, are not Subordinated Security Provisions). Upon payment in
     full of the Securities, the Policy Expenses and the Policy Provider
     Obligations, if any Subordinated Securities are then Outstanding, Sections
     3.4, 3.5, 3.6, 3.7 and 3.8 and Appendix IV, as then in effect, shall at
     such time become Subordinated Security Provisions, except that each
     reference therein to the Policy Provider shall be deemed changed to the
     Trustee."

     Section 2.8 AMENDMENTS. Section 4.4 is amended (i) to insert after
"PROVIDED that" the following: "(x)"; (ii) to insert after "as the case may be"
the following: "(y) the Subordinated Security Provisions may not be amended,
supplemented or waived by the Company and the Policy Provider but may be
amended, supplemented or waived by the Company and the Trustee, with the consent
of the Required Subordinated Holders and without the consent of the Policy



Provider and (z) if Section 3.2 is amended or supplemented, or compliance
therewith waived, any transaction entered into subsequent thereto that would not
be in compliance with the provisions of such sentence as in effect on the
Subordinated Closing Date shall not be permitted if the Subordinated Collateral
Ratio, as recalculated giving effect to such transaction but otherwise using the
information used to determine the Subordinated Collateral Ratio as most recently
determined pursuant to Article 2, would be greater than the Maximum Subordinated
Collateral Ratio."

     Section 2.9 DEFINITIONS APPENDIX. Appendix I to the Agreement is amended by
deleting existing Appendix I and substituting therefor new Appendix I attached
as Appendix I hereto.

     Section 2.10 APPRAISAL COMPLIANCE REPORT. Appendix II to the Agreement is
amended by deleting existing Appendix II and substituting therefor new Appendix
II attached as Appendix II hereto.

     SECTION 3. CONSTRUCTION. All references in the Agreement to the "Agreement"
shall be deemed to refer to the Agreement as amended by this Amendment, and the
parties hereto confirm their respective obligations thereunder. The Agreement is
hereby ratified by the parties hereto and shall remain in all respects unchanged
(except as otherwise expressly specified in this Amendment) and in full force
and effect.

     SECTION 4. GOVERNING LAW. This Amendment shall be governed by, and
construed in accordance with, the law of the State of New York.

     SECTION 5. COUNTERPARTS. This Amendment may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.

                       [Remainder of this page is blank.]



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


                                       CONTINENTAL AIRLINES, INC.


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


                                       MBIA INSURANCE CORPORATION


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



                                   Appendix I

                              DEFINITIONS APPENDIX


SECTION 1. DEFINED TERMS.

     "ACCELERATION" means, with respect to the amounts payable in respect of the
Notes issued under the  Indenture,  such amounts  becoming  immediately  due and
payable  pursuant to Section 7.2 of the Indenture.  "ACCELERATE",  "ACCELERATED"
and "ACCELERATING" have meanings correlative to the foregoing.

     "ACCRUED INTEREST" is defined in Section 3.6(a) of the Indenture.

     "ADDITIONAL  PARTS" is  defined  in  Section  3.1(a)(i)  of the  Collateral
Maintenance Agreement.

     "ADDITIONAL  ROTABLES" is defined in Section  3.1(b)(i)  of the  Collateral
Maintenance Agreement.

     "ADVANCE" means any Advance as defined in the Liquidity Facility.

     "AFFILIATE"  of any specified  Person means any other  Person,  directly or
indirectly,  controlling  or  controlled  by or under direct or indirect  common
control  with  such  specified  Person.  For the  purposes  of this  definition,
"CONTROL"  when used with  respect to any  Person  means the power to direct the
management and policies of such Person, directly or indirectly,  whether through
the  ownership of voting  securities,  by contract or  otherwise;  and the terms
"CONTROLLING" and "CONTROLLED" have meanings correlative to the foregoing.

     "AGENT"  means any  Registrar,  Paying Agent or  co-Registrar  or co-Paying
Agent.

     "AGENT MEMBERS" is defined in Section 2.5(a) of the Indenture.

     "AIRCRAFT" means any contrivance  invented,  used, or designed to navigate,
or fly in, the air.

     "AMENDMENT NO. 1 TO COLLATERAL  MAINTENANCE  AGREEMENT" means Amendment No.
1, dated as of the  Subordinated  Issuance Date, to the  Collateral  Maintenance
Agreement.

     "AMENDMENT  NO. 1 TO REFERENCE  AGENCY  AGREEMENT"  means  Amendment No. 1,
dated as of the Subordinated Issuance Date, to the Reference Agency Agreement.

     "AMENDMENT NO. 1 TO SECURITY  AGREEMENT" means Amendment No. 1, dated as of
the Subordinated Issuance Date, to the Security Agreement.

     "ANNUAL METHODOLOGY" means, in determining an opinion as to the Fair Market
Value of the Spare Parts Collateral,  taking at least the following actions: (i)
reviewing the Parts Inventory Report



prepared as of the applicable  Valuation  Date;  (ii) reviewing the  Independent
Appraiser's  internal  value database for values  applicable to Qualified  Spare
Parts included in the Spare Parts Collateral;  (iii) developing a representative
sampling of a reasonable number of the different  Qualified Spare Parts included
in Spare  Parts  Collateral  for which a market  check will be  conducted;  (iv)
checking other sources, such as manufacturers,  other airlines,  U.S. government
procurement  data and airline  parts  pooling  price lists,  for current  market
prices of the sample parts  referred to in clause  (iii);  (v)  establishing  an
assumed ratio of Serviceable  Parts to Unserviceable  Parts as of the applicable
Valuation  Date  based  upon  information   provided  by  the  Company  and  the
Independent  Appraiser's  limited  physical review of the Spare Parts Collateral
referred to in the following  clause (vi);  (vi) visiting at least two locations
selected by the Independent  Appraiser where the Pledged Spare Parts are kept by
the Company  (neither of which was  visited for  purposes of the last  appraisal
under Section 2.1 or 2.2 of the Collateral Maintenance Agreement,  whichever was
most recent),  PROVIDED that at least one such location  shall be one of the top
three  locations at which the Company keeps the largest  number of Pledged Spare
Parts, to conduct a limited physical  inspection of the Spare Parts  Collateral;
(vii) conducting a limited review of the inventory  reporting system  applicable
to the Pledged  Spare Parts,  including  checking  information  reported in such
system against  information  determined through physical  inspection pursuant to
the  preceding  clause  (vi) and (viii)  reviewing a sampling of the Spare Parts
Documents (including tear-down reports).

     "ANNUAL  VALUATION  DATE"  is  defined  in  Section  2.1 of the  Collateral
Maintenance Agreement.

     "APPLIANCE"  means  an  instrument,   equipment,   apparatus,  a  part,  an
appurtenance,  or an accessory  used,  capable of being used,  or intended to be
used,  in operating or  controlling  Aircraft in flight,  including a parachute,
communication  equipment,  and  another  mechanism  installed  in or attached to
Aircraft during flight, and not a part of an Aircraft, Engine, or Propeller.

     "APPLICABLE MARGIN" means 0.90%.

     "APPLICABLE PERIOD" is defined in Section 3.2 of the Collateral Maintenance
Agreement.

     "APPRAISAL  COMPLIANCE  REPORT" means,  as of any date, a report  providing
information   relating  to  the  calculation  of  the  Collateral   Ratio,   the
Subordinated  Collateral  Ratio,  Rotable Ratio and Subordinated  Rotable Ratio,
which  shall be  substantially  in the  form of  Appendix  II to the  Collateral
Maintenance Agreement.

     "APPRAISED  VALUE" means,  with respect to any Collateral,  the Fair Market
Value of such Collateral as most recently  determined pursuant to (i) the report
attached  as  Appendix  II to the  Offering  Memo  or  (ii)  Article  2 and,  if
applicable, Section 3.1 of the Collateral Maintenance Agreement.

     "AVAILABLE AMOUNT" means, as of any date, the Maximum Available  Commitment
(as defined in the Liquidity Facility) on such date.

     "AVOIDED PAYMENT" has the meaning assigned to such term in the Policy.

     "BANKRUPTCY  CODE"  means the  United  States  Bankruptcy  Code,  11 U.S.C.
Section 101 ET SEQ.



     "BOARD OF  DIRECTORS"  means the Board of  Directors  of the Company or any
committee  of such board  duly  authorized  to act in respect of any  particular
matter.

     "BREAK AMOUNT" means, as of any date of payment, redemption or acceleration
of any Note (the "APPLICABLE DATE"), an amount determined by the Reference Agent
on the date that is two Business Days prior to the  Applicable  Date pursuant to
the formula set forth  below;  PROVIDED,  HOWEVER,  that no Break Amount will be
payable (x) if the Break Amount, as calculated pursuant to the formula set forth
below,  is equal to or less than zero or (y) on or in respect of any  Applicable
Date that is an Interest  Payment Date (or, if such an Interest  Payment Date is
not a Business Day, the next succeeding Business Day)

     Break Amount = Z-Y

     Where:

     X = with  respect to any  applicable  Interest  Period,  the sum of (i) the
         amount of the outstanding principal amount of such Note as of the first
         day of the then applicable  Interest Period plus (ii) interest  payable
         thereon during such entire Interest Period at then effective LIBOR.

     Y = X, discounted to present value from the last day of the then applicable
         Interest Period to the Applicable  Date,  using then effective LIBOR as
         the discount rate.

     Z = X, discounted to present value from the last day of the then applicable
         Interest  Period  to the  Applicable  Date,  using a rate  equal to the
         applicable London interbank offered rate for a period commencing on the
         Applicable  Date and  ending  on the  last  day of the then  applicable
         Interest  Period,  determined by the Reference Agent as of two Business
         Days prior to the Applicable Date as the discount rate.

     "BUSINESS DAY" means any day that is a day for trading by and between banks
in the London interbank  Eurodollar  market and that is other than a Saturday or
Sunday or a day on which commercial banks are required or authorized to close in
Houston,  Texas, New York, New York, or, so long as any Security is outstanding,
the city and state in which the Trustee maintains its Corporate Trust Office or,
solely with  respect to draws under any Policy,  the city and state in which the
office of the Policy  Provider at which notices,  presentations,  transmissions,
deliveries and  communications  are to be made under the Policy is located,  and
that,  solely with  respect to draws  under the  Liquidity  Facility,  also is a
"Business Day" as defined in the Liquidity Facility.

     "CAPPED INTEREST RATE" means a rate per annum equal to 12%.

     "CASH COLLATERAL" means cash and/or Investment  Securities  deposited or to
be deposited with the Collateral Agent or an Eligible Institution and subject to
the Lien of any Collateral Agreement.

     "CASH COLLATERAL  ACCOUNT" means an Eligible Deposit Account in the name of
the Trustee maintained at an Eligible Institution, which shall be the Trustee if



it shall so qualify,  into which all amounts drawn under the Liquidity  Facility
pursuant  to  Section  3.5(c),  3.5(d)  or  3.5(i)  of the  Indenture  shall  be
deposited.

     "CITIZEN OF THE UNITED STATES" is defined in 49 U.S.C.ss. 40102(a)(15).

     "CLEARING  AGENCY" means an organization  registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.

     "CLEARSTREAM" means Clearstream Banking societe anonyme, Luxembourg.

     "CLOSING DATE" means the Issuance Date.

     "CODE" means the Internal Revenue Code of 1986, as amended.

     "COLLATERAL"  means the Spare Parts  Collateral and all other collateral in
which the Collateral  Agent has a security  interest  pursuant to the Collateral
Agreements.

     "COLLATERAL AGENT" means the Security Agent and each other Person acting as
agent on behalf of the Holders under any other Collateral Agreement.

     "COLLATERAL AGREEMENT" means the Security Agreement and any agreement under
which a security interest has been granted pursuant to Section 3.1(a)(ii) of the
Collateral Maintenance Agreement.

     "COLLATERAL   MAINTENANCE   AGREEMENT"  means  the  Collateral  Maintenance
Agreement,  dated as of the  Issuance  Date,  between the Company and the Policy
Provider.

     "COLLATERAL  RATIO" shall mean a percentage  determined by dividing (i) the
aggregate  principal amount of all Securities  Outstanding  minus the sum of the
Cash  Collateral  held by the Collateral  Agent by (ii) the Fair Market Value of
all Collateral (excluding any Cash Collateral),  as set forth in the most recent
Independent Appraiser's Certificate delivered by the Company pursuant to Article
2 of the Collateral Maintenance  Agreement,  as supplemented pursuant to Section
3.1 of the Collateral Maintenance Agreement, if applicable.

     "COLLECTION  ACCOUNT" means the Eligible Deposit Account established by the
Trustee  pursuant to Section 8.13 of the Indenture  which the Trustee shall make
deposits in and withdrawals from in accordance with the Indenture.

     "COMPANY"  means the party named as such in the Indenture or any obligor on
the Notes until a successor replaces it pursuant to the Indenture and thereafter
means the successor.

     "CONSENT PERIOD" is defined in Section 3.5(d) of the Indenture.

     "CONTINENTAL  BANKRUPTCY EVENT" means the occurrence and continuation of an
Event of Default under Section 7.1(d), (e) or (f) of the Indenture.

     "CONTINENTAL CASH BALANCE" means the sum of (a) the amount of cash and cash
equivalents  that would have been shown on the balance sheet of Continental  and



its  consolidated  subsidiaries  prepared  in  accordance  with  GAAP  as of any
Valuation  Date,  plus (b) the amount of marketable  securities  that would have
been  reflected on such balance  sheet which had, as of such  Valuation  Date, a
maturity  of less than one year and which,  but for their  maturity,  would have
qualified to be reflected on such balance sheet as cash equivalents.

     "CONTROLLING  PARTY" means the Person  entitled to act as such  pursuant to
the terms of Section 3.8 of the Indenture.

     "CORPORATE  TRUST  OFFICE" when used with respect to the Trustee  means the
office  of the  Trustee  at which at any  particular  time its  corporate  trust
business  is  administered  and  which,  at the  Closing  Date,  is  located  at
Wilmington  Trust  Company,  as Trustee,  Rodney  Square North 1100 North Market
Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administration.

     "DEBT BALANCE" means 110% of the principal amount of the Outstanding Notes.

     "DEBT RATE" means a rate per annum equal, in the case of the first Interest
Period for the Securities,  to 2.32% and, in the case of any subsequent Interest
Period,  LIBOR for such Interest Period, as determined pursuant to the Reference
Agency Agreement, plus the Applicable Margin, PROVIDED that, solely in the event
no Registration  Event (as defined in the Registration  Rights Agreement) occurs
on or prior to the  210th day after the  Closing  Date,  the Debt Rate  shall be
increased by an additional  margin equal to 0.50% per annum,  from and including
such  210th  day to and  excluding  the  earlier  of (i) the date on which  such
Registration  Event  occurs  and (ii) the date on which  there  ceases to be any
Registrable Securities (as defined in the Registration Rights Agreement)); or if
the  Shelf  Registration  Statement  (as  defined  in  the  Registration  Rights
Agreement) (if it is filed),  after being declared  effective by the SEC, ceases
to be  effective at any time during the period  specified by Section  2(b)(B) of
the  Registration  Rights  Agreement  for  more  than 60  days,  whether  or not
consecutive,  during any 12-month period, the Debt Rate shall be increased by an
additional  margin equal to 0.50% per annum from and  including  the 61st day of
the applicable  12-month period such Shelf  Registration  Statement ceases to be
effective to and  excluding the date on which the Shelf  Registration  Statement
again  becomes  effective  (or, if earlier,  the end of the period  specified by
Section  2(b)(B)  of the  Registration  Rights  Agreement),  PROVIDED  that  the
additional margin added to the Debt Rate pursuant to the preceding proviso shall
never  exceed  0.50% at any time,  PROVIDED  FURTHER  that,  if a default in the
payment of interest on the  Securities  occurs and is continuing on any Interest
Payment Date,  then the Debt Rate  applicable  to the Interest  Period ending on
such Interest  Payment Date shall not exceed the Capped  Interest  Rate,  except
that for  purposes  of any  payment  made by the  Company  intended to cure such
default, this proviso shall not apply.

     "DEFAULT"  means any event which is, or after notice or passage of time, or
both, would be, an Event of Default.

     "DEFINITIONS  APPENDIX" means the Definitions Appendix attached as Appendix
I to the Indenture and constituting a part of the Indenture.

     "DEFINITIVE SECURITIES" is defined in Section 2.1(e) of the Indenture.

     "DEFINITIVE  SUBORDINATED  SECURITIES" is defined in Section 2A.1(e) of the
Indenture.



     "DESIGNATED LOCATIONS" means the locations in the U.S. designated from time
to time by the Company at which the Pledged  Spare Parts may be maintained by or
on behalf of the Company,  which  initially  shall be the locations set forth on
Schedule 1 to the Security Agreement and shall include the additional  locations
designated by the Company pursuant to Section 4.04(d) of the Security Agreement.

     "DESIGNATED REPRESENTATIVES" is defined in Section 3.7(b) of the Indenture.

     "DISTRIBUTION  DATE"  means (i) each  Scheduled  Payment  Date  (and,  if a
Payment  required to be paid to the Trustee for  distribution  on such Scheduled
Payment Date has not been so paid by 12:30 p.m.,  New York time,  in whole or in
part, on such Scheduled Payment Date, the next Business Day on which the Trustee
receives some or all of such Payment by 12:30 p.m., New York time,  except for a
defaulted  payment  of  interest  that is not paid  within  five days  after the
Scheduled  Payment Date therefor),  (ii) each day established for payment by the
Trustee pursuant to Section 7.10, (iii) the  Non-Performance  Payment Date, (iv)
the Final Legal  Maturity  Date, (v) the Election  Distribution  Date,  (vi) the
Policy Election  Distribution Date, (vii) the date established as a Distribution
Date pursuant to Section  3.6(f) of the Indenture and (viii) solely for purposes
of payments to be made by the Policy Provider  pursuant to Section 3.6(d) of the
Indenture  and not for purposes of any other payment or  distribution  under the
Indenture, the date established for such payment in accordance with the Policy.

     "DOWNGRADE DRAWING" is defined in Section 3.5(c) of the Indenture.

     "DOWNGRADE  EVENT" has the meaning  assigned to such term in Section 3.5(c)
of the Indenture.

     "DOWNGRADED FACILITY" is defined in Section 3.5(c) of the Indenture.

     "DRAWING"  means an Interest  Drawing,  a Final  Drawing,  a  Non-Extension
Drawing or a Downgrade Drawing, as the case may be.

     "DTC" means The Depository Trust Company, its nominees and their respective
successors.

     "ELECTION DISTRIBUTION DATE" is defined in Section 3.6(c) of the Indenture.

     "ELIGIBLE  ACCOUNT"  means an account  established  by and with an Eligible
Institution at the request of the Security Agent, which institution  agrees, for
all  purposes  of the New York UCC  including  Article 8 thereof,  that (a) such
account shall be a "securities  account" (as defined in Section 8-501 of the New
York UCC), (b) such  institution is a "securities  intermediary"  (as defined in
Section  8-102(a)(14)  of the New York UCC), (c) all property  (other than cash)
credited to such account shall be treated as a "financial  asset" (as defined in
Section  8-102(9)  of the New York UCC),  (d) the  Security  Agent  shall be the
"entitlement  holder"  (as  defined in Section  8-102(7) of the New York UCC) in
respect of such account,  (e) it will comply with all entitlement  orders issued
by the Security  Agent to the  exclusion  of the  Company,  (f) it will waive or
subordinate  in  favor of the  Security  Agent  all  claims  (including  without
limitation,  claims by way of  security  interest,  lien or right of  set-off or



right of recoupment),  and (g) the "securities intermediary jurisdiction" (under
Section 8-110(e) of the New York UCC) shall be the State of New York.

     "ELIGIBLE  DEPOSIT  ACCOUNT" means either (a) a segregated  account with an
Eligible  Institution or (b) a segregated trust account with the corporate trust
department of a depository  institution  organized  under the laws of the United
States of America or any one of the states  thereof or the  District of Columbia
(or any U.S. branch of a foreign bank), having corporate trust powers and acting
as trustee for funds deposited in such account, so long as any of the securities
of such depository  institution has a long-term  unsecured debt rating or issuer
credit  rating,  as the  case  may  be,  from  Moody's  of at  least  A-3 or its
equivalent.  An Eligible  Deposit  Account may be maintained  with the Liquidity
Provider so long as the Liquidity Provider is an Eligible Institution;  provided
that such  Liquidity  Provider  shall have  waived  all  rights of  set-off  and
counterclaim with respect to such account.

     "ELIGIBLE  INSTITUTION"  means (a) the  Security  Agent or (b) a depository
institution  organized under the laws of the United States of America or any one
of the states  thereof or the  District  of  Columbia  (or any U.S.  branch of a
foreign  bank),  which has a long-term  unsecured  debt rating or issuer  credit
rating, as the case may be, from Moody's of at least A-3 or its equivalent.

     "ELIGIBLE   INVESTMENTS"  means  (a)  investments  in  obligations  of,  or
guaranteed  by,  the U.S.  Government  having  maturities  no later than 90 days
following the date of such investment, (b) investments in open market commercial
paper of any  corporation  incorporated  under the laws of the United  States of
America or any state thereof with a short-term  unsecured  debt rating issued by
Moody's of at least P-1 and a short-term issuer credit rating issued by Standard
& Poor's of at least A-1 having  maturities no later than 90 days  following the
date of  such  investment  or (c)  investments  in  negotiable  certificates  of
deposit, time deposits,  banker's acceptances,  commercial paper or other direct
obligations of, or obligations  guaranteed by,  commercial banks organized under
the laws of the United  States or of any political  subdivision  thereof (or any
U.S.  branch of a foreign  bank)  with a  short-term  unsecured  debt  rating by
Moody's of at least P-1 and a  short-term  issuer  credit  rating by  Standard &
Poor's of at least A-1,  having  maturities no later than 90 days  following the
date of such investment;  PROVIDED,  HOWEVER,  that (x) all Eligible Investments
that are bank  obligations  shall be  denominated in U.S.  dollars;  and (y) the
aggregate  amount  of  Eligible  Investments  at any  one  time  that  are  bank
obligations  issued by any one bank shall not be in excess of 5% of such  bank's
capital surplus;  PROVIDED FURTHER that any investment of the types described in
clauses (a),  (b) and (c) above may be made  through a  repurchase  agreement in
commercially  reasonable  form  with  a  bank  or  other  financial  institution
qualifying as an Eligible  Institution  so long as such  investment is held by a
third party  custodian  also  qualifying  as an Eligible  Institution;  PROVIDED
FURTHER,  HOWEVER,  that in the  case of any  Eligible  Investment  issued  by a
domestic branch of a foreign bank, the income from such investment shall be from
sources within the United States for purposes of the Code.  Notwithstanding  the
foregoing,  no  investment  of the types  described in clause (b) above which is
issued or guaranteed by the Company or any of its Affiliates,  and no investment
in the  obligations  of any one  bank in  excess  of  $10,000,000,  shall  be an
Eligible  Investment  unless written  approval has been obtained from the Policy
Provider and a Ratings Confirmation shall have been received with respect to the
making of such investment.



     "ENGINE"  means an  engine  used,  or  intended  to be used,  to  propel an
Aircraft, including a part, appurtenance,  and accessory of the Engine, except a
Propeller.

     "ERISA"  means the Employee  Retirement  Income  Security  Act of 1974,  as
amended from time to time

     "EUROCLEAR"  means Euroclear Bank  S.A./N.V.,  as operator of the Euroclear
System.

     "EVENT OF DEFAULT" is defined in Section 7.1 of the Indenture.

     "EVENT OF LOSS" means (i) the loss of any of the Pledged  Spare Parts or of
the use thereof due to destruction,  damage beyond repair or rendition of any of
the  Pledged  Spare  Parts  permanently  unfit  for  normal  use for any  reason
whatsoever (other than the use of Expendables in the Company's operations); (ii)
any damage to any of the Pledged  Spare  Parts  which  results in the receipt of
insurance  proceeds  with respect to such Pledged Spare Parts on the basis of an
actual  or  constructive  loss;  or (iii) the loss of  possession  of any of the
Pledged Spare Parts by the Company for ninety (90)  consecutive days as a result
of the theft or disappearance of such Pledged Spare Parts.

     "EXCHANGE ACT" means the  Securities  Exchange Act of 1934, as amended from
time to time.

     "EXCHANGE  FLOATING  RATE  SECURED  NOTES DUE 2007" is  defined  in Section
2.1(a) of the Indenture.

     "EXCHANGE FLOATING RATE SECURED  SUBORDINATED NOTES DUE 2007" is defined in
Section 2A.1(a) of the Indenture.

     "EXCHANGE  OFFER"  means (i) with respect to the  Securities,  the exchange
offer  which  may be made  pursuant  to the  Registration  Rights  Agreement  to
exchange Initial Securities for Exchange Securities and (ii) with respect to the
Subordinated  Securities,  the exchange  offer which may be made pursuant to the
Subordinated   Security   Registration  Rights  Agreement  to  exchange  Initial
Subordinated Securities for Exchange Subordinated Securities.

     "EXCHANGE  OFFER  REGISTRATION  STATEMENT"  means (i) with  respect  to the
Securities, the registration statement that, pursuant to the Registration Rights
Agreement,  is filed by the Company with the SEC with respect to the exchange of
Initial Securities for Exchange Securities and (ii) with respect to Subordinated
Securities,  the  registration  statement  that,  pursuant  to the  Subordinated
Security  Registration  Rights  Agreement,  is filed by the Company with the SEC
with respect to the  exchange of Initial  Subordinated  Securities  for Exchange
Subordinated Securities.

     "EXCHANGE  SECURITIES"  means the securities  substantially  in the form of
Exhibit  A to the  Indenture  issued  in  exchange  for the  Initial  Securities
pursuant to the Registration Rights Agreement and authenticated  pursuant to the
Indenture.

     "EXCHANGE  SUBORDINATED  SECURITIES" means the securities  substantially in
the form of  Exhibit D to the  Indenture  issued  in  exchange  for the  Initial
Subordinated Securities pursuant to the



Subordinated Security  Registration Rights Agreement and authenticated  pursuant
to the Indenture.

     "EXCLUDED  PARTS" means Spare Parts and Appliances held by the Company at a
location not a Designated Location.

     "EXPENDABLES" means Qualified Spare Parts other than Rotables.

     "EXPENSES" means any and all  liabilities,  obligations,  losses,  damages,
settlements,   penalties,   claims,   actions,   suits,   costs,   expenses  and
disbursements (including, without limitation,  reasonable fees and disbursements
of legal counsel,  accountants,  appraisers,  inspectors or other professionals,
and costs of investigation).

     "FAA"  means the  Federal  Aviation  Administration  or similar  regulatory
authority established to replace it.

     "FAA FILED DOCUMENTS"  means the Security  Agreement and Amendment No. 1 to
Security Agreement.

     "FACILITY OFFICE" means, with respect to any Liquidity Facility, the office
of the Liquidity Provider  thereunder,  presently located at 1585 Broadway,  New
York, New York 10036, or such other office as such Liquidity  Provider from time
to time  shall  notify  the  Trustee  as its  "Facility  Office"  under any such
Liquidity  Facility;  provided that such Liquidity Provider shall not change its
Facility Office to another  Facility Office outside the United States of America
except in accordance  with  Sections  3.01,  3.02 or 3.03 of any such  Liquidity
Facility.

     "FAIR MARKET VALUE" means, with respect to any Collateral,  its fair market
value  determined  on the basis of a  hypothetical  sale  negotiated in an arm's
length free market  transaction  between a willing and able seller and a willing
and able  buyer,  neither  of whom is  under  undue  pressure  to  complete  the
transaction,  under then current market conditions,  provided that cash shall be
valued at its Dollar amount.

     "FEDERAL   AVIATION  ACT"  means  Title  49  of  the  United  States  Code,
"Transportation",  as amended from time to time, or any similar  legislation  of
the United States enacted in substitution or replacement thereof.

     "FEE  LETTERS"  means,  collectively,  (i) the Fee  Letter  dated as of the
Closing Date between the Trustee and the initial Liquidity Provider with respect
to the initial  Liquidity  Facility and (ii) any fee letter entered into between
the Trustee and any Replacement Liquidity Provider in respect of any Replacement
Liquidity Facility.

     "FINAL DRAWING" is defined in Section 3.5(i) of the Indenture.

     "FINAL LEGAL MATURITY DATE" means December 6, 2009.

     "FINAL ORDER" has the meaning assigned to such term in the Policy.

     "FINAL SCHEDULED PAYMENT DATE" means December 6, 2007.



     "FINANCING  STATEMENTS"  means,  collectively,  UCC-1 financing  statements
covering  the Spare Parts  Collateral,  by the Company,  as debtor,  showing the
Security  Agent as secured  party,  for filing in Delaware,  Guam and each other
jurisdiction that, in the opinion of the Security Agent, is necessary to perfect
its Lien on the Spare Parts Collateral.

     "GAAP" means generally accepted accounting  principles in the United States
of America as in effect as of the Closing Date, including those set forth in (i)
the  opinions  and  pronouncements  of the  Accounting  Principles  Board of the
American  Institute  of  Certified  Public  Accountants,   (ii)  statements  and
pronouncements  of the Financial  Accounting  Standards Board,  (iii) such other
statements  by such other  entity as  approved by a  significant  segment of the
accounting  profession  and (iv) the rules and  regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic  reports required to be filed pursuant to Section 13 of the Exchange
Act,  including  opinions and  pronouncements in staff accounting  bulletins and
similar written statements from the accounting staff of the SEC.

     "GLOBAL EXCHANGE SECURITY" is defined in Section 2.1(f) of the Indenture.

     "GLOBAL  EXCHANGE  SUBORDINATED  SECURITY" is defined in Section 2A.1(f) of
the Indenture.

     "GLOBAL SECURITIES" is defined in Section 2.1(d) of the Indenture.

     "GLOBAL  SUBORDINATED  SECURITIES"  is defined  in  Section  2A.1(d) of the
Indenture.

     "GOVERNMENT  ENTITY"  means (a) any federal,  state,  provincial or similar
government,  and any  body,  board,  department,  commission,  court,  tribunal,
authority,  agency or other  instrumentality of any such government or otherwise
exercising any executive,  legislative,  judicial,  administrative or regulatory
functions  of  such  government  or  (b)  any  other  government  entity  having
jurisdiction over any matter contemplated by the Operative Documents or relating
to the observance or performance of the obligations of any of the parties to the
Operative Documents.

     "HOLDER"  or  "NOTEHOLDER"  means  the  Person  in  whose  name a  Note  is
registered on the Registrar's books.

     "INDEMNITEE" means (i) WTC, the Trustee and the Collateral Agent, (ii) each
separate or  additional  trustee or  security  agent  appointed  pursuant to the
Indenture, (iii) each Liquidity Provider, (iv) the Policy Provider, and (v) each
of the respective directors, officers, employees, agents and servants of each of
the persons described in clauses (i) through (iv) inclusive above.

     "INDENTURE"  means the Amended and  Restated  Indenture  dated as of May 9,
2003,  among the Company,  the Trustee,  the  Liquidity  Provider and the Policy
Provider under which the Notes are issued.

     "INDENTURE  DISCHARGE  DATE"  means  the  date  of the  termination  of the
effectiveness  of the  Indenture  pursuant to Section  9.1(a)  thereof  (without
giving effect to Section 9.1(b) thereof).

     "INDENTURE TRUSTEE" means the Trustee.



     "INDEPENDENT APPRAISER" means Simat, Helliesen & Eichner, Inc. or any other
Person (i) engaged in a business which includes  appraising  Aircraft and assets
related to the operation and  maintenance of Aircraft from time to time and (ii)
who does not have any  material  financial  interest  in the  Company and is not
connected  with the Company or any of its  Affiliates  as an officer,  director,
employee, promoter, underwriter, partner or person performing similar functions.

     "INDEPENDENT  APPRAISER'S  CERTIFICATE"  means a  certificate  signed by an
Independent  Appraiser  and  attached  as Appendix  II to the  Offering  Memo or
delivered  thereafter  pursuant  to Article 2 or Section  3.1 of the  Collateral
Maintenance Agreement.

     "INITIAL CASH COLLATERAL" shall mean cash in the amount of $13,056,950.

     "INITIAL FLOATING RATE SECURED NOTES DUE 2007" is defined in Section 2.1(a)
of the Indenture.

     "INITIAL FLOATING RATE SECURED  SUBORDINATED  NOTES DUE 2007" is defined in
Section 2A.1(a) of the Indenture.

     "INITIAL PURCHASER" means Morgan Stanley & Co. Incorporated.

     "INITIAL SECURITIES" mean the securities issued and authenticated  pursuant
to the Indenture and substantially in the form of Exhibit A thereto,  other than
the Exchange Securities.

     "INITIAL   SUBORDINATED   SECURITIES"   means  the  securities  issued  and
authenticated pursuant to the Indenture and substantially in the form of Exhibit
D thereto, other than the Exchange Subordinated Securities.

     "INSTITUTIONAL ACCREDITED INVESTOR" means an institutional investor that is
an "accredited  investor"  within the meaning set forth in Rule 501(a)(1),  (2),
(3) or (7) of Regulation D under the Securities Act.

     "INTEREST DRAWING" is defined in Section 3.5(a) of the Indenture.

     "INTEREST  PAYMENT DATE" means March 6, June 6,  September 6 and December 6
of each year so long as any Note is Outstanding (commencing March 6, 2003 in the
case of the  Securities  and  June  6,  2003  in the  case  of the  Subordinated
Securities),  PROVIDED  that if any such  day is not a  Business  Day,  then the
relevant Interest Payment Date shall be the next succeeding Business Day.

     "INTEREST  PERIOD" means (i) in the case of the first Interest Period,  the
period  commencing  on (and  including)  the  Closing  Date  (in the case of the
Securities) or the  Subordinated  Closing Date (in the case of the  Subordinated
Securities)  and  ending on (but  excluding)  the first  Interest  Payment  Date
following such date and (ii) in the case of each subsequent Interest Period, the
period  commencing on (and including) the last day of the immediately  preceding
Interest Period, and ending on (but excluding) the next Interest Payment Date.



     "INVESTMENT  EARNINGS" means investment earnings on funds on deposit in the
Trust  Accounts net of losses and  investment  expenses of the Trustee in making
such investments.

     "INVESTMENT SECURITY" means (a) any bond, note or other obligation which is
a direct obligation of or guaranteed by the U.S. or any agency thereof;  (b) any
obligation  which is a direct  obligation  of or  guaranteed by any state of the
U.S. or any subdivision  thereof or any agency of any such state or subdivision,
and which has the highest rating published by Moody's or Standard & Poor's;  (c)
any commercial  paper issued by a U.S. obligor and rated at least P-1 by Moody's
or A-1 by Standard & Poor's; (d) any money market investment  instrument relying
upon the credit and  backing of any bank or trust  company  which is a member of
the Federal Reserve System and which has a combined capital  (including  capital
reserves  to the extent not  included in  capital)  and  surplus  and  undivided
profits of not less than  $250,000,000  (including the Collateral  Agent and its
Affiliates if such  requirements  as to Federal  Reserve  System  membership and
combined  capital and surplus and undivided  profits are satisfied),  including,
without  limitation,  certificates of deposit,  time and other  interest-bearing
deposits,   bankers'   acceptances,   commercial   paper,   loan  and   mortgage
participation   certificates  and  documented   discount  notes  accompanied  by
irrevocable  letters  of  credit  and  money  market  fund  investing  solely in
securities  backed by the full  faith and credit of the  United  States;  or (e)
repurchase agreements collateralized by any of the foregoing.

     "ISSUANCE  DATE"  means  the  date  of  initial  issuance  of  the  Initial
Securities.

     "LAW" means (a) any constitution, treaty, statute, law, decree, regulation,
order,  rule or  directive  of any  Government  Entity,  and (b) any judicial or
administrative  interpretation  or application of, or decision under, any of the
foregoing.

     "LIBOR" has the meaning specified in the Reference Agency Agreement.

     "LIBOR ADVANCE" has the meaning provided in the Liquidity Facility.

     "LIEN" means any mortgage,  pledge, lease, security interest,  encumbrance,
lien or charge of any kind affecting title to or any interest in property.

     "LIQUIDITY  EVENT OF DEFAULT" has the meaning  assigned to such term in the
Liquidity Facility.

     "LIQUIDITY  EXPENSES"  means all Liquidity  Obligations  other than (i) the
principal  amount of any  Drawings  under the  Liquidity  Facility  and (ii) any
interest accrued on any Liquidity Obligations.

     "LIQUIDITY FACILITY" means, initially, the Revolving Credit Agreement dated
as of the Issuance Date, between the Trustee and the initial Liquidity Provider,
and from and after the replacement of such Revolving Credit  Agreement  pursuant
hereto, the Replacement  Liquidity  Facility  therefor,  if any, in each case as
amended, supplemented or otherwise modified from time to time in accordance with
its terms.



     "LIQUIDITY  GUARANTEE" means the Guarantee Agreement,  dated as of the date
of the  Original  Indenture,  providing  for  the  guarantee  by  the  Liquidity
Guarantor of the  obligations  of the  Liquidity  Provider  under the  Liquidity
Facility.

     "LIQUIDITY GUARANTOR" means Morgan Stanley.

     "LIQUIDITY  OBLIGATIONS"  means  all  principal,  interest,  fees and other
amounts owing to the Liquidity  Provider under the Liquidity Facility or the Fee
Letter.

     "LIQUIDITY  PROVIDER" means Morgan Stanley Capital Services Inc.,  together
with any Replacement Liquidity Provider which has issued a Replacement Liquidity
Facility to replace any  Liquidity  Facility  pursuant to Section  3.5(e) of the
Indenture.

     "LIQUIDITY PROVIDER REIMBURSEMENT DATE" is defined in Section 3.6(d) of the
Indenture.

     "LOANS" is defined in Section 3.2 of the Collateral Maintenance Agreement.

     "MATERIAL  ADVERSE  CHANGE" means,  with respect to any person,  any event,
condition or circumstance  that  materially and adversely  affects such person's
business  or  consolidated  financial  condition,  or its  ability to observe or
perform  its  obligations,   liabilities  and  agreements  under  the  Operative
Documents.

     "MAXIMUM COLLATERAL RATIO" means 45%.

     "MAXIMUM SUBORDINATED COLLATERAL RATIO" means 67.5%.

     "MINIMUM ROTABLE RATIO" means 150%.

     "MINIMUM SUBORDINATED ROTABLE RATIO" means 100%.

     "MOODY'S" means Moody's Investors Service, Inc.

     "MOVES" is defined in Section 3.2 of the Collateral Maintenance Agreement.

     "MSCS" has the meaning specified in the first paragraph of the Indenture.

     "NEW YORK UCC" is defined in Section 1.01 of the Security Agreement.

     "NONAPPRAISAL  COMPLIANCE  REPORT"  means a  report  providing  information
relating  to  compliance  by the  Company  with  Section  3.2 of the  Collateral
Maintenance Agreement,  which shall be substantially in the form of Appendix III
to the Collateral Maintenance Agreement.

     "NON-CONTROLLING  PARTY"  means,  at any  time,  the  Securityholders,  the
Subordinated  Securityholders,  the Liquidity  Provider and the Policy Provider,
excluding whichever is the Controlling Party at such time.

     "NON-EXTENDED FACILITY" is defined in Section 3.5(d) of the Indenture.

     "NON-EXTENSION DRAWING" is defined in Section 3.5(d) of the Indenture.



     "NON-PERFORMANCE DRAWING" is defined in Section 3.6(c) of the Indenture.

     "NON-PERFORMANCE  PAYMENT  DATE"  is  defined  in  Section  3.6(c)  of  the
Indenture.

     "NON-PERFORMING"  means,  with respect to any Security,  a Payment  Default
existing thereunder (without giving effect to any Acceleration); PROVIDED, that,
in the event of a bankruptcy  proceeding  under the Bankruptcy Code in which the
Company is a debtor,  any Payment Default  existing at the  commencement of such
bankruptcy proceeding or during the 60-day period under Section 1110(a)(2)(A) of
the Bankruptcy Code (or such longer period as may apply under Section 1110(b) of
the Bankruptcy  Code or as may apply for the cure of such Payment  Default under
Section   1110(a)(2)(B)  of  the  Bankruptcy  Code)  shall  not  be  taken  into
consideration until the expiration of the applicable period.

     "NON-PERFORMING PERIOD" is defined in Section 3.6(c) of the Indenture.

     "NON-U.S.  PERSON" means any Person other than a U.S. person, as defined in
Regulation S.

     "NOTES" means the Securities and the Subordinated Securities.

     "NOTEHOLDER" means any holder of one or more Notes.

     "NOTICE OF AVOIDED  PAYMENT"  has the meaning  assigned to such term in the
Policy.

     "NOTICE FOR PAYMENT"  means a Notice of  Nonpayment as such term is defined
in the Policy.

     "OBLIGATIONS" is defined in Section 2.01 of the Security Agreement.

     "OFFERING MEMO" means the Offering  Memorandum,  dated December 2, 2002, of
the Company relating to the offering of the Securities.

     "OFFICER"  means  the  Chairman  of the  Board,  the  President,  any  Vice
President  of any  grade,  the  Chief  Financial  Officer,  the  Treasurer,  any
Assistant Treasurer, the Secretary, any Assistant Secretary or the Controller of
the Company.

     "OFFICERS'   CERTIFICATE"  means  a  certificate  signed  by  two  Officers
satisfying the requirements of Sections 12.4 and 12.5 of the Indenture.

     "OPERATIVE DOCUMENTS" means the Indenture,  the Collateral Agreements,  the
Collateral Maintenance Agreement and the Reference Agency Agreement.

     "OPINION OF COUNSEL"  means a written  opinion from the General  Counsel of
the  Company,  legal  counsel to the  Company or another  legal  counsel  who is
reasonably acceptable to the Trustee, which Opinion of Counsel shall comply with
Sections 12.4 and 12.5 of the  Indenture.  The counsel may be an employee of the
Company. The acceptance by the Trustee (without written objection to the Company
during the fifteen (15) Business Days  following  receipt) of, or its action on,



an opinion of counsel not  specifically  referred  to above shall be  sufficient
evidence that such counsel is acceptable to the Trustee.

     "OUTSTANDING" or  "OUTSTANDING"  when used with respect to Notes or a Note,
means all Notes  theretofore  authenticated  and delivered  under the Indenture,
except:

          (a) Notes  theretofore  canceled  by the Trustee or  delivered  to the
Trustee for cancellation;

          (b) Notes, or portions thereof,  for whose payment or redemption money
in the necessary amount has been theretofore deposited with the Trustee in trust
for the Holders of such Notes,  PROVIDED that, if such Notes are to be redeemed,
notice of such  redemption  has been duly given  pursuant  to the  Indenture  or
provision therefor satisfactory to the Trustee has been made;

          (c) Notes for which payment has been deposited with the Trustee or any
Paying  Agent in trust  pursuant  to Article 9 of the  Indenture  (except to the
extent provided therein); and

          (d) Notes  which have been paid,  or for which  other Notes shall have
been  authenticated  and delivered in lieu thereof or in  substitution  therefor
pursuant  to  the  terms  of  Section  2.12  of  the  Indenture,   unless  proof
satisfactory  to the Trustee is  presented  that any such Notes are held by bona
fide purchasers in whose hands the Notes are valid obligations of the Company.

     A Note does not cease to be  Outstanding  because the Company or one of its
Affiliates holds the Note;  PROVIDED,  HOWEVER,  that in determining whether the
Holders of the requisite  aggregate  principal amount of Notes  Outstanding have
given any request, demand,  authorization,  direction, notice, consent or waiver
under  the  Indenture  or any  other  Operative  Document,  Section  2.13 of the
Indenture shall be applicable.

     "ORIGINAL  INDENTURE"  has  the  meaning  set  forth  in  the  introductory
paragraph of the Indenture.

     "OUTSTANDING AMOUNT" is defined in Section 3.6(b) of the Indenture.

     "OVERDUE  SCHEDULED  PAYMENT" means any Payment of accrued  interest on any
Notes which is not in fact  received by the Trustee  (whether  from the Company,
the Liquidity Provider, the Policy Provider or otherwise) on or within five days
after the Scheduled  Payment Date relating thereto and which is not subsequently
paid in connection with the redemption or final maturity of a Note.

     "PARTS  INVENTORY  REPORT" means,  as of any date, a list  identifying  the
Pledged  Spare Parts by  manufacturer's  part number and brief  description  and
stating the quantity of each such part included in the Pledged Spare Parts as of
such specified date.

     "PAYING AGENT" has the meaning provided in Section 2.8 of the Indenture.



     "PAYMENT"  means (i) any payment of principal of,  interest on, or Premium,
if any, or Break  Amount,  if any,  with  respect to the Notes from the Company,
(ii) any  payment of  interest  on the  Securities  with funds  drawn  under the
Liquidity  Facility  or from a Cash  Collateral  Account or (iii) any payment of
interest on or principal  of  Securities  with funds drawn under the Policy,  or
(iv) any payment received or amount realized by the Trustee from the exercise of
remedies after the occurrence of an Event of Default.

     "PAYMENT  DEFAULT"  means a Default  referred  to in Section  7.1(a) of the
Indenture.

     "PAYMENT  DUE RATE"  means  (a) the Debt Rate plus 2% or, if less,  (b) the
maximum rate permitted by applicable law.

     "PERMITTED  DAYS" is defined in Section 2.1 of the  Collateral  Maintenance
Agreement.

     "PERMITTED  LESSEE"  has the  meaning  provided  in  Section  3.6(b) of the
Collateral Maintenance Agreement.

     "PERMITTED LIEN" means (a) the rights of Security Agent under the Operative
Documents;  (b) Liens  attributable  to Security  Agent (both in its capacity as
Security Agent and in its individual  capacity);  (c) the rights of others under
agreements or  arrangements  to the extent  expressly  permitted by the terms of
Section 3.6 of the Collateral Maintenance Agreement;  (d) Liens for Taxes of the
Company (and its U.S. federal tax law consolidated group), either not yet due or
being  contested in good faith by appropriate  proceedings so long as such Liens
and such proceedings do not involve any material risk of the sale, forfeiture or
loss of the Pledged  Spare Parts or the  interest of Security  Agent  therein or
impair  the  Lien of the  Security  Agreement;  (e)  materialmen's,  mechanics',
workers',  repairers',  employees'  or other like Liens  arising in the ordinary
course of business for amounts the payment of which is either not yet delinquent
for  more  than 60 days or is  being  contested  in good  faith  by  appropriate
proceedings,  so long as such  Liens and such  proceedings  do not  involve  any
material risk of the sale,  forfeiture or loss of the Pledged Spare Parts or the
interest of Security Agent therein or impair the Lien of the Security Agreement;
(f) Liens arising out of any judgment or award  against the Company,  so long as
such  judgment  shall,  within  60 days  after  the  entry  thereof,  have  been
discharged or vacated,  or execution thereof stayed pending appeal or shall have
been discharged, vacated or reversed within 60 days after the expiration of such
stay, and so long as during any such 60 day period there is not as a result,  or
any such  judgment or award does not  involve,  any  material  risk of the sale,
forfeiture or loss of the Pledged Spare Parts or the interest of Security  Agent
therein or any impairment of the Lien of the Security  Agreement;  (g) any other
Lien  with  respect  to which the  Company  shall  have  provided  a bond,  cash
collateral  or other  security  adequate in the  reasonable  opinion of Security
Agent.

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

     "PLEDGED  SPARE PARTS" has the meaning set forth in clause (1) of the first
paragraph of Section 2.01 of the Security Agreement.



     "POLICY"  means MBIA Insurance  Corporation  Financial  Guaranty  Insurance
Policy No. 39753,  issued as of the Closing Date,  as amended,  supplemented  or
otherwise modified from time to time in accordance with its respective terms.

     "POLICY  ACCOUNT"  means the Eligible  Deposit  Account  established by the
Trustee  pursuant to Section  8.13(a) of the  Indenture  which the Trustee shall
make deposits in and withdrawals from in accordance with the Indenture.

     "POLICY DRAWING" means any payment of a claim under the Policy.

     "POLICY  ELECTION  DISTRIBUTION  DATE" is defined in Section  3.6(c) of the
Indenture.

     "POLICY  EXPENSES"  means all  amounts  (including  amounts  in  respect of
premiums,  fees,  expenses or indemnities)  due to the Policy Provider under the
Policy Provider  Agreement other than (i) any Policy Drawing,  (ii) any interest
accrued on any  Policy  Provider  Obligations,  and (iii)  reimbursement  of and
interest on the Liquidity  Obligations in respect of the Liquidity Facility paid
by the Policy Provider to the Liquidity Provider;  provided that if, at the time
of  determination,  a Policy Provider Default exists,  Policy Expenses shall not
include any indemnity payments owed to the Policy Provider.

     "POLICY FEE LETTER"  means the fee  letter,  dated as of the Closing  Date,
from the Policy Provider to the Company and acknowledged by the Trustee, setting
forth the fees and premiums payable with respect to the Policy.

     "POLICY  PROVIDER" means MBIA Insurance  Corporation,  a New York insurance
company, and its successors and permitted assigns.

     "POLICY  PROVIDER  AGREEMENT"  means the Insurance and Indemnity  Agreement
dated as of the  Closing  Date,  among the  Trustee,  the Company and the Policy
Provider,  as amended,  supplemented or otherwise  modified from time to time in
accordance with its terms.

     "POLICY PROVIDER DEFAULT" shall mean the occurrence of any of the following
events:  (a) the  Policy  Provider  fails to make a payment  required  under the
Policy in accordance with its terms and such failure remains  unremedied for two
Business Days  following  the delivery of Written  Notice of such failure to the
Policy  Provider or (b) the Policy  Provider (i) files any petition or commences
any case or proceeding under any provisions of any federal or state law relating
to insolvency, bankruptcy,  rehabilitation,  liquidation or reorganization, (ii)
makes a general  assignment  for the  benefit of its  creditors  or (iii) has an
order for relief  entered  against it under any federal or state law relating to
insolvency,  bankruptcy,  rehabilitation,  liquidation or reorganization that is
final and nonappealable,  or (c) a court of competent jurisdiction, the New York
Department of Insurance or another competent regulatory authority enters a final
and nonappealable order, judgment or decree (i) appointing a custodian, trustee,
agent or receiver for the Policy Provider or for all or any material  portion of
its  property  or (ii)  authorizing  the taking of  possession  by a  custodian,
trustee,  agent or receiver of the Policy  Provider (or taking of  possession of
all or any material portion of the Policy Provider's property).

     "POLICY PROVIDER ELECTION" is defined in Section 3.6(c) of the Indenture.



     "POLICY  PROVIDER  INTEREST  OBLIGATIONS"  means any interest on any Policy
Drawing made to cover any shortfall attributable to any failure of the Liquidity
Provider to honor any Interest Drawing in accordance with Section 2.02(e) of the
Liquidity  Facility in an amount equal to the amount of interest that would have
accrued on such  Interest  Drawing  if such  Interest  Drawing  had been made in
accordance with Section  2.02(e) of the Liquidity  Facility at the interest rate
applicable to such Interest Drawing until such Policy Drawing has been repaid in
full.

     "POLICY PROVIDER  OBLIGATIONS"  means all  reimbursement and other amounts,
including,  without limitation, fees and indemnities (to the extent not included
in Policy  Expenses),  due to the  Policy  Provider  under the  Policy  Provider
Agreement  but shall not include  any  interest  on Policy  Drawings  other than
Policy Provider Interest Obligations.

     "PREMIUM" means, with respect to any Note redeemed pursuant to Article 4 of
the Indenture,  the following  percentage of the principal  amount of such Note:
(a) with respect to a Security,  (i) if redeemed before the first anniversary of
the Issuance Date, 1.5%; (ii) if redeemed on or after such first anniversary and
before the second  anniversary of the Issuance Date, 1.0%; and (iii) if redeemed
on or after such  second  anniversary  and before the third  anniversary  of the
Issuance Date,  0.5%; and (b) with respect to a  Subordinated  Security,  (i) if
redeemed before the second anniversary of the Subordinated  Issuance Date, 3.0%;
(ii) if  redeemed  on or after  such  second  anniversary  and  before the third
anniversary of the Subordinated Issuance Date, 2.0%; and (iii) if redeemed on or
after  such  third  anniversary  and  before  the  fourth   anniversary  of  the
Subordinated  Issuance Date, 1.0%;  PROVIDED that no Premium shall be payable in
connection  with a  redemption  made  by the  Company  to  satisfy  the  Maximum
Collateral Ratio, Maximum  Subordinated  Collateral Ratio, Minimum Rotable Ratio
or Minimum Subordinated Rotable Ratio requirement pursuant to Section 3.1 of the
Collateral Maintenance Agreement.

     "PRIOR FUNDS" means, on any  Distribution  Date, any Drawing paid under the
Liquidity  Facility on such  Distribution  Date and any funds withdrawn from the
Cash Collateral Account on such Distribution Date in respect of accrued interest
on the Securities.

     "PROCEEDS   DEFICIENCY  DRAWING"  is  defined  in  Section  3.6(b)  of  the
Indenture.

     "PROPELLER" includes a part, appurtenance, and accessory of a propeller.

     "PROVIDER  INCUMBENCY  CERTIFICATE"  is defined  in  Section  3.7(b) of the
Indenture.

     "PROVIDER REPRESENTATIVES" is defined in Section 3.7(b) of the Indenture.

     "PURCHASE AGREEMENT" means the Purchase Agreement dated December 2, 2002 by
and between the Initial Purchaser and the Company.

     "QIB" means a qualified institutional buyer as defined in Rule 144A.

     "QUALIFIED SPARE PARTS" has the meaning provided in clause (1) of the first
paragraph in Section 2.01 of the Security Agreement.

     "RATING AGENCIES" means,  collectively,  at any time, and with respect to a
Series of Notes, each nationally  recognized rating agency which shall have been



requested  by the  Company to rate such  Series of Notes and which shall then be
rating such Series of Notes.  The initial Rating Agency will be Moody's,  in the
case of the  Securities,  and Moody's and Standard & Poor's,  in the case of the
Subordinated Securities.

     "RATINGS  CONFIRMATION"  means,  with respect to any action  proposed to be
taken, a written  confirmation  from each of the Rating Agencies with respect to
the  applicable  Series of Notes  that  such  action  would not  result in (i) a
reduction of the rating for such Series of Notes below the then  current  rating
for such  Series  of Notes  (such  rating,  in the  case of the  Securities,  as
determined  without  regard to the Policy) or (ii) a withdrawal or suspension of
the rating of such Series of Notes.

     "RECORD  DATE"  means the  fifteenth  (15th) day  preceding  any  Scheduled
Interest Payment Date, whether or not a Business Day.

     "REDEMPTION DATE", when used with respect to any Note to be redeemed, means
the date fixed for such  redemption  by or  pursuant to the  Indenture  and such
Note.

     "REFERENCE AGENCY AGREEMENT" means the Reference Agency Agreement, dated as
of the Issuance Date, among the Company, WTC, as the reference agent thereunder,
and the Trustee.

     "REGISTER" has the meaning provided in Section 2.8 of the Indenture.

     "REGISTRAR" has the meaning provided in Section 2.8 of the Indenture.

     "REGISTRATION  RIGHTS  AGREEMENT" means the  Registration  Rights Agreement
dated as of  December  6, 2002,  by and  between  the  Company  and the  Initial
Purchaser.

     "REGULATION S" means Regulation S under the Securities Act.

     "REGULATION S DEFINITIVE  SECURITIES"  is defined in Section  2.1(e) of the
Indenture.

     "REGULATION  S DEFINITIVE  SUBORDINATED  SECURITIES"  is defined in Section
2A.1(e) of the Indenture.

     "REGULATION  S  GLOBAL  SECURITY"  is  defined  in  Section  2.1(d)  of the
Indenture.

     "REGULATION S GLOBAL  SUBORDINATED  SECURITY" is defined in Section 2A.1(d)
of the Indenture.

     "RELEVANT DATE" is defined in Section 3.6(c) of the Indenture.

     "REPLACEMENT  LIQUIDITY  FACILITY"  means an irrevocable  revolving  credit
agreement (or agreements) in  substantially  the form of the replaced  Liquidity
Facility,  including reinstatement  provisions, or in such other form (which may
include a letter of credit) as shall permit the Rating  Agencies with respect to
the Securities to confirm in writing their respective ratings then in effect for
the Securities (before  downgrading of such ratings,  if any, as a result of the
downgrading  of the  Liquidity  Provider),  and be  consented  to by the  Policy
Provider, which consent shall not be unreasonably withheld or delayed, in a face



amount (or in an aggregate face amount) equal to the amount of interest  payable
on the Securities  (at the Capped  Interest Rate, and without regard to expected
future  principal  payments) on the eight Interest  Payment Dates  following the
date of replacement  of such Liquidity  Facility (or if such date is an Interest
Payment Date,  on such day and the seven  Interest  Payment Dates  following the
date of  replacement  of such  Liquidity  Facility)  and  issued by a Person (or
Persons) having unsecured short-term debt rating or issuer credit rating, as the
case may be,  issued by  Moody's  and  Standard  & Poor's  which are equal to or
higher  than  the  Threshold  Rating.  Without  limitation  of the  form  that a
Replacement  Liquidity  Facility  otherwise  may have  pursuant to the preceding
sentence, a Replacement  Liquidity Facility for the Securities may have a stated
expiration date earlier than 15 days after the Final Legal Maturity Date so long
as such Replacement  Liquidity Facility provides for a Non-Extension  Drawing as
contemplated by Section 3.5(d) of the Indenture.

     "REQUEST" means a written request for the action therein  specified  signed
on behalf of the Company by any  Officer  and  delivered  to the  Trustee.  Each
Request shall be  accompanied  by an Officers'  Certificate if and to the extent
required by Section 12.4 of the Indenture.

     "REQUIRED  AMOUNT" means,  for any day, the sum of the aggregate  amount of
interest,  calculated at the Capped  Interest Rate, that would be payable on the
Securities on each of the eight successive  Interest  Payment Dates  immediately
following such day or, if such day is an Interest  Payment Date, on such day and
the succeeding  seven Interest  Payment  Dates,  in each case  calculated on the
basis of the  outstanding  principal  amount of the  Securities on such date and
without regard to expected future payments of principal on the Securities.

     "REQUIRED  HOLDERS" means from time to time the Holders of more than 50% in
aggregate unpaid principal amount of the Securities then Outstanding.

     "REQUIRED SUBORDINATED HOLDERS" means from time to time the holders of more
than 50% in aggregate unpaid  principal  amount of the  Subordinated  Securities
then Outstanding.

     "RESPONSIBLE OFFICER" means (i) with respect to the Trustee, any officer in
the  corporate  trust  administration  department  of the  Trustee  or any other
officer  customarily  performing  functions  similar to those  performed  by the
Persons who at the time shall be such  officers or to whom any  corporate  trust
matter is referred  because of his or her  knowledge of and  familiarity  with a
particular subject, (ii) with respect to the Liquidity Provider,  any authorized
officer  of the  Liquidity  Provider,  and  (iii)  with  respect  to the  Policy
Provider, any authorized officer of the Policy Provider.

     "RESTRICTED  DEFINITIVE  SECURITIES"  is defined  in Section  2.1(e) of the
Indenture.

     "RESTRICTED  DEFINITIVE  SUBORDINATED  SECURITIES"  is  defined  in Section
2A.1(e) of the Indenture.

     "RESTRICTED GLOBAL SECURITY" is defined in Section 2.1(c) of the Indenture.

     "RESTRICTED GLOBAL SUBORDINATED  SECURITY" is defined in Section 2A.1(c) of
the Indenture.

     "RESTRICTED LEGEND" is defined in Section 2.2 of the Indenture.



     "RESTRICTED  PERIOD"  is defined in  Section  2.1(d) of the  Indenture  for
purposes  of  the  Securities  and  in  Section  2A.1(d)  for  purposes  of  the
Subordinated Securities.

     "RESTRICTED SECURITIES" are defined in Section 2.2 of the Indenture.

     "RESTRICTED  SUBORDINATED  SECURITIES"  are defined in Section  2A.2 of the
Indenture.

     "ROTABLE"  means a  Qualified  Spare  Part that  wears over time and can be
repeatedly restored to a serviceable  condition over a period  approximating the
life of the flight equipment to which it relates.

     "ROTABLE RATIO" shall mean a percentage determined by dividing (i) the Fair
Market  Value of the  Rotables,  as set  forth in the  most  recent  Independent
Appraiser's  Certificate  delivered by the Company  pursuant to Article 2 of the
Collateral Maintenance Agreement, as supplemented pursuant to Section 3.1 of the
Collateral Maintenance Agreement, if applicable, by (ii) the aggregate principal
amount of all Securities  Outstanding  minus the sum of the Cash Collateral held
by the Collateral Agent.

     "RULE 144A" means Rule 144A under the Securities Act.

     "SALES" is defined in Section 3.2 of the Collateral Maintenance Agreement.

     "SCHEDULED INTEREST PAYMENT DATE" means each Interest Payment Date, without
giving effect to the proviso to the definition of Interest Payment Date.

     "SCHEDULED PAYMENT DATE" means (i) with respect to any payment of interest,
the Interest Payment Date applicable  thereto,  (ii) with respect to any payment
of defaulted  interest,  the payment date established  pursuant to Section 2.16,
(iii) with respect to amounts due on the  redemption of any Note, the Redemption
Date  applicable  thereto,  and (iv) with  respect to the final  maturity of the
Notes, December 6, 2007.

     "SEC" means the  Securities  and  Exchange  Commission  and any  government
agency succeeding to its functions.

     "SECTION 1110" means Section 1110 of the Bankruptcy Code.

     "SECTION 1110 PERIOD" means the continuous  period of (i) 60 days specified
in Section  1110(a)(2)(A) of the Bankruptcy Code (or such longer period, if any,
agreed to under Section 1110(b) of the Bankruptcy Code), plus (ii) an additional
period,  if any,  commencing  with the trustee or  debtor-in-possession  in such
proceeding agreeing,  with court approval,  to perform its obligations under the
Operative  Documents  within  such 60 days (or  longer  period  as  agreed)  and
continuing  until such time as such  trustee or  debtor-in-possession  ceases to
fully perform its obligations  thereunder with the result that the period during
which the Collateral Agent is prohibited from  repossessing the collateral under
any Collateral Agreement comes to an end.

     "SECURITIES" means the Initial Securities and the Exchange Securities.

     "SECURITIES  ACT" means the Securities Act of 1933, as amended from time to
time.



     "SECURITY AGENT" means the Trustee acting in the capacity of security agent
on behalf of the Holders under the Security Agreement until a successor replaces
it in accordance  with the  provisions of the Security  Agreement and thereafter
means the successor.

     "SECURITY  AGREEMENT" means the Spare Parts Security  Agreement dated as of
the Issuance Date between the Company and the Security Agent.

     "SECURITYHOLDER" means any holder of one or more Securities.

     "SEMIANNUAL  METHODOLOGY" means the Annual  Methodology,  excluding actions
referred to in clauses (iii) and (iv) of the definition of Annual Methodology.

     "SEMIANNUAL  VALUATION  DATE" is defined in Section  2.2 of the  Collateral
Maintenance Agreement.

     "SERIES"  means each of the  Securities  and the  Subordinated  Securities,
considered as a separate class.

     "SERVICEABLE PARTS" means Pledged Spare Parts in condition satisfactory for
incorporation  in,  installation on,  attachment or appurtenance to or use in an
Aircraft, Engine or other Qualified Spare Part.

     "SHELF REGISTRATION STATEMENT" means the shelf registration statement which
may be  required to be filed by the  Company  with the SEC  pursuant to (i) with
respect to Securities, the Registration Rights Agreement, other than an Exchange
Offer Registration Statement,  and (ii) with respect to Subordinated Securities,
the  Subordinated  Securities  Registration  Rights  Agreement,  other  than  an
Exchange Offer Registration Statement.

     "SPARE  PART"  means an  accessory,  appurtenance,  or part of an  Aircraft
(except an Engine or  Propeller),  Engine  (except a Propeller),  Propeller,  or
Appliance,  that is to be  installed  at a later  time in an  Aircraft,  Engine,
Propeller or Appliance.

     "SPARE PARTS  COLLATERAL" has the meaning  specified in Section 2.01 of the
Security Agreement.

     "SPARE  PARTS  DOCUMENTS"  has the  meaning  set forth in clause (6) of the
first paragraph of Section 2.01 of the Security Agreement.

     "SPECIAL  DEFAULT"  means a Payment  Default  or a  Continental  Bankruptcy
Event.

     "SPECIAL  RECORD  DATE" has the  meaning  provided  in Section  2.10 of the
Indenture.

     "SPECIAL  VALUATION  DATE" is  defined  in  Section  2.4 of the  Collateral
Maintenance Agreement.

     "STANDARD & POOR'S" means Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc.



     "STATED  AMOUNT" means the Maximum  Commitment (as defined in the Liquidity
Facility).

     "STATED EXPIRATION DATE" is defined in Section 3.5(d) of the Indenture.

     "SUBORDINATED APPLICABLE MARGIN" means 7.50%.

     "SUBORDINATED CLOSING DATE" means the Subordinated Issuance Date.

     "SUBORDINATED  COLLATERAL  RATIO"  shall mean a  percentage  determined  by
dividing (i) the aggregate  principal amount of all Notes  Outstanding minus the
sum of the Cash Collateral held by the Collateral  Agent by (ii) the Fair Market
Value of all  Collateral  (excluding any Cash  Collateral),  as set forth in the
most  recent  Independent  Appraiser's  Certificate  delivered  by  the  Company
pursuant to Article 2 of the Collateral Maintenance  Agreement,  as supplemented
pursuant to Section 3.1 of the Collateral Maintenance Agreement, if applicable.

     "SUBORDINATED  DEBT RATE" means a rate per annum equal,  in the case of the
first Interest Period for the Subordinated Securities, to 8.78% and, in the case
of any subsequent Interest Period, LIBOR for such Interest Period, as determined
pursuant to the Reference Agency  Agreement,  plus the  Subordinated  Applicable
Margin,  PROVIDED that, solely in the event no Registration Event (as defined in
the Subordinated  Security  Registration Rights Agreement) occurs on or prior to
the 210th day after the Subordinated  Closing Date, the  Subordinated  Debt Rate
shall be increased by an  additional  margin equal to 0.50% per annum,  from and
including  such 210th day to and  excluding the earlier of (i) the date on which
such Registration Event occurs and (ii) the date on which there ceases to be any
Registrable  Securities (as defined in the  Subordinated  Security  Registration
Rights  Agreement));  or if the Shelf Registration  Statement (as defined in the
Subordinated  Security  Registration  Rights Agreement) (if it is filed),  after
being declared  effective by the SEC,  ceases to be effective at any time during
the  period   specified  by  Section  2(b)(B)  of  the   Subordinated   Security
Registration Rights Agreement for more than 60 days, whether or not consecutive,
during any 12-month period,  the Subordinated Debt Rate shall be increased by an
additional  margin equal to 0.50% per annum from and  including  the 61st day of
the applicable  12-month period such Shelf  Registration  Statement ceases to be
effective to and  excluding the date on which the Shelf  Registration  Statement
again  becomes  effective  (or, if earlier,  the end of the period  specified by
Section 2(b)(B) of the Subordinated  Security  Registration  Rights  Agreement),
PROVIDED that the additional margin added to the Subordinated Debt Rate pursuant
to the preceding proviso shall never exceed 0.50% at any time.

     "SUBORDINATED DOCUMENTS" means the Indenture, Amendment No. 1 to Collateral
Maintenance  Agreement,  Amendment  No.  1 to  Reference  Agency  Agreement  and
Amendment No. 1 to Security Agreement.

     "SUBORDINATED  ISSUANCE  DATE"  means the date of initial  issuance  of the
Initial Subordinated Securities.

     "SUBORDINATED  PAYMENT DUE RATE" means (a) the Subordinated  Debt Rate plus
2% or, if less, (b) the maximum rate permitted by applicable law.



     "SUBORDINATED ROTABLE RATIO" shall mean a percentage determined by dividing
(i) the Fair  Market  Value of the  Rotables,  as set  forth in the most  recent
Independent Appraiser's Certificate delivered by the Company pursuant to Article
2 of the Collateral Maintenance  Agreement,  as supplemented pursuant to Section
3.1  of the  Collateral  Maintenance  Agreement,  if  applicable,  by  (ii)  the
aggregate  principal amount of all Notes  Outstanding  minus the sum of the Cash
Collateral held by the Collateral Agent.

     "SUBORDINATED SECURITIES" means the Initial Subordinated Securities and the
Exchange Subordinated Securities.

     "SUBORDINATED SECURITY OFFERING MEMO" means the Offering Memorandum,  dated
May 2,  2003  of  the  Company  relating  to the  offering  of the  Subordinated
Securities.

     "SUBORDINATED  SECURITY  PROVISIONS"  is  defined  in  Section  4.1  of the
Collateral Maintenance Agreement.

     "SUBORDINATED  SECURITY PURCHASE  AGREEMENT" means the Purchase  Agreement,
dated as of May 2, 2003, by and between the Initial Purchaser and the Company.

     "SUBORDINATED   SECURITY   REGISTRATION   RIGHTS   AGREEMENT"   means   the
Registration Rights Agreement dated as of the Subordinated Issuance Date, by and
between the Company and the Initial Purchaser.

     "SUBORDINATED  SECURITYHOLDER" means any holder of one or more Subordinated
Securities.

     "SUCCESSOR COMPANY" is defined in Section 5.4(a)(i) of the Indenture.

     "SUPPLEMENTAL  SECURITY  AGREEMENT"  means  a  supplement  to the  Security
Agreement substantially in the form of Exhibit A to the Security Agreement.

     "SUPPORT  DOCUMENTS" means the Liquidity  Facility,  the Policy, the Policy
Provider Agreement and the Fee Letters.

     "TAX" and "TAXES" mean any and all taxes,  fees, levies,  duties,  tariffs,
imposts,  and other  charges of any kind  (together  with any and all  interest,
penalties,  loss, damage,  liability,  expense,  additions to tax and additional
amounts or costs incurred or imposed with respect  thereto) imposed or otherwise
assessed  by the United  States of  America  or by any  state,  local or foreign
government  (or any  subdivision or agency  thereof) or other taxing  authority,
including,  without  limitation:  taxes or other  charges on or with  respect to
income, franchises,  windfall or other profits, gross receipts, property, sales,
use, capital stock, payroll, employment, social security, workers' compensation,
unemployment  compensation,  or net worth and  similar  charges;  taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer, value
added,  taxes on goods and  services,  gains taxes,  license,  registration  and
documentation fees, customs duties, tariffs, and similar charges.

     "TERMINATION NOTICE" has the meaning assigned to such term in the Liquidity
Facility.

     "THRESHOLD AMOUNT" means $2,000,000.



     "THRESHOLD  RATING" means the  short-term  unsecured  debt rating of P-1 by
Moody's  and A-1 by  Standard  & Poor's;  PROVIDED  that so long as the  initial
Liquidity Provider is the Liquidity  Provider,  the Threshold Rating shall apply
to the Liquidity Guarantor.

     "TIA"  means  the  Trust  Indenture  Act  of  1939  (15  U.S.  Code  ss.ss.
77aaa-77bbbb) as in effect on the date of the Indenture; PROVIDED, HOWEVER, that
in the event the TIA is  amended  after such date,  "TIA"  means,  to the extent
required by any such amendment, the TIA as so amended.

     "TRUST ACCOUNTS" is defined in Section 8.13(a) of the Indenture.

     "TRUST OFFICER" means any officer in the corporate trust  department of the
Trustee,  or any other officer or assistant  officer of the Trustee  assigned by
the Trustee to administer its corporate trust matters.

     "TRUSTEE"  means the party named as such in the Indenture until a successor
replaces it in accordance  with the  provisions of the Indenture and  thereafter
means the successor Trustee and if, at any time, there is more than one Trustee,
"Trustee" as used with respect to the Notes of any Series shall mean the Trustee
with respect to the Notes of that Series.

     "TRUSTEE  INCUMBENCY  CERTIFICATE"  is  defined  in  Section  3.7(a) of the
Indenture.

     "TRUSTEE   PROVISIONS"   is  defined  in  Section  4.1  of  the  Collateral
Maintenance Agreement.

     "TRUSTEE REPRESENTATIVES" is defined in Section 3.7(a) of the Indenture.

     "UCC"  means the  Uniform  Commercial  Code as in effect in any  applicable
jurisdiction.

     "UNAPPLIED PROVIDER ADVANCE" is defined in the Liquidity Facility.

     "UNSERVICEABLE  PARTS" means Pledged  Spare Parts that are not  Serviceable
Parts.

     "U.S." or "UNITED STATES" means the United States of America.

     "U.S. AIR CARRIER" means any United States air carrier that is a Citizen of
the United States holding an air carrier operating  certificate  issued pursuant
to chapter  447 of title 49 of the United  States Code for  aircraft  capable of
carrying 10 or more individuals or 6000 pounds or more of cargo.

     "U.S. GOVERNMENT" means the federal government of the United States, or any
instrumentality or agency thereof the obligations of which are guaranteed by the
full faith and credit of the federal government of the United States.

     "U.S.  GOVERNMENT  OBLIGATIONS"  means direct  obligations (or certificates
representing an ownership  interest in such obligations) of the United States of
America  (including  any agency or  instrumentality  thereof) for the payment of
which the full faith and credit of the United  States of America is pledged  and
which are not callable at the option of the issuer thereof.

     "U.S.  PERSON"  means any Person  described in Section  7701(a)(30)  of the
Code.



     "VALUATION  DATES" is defined in Section 2.4 of the Collateral  Maintenance
Agreement.

     "WARRANTIES"  is  defined in clause  (2) of  Section  2.01 of the  Security
Agreement.

     "WRITTEN  NOTICE" means,  from the Trustee,  the Liquidity  Provider or the
Policy Provider, a written instrument executed by the Designated  Representative
of such Person.  An invoice  delivered  by the  Liquidity  Provider  pursuant to
Section 3.1 of the Indenture in accordance with its normal invoicing  procedures
shall constitute Written Notice under such Section.

     "WTC" has the meaning specified in the first paragraph of the Indenture.

SECTION 2. RULES OF CONSTRUCTION.  Unless the context  otherwise  requires,  the
following  rules of  construction  shall apply for all purposes of the Operative
Documents  (including  this appendix) and of such  agreements as may incorporate
this appendix by reference.

          (a) In each Operative Document, unless otherwise expressly provided, a
reference to:

     (i)   each of the Company,  the Trustee, the Collateral Agent, the Security
           Agent  or  any  other  person  includes,  without  prejudice  to  the
           provisions of any Operative Document, any successor in interest to it
           and  any  permitted  transferee,  permitted  purchaser  or  permitted
           assignee of it;

     (ii)  words  importing the plural include the singular and words  importing
           the singular include the plural;

     (iii) any  agreement,  instrument  or  document, or any annex,  schedule or
           exhibit  thereto,  or  any  other  part  thereof,  includes,  without
           prejudice  to  the  provisions  of  any  Operative   Document,   that
           agreement,  instrument or document, or annex, schedule or exhibit, or
           part, respectively, as amended, modified or supplemented from time to
           time  in  accordance  with  its  terms  and in  accordance  with  the
           Operative  Documents,  and  any  agreement,  instrument  or  document
           entered into in substitution or replacement therefor;

     (iv)  any  provision  of any Law  includes  any such  provision as amended,
           modified, supplemented,  substituted,  reissued or reenacted prior to
           the Closing Date, and thereafter from time to time;

     (v)   the  words  "Agreement",   "this  Agreement",   "hereby",   "herein",
           "hereto",  "hereof" and  "hereunder" and words of similar import when
           used in any Operative  Document refer to such Operative Document as a
           whole and not to any particular provision of such Operative Document;

     (vi)  the words "including",  "including, without limitation",  "including,
           but not limited to", and terms or phrases of similar import when used
           in any Operative Document,  with respect to any matter or thing, mean
           including, without limitation, such matter or thing; and



     (vii) a"Section", an "Exhibit",  an "Annex",  an "Appendix" or a "Schedule"
           in any Operative Document, or in any annex thereto, is a reference to
           a section of, or an exhibit,  an annex, an appendix or a schedule to,
           such Operative Document or such annex, respectively.

          (b) Each  exhibit,  annex,  appendix  and  schedule to each  Operative
Document is incorporated in, and shall be deemed to be a part of, such Operative
Document.

          (c) Unless otherwise  defined or specified in any Operative  Document,
all   accounting   terms  therein   shall  be  construed   and  all   accounting
determinations thereunder shall be made in accordance with GAAP.

          (d) Headings used in any Operative  Document are for convenience  only
and  shall  not  in any  way  affect  the  construction  of,  or be  taken  into
consideration in interpreting, such Operative Document.

          (e) For  purposes  of each  Operative  Document,  the  occurrence  and
continuance of a Default or Event of Default referred to in Section 7.1(d),  (e)
or (f) of the Indenture  shall not be deemed to prohibit the Company from taking
any action or exercising any right that is  conditioned  on no Special  Default,
Default or Event of Default  having  occurred and be  continuing if such Special
Default,   Default  or  Event  of  Default   consists  of  the   institution  of
reorganization  proceedings  with respect to the Company under Chapter 11 of the
Bankruptcy  Code and the  trustee or  debtor-in-possession  in such  proceedings
shall have agreed to perform its obligations under the Operative  Documents with
the approval of the  applicable  court and  thereafter  shall have  continued to
perform such obligations in accordance with Section 1110.



                                                              Appendix II to the
                                                Collateral Maintenance Agreement





Address to Policy Provider and
to the Trustee]

                APPRAISAL COMPLIANCE REPORT UNDER THE COLLATERAL
                              MAINTENANCE AGREEMENT

Ladies and Gentlemen:

     We refer to the Collateral Maintenance Agreement, dated as of December 6,
2002, between Continental Airlines, Inc. (the "COMPANY") and MBIA Insurance
Corporation (as amended, the "AGREEMENT"). Terms defined in the Agreement and
used herein have such respective defined meanings. The Company hereby certifies
that:

1.   This Compliance Report is accompanied by an Independent Appraiser's
     Certificate (the "RELEVANT APPRAISAL") dated [___________]. The Valuation
     Date for purposes of the Relevant Appraisal was [___________] (the
     "RELEVANT VALUATION DATE").

2.   The following sets forth the calculation of the Collateral Ratio as of the
     Relevant Valuation Date:


               a.   The aggregate principal amount of all
                    Securities Outstanding as of the
                    Relevant Valuation Date                    $[_______]

               b.   The Fair Market Value of the Cash
                    Collateral as of the Relevant Valuation
                    Date                                       $[_______]

               c.   The Fair Market Value of the Collateral
                    (excluding Cash Collateral) as of the
                    Relevant Valuation Date, as set forth in
                    the accompanying Independent Appraiser'
                    Certificate                                $[_______]

               d.   The Collateral Ratio
                    ((a - b) / c)                               [_______]%



3.   The following sets forth the calculation of the
     Subordinated Collateral Ratio as of the Relevant
     Valuation Date:


               a.   The aggregate principal amount of all
                    Notes Outstanding as of the Relevant
                    Valuation Date                             $[_______]

               b.   The Fair Market Value of the Cash
                    Collateral as of the Relevant Valuation
                    Date                                       $[_______]

               c.   The Fair Market Value of the Collateral
                    (excluding Cash Collateral) as of the
                    Relevant Valuation Date, as set forth in
                    the accompanying Independent Appraiser's
                    Certificate                                $[_______]

               d.   The Subordinated Collateral
                    Ratio ((a - b) / c)                         [_______]%

4.   The following sets forth the calculation of the Rotable
     Ratio as of the Relevant Valuation Date:


               a.   The Fair Market Value of the Rotables as
                    of the Relevant Valuation Date, as set
                    forth in the accompanying Independent
                    Appraiser's Certificate                    $[_______]

               b.   The aggregate principal amount of all
                    Securities Outstanding as of the
                    Relevant Valuation Date                    $[_______]

               c.   The Fair Market Value of the Cash
                    Collateral as of the Relevant Valuation
                    Date                                       $[_______]

               d.   The Rotable Ratio
                    (a / b - c)                                 [_______]%




5.   The following sets forth the calculation of the
     Subordinated Rotable Ratio as of the Relevant Valuation
     Date:


               a.   The Fair Market Value of the Rotables as
                    of the Relevant Valuation Date, as set
                    forth in the accompanying Independent
                    Appraiser's Certificate                    $[_______]

               b.   The aggregate principal amount of all
                    Notes Outstanding as of the Relevant
                    Valuation Date                             $[_______]

               c.   The Fair Market Value of the Cash
                    Collateral as of the Relevant Valuation
                    Date                                       $[_______]

               d.   The Subordinated Rotable Ratio
                    (a / b - c)                                 [_______]%

6.   The Continental Cash Balance as of the Relevant
     Valuation Date was $[___________].


Dated:     [__________]


                                       Very truly yours,


                                       CONTINENTAL AIRLINES, INC.


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

                               AMENDMENT NO. 1 TO
                         SPARE PARTS SECURITY AGREEMENT


     AMENDMENT NO. 1, dated as of May 9, 2003 (this "AMENDMENT"), to Spare Parts
Security Agreement, dated as of December 6, 2002 (the "SECURITY AGREEMENT"),
between WILMINGTON TRUST COMPANY, a Delaware banking corporation, as Security
Agent (the "SECURITY AGENT"), and CONTINENTAL AIRLINES, INC., a Delaware
corporation (the "COMPANY"). Certain terms used herein have the defined meanings
referred to in Section 1 hereof.


                              W I T N E S S E T H :
                              - - - - - - - - - -

     WHEREAS, the Company is a certificated air carrier under Section 44705 of
title 49 of the United States Code; and

     WHEREAS, in connection with the issuance and sale of the Company's Floating
Rate Secured Notes due 2007 pursuant to the Original Indenture, the Company and
the Security Agent entered into the Security Agreement to secure, among other
things, the Company's obligations with respect to such Securities, and the
Security Agreement was recorded by the Federal Aviation Administration on
January 9, 2003 and was assigned Conveyance No. J001986; and

     WHEREAS, in connection with the issuance and sale of the Company's Floating
Rate Secured Subordinated Notes due 2007 pursuant to the Indenture, the Company
has requested that the Security Agreement be amended to secure, among other
things, the Company's obligations with respect to such Subordinated Securities;
and

     WHEREAS, the Original Indenture, as amended and restated to provide for the
issuance of such Subordinated Securities, provides for the issuance of
$300,000,000 aggregate principal amount of the Notes; and

     WHEREAS, the Controlling Party has given its written consent to this
Amendment and the Company has obtained Ratings Confirmation with respect to the
issuance of such Subordinated Securities.

     NOW, THEREFORE, in consideration of the premises and for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

     SECTION 1. DEFINITIONS. Unless otherwise defined or provided herein, terms
used herein that are defined in the Security Agreement, as amended by this
Amendment, have such respective defined meanings.

     SECTION 2. AMENDMENTS. Effective as of the date hereof, the Security
Agreement is hereby amended as follows:



     Section 2.1 CERTAIN REFERENCES TO SECURITIES. Each reference to
"Securities" in (a) the first sentence of Section 2.01, (b) Section 4.05, (c)
Section 6.01(e), (d) Section 6.03, (e) Section 6.04, (f) Section 7.03, (g)
Section 9.02, and (h) the second "Whereas" clause of Exhibit A, is deleted and
replaced with "Notes". The reference to "any one Security" in the third
paragraph of Section 2.01 (which paragraph begins with "TO HAVE AND TO HOLD") is
deleted and replaced with "any one Note".

     Section 2.2 RELEASE OF CASH COLLATERAL. Section 7.03(b) is amended and
restated to read in its entirety as follows:

          "(b) If the Collateral Ratio is less than the Maximum Collateral
     Ratio, the Subordinated Collateral Ratio is less than the Maximum
     Subordinated Collateral Ratio, the Rotable Ratio is greater than the
     Minimum Rotable Ratio and the Subordinated Rotable Ratio is greater than
     the Minimum Subordinated Rotable Ratio, in each case as most recently
     determined pursuant to Article 2 or Section 3.1 of the Collateral
     Maintenance Agreement, and the Security Agent held any Cash Collateral as
     of the Valuation Date for such Collateral Ratio, Subordinated Collateral
     Ratio, Rotable Ratio and Subordinated Rotable Ratio (or subsequent date as
     of which such ratio was recalculated pursuant to Section 3.1 of the
     Collateral Maintenance Agreement), upon written request of the Company the
     Security Agent shall pay to the Company an amount of the Cash Collateral
     such that the Collateral Ratio would not be greater than the Maximum
     Collateral Ratio, the Subordinated Collateral Ratio would not be greater
     than the Maximum Subordinated Collateral Ratio, the Rotable Ratio would not
     be less than the Minimum Rotable Ratio and the Subordinated Rotable Ratio
     would not be less than the Minimum Subordinated Rotable Ratio, giving
     effect to such payment (but otherwise using the information used as of such
     most recent determination date to determine such ratio)."

     Section 2.3 SECURITY AGENT. Article 8 is amended and restated to read in
its entirety as follows:

                                   "ARTICLE 8

                                 SECURITY AGENT

          SECTION 8.01 SECURITY AGENT. The Security Agent has been appointed
     pursuant to the Indenture as Security Agent hereunder. The Security Agent
     shall be obligated, and shall have the right, hereunder to make demands, to
     give notices, to exercise or refrain from exercising any rights, and to
     take or refrain from taking action (including, without limitation, the
     release of Spare Parts Collateral) solely in accordance with this Security
     Agreement and the Indenture. The Security Agent agrees to and shall have
     the benefit of all provisions of the Indenture and the other Operative
     Documents stated therein to be applicable to the Security Agent.

          SECTION 8.02 REPLACEMENT OF SECURITY AGENT. (a) The Security Agent may
     resign by so notifying the Company, the Trustee (if other than the Security
     Agent), the Liquidity Provider and the Controlling Party in writing. The



     Controlling Party may remove the Security Agent by so notifying the
     Security Agent in writing and may appoint a successor Security Agent with
     the Company's consent, which consent shall not be unreasonably refused or
     delayed. The Company may remove the Security Agent if:

               (i) the Security Agent fails to comply with Section 8.02(e);

               (ii) the Security Agent is adjudged a bankrupt or an insolvent;

               (iii) a receiver or other public officer takes charge of the
          Security Agent or its property;

               (iv) the Security Agent becomes incapable of acting; or

               (v) no Default or Event of Default has occurred and is continuing
          and the Company determines in good faith to remove the Security Agent.

          (b) If the Security Agent resigns or is removed or if a vacancy exists
     in the office of Security Agent for any reason, the Company shall promptly
     appoint a successor Security Agent. Within one year after the successor
     Security Agent takes office, the Controlling Party may appoint a successor
     Security Agent to replace the successor Security Agent appointed by the
     Company.

          (c) A successor Security Agent shall deliver a written acceptance of
     its appointment to the retiring Security Agent and to the Company.
     Immediately after that, the resignation or removal of the retiring Security
     Agent shall become effective, and the successor Security Agent shall
     succeed to and become vested with all the rights, powers and duties of the
     Security Agent under this Agreement. After any retiring Security Agent's
     resignation or removal, the provisions of this Security Agreement shall
     inure to its benefit as to any actions taken or omitted to be taken by it
     under this Security Agreement while it was Security Agent.

          (d) No resignation or removal of the Security Agent and no appointment
     of a successor Security Agent, pursuant to this Section, shall become
     effective until the acceptance of appointment by the successor Security
     Agent under this Section. If a successor Security Agent does not take
     office within sixty (60) days after the retiring Security Agent resigns or
     is removed, the retiring Security Agent, the Company, the Liquidity
     Provider, the Controlling Party or Holders of at least 10% in principal
     amount of any series of Notes Outstanding may petition any court of
     competent jurisdiction for the appointment of a successor Security Agent.

          (e) The Security Agent shall have a combined capital and surplus of at
     least $50,000,000, as set forth in its most recent, published annual report
     of condition. The Security Agent shall satisfy and comply with any
     applicable requirements of the TIA."

     Section 2.4 DEFINITIONS APPENDIX. Appendix I to the Security Agreement is
amended by deleting existing Appendix I and substituting therefor new Appendix I
attached as Appendix I hereto.



     Section 2.5 EXHIBITS. Exhibit A to the Security Agreement is amended by
inserting in the second parenthetical of the first "Whereas" clause before "the
Security Agreement" the following: "as amended by Amendment No. 1 to Spare Parts
Security Agreement,".

     SECTION 3. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the Trustee, the Liquidity Provider, the Policy Provider and the
Security Agent as follows:

     Section 3.1 ORGANIZATION; QUALIFICATION. The Company is a corporation duly
incorporated, validly existing and in good standing under the Laws of the State
of Delaware and has the corporate power and authority to conduct the business in
which it is currently engaged and to own or hold under lease its properties and
to enter into and perform its obligations under the Subordinated Documents. The
Company is duly qualified to do business as a foreign corporation in good
standing in each jurisdiction in which the nature and extent of the business
conducted by it, or the ownership of its properties, requires such
qualification, except where the failure to be so qualified would not give rise
to a Material Adverse Change to the Company.

     Section 3.2 CORPORATE AUTHORIZATION. The Company has taken, or caused to be
taken, all necessary corporate action (including, without limitation, the
obtaining of any consent or approval of stockholders required by its Certificate
of Incorporation or By-Laws) to authorize the execution and delivery of each of
the Subordinated Documents, and the performance of its obligations thereunder.

     Section 3.3 NO VIOLATION. The execution and delivery by the Company of the
Subordinated Documents, the performance by the Company of its obligations
thereunder and the consummation by the Company on the Subordinated Closing Date
of the transactions contemplated thereby, do not and will not (a) violate any
provision of the Certificate of Incorporation or By-Laws of the Company, (b)
violate any Law applicable to or binding on the Company or (c) violate or
constitute any default under (other than any violation or default that would not
result in a Material Adverse Change to the Company), or result in the creation
of any Lien (other than as permitted under the Security Agreement) upon the
Pledged Spare Parts under, any indenture, mortgage, chattel mortgage, deed of
trust, conditional sales contract, lease, loan or other material agreement,
instrument or document to which the Company is a party or by which the Company
or any of its properties is bound.

     Section 3.4 APPROVALS. The execution and delivery by the Company of the
Subordinated Documents, the performance by the Company of its obligations
thereunder and the consummation by the Company on the Subordinated Closing Date
of the transactions contemplated thereby do not and will not require the consent
or approval of, or the giving of notice to, or the registration with, or the
recording or filing of any documents with, or the taking of any other action in
respect of, (a) any trustee or other holder of any debt of the Company and (b)
any Government Entity, other than the filing of (x) the FAA Filed Documents
(with the FAA) and the Financing Statements (and continuation statements
periodically) and (y) filings, recordings, notices or other ministerial actions
pursuant to any routine recording, contractual or regulatory requirements
applicable to it.

     Section 3.5 VALID AND BINDING AGREEMENTS. The Subordinated Documents have
been duly authorized, executed and delivered by the Company and, assuming the



due authorization, execution and delivery thereof by the other party or parties
thereto, constitute the legal, valid and binding obligations of the Company and
are enforceable against the Company in accordance with the respective terms
thereof, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium and other similar Laws affecting the
rights of creditors generally and general principles of equity, whether
considered in a proceeding at law or in equity.

     Section 3.6 REGISTRATION AND RECORDATION. Except for (a) the filing for
recordation (and recordation) of the FAA Filed Documents with the FAA, (b) the
filing of the Financing Statements (and continuation statements relating thereto
at periodic intervals), and (c) the deposit of the Initial Cash Collateral with,
and the holding and investment of the Initial Cash Collateral by, the Security
Agent in accordance with Article 7 of the Security Agreement, no further action,
including any filing or recording of any document (including any financing
statement in respect thereof under Article 9 of the UCC) is necessary in order
to establish and perfect the Security Agent's security interest in the Pledged
Spare Parts, the Warranties, the Spare Parts Documents and the Initial Cash
Collateral as against the Company and any other Person, in each case, in any
applicable jurisdictions in the United States.

     Section 3.7 THE COMPANY'S LOCATION. The Company's location (as such term is
used in Section 9-307 of the UCC) is Delaware. The full and correct legal name
and mailing address of the Company are correctly set forth in Section 9.05 of
the Security Agreement.

     Section 3.8 COMPLIANCE WITH LAWS. (a) The Company is a Citizen of the
United States and a U.S. Air Carrier.

     (b) The Company holds all licenses, permits and franchises from the
appropriate Government Entities necessary to authorize the Company to lawfully
engage in air transportation and to carry on scheduled commercial passenger
service as currently conducted, except where the failure to so hold any such
license, permit or franchise would not give rise to a Material Adverse Change to
the Company.

     (c) The Company is not an "investment company" or a company controlled by
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.

     Section 3.9 BROKER'S FEES. No Person acting on behalf of the Company is or
will be entitled to any broker's fee, commission or finder's fee in connection
with the transactions pursuant to the Subordinated Documents on the Subordinated
Closing Date, other than the fees and expenses payable by the Company in
connection with the sale of the Subordinated Securities.

     Section 3.10 SECTION 1110. The Security Agent is entitled to the benefits
of Section 1110 (as currently in effect) with respect to the right to take
possession of the Pledged Spare Parts and to enforce any of its other rights or
remedies as provided in the Security Agreement in the event of a case under
Chapter 11 of the Bankruptcy Code in which the Company is a debtor.

     SECTION 4. CONSTRUCTION. All references in the Security Agreement to the
"Security Agreement" shall be deemed to refer to the Security Agreement as



amended by this Amendment, and the parties hereto confirm their respective
obligations thereunder. The Security Agreement is hereby ratified by the parties
hereto and shall remain in all respects unchanged (except as expressly provided
in this Amendment) and in full force and effect.

     SECTION 5. GOVERNING LAW. This Amendment shall be governed by, and
construed in accordance with, the law of the State of New York.

     SECTION 6. COUNTERPARTS. This Amendment may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.

                       [Remainder of this page is blank.]



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


                                       CONTINENTAL AIRLINES, INC.


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


                                       WILMINGTON TRUST COMPANY, as
                                       Security Agent


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



                                   Appendix I

                              DEFINITIONS APPENDIX


SECTION 1. DEFINED TERMS.

     "ACCELERATION" means, with respect to the amounts payable in respect of the
Notes issued under the  Indenture,  such amounts  becoming  immediately  due and
payable  pursuant to Section 7.2 of the Indenture.  "ACCELERATE",  "ACCELERATED"
and "ACCELERATING" have meanings correlative to the foregoing.

     "ACCRUED INTEREST" is defined in Section 3.6(a) of the Indenture.

     "ADDITIONAL  PARTS" is  defined  in  Section  3.1(a)(i)  of the  Collateral
Maintenance Agreement.

     "ADDITIONAL  ROTABLES" is defined in Section  3.1(b)(i)  of the  Collateral
Maintenance Agreement.

     "ADVANCE" means any Advance as defined in the Liquidity Facility.

     "AFFILIATE"  of any specified  Person means any other  Person,  directly or
indirectly,  controlling  or  controlled  by or under direct or indirect  common
control  with  such  specified  Person.  For the  purposes  of this  definition,
"CONTROL"  when used with  respect to any  Person  means the power to direct the
management and policies of such Person, directly or indirectly,  whether through
the  ownership of voting  securities,  by contract or  otherwise;  and the terms
"CONTROLLING" and "CONTROLLED" have meanings correlative to the foregoing.

     "AGENT"  means any  Registrar,  Paying Agent or  co-Registrar  or co-Paying
Agent.

     "AGENT MEMBERS" is defined in Section 2.5(a) of the Indenture.

     "AIRCRAFT" means any contrivance  invented,  used, or designed to navigate,
or fly in, the air.

     "AMENDMENT NO. 1 TO COLLATERAL  MAINTENANCE  AGREEMENT" means Amendment No.
1, dated as of the  Subordinated  Issuance Date, to the  Collateral  Maintenance
Agreement.

     "AMENDMENT  NO. 1 TO REFERENCE  AGENCY  AGREEMENT"  means  Amendment No. 1,
dated as of the Subordinated Issuance Date, to the Reference Agency Agreement.

     "AMENDMENT NO. 1 TO SECURITY  AGREEMENT" means Amendment No. 1, dated as of
the Subordinated Issuance Date, to the Security Agreement.

     "ANNUAL METHODOLOGY" means, in determining an opinion as to the Fair Market
Value of the Spare Parts Collateral,  taking at least the following actions: (i)
reviewing the Parts Inventory Report



prepared as of the applicable  Valuation  Date;  (ii) reviewing the  Independent
Appraiser's  internal  value database for values  applicable to Qualified  Spare
Parts included in the Spare Parts Collateral;  (iii) developing a representative
sampling of a reasonable number of the different  Qualified Spare Parts included
in Spare  Parts  Collateral  for which a market  check will be  conducted;  (iv)
checking other sources, such as manufacturers,  other airlines,  U.S. government
procurement  data and airline  parts  pooling  price lists,  for current  market
prices of the sample parts  referred to in clause  (iii);  (v)  establishing  an
assumed ratio of Serviceable  Parts to Unserviceable  Parts as of the applicable
Valuation  Date  based  upon  information   provided  by  the  Company  and  the
Independent  Appraiser's  limited  physical review of the Spare Parts Collateral
referred to in the following  clause (vi);  (vi) visiting at least two locations
selected by the Independent  Appraiser where the Pledged Spare Parts are kept by
the Company  (neither of which was  visited for  purposes of the last  appraisal
under Section 2.1 or 2.2 of the Collateral Maintenance Agreement,  whichever was
most recent),  PROVIDED that at least one such location  shall be one of the top
three  locations at which the Company keeps the largest  number of Pledged Spare
Parts, to conduct a limited physical  inspection of the Spare Parts  Collateral;
(vii) conducting a limited review of the inventory  reporting system  applicable
to the Pledged  Spare Parts,  including  checking  information  reported in such
system against  information  determined through physical  inspection pursuant to
the  preceding  clause  (vi) and (viii)  reviewing a sampling of the Spare Parts
Documents (including tear-down reports).

     "ANNUAL  VALUATION  DATE"  is  defined  in  Section  2.1 of the  Collateral
Maintenance Agreement.

     "APPLIANCE"  means  an  instrument,   equipment,   apparatus,  a  part,  an
appurtenance,  or an accessory  used,  capable of being used,  or intended to be
used,  in operating or  controlling  Aircraft in flight,  including a parachute,
communication  equipment,  and  another  mechanism  installed  in or attached to
Aircraft during flight, and not a part of an Aircraft, Engine, or Propeller.

     "APPLICABLE MARGIN" means 0.90%.

     "APPLICABLE PERIOD" is defined in Section 3.2 of the Collateral Maintenance
Agreement.

     "APPRAISAL  COMPLIANCE  REPORT" means,  as of any date, a report  providing
information   relating  to  the  calculation  of  the  Collateral   Ratio,   the
Subordinated  Collateral  Ratio,  Rotable Ratio and Subordinated  Rotable Ratio,
which  shall be  substantially  in the  form of  Appendix  II to the  Collateral
Maintenance Agreement.

     "APPRAISED  VALUE" means,  with respect to any Collateral,  the Fair Market
Value of such Collateral as most recently  determined pursuant to (i) the report
attached  as  Appendix  II to the  Offering  Memo  or  (ii)  Article  2 and,  if
applicable, Section 3.1 of the Collateral Maintenance Agreement.

     "AVAILABLE AMOUNT" means, as of any date, the Maximum Available  Commitment
(as defined in the Liquidity Facility) on such date.

     "AVOIDED PAYMENT" has the meaning assigned to such term in the Policy.

     "BANKRUPTCY  CODE"  means the  United  States  Bankruptcy  Code,  11 U.S.C.
Section 101 ET SEQ.



     "BOARD OF  DIRECTORS"  means the Board of  Directors  of the Company or any
committee  of such board  duly  authorized  to act in respect of any  particular
matter.

     "BREAK AMOUNT" means, as of any date of payment, redemption or acceleration
of any Note (the "APPLICABLE DATE"), an amount determined by the Reference Agent
on the date that is two Business Days prior to the  Applicable  Date pursuant to
the formula set forth  below;  PROVIDED,  HOWEVER,  that no Break Amount will be
payable (x) if the Break Amount, as calculated pursuant to the formula set forth
below,  is equal to or less than zero or (y) on or in respect of any  Applicable
Date that is an Interest  Payment Date (or, if such an Interest  Payment Date is
not a Business Day, the next succeeding Business Day)

     Break Amount = Z-Y

     Where:

     X = with  respect to any  applicable  Interest  Period,  the sum of (i) the
         amount of the outstanding principal amount of such Note as of the first
         day of the then applicable  Interest Period plus (ii) interest  payable
         thereon during such entire Interest Period at then effective LIBOR.

     Y = X, discounted to present value from the last day of the then applicable
         Interest Period to the Applicable  Date,  using then effective LIBOR as
         the discount rate.

     Z = X, discounted to present value from the last day of the then applicable
         Interest  Period  to the  Applicable  Date,  using a rate  equal to the
         applicable London interbank offered rate for a period commencing on the
         Applicable  Date and  ending  on the  last  day of the then  applicable
         Interest  Period,  determined by the Reference Agent as of two Business
         Days prior to the Applicable Date as the discount rate.

     "BUSINESS DAY" means any day that is a day for trading by and between banks
in the London interbank  Eurodollar  market and that is other than a Saturday or
Sunday or a day on which commercial banks are required or authorized to close in
Houston,  Texas, New York, New York, or, so long as any Security is outstanding,
the city and state in which the Trustee maintains its Corporate Trust Office or,
solely with  respect to draws under any Policy,  the city and state in which the
office of the Policy  Provider at which notices,  presentations,  transmissions,
deliveries and  communications  are to be made under the Policy is located,  and
that,  solely with  respect to draws  under the  Liquidity  Facility,  also is a
"Business Day" as defined in the Liquidity Facility.

     "CAPPED INTEREST RATE" means a rate per annum equal to 12%.

     "CASH COLLATERAL" means cash and/or Investment  Securities  deposited or to
be deposited with the Collateral Agent or an Eligible Institution and subject to
the Lien of any Collateral Agreement.

     "CASH COLLATERAL  ACCOUNT" means an Eligible Deposit Account in the name of
the Trustee maintained at an Eligible Institution, which shall be the Trustee if



it shall so qualify,  into which all amounts drawn under the Liquidity  Facility
pursuant  to  Section  3.5(c),  3.5(d)  or  3.5(i)  of the  Indenture  shall  be
deposited.

     "CITIZEN OF THE UNITED STATES" is defined in 49 U.S.C.ss. 40102(a)(15).

     "CLEARING  AGENCY" means an organization  registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.

     "CLEARSTREAM" means Clearstream Banking societe anonyme, Luxembourg.

     "CLOSING DATE" means the Issuance Date.

     "CODE" means the Internal Revenue Code of 1986, as amended.

     "COLLATERAL"  means the Spare Parts  Collateral and all other collateral in
which the Collateral  Agent has a security  interest  pursuant to the Collateral
Agreements.

     "COLLATERAL AGENT" means the Security Agent and each other Person acting as
agent on behalf of the Holders under any other Collateral Agreement.

     "COLLATERAL AGREEMENT" means the Security Agreement and any agreement under
which a security interest has been granted pursuant to Section 3.1(a)(ii) of the
Collateral Maintenance Agreement.

     "COLLATERAL   MAINTENANCE   AGREEMENT"  means  the  Collateral  Maintenance
Agreement,  dated as of the  Issuance  Date,  between the Company and the Policy
Provider.

     "COLLATERAL  RATIO" shall mean a percentage  determined by dividing (i) the
aggregate  principal amount of all Securities  Outstanding  minus the sum of the
Cash  Collateral  held by the Collateral  Agent by (ii) the Fair Market Value of
all Collateral (excluding any Cash Collateral),  as set forth in the most recent
Independent Appraiser's Certificate delivered by the Company pursuant to Article
2 of the Collateral Maintenance  Agreement,  as supplemented pursuant to Section
3.1 of the Collateral Maintenance Agreement, if applicable.

     "COLLECTION  ACCOUNT" means the Eligible Deposit Account established by the
Trustee  pursuant to Section 8.13 of the Indenture  which the Trustee shall make
deposits in and withdrawals from in accordance with the Indenture.

     "COMPANY"  means the party named as such in the Indenture or any obligor on
the Notes until a successor replaces it pursuant to the Indenture and thereafter
means the successor.

     "CONSENT PERIOD" is defined in Section 3.5(d) of the Indenture.

     "CONTINENTAL  BANKRUPTCY EVENT" means the occurrence and continuation of an
Event of Default under Section 7.1(d), (e) or (f) of the Indenture.

     "CONTINENTAL CASH BALANCE" means the sum of (a) the amount of cash and cash
equivalents  that would have been shown on the balance sheet of Continental  and



its  consolidated  subsidiaries  prepared  in  accordance  with  GAAP  as of any
Valuation  Date,  plus (b) the amount of marketable  securities  that would have
been  reflected on such balance  sheet which had, as of such  Valuation  Date, a
maturity  of less than one year and which,  but for their  maturity,  would have
qualified to be reflected on such balance sheet as cash equivalents.

     "CONTROLLING  PARTY" means the Person  entitled to act as such  pursuant to
the terms of Section 3.8 of the Indenture.

     "CORPORATE  TRUST  OFFICE" when used with respect to the Trustee  means the
office  of the  Trustee  at which at any  particular  time its  corporate  trust
business  is  administered  and  which,  at the  Closing  Date,  is  located  at
Wilmington  Trust  Company,  as Trustee,  Rodney  Square North 1100 North Market
Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administration.

     "DEBT BALANCE" means 110% of the principal amount of the Outstanding Notes.

     "DEBT RATE" means a rate per annum equal, in the case of the first Interest
Period for the Securities,  to 2.32% and, in the case of any subsequent Interest
Period,  LIBOR for such Interest Period, as determined pursuant to the Reference
Agency Agreement, plus the Applicable Margin, PROVIDED that, solely in the event
no Registration  Event (as defined in the Registration  Rights Agreement) occurs
on or prior to the  210th day after the  Closing  Date,  the Debt Rate  shall be
increased by an additional  margin equal to 0.50% per annum,  from and including
such  210th  day to and  excluding  the  earlier  of (i) the date on which  such
Registration  Event  occurs  and (ii) the date on which  there  ceases to be any
Registrable Securities (as defined in the Registration Rights Agreement)); or if
the  Shelf  Registration  Statement  (as  defined  in  the  Registration  Rights
Agreement) (if it is filed),  after being declared  effective by the SEC, ceases
to be  effective at any time during the period  specified by Section  2(b)(B) of
the  Registration  Rights  Agreement  for  more  than 60  days,  whether  or not
consecutive,  during any 12-month period, the Debt Rate shall be increased by an
additional  margin equal to 0.50% per annum from and  including  the 61st day of
the applicable  12-month period such Shelf  Registration  Statement ceases to be
effective to and  excluding the date on which the Shelf  Registration  Statement
again  becomes  effective  (or, if earlier,  the end of the period  specified by
Section  2(b)(B)  of the  Registration  Rights  Agreement),  PROVIDED  that  the
additional margin added to the Debt Rate pursuant to the preceding proviso shall
never  exceed  0.50% at any time,  PROVIDED  FURTHER  that,  if a default in the
payment of interest on the  Securities  occurs and is continuing on any Interest
Payment Date,  then the Debt Rate  applicable  to the Interest  Period ending on
such Interest  Payment Date shall not exceed the Capped  Interest  Rate,  except
that for  purposes  of any  payment  made by the  Company  intended to cure such
default, this proviso shall not apply.

     "DEFAULT"  means any event which is, or after notice or passage of time, or
both, would be, an Event of Default.

     "DEFINITIONS  APPENDIX" means the Definitions Appendix attached as Appendix
I to the Indenture and constituting a part of the Indenture.

     "DEFINITIVE SECURITIES" is defined in Section 2.1(e) of the Indenture.

     "DEFINITIVE  SUBORDINATED  SECURITIES" is defined in Section 2A.1(e) of the
Indenture.



     "DESIGNATED LOCATIONS" means the locations in the U.S. designated from time
to time by the Company at which the Pledged  Spare Parts may be maintained by or
on behalf of the Company,  which  initially  shall be the locations set forth on
Schedule 1 to the Security Agreement and shall include the additional  locations
designated by the Company pursuant to Section 4.04(d) of the Security Agreement.

     "DESIGNATED REPRESENTATIVES" is defined in Section 3.7(b) of the Indenture.

     "DISTRIBUTION  DATE"  means (i) each  Scheduled  Payment  Date  (and,  if a
Payment  required to be paid to the Trustee for  distribution  on such Scheduled
Payment Date has not been so paid by 12:30 p.m.,  New York time,  in whole or in
part, on such Scheduled Payment Date, the next Business Day on which the Trustee
receives some or all of such Payment by 12:30 p.m., New York time,  except for a
defaulted  payment  of  interest  that is not paid  within  five days  after the
Scheduled  Payment Date therefor),  (ii) each day established for payment by the
Trustee pursuant to Section 7.10, (iii) the  Non-Performance  Payment Date, (iv)
the Final Legal  Maturity  Date, (v) the Election  Distribution  Date,  (vi) the
Policy Election  Distribution Date, (vii) the date established as a Distribution
Date pursuant to Section  3.6(f) of the Indenture and (viii) solely for purposes
of payments to be made by the Policy Provider  pursuant to Section 3.6(d) of the
Indenture  and not for purposes of any other payment or  distribution  under the
Indenture, the date established for such payment in accordance with the Policy.

     "DOWNGRADE DRAWING" is defined in Section 3.5(c) of the Indenture.

     "DOWNGRADE  EVENT" has the meaning  assigned to such term in Section 3.5(c)
of the Indenture.

     "DOWNGRADED FACILITY" is defined in Section 3.5(c) of the Indenture.

     "DRAWING"  means an Interest  Drawing,  a Final  Drawing,  a  Non-Extension
Drawing or a Downgrade Drawing, as the case may be.

     "DTC" means The Depository Trust Company, its nominees and their respective
successors.

     "ELECTION DISTRIBUTION DATE" is defined in Section 3.6(c) of the Indenture.

     "ELIGIBLE  ACCOUNT"  means an account  established  by and with an Eligible
Institution at the request of the Security Agent, which institution  agrees, for
all  purposes  of the New York UCC  including  Article 8 thereof,  that (a) such
account shall be a "securities  account" (as defined in Section 8-501 of the New
York UCC), (b) such  institution is a "securities  intermediary"  (as defined in
Section  8-102(a)(14)  of the New York UCC), (c) all property  (other than cash)
credited to such account shall be treated as a "financial  asset" (as defined in
Section  8-102(9)  of the New York UCC),  (d) the  Security  Agent  shall be the
"entitlement  holder"  (as  defined in Section  8-102(7) of the New York UCC) in
respect of such account,  (e) it will comply with all entitlement  orders issued
by the Security  Agent to the  exclusion  of the  Company,  (f) it will waive or
subordinate  in  favor of the  Security  Agent  all  claims  (including  without
limitation,  claims by way of  security  interest,  lien or right of  set-off or



right of recoupment),  and (g) the "securities intermediary jurisdiction" (under
Section 8-110(e) of the New York UCC) shall be the State of New York.

     "ELIGIBLE  DEPOSIT  ACCOUNT" means either (a) a segregated  account with an
Eligible  Institution or (b) a segregated trust account with the corporate trust
department of a depository  institution  organized  under the laws of the United
States of America or any one of the states  thereof or the  District of Columbia
(or any U.S. branch of a foreign bank), having corporate trust powers and acting
as trustee for funds deposited in such account, so long as any of the securities
of such depository  institution has a long-term  unsecured debt rating or issuer
credit  rating,  as the  case  may  be,  from  Moody's  of at  least  A-3 or its
equivalent.  An Eligible  Deposit  Account may be maintained  with the Liquidity
Provider so long as the Liquidity Provider is an Eligible Institution;  provided
that such  Liquidity  Provider  shall have  waived  all  rights of  set-off  and
counterclaim with respect to such account.

     "ELIGIBLE  INSTITUTION"  means (a) the  Security  Agent or (b) a depository
institution  organized under the laws of the United States of America or any one
of the states  thereof or the  District  of  Columbia  (or any U.S.  branch of a
foreign  bank),  which has a long-term  unsecured  debt rating or issuer  credit
rating, as the case may be, from Moody's of at least A-3 or its equivalent.

     "ELIGIBLE   INVESTMENTS"  means  (a)  investments  in  obligations  of,  or
guaranteed  by,  the U.S.  Government  having  maturities  no later than 90 days
following the date of such investment, (b) investments in open market commercial
paper of any  corporation  incorporated  under the laws of the United  States of
America or any state thereof with a short-term  unsecured  debt rating issued by
Moody's of at least P-1 and a short-term issuer credit rating issued by Standard
& Poor's of at least A-1 having  maturities no later than 90 days  following the
date of  such  investment  or (c)  investments  in  negotiable  certificates  of
deposit, time deposits,  banker's acceptances,  commercial paper or other direct
obligations of, or obligations  guaranteed by,  commercial banks organized under
the laws of the United  States or of any political  subdivision  thereof (or any
U.S.  branch of a foreign  bank)  with a  short-term  unsecured  debt  rating by
Moody's of at least P-1 and a  short-term  issuer  credit  rating by  Standard &
Poor's of at least A-1,  having  maturities no later than 90 days  following the
date of such investment;  PROVIDED,  HOWEVER,  that (x) all Eligible Investments
that are bank  obligations  shall be  denominated in U.S.  dollars;  and (y) the
aggregate  amount  of  Eligible  Investments  at any  one  time  that  are  bank
obligations  issued by any one bank shall not be in excess of 5% of such  bank's
capital surplus;  PROVIDED FURTHER that any investment of the types described in
clauses (a),  (b) and (c) above may be made  through a  repurchase  agreement in
commercially  reasonable  form  with  a  bank  or  other  financial  institution
qualifying as an Eligible  Institution  so long as such  investment is held by a
third party  custodian  also  qualifying  as an Eligible  Institution;  PROVIDED
FURTHER,  HOWEVER,  that in the  case of any  Eligible  Investment  issued  by a
domestic branch of a foreign bank, the income from such investment shall be from
sources within the United States for purposes of the Code.  Notwithstanding  the
foregoing,  no  investment  of the types  described in clause (b) above which is
issued or guaranteed by the Company or any of its Affiliates,  and no investment
in the  obligations  of any one  bank in  excess  of  $10,000,000,  shall  be an
Eligible  Investment  unless written  approval has been obtained from the Policy
Provider and a Ratings Confirmation shall have been received with respect to the
making of such investment.



     "ENGINE"  means an  engine  used,  or  intended  to be used,  to  propel an
Aircraft, including a part, appurtenance,  and accessory of the Engine, except a
Propeller.

     "ERISA"  means the Employee  Retirement  Income  Security  Act of 1974,  as
amended from time to time

     "EUROCLEAR"  means Euroclear Bank  S.A./N.V.,  as operator of the Euroclear
System.

     "EVENT OF DEFAULT" is defined in Section 7.1 of the Indenture.

     "EVENT OF LOSS" means (i) the loss of any of the Pledged  Spare Parts or of
the use thereof due to destruction,  damage beyond repair or rendition of any of
the  Pledged  Spare  Parts  permanently  unfit  for  normal  use for any  reason
whatsoever (other than the use of Expendables in the Company's operations); (ii)
any damage to any of the Pledged  Spare  Parts  which  results in the receipt of
insurance  proceeds  with respect to such Pledged Spare Parts on the basis of an
actual  or  constructive  loss;  or (iii) the loss of  possession  of any of the
Pledged Spare Parts by the Company for ninety (90)  consecutive days as a result
of the theft or disappearance of such Pledged Spare Parts.

     "EXCHANGE ACT" means the  Securities  Exchange Act of 1934, as amended from
time to time.

     "EXCHANGE  FLOATING  RATE  SECURED  NOTES DUE 2007" is  defined  in Section
2.1(a) of the Indenture.

     "EXCHANGE FLOATING RATE SECURED  SUBORDINATED NOTES DUE 2007" is defined in
Section 2A.1(a) of the Indenture.

     "EXCHANGE  OFFER"  means (i) with respect to the  Securities,  the exchange
offer  which  may be made  pursuant  to the  Registration  Rights  Agreement  to
exchange Initial Securities for Exchange Securities and (ii) with respect to the
Subordinated  Securities,  the exchange  offer which may be made pursuant to the
Subordinated   Security   Registration  Rights  Agreement  to  exchange  Initial
Subordinated Securities for Exchange Subordinated Securities.

     "EXCHANGE  OFFER  REGISTRATION  STATEMENT"  means (i) with  respect  to the
Securities, the registration statement that, pursuant to the Registration Rights
Agreement,  is filed by the Company with the SEC with respect to the exchange of
Initial Securities for Exchange Securities and (ii) with respect to Subordinated
Securities,  the  registration  statement  that,  pursuant  to the  Subordinated
Security  Registration  Rights  Agreement,  is filed by the Company with the SEC
with respect to the  exchange of Initial  Subordinated  Securities  for Exchange
Subordinated Securities.

     "EXCHANGE  SECURITIES"  means the securities  substantially  in the form of
Exhibit  A to the  Indenture  issued  in  exchange  for the  Initial  Securities
pursuant to the Registration Rights Agreement and authenticated  pursuant to the
Indenture.

     "EXCHANGE  SUBORDINATED  SECURITIES" means the securities  substantially in
the form of  Exhibit D to the  Indenture  issued  in  exchange  for the  Initial
Subordinated Securities pursuant to the



Subordinated Security  Registration Rights Agreement and authenticated  pursuant
to the Indenture.

     "EXCLUDED  PARTS" means Spare Parts and Appliances held by the Company at a
location not a Designated Location.

     "EXPENDABLES" means Qualified Spare Parts other than Rotables.

     "EXPENSES" means any and all  liabilities,  obligations,  losses,  damages,
settlements,   penalties,   claims,   actions,   suits,   costs,   expenses  and
disbursements (including, without limitation,  reasonable fees and disbursements
of legal counsel,  accountants,  appraisers,  inspectors or other professionals,
and costs of investigation).

     "FAA"  means the  Federal  Aviation  Administration  or similar  regulatory
authority established to replace it.

     "FAA FILED DOCUMENTS"  means the Security  Agreement and Amendment No. 1 to
Security Agreement.

     "FACILITY OFFICE" means, with respect to any Liquidity Facility, the office
of the Liquidity Provider  thereunder,  presently located at 1585 Broadway,  New
York, New York 10036, or such other office as such Liquidity  Provider from time
to time  shall  notify  the  Trustee  as its  "Facility  Office"  under any such
Liquidity  Facility;  provided that such Liquidity Provider shall not change its
Facility Office to another  Facility Office outside the United States of America
except in accordance  with  Sections  3.01,  3.02 or 3.03 of any such  Liquidity
Facility.

     "FAIR MARKET VALUE" means, with respect to any Collateral,  its fair market
value  determined  on the basis of a  hypothetical  sale  negotiated in an arm's
length free market  transaction  between a willing and able seller and a willing
and able  buyer,  neither  of whom is  under  undue  pressure  to  complete  the
transaction,  under then current market conditions,  provided that cash shall be
valued at its Dollar amount.

     "FEDERAL   AVIATION  ACT"  means  Title  49  of  the  United  States  Code,
"Transportation",  as amended from time to time, or any similar  legislation  of
the United States enacted in substitution or replacement thereof.

     "FEE  LETTERS"  means,  collectively,  (i) the Fee  Letter  dated as of the
Closing Date between the Trustee and the initial Liquidity Provider with respect
to the initial  Liquidity  Facility and (ii) any fee letter entered into between
the Trustee and any Replacement Liquidity Provider in respect of any Replacement
Liquidity Facility.

     "FINAL DRAWING" is defined in Section 3.5(i) of the Indenture.

     "FINAL LEGAL MATURITY DATE" means December 6, 2009.

     "FINAL ORDER" has the meaning assigned to such term in the Policy.

     "FINAL SCHEDULED PAYMENT DATE" means December 6, 2007.



     "FINANCING  STATEMENTS"  means,  collectively,  UCC-1 financing  statements
covering  the Spare Parts  Collateral,  by the Company,  as debtor,  showing the
Security  Agent as secured  party,  for filing in Delaware,  Guam and each other
jurisdiction that, in the opinion of the Security Agent, is necessary to perfect
its Lien on the Spare Parts Collateral.

     "GAAP" means generally accepted accounting  principles in the United States
of America as in effect as of the Closing Date, including those set forth in (i)
the  opinions  and  pronouncements  of the  Accounting  Principles  Board of the
American  Institute  of  Certified  Public  Accountants,   (ii)  statements  and
pronouncements  of the Financial  Accounting  Standards Board,  (iii) such other
statements  by such other  entity as  approved by a  significant  segment of the
accounting  profession  and (iv) the rules and  regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic  reports required to be filed pursuant to Section 13 of the Exchange
Act,  including  opinions and  pronouncements in staff accounting  bulletins and
similar written statements from the accounting staff of the SEC.

     "GLOBAL EXCHANGE SECURITY" is defined in Section 2.1(f) of the Indenture.

     "GLOBAL  EXCHANGE  SUBORDINATED  SECURITY" is defined in Section 2A.1(f) of
the Indenture.

     "GLOBAL SECURITIES" is defined in Section 2.1(d) of the Indenture.

     "GLOBAL  SUBORDINATED  SECURITIES"  is defined  in  Section  2A.1(d) of the
Indenture.

     "GOVERNMENT  ENTITY"  means (a) any federal,  state,  provincial or similar
government,  and any  body,  board,  department,  commission,  court,  tribunal,
authority,  agency or other  instrumentality of any such government or otherwise
exercising any executive,  legislative,  judicial,  administrative or regulatory
functions  of  such  government  or  (b)  any  other  government  entity  having
jurisdiction over any matter contemplated by the Operative Documents or relating
to the observance or performance of the obligations of any of the parties to the
Operative Documents.

     "HOLDER"  or  "NOTEHOLDER"  means  the  Person  in  whose  name a  Note  is
registered on the Registrar's books.

     "INDEMNITEE" means (i) WTC, the Trustee and the Collateral Agent, (ii) each
separate or  additional  trustee or  security  agent  appointed  pursuant to the
Indenture, (iii) each Liquidity Provider, (iv) the Policy Provider, and (v) each
of the respective directors, officers, employees, agents and servants of each of
the persons described in clauses (i) through (iv) inclusive above.

     "INDENTURE"  means the Amended and  Restated  Indenture  dated as of May 9,
2003,  among the Company,  the Trustee,  the  Liquidity  Provider and the Policy
Provider under which the Notes are issued.

     "INDENTURE  DISCHARGE  DATE"  means  the  date  of the  termination  of the
effectiveness  of the  Indenture  pursuant to Section  9.1(a)  thereof  (without
giving effect to Section 9.1(b) thereof).

     "INDENTURE TRUSTEE" means the Trustee.



     "INDEPENDENT APPRAISER" means Simat, Helliesen & Eichner, Inc. or any other
Person (i) engaged in a business which includes  appraising  Aircraft and assets
related to the operation and  maintenance of Aircraft from time to time and (ii)
who does not have any  material  financial  interest  in the  Company and is not
connected  with the Company or any of its  Affiliates  as an officer,  director,
employee, promoter, underwriter, partner or person performing similar functions.

     "INDEPENDENT  APPRAISER'S  CERTIFICATE"  means a  certificate  signed by an
Independent  Appraiser  and  attached  as Appendix  II to the  Offering  Memo or
delivered  thereafter  pursuant  to Article 2 or Section  3.1 of the  Collateral
Maintenance Agreement.

     "INITIAL CASH COLLATERAL" shall mean cash in the amount of $13,056,950.

     "INITIAL FLOATING RATE SECURED NOTES DUE 2007" is defined in Section 2.1(a)
of the Indenture.

     "INITIAL FLOATING RATE SECURED  SUBORDINATED  NOTES DUE 2007" is defined in
Section 2A.1(a) of the Indenture.

     "INITIAL PURCHASER" means Morgan Stanley & Co. Incorporated.

     "INITIAL SECURITIES" mean the securities issued and authenticated  pursuant
to the Indenture and substantially in the form of Exhibit A thereto,  other than
the Exchange Securities.

     "INITIAL   SUBORDINATED   SECURITIES"   means  the  securities  issued  and
authenticated pursuant to the Indenture and substantially in the form of Exhibit
D thereto, other than the Exchange Subordinated Securities.

     "INSTITUTIONAL ACCREDITED INVESTOR" means an institutional investor that is
an "accredited  investor"  within the meaning set forth in Rule 501(a)(1),  (2),
(3) or (7) of Regulation D under the Securities Act.

     "INTEREST DRAWING" is defined in Section 3.5(a) of the Indenture.

     "INTEREST  PAYMENT DATE" means March 6, June 6,  September 6 and December 6
of each year so long as any Note is Outstanding (commencing March 6, 2003 in the
case of the  Securities  and  June  6,  2003  in the  case  of the  Subordinated
Securities),  PROVIDED  that if any such  day is not a  Business  Day,  then the
relevant Interest Payment Date shall be the next succeeding Business Day.

     "INTEREST  PERIOD" means (i) in the case of the first Interest Period,  the
period  commencing  on (and  including)  the  Closing  Date  (in the case of the
Securities) or the  Subordinated  Closing Date (in the case of the  Subordinated
Securities)  and  ending on (but  excluding)  the first  Interest  Payment  Date
following such date and (ii) in the case of each subsequent Interest Period, the
period  commencing on (and including) the last day of the immediately  preceding
Interest Period, and ending on (but excluding) the next Interest Payment Date.



     "INVESTMENT  EARNINGS" means investment earnings on funds on deposit in the
Trust  Accounts net of losses and  investment  expenses of the Trustee in making
such investments.

     "INVESTMENT SECURITY" means (a) any bond, note or other obligation which is
a direct obligation of or guaranteed by the U.S. or any agency thereof;  (b) any
obligation  which is a direct  obligation  of or  guaranteed by any state of the
U.S. or any subdivision  thereof or any agency of any such state or subdivision,
and which has the highest rating published by Moody's or Standard & Poor's;  (c)
any commercial  paper issued by a U.S. obligor and rated at least P-1 by Moody's
or A-1 by Standard & Poor's; (d) any money market investment  instrument relying
upon the credit and  backing of any bank or trust  company  which is a member of
the Federal Reserve System and which has a combined capital  (including  capital
reserves  to the extent not  included in  capital)  and  surplus  and  undivided
profits of not less than  $250,000,000  (including the Collateral  Agent and its
Affiliates if such  requirements  as to Federal  Reserve  System  membership and
combined  capital and surplus and undivided  profits are satisfied),  including,
without  limitation,  certificates of deposit,  time and other  interest-bearing
deposits,   bankers'   acceptances,   commercial   paper,   loan  and   mortgage
participation   certificates  and  documented   discount  notes  accompanied  by
irrevocable  letters  of  credit  and  money  market  fund  investing  solely in
securities  backed by the full  faith and credit of the  United  States;  or (e)
repurchase agreements collateralized by any of the foregoing.

     "ISSUANCE  DATE"  means  the  date  of  initial  issuance  of  the  Initial
Securities.

     "LAW" means (a) any constitution, treaty, statute, law, decree, regulation,
order,  rule or  directive  of any  Government  Entity,  and (b) any judicial or
administrative  interpretation  or application of, or decision under, any of the
foregoing.

     "LIBOR" has the meaning specified in the Reference Agency Agreement.

     "LIBOR ADVANCE" has the meaning provided in the Liquidity Facility.

     "LIEN" means any mortgage,  pledge, lease, security interest,  encumbrance,
lien or charge of any kind affecting title to or any interest in property.

     "LIQUIDITY  EVENT OF DEFAULT" has the meaning  assigned to such term in the
Liquidity Facility.

     "LIQUIDITY  EXPENSES"  means all Liquidity  Obligations  other than (i) the
principal  amount of any  Drawings  under the  Liquidity  Facility  and (ii) any
interest accrued on any Liquidity Obligations.

     "LIQUIDITY FACILITY" means, initially, the Revolving Credit Agreement dated
as of the Issuance Date, between the Trustee and the initial Liquidity Provider,
and from and after the replacement of such Revolving Credit  Agreement  pursuant
hereto, the Replacement  Liquidity  Facility  therefor,  if any, in each case as
amended, supplemented or otherwise modified from time to time in accordance with
its terms.



     "LIQUIDITY  GUARANTEE" means the Guarantee Agreement,  dated as of the date
of the  Original  Indenture,  providing  for  the  guarantee  by  the  Liquidity
Guarantor of the  obligations  of the  Liquidity  Provider  under the  Liquidity
Facility.

     "LIQUIDITY GUARANTOR" means Morgan Stanley.

     "LIQUIDITY  OBLIGATIONS"  means  all  principal,  interest,  fees and other
amounts owing to the Liquidity  Provider under the Liquidity Facility or the Fee
Letter.

     "LIQUIDITY  PROVIDER" means Morgan Stanley Capital Services Inc.,  together
with any Replacement Liquidity Provider which has issued a Replacement Liquidity
Facility to replace any  Liquidity  Facility  pursuant to Section  3.5(e) of the
Indenture.

     "LIQUIDITY PROVIDER REIMBURSEMENT DATE" is defined in Section 3.6(d) of the
Indenture.

     "LOANS" is defined in Section 3.2 of the Collateral Maintenance Agreement.

     "MATERIAL  ADVERSE  CHANGE" means,  with respect to any person,  any event,
condition or circumstance  that  materially and adversely  affects such person's
business  or  consolidated  financial  condition,  or its  ability to observe or
perform  its  obligations,   liabilities  and  agreements  under  the  Operative
Documents.

     "MAXIMUM COLLATERAL RATIO" means 45%.

     "MAXIMUM SUBORDINATED COLLATERAL RATIO" means 67.5%.

     "MINIMUM ROTABLE RATIO" means 150%.

     "MINIMUM SUBORDINATED ROTABLE RATIO" means 100%.

     "MOODY'S" means Moody's Investors Service, Inc.

     "MOVES" is defined in Section 3.2 of the Collateral Maintenance Agreement.

     "MSCS" has the meaning specified in the first paragraph of the Indenture.

     "NEW YORK UCC" is defined in Section 1.01 of the Security Agreement.

     "NONAPPRAISAL  COMPLIANCE  REPORT"  means a  report  providing  information
relating  to  compliance  by the  Company  with  Section  3.2 of the  Collateral
Maintenance Agreement,  which shall be substantially in the form of Appendix III
to the Collateral Maintenance Agreement.

     "NON-CONTROLLING  PARTY"  means,  at any  time,  the  Securityholders,  the
Subordinated  Securityholders,  the Liquidity  Provider and the Policy Provider,
excluding whichever is the Controlling Party at such time.

     "NON-EXTENDED FACILITY" is defined in Section 3.5(d) of the Indenture.

     "NON-EXTENSION DRAWING" is defined in Section 3.5(d) of the Indenture.



     "NON-PERFORMANCE DRAWING" is defined in Section 3.6(c) of the Indenture.

     "NON-PERFORMANCE  PAYMENT  DATE"  is  defined  in  Section  3.6(c)  of  the
Indenture.

     "NON-PERFORMING"  means,  with respect to any Security,  a Payment  Default
existing thereunder (without giving effect to any Acceleration); PROVIDED, that,
in the event of a bankruptcy  proceeding  under the Bankruptcy Code in which the
Company is a debtor,  any Payment Default  existing at the  commencement of such
bankruptcy proceeding or during the 60-day period under Section 1110(a)(2)(A) of
the Bankruptcy Code (or such longer period as may apply under Section 1110(b) of
the Bankruptcy  Code or as may apply for the cure of such Payment  Default under
Section   1110(a)(2)(B)  of  the  Bankruptcy  Code)  shall  not  be  taken  into
consideration until the expiration of the applicable period.

     "NON-PERFORMING PERIOD" is defined in Section 3.6(c) of the Indenture.

     "NON-U.S.  PERSON" means any Person other than a U.S. person, as defined in
Regulation S.

     "NOTES" means the Securities and the Subordinated Securities.

     "NOTEHOLDER" means any holder of one or more Notes.

     "NOTICE OF AVOIDED  PAYMENT"  has the meaning  assigned to such term in the
Policy.

     "NOTICE FOR PAYMENT"  means a Notice of  Nonpayment as such term is defined
in the Policy.

     "OBLIGATIONS" is defined in Section 2.01 of the Security Agreement.

     "OFFERING MEMO" means the Offering  Memorandum,  dated December 2, 2002, of
the Company relating to the offering of the Securities.

     "OFFICER"  means  the  Chairman  of the  Board,  the  President,  any  Vice
President  of any  grade,  the  Chief  Financial  Officer,  the  Treasurer,  any
Assistant Treasurer, the Secretary, any Assistant Secretary or the Controller of
the Company.

     "OFFICERS'   CERTIFICATE"  means  a  certificate  signed  by  two  Officers
satisfying the requirements of Sections 12.4 and 12.5 of the Indenture.

     "OPERATIVE DOCUMENTS" means the Indenture,  the Collateral Agreements,  the
Collateral Maintenance Agreement and the Reference Agency Agreement.

     "OPINION OF COUNSEL"  means a written  opinion from the General  Counsel of
the  Company,  legal  counsel to the  Company or another  legal  counsel  who is
reasonably acceptable to the Trustee, which Opinion of Counsel shall comply with
Sections 12.4 and 12.5 of the  Indenture.  The counsel may be an employee of the
Company. The acceptance by the Trustee (without written objection to the Company
during the fifteen (15) Business Days  following  receipt) of, or its action on,



an opinion of counsel not  specifically  referred  to above shall be  sufficient
evidence that such counsel is acceptable to the Trustee.

     "OUTSTANDING" or  "OUTSTANDING"  when used with respect to Notes or a Note,
means all Notes  theretofore  authenticated  and delivered  under the Indenture,
except:

          (a) Notes  theretofore  canceled  by the Trustee or  delivered  to the
Trustee for cancellation;

          (b) Notes, or portions thereof,  for whose payment or redemption money
in the necessary amount has been theretofore deposited with the Trustee in trust
for the Holders of such Notes,  PROVIDED that, if such Notes are to be redeemed,
notice of such  redemption  has been duly given  pursuant  to the  Indenture  or
provision therefor satisfactory to the Trustee has been made;

          (c) Notes for which payment has been deposited with the Trustee or any
Paying  Agent in trust  pursuant  to Article 9 of the  Indenture  (except to the
extent provided therein); and

          (d) Notes  which have been paid,  or for which  other Notes shall have
been  authenticated  and delivered in lieu thereof or in  substitution  therefor
pursuant  to  the  terms  of  Section  2.12  of  the  Indenture,   unless  proof
satisfactory  to the Trustee is  presented  that any such Notes are held by bona
fide purchasers in whose hands the Notes are valid obligations of the Company.

     A Note does not cease to be  Outstanding  because the Company or one of its
Affiliates holds the Note;  PROVIDED,  HOWEVER,  that in determining whether the
Holders of the requisite  aggregate  principal amount of Notes  Outstanding have
given any request, demand,  authorization,  direction, notice, consent or waiver
under  the  Indenture  or any  other  Operative  Document,  Section  2.13 of the
Indenture shall be applicable.

     "ORIGINAL  INDENTURE"  has  the  meaning  set  forth  in  the  introductory
paragraph of the Indenture.

     "OUTSTANDING AMOUNT" is defined in Section 3.6(b) of the Indenture.

     "OVERDUE  SCHEDULED  PAYMENT" means any Payment of accrued  interest on any
Notes which is not in fact  received by the Trustee  (whether  from the Company,
the Liquidity Provider, the Policy Provider or otherwise) on or within five days
after the Scheduled  Payment Date relating thereto and which is not subsequently
paid in connection with the redemption or final maturity of a Note.

     "PARTS  INVENTORY  REPORT" means,  as of any date, a list  identifying  the
Pledged  Spare Parts by  manufacturer's  part number and brief  description  and
stating the quantity of each such part included in the Pledged Spare Parts as of
such specified date.

     "PAYING AGENT" has the meaning provided in Section 2.8 of the Indenture.



     "PAYMENT"  means (i) any payment of principal of,  interest on, or Premium,
if any, or Break  Amount,  if any,  with  respect to the Notes from the Company,
(ii) any  payment of  interest  on the  Securities  with funds  drawn  under the
Liquidity  Facility  or from a Cash  Collateral  Account or (iii) any payment of
interest on or principal  of  Securities  with funds drawn under the Policy,  or
(iv) any payment received or amount realized by the Trustee from the exercise of
remedies after the occurrence of an Event of Default.

     "PAYMENT  DEFAULT"  means a Default  referred  to in Section  7.1(a) of the
Indenture.

     "PAYMENT  DUE RATE"  means  (a) the Debt Rate plus 2% or, if less,  (b) the
maximum rate permitted by applicable law.

     "PERMITTED  DAYS" is defined in Section 2.1 of the  Collateral  Maintenance
Agreement.

     "PERMITTED  LESSEE"  has the  meaning  provided  in  Section  3.6(b) of the
Collateral Maintenance Agreement.

     "PERMITTED LIEN" means (a) the rights of Security Agent under the Operative
Documents;  (b) Liens  attributable  to Security  Agent (both in its capacity as
Security Agent and in its individual  capacity);  (c) the rights of others under
agreements or  arrangements  to the extent  expressly  permitted by the terms of
Section 3.6 of the Collateral Maintenance Agreement;  (d) Liens for Taxes of the
Company (and its U.S. federal tax law consolidated group), either not yet due or
being  contested in good faith by appropriate  proceedings so long as such Liens
and such proceedings do not involve any material risk of the sale, forfeiture or
loss of the Pledged  Spare Parts or the  interest of Security  Agent  therein or
impair  the  Lien of the  Security  Agreement;  (e)  materialmen's,  mechanics',
workers',  repairers',  employees'  or other like Liens  arising in the ordinary
course of business for amounts the payment of which is either not yet delinquent
for  more  than 60 days or is  being  contested  in good  faith  by  appropriate
proceedings,  so long as such  Liens and such  proceedings  do not  involve  any
material risk of the sale,  forfeiture or loss of the Pledged Spare Parts or the
interest of Security Agent therein or impair the Lien of the Security Agreement;
(f) Liens arising out of any judgment or award  against the Company,  so long as
such  judgment  shall,  within  60 days  after  the  entry  thereof,  have  been
discharged or vacated,  or execution thereof stayed pending appeal or shall have
been discharged, vacated or reversed within 60 days after the expiration of such
stay, and so long as during any such 60 day period there is not as a result,  or
any such  judgment or award does not  involve,  any  material  risk of the sale,
forfeiture or loss of the Pledged Spare Parts or the interest of Security  Agent
therein or any impairment of the Lien of the Security  Agreement;  (g) any other
Lien  with  respect  to which the  Company  shall  have  provided  a bond,  cash
collateral  or other  security  adequate in the  reasonable  opinion of Security
Agent.

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

     "PLEDGED  SPARE PARTS" has the meaning set forth in clause (1) of the first
paragraph of Section 2.01 of the Security Agreement.



     "POLICY"  means MBIA Insurance  Corporation  Financial  Guaranty  Insurance
Policy No. 39753,  issued as of the Closing Date,  as amended,  supplemented  or
otherwise modified from time to time in accordance with its respective terms.

     "POLICY  ACCOUNT"  means the Eligible  Deposit  Account  established by the
Trustee  pursuant to Section  8.13(a) of the  Indenture  which the Trustee shall
make deposits in and withdrawals from in accordance with the Indenture.

     "POLICY DRAWING" means any payment of a claim under the Policy.

     "POLICY  ELECTION  DISTRIBUTION  DATE" is defined in Section  3.6(c) of the
Indenture.

     "POLICY  EXPENSES"  means all  amounts  (including  amounts  in  respect of
premiums,  fees,  expenses or indemnities)  due to the Policy Provider under the
Policy Provider  Agreement other than (i) any Policy Drawing,  (ii) any interest
accrued on any  Policy  Provider  Obligations,  and (iii)  reimbursement  of and
interest on the Liquidity  Obligations in respect of the Liquidity Facility paid
by the Policy Provider to the Liquidity Provider;  provided that if, at the time
of  determination,  a Policy Provider Default exists,  Policy Expenses shall not
include any indemnity payments owed to the Policy Provider.

     "POLICY FEE LETTER"  means the fee  letter,  dated as of the Closing  Date,
from the Policy Provider to the Company and acknowledged by the Trustee, setting
forth the fees and premiums payable with respect to the Policy.

     "POLICY  PROVIDER" means MBIA Insurance  Corporation,  a New York insurance
company, and its successors and permitted assigns.

     "POLICY  PROVIDER  AGREEMENT"  means the Insurance and Indemnity  Agreement
dated as of the  Closing  Date,  among the  Trustee,  the Company and the Policy
Provider,  as amended,  supplemented or otherwise  modified from time to time in
accordance with its terms.

     "POLICY PROVIDER DEFAULT" shall mean the occurrence of any of the following
events:  (a) the  Policy  Provider  fails to make a payment  required  under the
Policy in accordance with its terms and such failure remains  unremedied for two
Business Days  following  the delivery of Written  Notice of such failure to the
Policy  Provider or (b) the Policy  Provider (i) files any petition or commences
any case or proceeding under any provisions of any federal or state law relating
to insolvency, bankruptcy,  rehabilitation,  liquidation or reorganization, (ii)
makes a general  assignment  for the  benefit of its  creditors  or (iii) has an
order for relief  entered  against it under any federal or state law relating to
insolvency,  bankruptcy,  rehabilitation,  liquidation or reorganization that is
final and nonappealable,  or (c) a court of competent jurisdiction, the New York
Department of Insurance or another competent regulatory authority enters a final
and nonappealable order, judgment or decree (i) appointing a custodian, trustee,
agent or receiver for the Policy Provider or for all or any material  portion of
its  property  or (ii)  authorizing  the taking of  possession  by a  custodian,
trustee,  agent or receiver of the Policy  Provider (or taking of  possession of
all or any material portion of the Policy Provider's property).

     "POLICY PROVIDER ELECTION" is defined in Section 3.6(c) of the Indenture.



     "POLICY  PROVIDER  INTEREST  OBLIGATIONS"  means any interest on any Policy
Drawing made to cover any shortfall attributable to any failure of the Liquidity
Provider to honor any Interest Drawing in accordance with Section 2.02(e) of the
Liquidity  Facility in an amount equal to the amount of interest that would have
accrued on such  Interest  Drawing  if such  Interest  Drawing  had been made in
accordance with Section  2.02(e) of the Liquidity  Facility at the interest rate
applicable to such Interest Drawing until such Policy Drawing has been repaid in
full.

     "POLICY PROVIDER  OBLIGATIONS"  means all  reimbursement and other amounts,
including,  without limitation, fees and indemnities (to the extent not included
in Policy  Expenses),  due to the  Policy  Provider  under the  Policy  Provider
Agreement  but shall not include  any  interest  on Policy  Drawings  other than
Policy Provider Interest Obligations.

     "PREMIUM" means, with respect to any Note redeemed pursuant to Article 4 of
the Indenture,  the following  percentage of the principal  amount of such Note:
(a) with respect to a Security,  (i) if redeemed before the first anniversary of
the Issuance Date, 1.5%; (ii) if redeemed on or after such first anniversary and
before the second  anniversary of the Issuance Date, 1.0%; and (iii) if redeemed
on or after such  second  anniversary  and before the third  anniversary  of the
Issuance Date,  0.5%; and (b) with respect to a  Subordinated  Security,  (i) if
redeemed before the second anniversary of the Subordinated  Issuance Date, 3.0%;
(ii) if  redeemed  on or after  such  second  anniversary  and  before the third
anniversary of the Subordinated Issuance Date, 2.0%; and (iii) if redeemed on or
after  such  third  anniversary  and  before  the  fourth   anniversary  of  the
Subordinated  Issuance Date, 1.0%;  PROVIDED that no Premium shall be payable in
connection  with a  redemption  made  by the  Company  to  satisfy  the  Maximum
Collateral Ratio, Maximum  Subordinated  Collateral Ratio, Minimum Rotable Ratio
or Minimum Subordinated Rotable Ratio requirement pursuant to Section 3.1 of the
Collateral Maintenance Agreement.

     "PRIOR FUNDS" means, on any  Distribution  Date, any Drawing paid under the
Liquidity  Facility on such  Distribution  Date and any funds withdrawn from the
Cash Collateral Account on such Distribution Date in respect of accrued interest
on the Securities.

     "PROCEEDS   DEFICIENCY  DRAWING"  is  defined  in  Section  3.6(b)  of  the
Indenture.

     "PROPELLER" includes a part, appurtenance, and accessory of a propeller.

     "PROVIDER  INCUMBENCY  CERTIFICATE"  is defined  in  Section  3.7(b) of the
Indenture.

     "PROVIDER REPRESENTATIVES" is defined in Section 3.7(b) of the Indenture.

     "PURCHASE AGREEMENT" means the Purchase Agreement dated December 2, 2002 by
and between the Initial Purchaser and the Company.

     "QIB" means a qualified institutional buyer as defined in Rule 144A.

     "QUALIFIED SPARE PARTS" has the meaning provided in clause (1) of the first
paragraph in Section 2.01 of the Security Agreement.

     "RATING AGENCIES" means,  collectively,  at any time, and with respect to a
Series of Notes, each nationally  recognized rating agency which shall have been



requested  by the  Company to rate such  Series of Notes and which shall then be
rating such Series of Notes.  The initial Rating Agency will be Moody's,  in the
case of the  Securities,  and Moody's and Standard & Poor's,  in the case of the
Subordinated Securities.

     "RATINGS  CONFIRMATION"  means,  with respect to any action  proposed to be
taken, a written  confirmation  from each of the Rating Agencies with respect to
the  applicable  Series of Notes  that  such  action  would not  result in (i) a
reduction of the rating for such Series of Notes below the then  current  rating
for such  Series  of Notes  (such  rating,  in the  case of the  Securities,  as
determined  without  regard to the Policy) or (ii) a withdrawal or suspension of
the rating of such Series of Notes.

     "RECORD  DATE"  means the  fifteenth  (15th) day  preceding  any  Scheduled
Interest Payment Date, whether or not a Business Day.

     "REDEMPTION DATE", when used with respect to any Note to be redeemed, means
the date fixed for such  redemption  by or  pursuant to the  Indenture  and such
Note.

     "REFERENCE AGENCY AGREEMENT" means the Reference Agency Agreement, dated as
of the Issuance Date, among the Company, WTC, as the reference agent thereunder,
and the Trustee.

     "REGISTER" has the meaning provided in Section 2.8 of the Indenture.

     "REGISTRAR" has the meaning provided in Section 2.8 of the Indenture.

     "REGISTRATION  RIGHTS  AGREEMENT" means the  Registration  Rights Agreement
dated as of  December  6, 2002,  by and  between  the  Company  and the  Initial
Purchaser.

     "REGULATION S" means Regulation S under the Securities Act.

     "REGULATION S DEFINITIVE  SECURITIES"  is defined in Section  2.1(e) of the
Indenture.

     "REGULATION  S DEFINITIVE  SUBORDINATED  SECURITIES"  is defined in Section
2A.1(e) of the Indenture.

     "REGULATION  S  GLOBAL  SECURITY"  is  defined  in  Section  2.1(d)  of the
Indenture.

     "REGULATION S GLOBAL  SUBORDINATED  SECURITY" is defined in Section 2A.1(d)
of the Indenture.

     "RELEVANT DATE" is defined in Section 3.6(c) of the Indenture.

     "REPLACEMENT  LIQUIDITY  FACILITY"  means an irrevocable  revolving  credit
agreement (or agreements) in  substantially  the form of the replaced  Liquidity
Facility,  including reinstatement  provisions, or in such other form (which may
include a letter of credit) as shall permit the Rating  Agencies with respect to
the Securities to confirm in writing their respective ratings then in effect for
the Securities (before  downgrading of such ratings,  if any, as a result of the
downgrading  of the  Liquidity  Provider),  and be  consented  to by the  Policy
Provider, which consent shall not be unreasonably withheld or delayed, in a face



amount (or in an aggregate face amount) equal to the amount of interest  payable
on the Securities  (at the Capped  Interest Rate, and without regard to expected
future  principal  payments) on the eight Interest  Payment Dates  following the
date of replacement  of such Liquidity  Facility (or if such date is an Interest
Payment Date,  on such day and the seven  Interest  Payment Dates  following the
date of  replacement  of such  Liquidity  Facility)  and  issued by a Person (or
Persons) having unsecured short-term debt rating or issuer credit rating, as the
case may be,  issued by  Moody's  and  Standard  & Poor's  which are equal to or
higher  than  the  Threshold  Rating.  Without  limitation  of the  form  that a
Replacement  Liquidity  Facility  otherwise  may have  pursuant to the preceding
sentence, a Replacement  Liquidity Facility for the Securities may have a stated
expiration date earlier than 15 days after the Final Legal Maturity Date so long
as such Replacement  Liquidity Facility provides for a Non-Extension  Drawing as
contemplated by Section 3.5(d) of the Indenture.

     "REQUEST" means a written request for the action therein  specified  signed
on behalf of the Company by any  Officer  and  delivered  to the  Trustee.  Each
Request shall be  accompanied  by an Officers'  Certificate if and to the extent
required by Section 12.4 of the Indenture.

     "REQUIRED  AMOUNT" means,  for any day, the sum of the aggregate  amount of
interest,  calculated at the Capped  Interest Rate, that would be payable on the
Securities on each of the eight successive  Interest  Payment Dates  immediately
following such day or, if such day is an Interest  Payment Date, on such day and
the succeeding  seven Interest  Payment  Dates,  in each case  calculated on the
basis of the  outstanding  principal  amount of the  Securities on such date and
without regard to expected future payments of principal on the Securities.

     "REQUIRED  HOLDERS" means from time to time the Holders of more than 50% in
aggregate unpaid principal amount of the Securities then Outstanding.

     "REQUIRED SUBORDINATED HOLDERS" means from time to time the holders of more
than 50% in aggregate unpaid  principal  amount of the  Subordinated  Securities
then Outstanding.

     "RESPONSIBLE OFFICER" means (i) with respect to the Trustee, any officer in
the  corporate  trust  administration  department  of the  Trustee  or any other
officer  customarily  performing  functions  similar to those  performed  by the
Persons who at the time shall be such  officers or to whom any  corporate  trust
matter is referred  because of his or her  knowledge of and  familiarity  with a
particular subject, (ii) with respect to the Liquidity Provider,  any authorized
officer  of the  Liquidity  Provider,  and  (iii)  with  respect  to the  Policy
Provider, any authorized officer of the Policy Provider.

     "RESTRICTED  DEFINITIVE  SECURITIES"  is defined  in Section  2.1(e) of the
Indenture.

     "RESTRICTED  DEFINITIVE  SUBORDINATED  SECURITIES"  is  defined  in Section
2A.1(e) of the Indenture.

     "RESTRICTED GLOBAL SECURITY" is defined in Section 2.1(c) of the Indenture.

     "RESTRICTED GLOBAL SUBORDINATED  SECURITY" is defined in Section 2A.1(c) of
the Indenture.

     "RESTRICTED LEGEND" is defined in Section 2.2 of the Indenture.



     "RESTRICTED  PERIOD"  is defined in  Section  2.1(d) of the  Indenture  for
purposes  of  the  Securities  and  in  Section  2A.1(d)  for  purposes  of  the
Subordinated Securities.

     "RESTRICTED SECURITIES" are defined in Section 2.2 of the Indenture.

     "RESTRICTED  SUBORDINATED  SECURITIES"  are defined in Section  2A.2 of the
Indenture.

     "ROTABLE"  means a  Qualified  Spare  Part that  wears over time and can be
repeatedly restored to a serviceable  condition over a period  approximating the
life of the flight equipment to which it relates.

     "ROTABLE RATIO" shall mean a percentage determined by dividing (i) the Fair
Market  Value of the  Rotables,  as set  forth in the  most  recent  Independent
Appraiser's  Certificate  delivered by the Company  pursuant to Article 2 of the
Collateral Maintenance Agreement, as supplemented pursuant to Section 3.1 of the
Collateral Maintenance Agreement, if applicable, by (ii) the aggregate principal
amount of all Securities  Outstanding  minus the sum of the Cash Collateral held
by the Collateral Agent.

     "RULE 144A" means Rule 144A under the Securities Act.

     "SALES" is defined in Section 3.2 of the Collateral Maintenance Agreement.

     "SCHEDULED INTEREST PAYMENT DATE" means each Interest Payment Date, without
giving effect to the proviso to the definition of Interest Payment Date.

     "SCHEDULED PAYMENT DATE" means (i) with respect to any payment of interest,
the Interest Payment Date applicable  thereto,  (ii) with respect to any payment
of defaulted  interest,  the payment date established  pursuant to Section 2.16,
(iii) with respect to amounts due on the  redemption of any Note, the Redemption
Date  applicable  thereto,  and (iv) with  respect to the final  maturity of the
Notes, December 6, 2007.

     "SEC" means the  Securities  and  Exchange  Commission  and any  government
agency succeeding to its functions.

     "SECTION 1110" means Section 1110 of the Bankruptcy Code.

     "SECTION 1110 PERIOD" means the continuous  period of (i) 60 days specified
in Section  1110(a)(2)(A) of the Bankruptcy Code (or such longer period, if any,
agreed to under Section 1110(b) of the Bankruptcy Code), plus (ii) an additional
period,  if any,  commencing  with the trustee or  debtor-in-possession  in such
proceeding agreeing,  with court approval,  to perform its obligations under the
Operative  Documents  within  such 60 days (or  longer  period  as  agreed)  and
continuing  until such time as such  trustee or  debtor-in-possession  ceases to
fully perform its obligations  thereunder with the result that the period during
which the Collateral Agent is prohibited from  repossessing the collateral under
any Collateral Agreement comes to an end.

     "SECURITIES" means the Initial Securities and the Exchange Securities.

     "SECURITIES  ACT" means the Securities Act of 1933, as amended from time to
time.



     "SECURITY AGENT" means the Trustee acting in the capacity of security agent
on behalf of the Holders under the Security Agreement until a successor replaces
it in accordance  with the  provisions of the Security  Agreement and therea