10-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2005

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

For the transition period from              to             

Commission file number 1-15991

AIRTRAN HOLDINGS, INC

(Exact name of registrant as specified in its charter)

Nevada	58-2189551
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

9955 AirTran Boulevard

Orlando, Florida 32827

(Address, including zip code, of registrant’s principal executive offices)

(407) 318-5600

Registrant’s telephone number, including area code:

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

Common Stock, $0.001 par value

(Title of class)

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

None

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2005, was approximately $805,000,000 (based on the last reported sale price on the New York Stock Exchange on that date). The number of shares outstanding of the registrant’s common stock as of March 1, 2006 was 89,385,940 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement, to be used in connection with the solicitation of proxies to be voted at the registrant’s annual meeting of stockholders to be held on May 24, 2006 and to be filed with the Commission, are incorporated by reference into this Report on Form 10-K.

TABLE OF CONTENTS

		PAGE
PART I
Item 1	Business	4
Item 1A	Risk Factors	14
Item 1B	Unresolved Staff Comments	19
Item 2	Properties	19
Item 3	Legal Proceedings	21
Item 4	Submission of Matters to Vote of Security Holders	21
PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22
Item 6	Selected Financial and Operating Data	22
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	36
Item 8	Financial Statements and Supplementary Data	37
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	61
Item 9A	Controls and Procedures	61
Item 9B	Other Information	64
PART III
Item 10	Directors and Executive Officers of the Registrant	65
Item 11	Executive Compensation	65
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	65
Item 13	Certain Relationships and Related Transactions	66
Item 14	Principal Accountant Fees and Services	66
PART IV
Item 15	Exhibits and Financial Statement Schedule	67

FORWARD-LOOKING INFORMATION

Statements in this Form 10-K report (or otherwise made by AirTran or on AirTran’s behalf) contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which represent our management’s beliefs and assumptions concerning future events. When used in this document and in documents incorporated by reference, forward-looking statements include, without limitation, statements regarding financial forecasts or projections, our expectations, beliefs, intentions or future strategies that are signified by the words “expects”, “anticipates”, “intends”, “believes” or similar language. These forward-looking statements are subject to risks, uncertainties and assumptions that could cause our actual results and the timing of certain events to differ materially from those expressed in the forward-looking statements. All forward-looking statements included in this report are based on information available to us on the date of this report. It is routine for our internal projections and expectations to change as the year or each quarter in the year progress, and therefore it should be clearly understood that the internal projections, beliefs and assumptions upon which we base our expectations may change. Although these expectations may change, we may not inform you if they do. Our policy is generally to provide our expectations only once per quarter, and not to update that information until the next quarter.

You should understand that many important factors, in addition to those discussed in this report, could cause our results to differ materially from those expressed in the forward-looking statements. Potential factors that could affect our results include, in addition to others not described in this report, those described in Item 1A of this report under “Risk Factors”. In light of these risks and uncertainties, the forward-looking events discussed in this report might not occur.

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PART I

ITEM 1. BUSINESS

The Company

All of the operations of AirTran Holdings, Inc. (the Company, we, us, or AirTran) are conducted by our wholly owned subsidiary, AirTran Airways, Inc. (Airways). Airways is one of the largest low cost scheduled airlines in the United States in terms of departures and seats offered. We operate scheduled airline service primarily in short-haul markets principally in the eastern United States, with a majority of our flights originating and terminating at our hub in Atlanta, Georgia. As of March 1, 2006, we operated 85 Boeing 717-200 (B717) and 23 Boeing 737-700 (B737) aircraft operating approximately 600 scheduled flights per day to 47 locations in United States as well as Freeport, Bahamas.

We are one of only a few domestic airlines to report profitable operations for the year ended December 31, 2005. We have created what we believe to be a successful business model by targeting value oriented business and leisure travelers with high quality service at affordable fares. Our service is designed not only to satisfy the transportation needs of our target customers, but also to provide customers with a travel experience worth repeating. The success of this strategy is evidenced by the 16.6 million revenue passengers who flew AirTran during 2005, a 26.3 percent increase from the 13.2 million revenue passengers we served in the prior year. We achieved these results with a cost structure that ranks among the lowest in the airline industry.

In 2005, we undertook a number of key initiatives to strengthen our competitive position, including expanded distribution agreements, improvements to our website, including our online ticketing software, improvements in our self-service ticketing and check-in kiosks, and the installation of XM Satellite Radio on our fleet. With the addition of new B737 aircraft, Airways operates one of the youngest fleets in the aviation industry today.

We were the launch customer for the B717, which was designed specifically for efficient short-haul service. We believe the B717 will continue to enhance our overall image while also improving our operating performance. In July 2003, we announced our plans to add up to 100 new Boeing 737-700/800 (B737) aircraft to our fleet, the first of which was delivered in June 2004. The B737 aircraft provides us with a larger aircraft, increased range and lower unit operating costs.

Our principal executive offices are located at 9955 AirTran Boulevard, Orlando, Florida 32827, and our telephone number is (407) 251-5600. Our official website address is www.airtran.com. Our audit committee charter, code of conduct and ethics, and filings with the U.S. Securities and Exchange Commission, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports, are accessible free of charge at www.airtran.com. Any waiver of the terms of our code of conduct and ethics for the chief executive officer, the chief financial officer, any accounting officer and all other executive officers will be disclosed on our website. During 2005, we posted in a timely manner all Exchange Act reports required to be filed during the period.

The reference to our website does not constitute incorporation by reference of any information contained at that site.

Seasonality

Our financial and operating results for any interim period are not necessarily indicative of those for the entire year. Air travel in our markets tends to be seasonal, with the highest levels occurring during the winter months to Florida and the summer months to the northeastern and western United States. Advertising and promotional expenses may be greater in lower traffic periods, as well as when entering a new market, as we seek to stimulate demand and promote the AirTran Airways brand.

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Business Strategy

Quality Low Fare Service. We established our competitive position by providing affordable fares that appeal to price conscious travelers. We have grown our business through innovative product offerings designed to enhance the entire airline travel experience of our customers while maintaining affordable fares. The AirTran experience features:

• competitive fares offered in an easy to understand fare structure

• user-friendly automated services for reservations, ticketing and check-in through our

• award winning website, airtran.com

• Bye-Pass™ airport self-service kiosks

• customer friendly services, including

• a highly affordable business class

• advance seat assignments

• special amenities, including XM Satellite Radio, which we introduced to the air travel industry and now deploy across our entire fleet

• some of the industry’s fastest growing customer loyalty programs, including our

• signature A-Plus Rewards™ program

• A2B™ corporate travel program

Through the AirTran experience, we have created an air travel product with broad appeal which generates a growing number of repeat customers.

We believe our comparatively low-cost structure will enable us to continue our existing successful strategies, expand our network, provide us with opportunities to further enhance the AirTran experience in innovative ways and stimulate increased demand for air travel from existing and new customers.

New and Modern Fleet. Our entire fleet is comprised of B717 and B737 aircraft. We had a combined total of 108 such aircraft as of March 1, 2006, giving us an average fleet age among the lowest in the industry at approximately three years.

As part of a comprehensive plan to replace, upgrade and expand our fleet of aircraft, we took delivery of our first B717 in September 1999 and as of March 1, 2006, our fleet included 85 B717 aircraft. We believe the B717 remains ideally suited for the short-haul, high-frequency service that we primarily operate and provides operating efficiencies which support our low cost structure. In January 2005, the manufacturer of the B717 announced the discontinuation of the production of the aircraft in 2006.

In July 2003, we announced an aircraft order of up to 100 new Boeing 737-700/800 aircraft. We took delivery of the first of such new B737-700 aircraft in June 2004 and, as of March 1, 2006, our fleet included 23 B737 aircraft. In addition to the 23 B737 aircraft, we hold firm orders for 53 B737 aircraft and options and purchase rights for 24 aircraft to be delivered through 2010. We believe the B737 is an ideal complement to our B717 aircraft, offering us a larger aircraft, increased range and even lower unit operating costs. The B737 allows us to extend our network to selected cities in the western United States and offers us the ability to expand our international operations to locations in Canada, Mexico, Central America and the Caribbean should we chose to do so. We believe the B737 will continue to enhance the AirTran brand while offering improvements in our operating performance.

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Growing Atlanta Hub and Expanding Network System. As the second largest carrier at Hartsfield –Jackson Atlanta International Airport, the world’s busiest airport, we have a strong presence in Atlanta. The city’s large population base represents one of the largest travel markets in the United States and its geographic position provides a strong hub from which we continue to expand our route network. In 2005, we increased service to a number of existing locations and added four new cities, Richmond, Virginia; Indianapolis, Indiana; Charlotte, North Carolina; and Detroit, Michigan. In January 2006, we announced new service to White Plains, New York and Seattle, Washington, which will commence later in 2006.

We believe that there are a number of markets in the United States that are underserved or overpriced by major airlines that present opportunities for expanding our quality low fare service. As a result, we intend to grow our network by increasing the number of flights in markets we currently serve, by adding new routes between cities already in our system and service to new cities as opportunities arise. Expansion of our network allows us to build upon our existing infrastructure, which should reduce unit costs and improve productivity and aircraft utilization.

Diversification of Route Network. Since 2000, we have expanded the scope of our route structure to include coast to coast flying and have increased our number of flights both from our Atlanta hub as well as other airports. We have diversified our route structure by increasing the amount of non-Atlanta departures from approximately 10 percent of our daily departures as of December 31, 2001 to approximately 32 percent of daily operations in March 2006 (see table below). For example, our expansion at Baltimore/Washington International Airport enabled us to initiate many new non-stop routes. In the future, we may selectively add new “point-to-point” routes between cities other than Atlanta that we currently serve, as well as create additional “focus” cities similar to our operations at Baltimore/Washington and Orlando.

Airport	Daily Operations*	Nonstop Markets Served	% of System Operations*
Atlanta (ATL)	438	47	68%
Orlando (MCO)	86	20	13%
Baltimore-Washington (BWI)	72	12	11%
Boston (BOS)	54	6	8%
Chicago (MDW)	50	7	8%
Philadelphia (PHL)	42	7	6%
Tampa (TPA)	38	8	6%
Fort Lauderdale (FLL)	32	9	5%
Indianapolis (IND)	24	8	5%
Dallas/Fort Worth (DFW)	22	4	3%

* Operations is defined as a take-off and landing at each city; percentage of system operations will be greater than 100%

Increase Sales Through Our Website. We utilize the Internet as an integral portion of our marketing strategy utilizing our website. Sales booked directly on airtran.com represent our most cost-effective form of

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distribution. In addition to being user-friendly and simple, our website is designed to sell tickets efficiently. We continue to add functionality to airtran.com that allows customers to easily book and manage their travel including a new fare matrix and the ability to retrieve and change future flight reservations. In the fall of 2005, we unveiled a new and updated website and plan additional enhancements to be announced in 2006. The airtran.com website is an important distribution channel, producing 58% of our sales at the end of 2005, up from 52% at the end of 2004.

Competitive Strengths

Low Cost Structure. Our cost structure ranks among the lowest in the domestic airline industry in terms of cost per available seat mile, providing a competitive advantage against higher cost carriers. Our low operating costs are made possible through a company-wide focus on cost controls with emphasis on lower labor costs, lower distribution cost and, higher productivity. In addition, we realize operating efficiencies from the operation of only two aircraft types from a single manufacturer as well as enhanced efficiencies from the introduction of new modern B737 aircraft to our fleet.

Attractive Atlanta Hub and Route Network. We operate 22 gates from a single concourse under long-term leases at Hartsfield-Jackson Atlanta International Airport, the world’s busiest airport, and have use agreements for four additional gates on an adjacent concourse with potential for expansion. With our 2005 expansion to Charlotte, Detroit, Indianapolis and Richmond we now offer low fare quality service to 48 destinations from Atlanta, including many of the largest travel markets within the United States.

Diversified Traffic Base. We serve both the leisure and business traveler and continue to see strong demand for business travel. As our overall base grew by more than 23 percent in 2005, business travelers accounted for approximately 40 percent of our total revenue in 2005. Over the past four years, we have also diversified our network increasing operations in key business markets like Baltimore/Washington International Airport (BWI), Chicago-Midway (MDW) and Dallas-Ft. Worth (DFW), as well as adding a number of new direct routes from Florida. As a percentage of total operations, Atlanta represents approximately 68 percent of our network, down from approximately 90 percent at the end of 2001. This market diversification provides a number of marketing and cost synergies and adds stability to our revenues by protecting against risks that may impact individual segments of our business.

Flexibility. We have consistently demonstrated our ability to adjust to changes in the economy, market conditions and a competitive industry environment. We responded rapidly to the effects on our business from the September 11, 2001 terrorist attacks (the September 11 Events) by reducing capacity approximately 20 percent. Working with our labor groups, we quickly reached agreement on a variety of temporary cost reduction measures, including both pay and work rule changes, which reduced our costs consistent with capacity. By retaining our workforce we were able to quickly respond to market opportunities and expand service to a number of new markets including Florida to points throughout our network. The ability to move quickly to meet the changing market was demonstrated with our 2001 expansion into BWI and more recently with our announcement of expanded service to/from Chicago-Midway and Indianapolis.

Innovative Marketing. Our marketing efforts target both business and leisure travelers. We have developed a number of unique and innovative programs designed to stimulate demand for travel, create customer loyalty, highlight our unique product attributes, like affordable Business Class, and target both business and leisure travelers. Our popular leisure programs include Net Escapes Internet specials and the X-fares student program. Our A2B Corporate Program and Event Savers Meeting & Convention program effectively attract business customers.

A-Plus Rewards. In 2003, we automated our popular frequent traveler program, A-Plus Rewards, making it accessible online. The A-Plus Rewards program offers a number of ways to earn free travel including the use of the AirTran Visa card, Hertz car rentals and bonus earnings for business class travel. We believe this

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program creates strong brand loyalty and provides opportunities for incremental revenue through credit sales and partnerships. As of January 2006, we had registered more than 3.1 million members, an increase of one million members versus the prior year.

Competition

The airline industry is highly competitive. Airlines compete on the basis of markets served, price, schedule (frequency and flight times), quality of service, amenities, frequent flyer programs and other services. We compete with other airlines primarily on the basis of price, which is made possible by our low cost structure relative to other airlines and by focusing on selected markets across the United States. We may face greater competition from existing or new carriers in the future that could negatively impact our financial and operating results.

Competitors with greater liquidity and access to capital may price their fares at or below our fares or increase the frequency of their service. This competition could prevent us from attaining a share of the passenger traffic necessary to sustain profitable operations. Our ability to meet price competition depends on our ability to operate at costs equal to or lower than our competitors or potential competitors.

We believe that our competitive strengths are our low cost structure, friendly service, competitive fares and strong route network anchored by our hub at Hartsfield-Jackson Atlanta International Airport. Our growing brand and our presence in Baltimore/Washington, Chicago and a number of Florida markets augments operations from our Atlanta hub and provides us with a strong and defensible route system.

Fares, Route System and Scheduling

The majority of markets we currently serve are located in the eastern United States. These markets are attractive due to the concentration of major population centers within relatively short distances from Atlanta, Baltimore/Washington and Florida, the historically high airfares charged by our competitors in these markets and the significant number of both current and potential business and leisure customers.

As of March 2006, we serve or have announced service to 50 cities from Atlanta, 21 from Orlando, and 12 from Baltimore/Washington. Our schedules are designed to provide convenient service and connections for our business and leisure travelers and to facilitate connections for our passengers traveling through our hubs and focus cities. Our network strength in Atlanta provides a strong base of local and connecting traffic as we expand the hub and increase the range and scope of the markets we serve.

We offer an easy to understand fare structure with a variety of fares at differing advance purchase intervals of fourteen days, seven days, three days as well as “walk-up” fares. We manage the availability of seats at each fare level by day of week and by flight to maximize revenue. All of our fares are one-way and most are nonrefundable but can be changed prior to departure with a service charge. Our fares never require a round trip purchase or a minimum stay (e.g., Saturday night stay). Our fare offerings are in direct contrast to prevalent pricing policies in the industry which typically feature many different price offerings and restrictions for seats on any one flight. We have established interline ticketing and baggage agreements with Delta Air Lines, United Airlines, US Airways, Frontier Airlines, Midwest Airlines, Icelandair, Aer Lingus and British Airways, which we believe can increase our revenue opportunities and assist us with accommodating passengers during irregular operations.

In the future, we may add new markets to our existing routes and/or additional service between cities that are already served by us. If necessary, we may exit unprofitable routes. Our selection of markets depends on a number of factors existing at the time we consider service. In our city selection process, we evaluate the market demographics, the potential for service diversification, the ability to stimulate air travel and various competitive factors. Consequently, there can be no assurance that we will continue to provide service to all of the markets we currently serve.

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Distribution, Marketing and e-Commerce

Our marketing efforts are focused on price-sensitive business travelers and leisure travelers who are vital to our success as we seek to position our product and stimulate new customer demand. These are the market segments in which consumers seek value and which we believe offer the greatest opportunity for growing our revenue base.

The primary objectives of our marketing activities are to develop an innovative brand identity that is visibly unique and easily contrasted with our competitors. We communicate regularly and frequently with existing and potential customers through the use of advertisements in newspapers, radio, television, billboards, direct mail, e-mail, movie theatres and the Internet, as well as public relations efforts. These communications typical feature our destinations, quality of product such as business class, XM radio, our all new Boeing aircraft, assigned seating, everyday affordable fares, special sales promotions and customarily encourage the use of our airtran.com website.

Customers may book flights with us through our website, other Internet websites, travel agencies booking via global distribution systems (GDS) and our own reservation call centers. The Internet is our primary distribution channel, and during 2005, it represented more than 70 percent of our total bookings. Our Internet sales reflect both bookings made directly through airtran.com, as well as sales transacted through third-party websites such as Travelocity.com and Orbitz.com. Traditional travel agencies represented approximately 12 percent of our bookings while our reservation call centers generated the remainder of our bookings.

Our award-winning website is a recognized leader in the field of airline e-commerce. During 2005, we enhanced the functionality to allow passengers booking reservations at airtran.com to make changes and reissue tickets online. Passengers can select their seat, check-in and print their own boarding passes, purchase trip insurance, and book hotel accommodations and car rentals with Hertz.com. As we continue to enhance our website, we expect this channel to represent a greater percentage of our distribution mix. We have also introduced our Bye-Pass self-service kiosks. Bye-pass facilitates check-ins at the airport for our customers and provides them with an additional opportunity to purchase business class upgrades. Over half of our customers now check-in using airtran.com or Bye-Pass self-service kiosks.

We offer our customers an affordable business class product. The business class cabin is configured with 2 by 2 oversized seats with more leg and seat room than the typical coach cabin. Our business class is currently available for $35-$75 over the full coach fare on a confirmed basis and for certain other fares on a walk-up, standby basis. Members of our A2B Corporate program receive complimentary business class upgrades when purchasing certain fares.

In contrast to other low-cost airlines, we offer our customers the ability to select seats in advance. Full fare passengers, A-Plus Reward Elite members and members of our A2B Corporate travel program, many of whom tend to purchase tickets at the last minute, are allowed to reserve seats at the time of purchase. All other customers may reserve seats at the time they check-in, either at the airport or online at airtran.com.

We also offer our automated frequent flier program known as “A-Plus Rewards.” Our customers may earn either free roundtrip travel or business class upgrades on AirTran Airways, or under certain circumstances, free travel on other airlines. A-Plus Rewards credits can also be earned for purchases made with an AirTran Airways A-Plus Visa card, when renting from Hertz, and in conjunction with marketing promotions that we may run form time to time.

We also offer AirTran Airways Vacations, an online travel planning product in partnership with Travelocity. This arrangement provides airtran.com customers with a full range of vacation packages including Airways’ flights, Hertz rental cars and access to more than 40,000 hotels, including specially negotiated rates at over 7,000 properties.

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We perform all of our marketing, promotional and media relations in-house And utilize an outside firm for advertising and public relations.

Computer Reservations

We are a participant in the major travel agency GDSs, including Amadeus, Galileo, SABRE, and WorldSpan. These systems provide flight schedules and pricing information and allow travel agents to electronically process a flight reservation without contacting our reservations facility. We pay booking fees for the use of the GDS systems.

For direct reservations, either through our call centers or airtran.com, we provide our customers with a confirmation number, similar to the systems used by hotels and car rental agencies. At the airport this information is used for customer check-in either at the ticket counter or by use of the self-service kiosks, which helps to alleviate long lines and improve customer service.

Employees

As of December 31, 2005, we employed approximately 6,900 employees representing approximately 6,700 full-time equivalents.

Both initial and recurrent training is provided for all employee groups. The average training period for new employees is approximately one to eight weeks depending on classification. Both pilot training and mechanic training are provided by in-house training instructors.

Federal Aviation Administration (FAA) regulations require pilots to be licensed commercial pilots, with specific ratings for the aircraft to be flown, and to be medically certified as physically fit. FAA and medical certifications are subject to periodic renewal requirements including recurrent training and recent flying experience. Mechanics, quality-control inspectors and flight dispatchers must be certificated and qualified for specific aircraft. Flight attendants must have initial and periodic competency training and qualification. Training programs are subject to approval and monitoring by the FAA. Management personnel directly involved in the supervision of flight operations, training, maintenance and aircraft inspection must also meet experience standards prescribed by FAA regulations. Management personnel attend management-training classes to meet government mandated requirements as well as skills development training. All safety-sensitive employees are subject to pre-employment, random and post-accident drug testing.

We have employee groups that are represented by labor unions and are covered by collective bargaining agreements. The Railway Labor Act governs our relations with these labor organizations. The agreement with our dispatchers, who are represented by the Transport Workers Union (TWU), was ratified in October 2004 and becomes amendable in January 2009. Our agreement with our pilots, who are represented by the National Pilots Association (NPA), was ratified in August 2001 and became amendable in 2005. The agreement is currently in mediation under the auspices of the National Mediation Board.

We have four separate agreements with employee groups represented by the International Brotherhood of Teamsters (IBT). Our agreement with our maintenance technicians and inspectors was ratified in October 2005 and becomes amendable in October 2009. The agreement with our technical training instructors was ratified in March 2001 and becomes amendable in March 2006. The agreement with our stores clerks was ratified in June 2001 and becomes amendable in June 2006. Our agreement with our ground service equipment employees was effective October 2001 and becomes amendable in October 2006.

We have a collective bargaining agreement with our flight attendants who are represented by the Association of Flight Attendants (AFA). Our agreement with the flight attendants was ratified in June 2005 and becomes amendable in December 2008.

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We also have many employees who are not represented by labor unions. Our customer service, ramp and reservations agents are not represented by labor unions and recently rejected, for the third time, unionization by a substantial margin in December 2005. We are unable to predict whether any of our non-union employee groups will elect to be represented by a labor union or become covered by a collective bargaining agreement. The election of a bargaining representative could result in employee compensation and/or working condition demands that may impact operating performance and expenses.

Fuel

Aircraft fuel is a significant expenditure and accounted for 32.9 percent, 24.6 percent and 21.5 percent of our 2005, 2004 and 2003 operating expenses, respectively. Increases in fuel prices or a shortage of supply could have a material adverse effect on our operations and operating results. We utilize fuel purchase contracts consisting of both fixed-price and cap arrangements. Fixed-price arrangements consist of an agreement to purchase defined quantities of aviation fuel from a third party at defined prices. Cap arrangements consist of an agreement to purchase defined quantities of aviation fuel from a third party using pricing mechanisms that are designed to minimize our exposure to fuel price fluctuations.

Subject to market conditions, we may implement fare increases to offset increases in the price of fuel. Due to competitive pressures, the airline industry has frequently been unable to pass on such fuel price increases through higher fares. There can be no assurance that any such fare increases will completely offset higher fuel costs or not adversely impact our competitive position. Despite the significant impact of fuel costs on our operating results, we have been able to achieve improvements in our operating margins through the addition of new, fuel-efficient B717 and B737 aircraft which consume significantly less fuel than the aircraft that have been replaced. In September 2005, we began installing winglets on a number of our B737’s which will further improve their fuel efficiency. While we believe the fuel efficiency of our fleet offers us a competitive advantage over many of our competitors who operate less fuel-efficient aircraft, increases in fuel costs which are not offset by our fuel purchase arrangements or fare increases may be expected to have an adverse effect on our future operating margins.

Maintenance, Repairs and Training

As of March 1, 2006, our operating fleet consisted of 85 B717’s and 23 B737’s having a weighted-average age of approximately three years. In June 2004, we took delivery of our first new B737 aircraft. Our B737 airframes and engines will be under warranty for a minimum of three years from the date of delivery. We also believe the long-term estimated cost of maintenance to fly our aircraft will be within industry norms. We will be required to comply with new FAA regulations or Airworthiness Directives that may be promulgated in the future. There can be no assurance that our maintenance expenses (including costs to comply with aging aircraft requirements) will fall within industry norms.

Aircraft airframe maintenance and repair consists of routine and non-routine daily maintenance and heavy maintenance checks. Routine and non-routine daily maintenance is performed in Atlanta, Orlando, Baltimore, Fort Lauderdale, Dallas and Tampa by our employees and by contractors at the other cities we serve. Heavy maintenance is performed by outside maintenance contractors. Maintenance repair costs for major components on our B717 aircraft fleet, including engines and auxiliary power units (APUs) are covered under maintenance agreements with FAA approved contractors and are expensed as incurred. As aircraft age, the manufacturer’s warranty period ends. During 2004, the warranty period for certain of the B717 aircraft ended, and all engine warranties expired at December 31, 2003. We expect maintenance costs will increase as aircraft come out of warranty and as more scheduled maintenance becomes due.

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Our maintenance technicians undergo extensive initial and ongoing training to ensure the safety of our aircraft. The FAA recently awarded us with the Air Maintenance Technical Diamond Certificate of Excellence for Maintenance Training, the FAA’s highest maintenance award. This marks the tenth consecutive year we have received this award for exceeding the required levels of safety training for our maintenance technicians.

Insurance

We carry customary levels of passenger liability insurance, aircraft insurance for aircraft loss or damage, war-risk insurance and other business insurance. We believe our insurance coverage in these areas is adequate. We are exposed to potential catastrophic losses that may be incurred in the event of an aircraft accident. Any such accident could involve not only repair or replacement of a damaged aircraft and its consequent temporary or permanent loss from service but also significant potential claims of injured passengers and others. We currently maintain liability insurance in amounts and of the type which we believe are consistent with industry practice. Although we currently believe our insurance coverage is adequate, there can be no assurance that the amount of such coverage will not be changed or that we will not be forced to bear substantial losses from accidents. Substantial claims resulting from an accident in excess of related insurance coverage or not covered by our insurance could have a material adverse effect on us.

Following the terrorist attacks, commercial aviation insurers significantly increased the premiums and reduced the amount of war-risk coverage available to commercial carriers. The federal government stepped in to provide supplemental third-party war-risk insurance coverage to commercial carriers for renewable 60-day periods, at substantially lower premiums than prevailing commercial rates and for levels of coverage not available in the commercial market. In November 2002, Congress passed the Homeland Security Act of 2002, which mandated the federal government to provide third party, passenger, and hull war-risk insurance coverage to commercial carriers through August 31, 2003, and which permitted such coverage to be extended by the government through December 31, 2003. The Emergency Wartime Supplemental Appropriations Act (see Note 2 to the Consolidated Financial Statements) extended the government’s mandate to provide war-risk insurance until December 31, 2004. Pursuant to the Consolidated Appropriations Act of 2005, Congress further extended the government’s mandate to provide war-risk insurance until August 31, 2005 at the discretion of the Secretary of Transportation. During 2005, the coverage was extended in six month increments. Currently we have received certification of coverage through August 31, 2006.

Airport Operations

Ground handling services typically are of two types: under-wing only and complete ground handling. Under-wing ground handling services include, but are not limited to, marshaling the aircraft into and out of the gate, baggage and mail loading and unloading, lavatory and water servicing, de-icing and certain other services. Complete ground handling consists of public contact and under-wing services combined.

We conduct complete ground handling services in 37 airports, including Atlanta. At other airports, the operations not conducted by our employees are contracted to other air carriers, ground handling companies or fixed base operators. We have employees at each of these cities to oversee our operations.

Government Regulations

The airline industry is highly competitive, primarily due to the effects of the Airline Deregulation Act of 1978, which substantially eliminated government authority to regulate domestic routes and fares. Deregulation has increased the ability of airlines to compete with respect to destination, flight frequencies and fares. Nevertheless, the airline industry remains highly regulated in other aspects, as more fully described below.

DOT Oversight

Although the Airline Deregulation Act of 1978 abolished regulation of domestic routes and fares, the United States Department of Transportation (DOT) retains the authority to alter or amend any airline’s certificate or

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to revoke such certificate for intentional failure to comply with the terms and conditions of the certificate. In addition, the DOT has jurisdiction over international tariffs and pricing, international routes, computer reservation systems, and economic and consumer protection matters such as advertising, denied boarding compensation, smoking and codeshare arrangements and has the authority to impose civil penalties for violation of the United States Transportation Code or DOT regulations.

Aircraft Maintenance and Operations

We are subject to the jurisdiction of the FAA with respect to aircraft maintenance and operations, including equipment, dispatch, communications, training, flight personnel and other matters affecting air safety. The FAA has the authority to issue new or additional regulations. To ensure compliance with its regulations, the FAA conducts regular safety audits and requires all airlines to obtain operating, airworthiness and other certificates, which are subject to suspension or revocation for cause.

We cannot predict the cost of compliance with all present and future rules and regulations and the effect of such compliance on our business, particularly our expansion plans and aircraft acquisition program.

Federal Aviation Taxes and Passenger Facility Charges

In 1997, a law was enacted imposing new aviation ticket taxes as part of larger tax legislation designed to balance the nation’s budget and provide targeted tax relief as well as fund air traffic control, other FAA programs and airport development. As enacted, these new taxes will be imposed through September 30, 2007. Currently, the federal excise tax on tickets is 7.5 percent of the base fare with a segment fee of $3.30 per passenger enplanement, up to $6.60 each way or $13.20 per round trip.

During 1990, Congress enacted legislation to permit airport authorities, with prior approval from the DOT, to impose passenger facility charges as a means of funding local airport projects. These charges, which are intended to be collected by the airlines from their passengers, range from $3.00 to $4.50 per enplanement up to $18 per round trip.

Fuel Tax

We pay federal, state, and other taxes on fuel. We paid approximately $51.5 million, $25.5 million, and $20.2 million in fuel taxes during 2005, 2004 and 2003, respectively.

Additional Security and Safety Measures

In 1996 and 1997, the President’s Commission on Aviation Safety and Security issued recommendations and the U.S. Congress and the FAA adopted increased safety and security measures designed to increase airline passenger safety and security and protect against terrorist acts. Such measures have resulted in additional operating costs to the airline industry. Examples of increased safety and security measures include the introduction of a domestic passenger manifest requirement, increased passenger profiling, enhanced pre-board screening of passengers and carry-on baggage, positive bag match for profile selections, continuous physical bag search at checkpoints, additional airport security personnel, expanded criminal background checks for selected airport employees, significantly expanded use of bomb sniffing dogs, certification of screening companies, aggressive testing of existing security systems, expansion of aging aircraft inspections to include nonstructural components and development of a new systems approach for air carriers and the FAA to monitor and improve safety oversight and installation of new ground proximity warning systems on all commercial aircraft.

The Aviation and Transportation Security Act, or the Aviation Security Act, was enacted in November 2001 and federalized substantially all aspects of civil aviation security and required, among other things, the creation of the Transportation Security Administration, or the TSA, to oversee all aviation security and the implementation of certain security measures by airlines and airports, such as the requirement that all passenger bags be screened for explosives. Funding for airline and airport security under the law is partially

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provided by a per enplanement ticket tax of up to $5.00 each way or $10.00 per round trip, with authority granted to the TSA to impose additional fees on the air carriers if necessary to cover additional federal aviation security costs. The security tax is currently $2.50 per enplaned passenger each way and has been imposed since February 18, 2002, the date the TSA began taking responsibility for airport security. Pursuant to its authority, the TSA may revise the way it assesses this fee, which could result in increased costs for us. We cannot forecast what additional security and safety requirements may be imposed in the future or the costs or revenue impact that would be associated with complying with such requirements.

Miscellaneous

All air carriers are subject to certain provisions of the Communications Act of 1934, as amended, because of their extensive use of radio and other communication facilities, and are required to obtain an aeronautical radio license from the Federal Communications Commission (FCC). To the extent we are subject to FCC requirements, we have taken and will continue to take all necessary steps to comply with those requirements.

Our labor relations are covered under Title II of the Railway Labor Act of 1926, as amended, and are subject to the jurisdiction of the National Mediation Board. During a period of past fuel scarcity, air carrier access to jet fuel was subject to allocation regulations promulgated by the Department of Energy. We are also subject to state and local laws and regulations at locations where we operate and the regulations of various local authorities that operate the airports we serve. Our operations may become subject to additional federal regulatory requirements in the future.

All international service is subject to the regulatory requirements of the appropriate authorities of the other country involved. We currently operate scheduled international service to Grand Bahamas Island. To the extent we seek to provide additional international air transportation in the future, we will be required to obtain necessary authority from the DOT and the applicable foreign government.

Environmental Regulations

The Airport Noise and Capacity Act of 1990 (ANCA) generally recognizes the rights of airport operators with noise problems to implement local noise abatement programs so long as they do not interfere unreasonably with interstate or foreign commerce or the national air transportation system. The ANCA generally requires FAA approval of local noise restrictions on Stage 3 aircraft first effective after October 1990. While we have had sufficient scheduling flexibility to accommodate local noise restrictions imposed to date, our operations could be adversely affected if locally-imposed regulations become more restrictive or widespread.

The Environmental Protection Agency (EPA) regulates operations including air carrier operations, which affect the quality of air in the United States. We believe the aircraft in our fleet meet all emission standards issued by the EPA.

ITEM 1A. RISK FACTORS

In addition to the risk factors set forth elsewhere in this annual report, including, without limitation, in Item’s 1, 7, 7a, and 9a, investors should carefully consider the following risk factors before making investment decisions regarding our securities.

Our business is dependent on the availability and price of aircraft fuel.

Aircraft fuel is a significant expenditure and accounted for 32.9 percent, 24.6 percent and 21.5 percent of our 2005, 2004 and 2003 operating expenses, respectively. Due to the effect of economic events on the price and availability of oil, the future availability and cost of aircraft fuel cannot be predicted with any degree of

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certainty. Although we are currently able to obtain adequate supplies of aircraft fuel, it is impossible to predict the future availability or price of aircraft fuel. Political disruptions or wars involving oil-producing countries, changes in government policy concerning the production, transportation or marketing of aircraft fuel, changes in aircraft fuel production capacity, environmental concerns and other unpredictable events may result in fuel supply shortages and additional fuel price increases in the future. For 2006, if jet fuel increased $1 per barrel, our fuel expense, net of fuel contract arrangements, would increase approximately $5.3 million based on current and projected operations.

Our operations are largely dependant upon the availability of fuel in the Gulf Coast.

Our operations are largely concentrated in the Southeast United States with Atlanta being the highest volume fueling point in our system. In addition, over 70% of our fuel contracts are based on prices of jet fuel produced in the Gulf Coast area. Any disruption to the oil production or refinery in the Gulf Coast, as a result of weather or any other disaster could have a material adverse effect on our financial condition and results of operations not only in our East Coast routes but across our network due to disruptions in supply of jet fuel, dramatic escalations in the costs of jet fuel, and/or the failure of fuel providers to perform under our fixed-price fuel purchase agreements, among other potential effects.

Increased labor cost, employee strikes and other labor-related disruptions may adversely affect our results of operations.

Labor costs constitute a significant percentage of our total operating costs. A substantial portion of our workforce is represented by labor unions and covered by collective bargaining agreements. Our agreement with our dispatchers, who are represented by the Transport Workers Union (“TWU”), was ratified in October 2004 and becomes amendable in January 2009. Our agreement with our pilots, who are represented by the National Pilots Association (“NPA”), was ratified in August 2001 and became amendable April 2005. The agreement is currently in mediation under the auspices of the National Mediation Board. We have four separate agreements with employee groups represented by the International Brotherhood of Teamsters (“IBT”). Our agreement with our maintenance technicians and inspectors was ratified in October 2005 and becomes amendable in October 2009. The agreement with our technical training instructors was ratified in March 2001 and becomes amendable in March 2006. The agreement with our stores clerks was ratified in June 2001 and becomes amendable in June 2006. Our agreement with our ground service equipment employees was ratified October 2001 and becomes amendable in October 2006. We have a collective bargaining agreement with our flight attendants who are represented by the Association of Flight Attendants (“AFA”). Our agreement with the flight attendants was ratified in June 2006 and becomes amendable in December 2008.

While we believe that our relations with labor are generally good, any strike or labor dispute with our unionized employees may adversely affect our ability to conduct business. The outcome of our collective bargaining negotiations cannot presently be determined. If we are unable to reach agreement with any of our unionized work groups on future negotiations regarding the terms of their collective bargaining agreements or if additional segments of our workforce become unionized, we may be subject to work interruptions or stoppages.

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We have a significant amount of fixed obligations that could impair our ability to make principal and interest payments on our debt obligations and lease payments on our lease obligations.

We have significant debt obligations and lease obligations for aircraft and operating facilities. We may incur substantial additional debt related to aircraft deliveries, new facilities, or facility upgrades, or to fund potential acquisitions. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”

Our ability to make scheduled payments of principal or interest for our financing obligations depends on our future performance and financial results. These results are subject to general economic, financial, competitive, legislative, regulatory and other factors that are, to some extent, beyond our control.

The amount of our debt could have important consequences to investors, including the following:

• A substantial portion of our cash flow from operations must be dedicated to debt service and will not be available for operations; and

• Our ability to obtain additional financing for aircraft purchases, capital expenditures, working capital or general corporate purposes could be limited.

Our business is dependent on technology

We are increasingly dependent on technology initiatives to reduce costs and to maintain and enhance customer service in order to compete in the current business environment. For example, we have made significant investments in our web site technology and Bye-Pass ™ check-in kiosks, and related initiatives across the system. The performance and reliability of our technology are critical to our ability to attract and retain customers and our ability to compete effectively.

Any internal technology error or failure, or large scale external interruption in technology infrastructure we depend on, such as power, telecommunications or the internet, may disrupt our technology network. Any individual, sustained or repeated failure of our technology could impact our customer service and result in increased costs. Like all companies, our technology systems may be vulnerable to a variety of sources of interruption due to events beyond our control including natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers and other security issues. While we have in place and continue to invest in technology security initiatives and disaster recovery plans, these measures may not be adequate or implemented properly to prevent a business disruption and its adverse financial consequences to our business.

Covenants in our debt instruments could limit how we conduct our business, which could affect our long-term growth potential.

Our debt instruments and financing agreements contain, or in the future may contain, covenants that, among other things, restrict our ability to:

• Pay dividends and/or other distributions;

• Enter into mergers, consolidations or other business combinations; and

• Acquire new aircraft.

As a result of these restrictive covenants, we may be limited in how we conduct business, and we may be unable to raise additional debt or equity financing to operate during general economic or business downturns, to compete effectively, or to take advantage of new business opportunities. This may affect our ability to generate revenues and make profits.

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Our failure to comply with the covenants and restrictions contained in our indentures and other financing agreements could lead to a default under the terms of those agreements. If such a default occurs, the other parties to these agreements could declare all amounts borrowed and all amounts due under other instruments that contain provisions for cross-acceleration or cross-default due and payable. If that occurs, we may not be able to make payments on our debt, meet our working capital and capital expenditure requirements, or be able to find additional alternative financing on favorable or acceptable terms.

We are subject to various risks as a result of our fleet concentration in B717s.

While we have been adding B737s to our fleet since June 2004, our fleet currently consists primarily of B717 aircraft. Although we derive certain benefits in terms of reduced maintenance, training and other costs as a result, a concentration of our fleet in primarily one aircraft type may expose us to certain risks in the event of, among other things, FAA action to ground that aircraft generally if actual or suspected defects were discovered in the future unique to that aircraft. Certain other carriers operating with more diversified fleets could be better able to withstand any such future event. In January 2005, the manufacturer of the B717 announced the discontinuance of the production of B717 aircraft in 2006. As a result, we expect to experience increased costs in later years in connection with parts acquisition and/or maintenance for such aircraft.

Our operating results may suffer because of competition in the low-fare airline markets we serve.

The airline industry in general and the low-fare sector in particular is highly competitive and is served by numerous companies. We may face greater competition in the future. Any increased competition could have a negative impact on our business and operating results.

The profitability of our operations is influenced by economic conditions as demand for discretionary travel diminishes during economic downturns.

The profitability of our operations is influenced by the condition of the United States economy, which may impact the demand for discretionary travel and our competitive pricing position. A substantial portion of our business is discretionary travel, which declines during economic downturns.

We depend heavily on the Atlanta market to be successful.

Our business strategy has historically focused on adding flights to and from our Atlanta base of operations. We continue to expand the scope and growth of our route network to increase the amount of non-Atlanta flights; going from approximately 10 percent of our daily departures outside of Atlanta during 2000 to approximately 32 percent of our daily departures by year-end 2005. While we have reduced our dependence on Atlanta, a non-strategic, external reduction in our share of the Atlanta market or reduced passenger traffic to or from Atlanta could have a material adverse effect on our financial condition and results of operations. In addition, our dependence on a primary hub and on a route network operating largely on the East Coast makes us more susceptible to adverse weather conditions and other traffic delays along the East Coast than some of our competitors that may be better able to spread these traffic risks over larger route networks.

Our maintenance costs are expected to increase.

Our recent maintenance expenses have been lower than what we expect to incur in the future because of the young age of our B717 and B737 aircraft fleet. Our maintenance costs are expected to increase as these aircraft age and utilization increases.

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Our reputation and financial results could be negatively affected in the event of a major aircraft accident.

An accident involving one of our aircraft could involve not only repair or replacement of the damaged aircraft and its consequent temporary or permanent loss from service but also significant potential claims of injured passengers and others. Moreover, any aircraft accident, even if fully insured, could cause a public perception that our aircraft are less safe or reliable than other airlines, and that could have a negative effect on our business. The occurrence of one or more incidents or accidents involving our aircraft could have a material adverse effect on the public’s perception of us and our future operations.

We are required by the DOT to carry liability insurance on each of our aircraft. We currently maintain liability insurance in amounts and of the type consistent with industry practice. Although we currently believe our insurance coverage is adequate, the amount of such coverage may be changed in the future or we may be forced to bear substantial losses from accidents. Substantial claims resulting from an accident in excess of related insurance coverage could have a material adverse impact on our business and financial results.

We are subject to extensive regulation by the FAA, the DOT, and other governmental agencies, compliance with which could cause us to incur increased costs and negatively affect our business and financial results.

We are subject to a wide range of governmental regulation, including regulation by the FAA. A modification, suspension or revocation of any of our FAA authorizations or certificates could adversely impact our business.

Additional laws and regulations have been proposed that could significantly increase the cost of airline operations by imposing additional requirements or restrictions on operations. Laws and regulations have also been considered that would prohibit or restrict the ownership and/or transfer of airline routes or takeoff and landing slots. Also, the availability of international routes to United States carriers is regulated by treaties and related agreements between the United States and foreign governments that are amendable. We cannot predict what laws and regulations may be adopted or their impact and we cannot guarantee that laws or regulations currently proposed or enacted in the future will not adversely affect us.

The United States government currently provides insurance coverage for certain claims resulting from acts of terrorism, war or similar events. Should this coverage no longer be offered, the coverage that would be available to us through commercial aviation insurers may have substantially less desirable terms, result in higher costs and not be adequate to protect our risk, any of which could harm our business.

Future acts of terrorism or escalation of U.S. military involvement overseas could adversely affect the airline industry.

Even if not directed at the airline industry, a future act of terrorism, the threat of such acts or escalation of United States military involvement overseas could have an adverse effect on the airline industry. In the event of a terrorist attack, the airline industry would likely experience significantly reduced demand. We cannot give assurance you that these actions, or consequences resulting from these actions, will not harm our business or the airline industry generally.

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The airline industry has incurred significant losses resulting in airline restructurings and bankruptcies, which could result in changes in our industry.

As a result of slower general economic conditions, the continuing impact of the 2001 terrorist attacks, the high price of fuel and military action in Iraq, the airline industry has experienced a decline in demand which has resulted in record financial losses. In response to the adverse financial results the airline industry has experienced, most airlines have taken actions in an effort to reduce losses, such as reducing capacity, reducing employee headcount, limiting service offerings, renegotiating labor contracts and reconfiguring flight schedules, as well as other efficiency and cost-cutting measures. Despite these actions, financial losses in the airline industry have continued through 2005 and it is foreseeable that further airline reorganizations, bankruptcies or consolidations may occur, which could serve to reduce our cost advantage. We cannot assure you that the occurrence of these events or potential changes resulting from these events will not harm our business or the airline industry generally.

Major airlines are reducing their cost structures through various methods, these changes could reduce our cost advantage.

Airline strategic combinations or industry consolidations could have an impact on our operations in ways yet to be determined.

The strategic environment in the airline industry changes from time to time as carriers implement varying strategies in pursuit of profitability including consolidation to expand operations and increase market strength and entering into global alliance arrangements. Similarly, the bankruptcy or reorganization of one or more of our competitors may result in rapid changes to the identity of our competitors in particular markets, a substantial reduction in the operating costs of our competitors or the entry of new competitors into some or all of the markets we serve.

Additionally, we have sought to acquire gates and other assets from other carriers. In the event we complete one or more acquisitions, we may be subject to a variety of risks including risks associated with an ability to integrate acquired assets or operations into our existing operations, higher costs or unexpected difficulties or problems with acquired assets or entities including different flight equipment, outdated or incompatible technologies, labor difficulties or an inability to realize anticipated synergies and efficiencies; whether within anticipated timeframes or at all, one or more of such risks, if realized, could have an adverse impact on our operations.

We are unable to predict exactly what effect, if any, changes in the strategic landscape might have on our business, financial condition and results of operations.

ITEM 1B. UNRESELOVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Operating Aircraft Fleet

We operated the following owned and leased aircraft as of December 31, 2005:

Aircraft Type	Average No. of Seats	Owned	Leased	Total	Average Age (Years)
B717	117	8	77	85	3.4
B737-700	137	5	15	20	0.8
Total		13	92	105	2.9

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As of December 31, 2005, we had on order two Boeing 717 aircraft with delivery dates in 2006 and 55 Boeing 737 aircraft with delivery dates between 2006 and 2009. In January 2006, we exercised an option for the delivery of one additional B737 with a 2007 delivery date.

The table below illustrates all aircraft scheduled for delivery through 2010, including the effect of the aforementioned transaction:

	B737 Deliveries			B717 Deliveries
	Firm	Options	Purchase Rights	Firm	Options
2006	18	—	—	2	—
2007	19	—	—	—	—
2008	4	14	—	—	—
2009	15	—	—	—	—
2010	—	—	10	—	—
Total	56	14	10	2	—

Of the 56 B737 aircraft on order, we secured lease financing on seven of the aircraft through an arrangement with an aircraft leasing company and have secured debt financing for 15 B737 aircraft through arrangements with financial institutions. Additionally, we have entered into sale/leaseback transactions with the aircraft leasing company referred to above with respect to six related spare engines to be delivered through 2010.

There can be no assurance that sufficient financing will be available for all B737 aircraft deliveries or for other capital expenditures not covered by firm financing commitments. Should fuel prices remain high and if we are unable to raise prices to cover our costs, we may slow our growth, including the subleasing of certain numbers of our aircraft.

As of December 31, 2005, all of our owned aircraft were encumbered under debt agreements. For information concerning the estimated useful lives, residual values, lease terms, operating rent expense and firm orders on additional aircraft, see Notes 1, 3 and 7 to the consolidated financial statements.

Ground Facilities

Our principal executive offices are located at the Orlando International Airport in a leased facility consisting of approximately 34,000 square feet of office space. The facility houses our executive offices as well as our operations staff, general administrative staff, computer systems, systems operation control and personnel training facility. The lease agreement for this facility expires at the end of 2007 and may be extended an additional ten years through the exercise of options in five-year increments.

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We own an aircraft hangar measuring approximately 70,000 square feet at the Orlando International Airport, subject to a ground lease with the Greater Orlando Aviation Authority. The ground lease agreement for this facility expires in 2011 and may be extended an additional ten years through the exercise of options in five-year increments. The hangar houses a portion of our maintenance staff, and parts inventory.

We also lease the following facilities:

• Approximately 22,000 square feet of office space in Atlanta for use as a reservations center under a lease which expires in May 2010;

• Approximately 27,000 square feet of space in Atlanta for use as a training center under a lease which expires in October 2008;

• Approximately 13,000 square feet of space in Savannah, Georgia for a reservations center under a lease which expires in February 2009; and

• Approximately 91,000 square feet of space in Atlanta for a warehouse and engine repair facility under a lease that expires in August 2006.

• Approximately 7,200 square feet of space in Carrollton, Georgia for a third reservation center opened in 2004. The lease expires in March 2009.

We have signatory status on the lease of facilities at Hartsfield-Jackson Atlanta International Airport. This lease covers use of 22 gates and expires in September 2010. We also have signatory status at several other airports. The lease at Baltimore/Washington International (BWI) covers five gates and expires in June 2008. The lease at Orlando International Airport covers five gates and will increase to six gates in early 2006. This lease expires in 2008. The check-in-counters, gates and airport office facilities at each of the other airports we serve are leased from the appropriate airport authority or subleased from other airlines. These arrangements may include baggage handling, station operations, cleaning and other services. If these facilities at any additional cities to be served by us are not available at acceptable rates, or if such facilities become no longer available to us at acceptable rates, then we may choose not to serve those markets.

In May 2004, we opened a two bay hangar facility at Hartsfield-Jackson Atlanta International Airport. The 56,700 square-foot hangar can hold four B717 aircraft simultaneously and has a 20,000 square-foot; two-story office building attached to the hangar to house engineers and other support staff. We have a 20 year lease on the facility which expires in 2024.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we are engaged in litigation arising in the ordinary course of our business. We do not believe that any such pending litigation will have a material adverse effect on our results of operations or financial condition.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock, $.001 par value per share, is traded on the New York Stock Exchange under the symbol “AAI.” The following table sets forth the reported high and low sale prices for our common stock for each quarterly period during 2005 and 2004:

	2005				2004
Quarter	High		Low		High		Low
1st	$	11.02	$	7.40	$	14.25	$	10.42
2nd	$	10.65	$	7.85	$	15.56	$	11.11
3rd	$	12.70	$	8.72	$	14.24	$	9.37
4th	$	16.70	$	12.63	$	13.15	$	9.40

Holders

As of March 1, 2006, there were approximately 4,577 stockholders of record of common stock.

Dividends

Historically we have not declared cash dividends on our common stock. In addition, our debt indentures restrict our ability to pay cash dividends. We intend to retain earnings to finance the development and growth of our business. Accordingly, we do not anticipate that any cash dividends will be declared on our common stock for the foreseeable future. Future payments of cash dividends, if any, will depend on our financial condition, results of operations, business conditions, capital requirements, restrictions contained in agreements, future prospects and other factors deemed relevant by our Board of Directors.

Securities Authorized for Issuance Under Equity Compensation Plans

See Item 12 of this Report on Form 10-K below.

ITEM 6. SELECTED FINANCIAL AND OPERATING DATA

The following financial information for the five years ended December 31, 2005 has been derived from our consolidated financial statements. This information should be read in conjunction with the consolidated financial statements and related Notes thereto included elsewhere herein.

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Financial Data: (in 000s, except per share data)	2005			2004			2003			2002			2001
Operating revenues	$	1,450,544		$	1,041,422		$	918,040		$	733,370		$	665,164
Net income (loss)	$	1,722		$	12,255	(1)	$	100,517	(2)	$	10,745	(3)	$	(2,757	)(4)
Earnings (loss) per common share:
Basic	$	0.02		$	0.14		$	1.33		$	0.15		$	(0.04	)
Diluted	$	0.02		$	0.14		$	1.21		$	0.15		$	(0.04	)
Total assets at year-end	$	1,158,909		$	905,731		$	808,364		$	473,450		$	497,816
Long-term debt obligations including current maturities at year-end	$	472,599		$	313,970		$	246,836		$	210,173		$	268,211
Operating Data:
Revenue passengers		16,638,214			13,170,230			11,651,340			9,653,777			8,302,732
Revenue passenger miles (RPM) (000s) (5)		11,301,534			8,479,262			7,143,125			5,581,263			4,506,007
Available seat miles (ASM) (000s) (6)		15,369,505			11,977,443			10,046,385			8,255,809			6,537,756
Passenger load factor (7)		73.5	%		70.8	%		71.1	%		67.6	%		68.9	%
Break-even load factor (8)		73.4	%		69.4	%		64.1	%		66.7	%		66.3	%
Average fare	$	83.98		$	76.33		$	76.38		$	73.93		$	78.11
Average yield per RPM (9)		12.36	¢		11.86	¢		12.46	¢		12.79	¢		14.39	¢
Passenger revenue per ASM (10)		9.09	¢		8.39	¢		8.86	¢		8.64	¢		9.92	¢
Operating cost per ASM (CASM)(11)		9.35	¢		8.42	¢		8.28	¢		8.51	¢		9.33	¢
Average stage length (miles)		651			628			599			567			541
Average cost of aircraft fuel per gallon, including fuel taxes		184.94	¢		120.42	¢		98.39	¢		90.37	¢		93.85	¢
Average daily utilization (hours: minutes) (12)		11:00			10:54			10:56			10:36			9:54
Number of operating aircraft in fleet at end of period		105			87			74			65			59

Note: All special items listed below are pre-tax.

⁽¹⁾ Includes a $1.3 million credit related to our unsuccessful bid for certain leased gates and other assets of another airline at Chicago’s Midway airport

⁽²⁾ Includes a $38.1 million payment under the Wartime Act, deferred debt discount/issuance cost write-off of $12.3 million and reversal of a tax valuation allowance of $15.9 million

⁽³⁾ Includes a $0.6 million grant from the U.S. government pursuant to the Air Transportation Safety and System Stabilization Act (the Stabilization Act)

⁽⁴⁾ Includes a $28.0 million impairment loss related to our DC-9 fleet, an $18.1 million impairment loss/lease termination charge related to our retired B737-200 fleet, special charges of $2.5 million incurred during the federal ground stop order, a $29.0 million grant from the U.S. government pursuant to the Stabilization Act, and the cumulative effect of a change in accounting principle of $0.7 million

⁽⁵⁾ The number of scheduled revenue miles flown by passengers

⁽⁶⁾ The number of seats available for passengers multiplied by the number of scheduled miles each seat is flown

⁽⁷⁾ The percentage of aircraft seating capacity that is actually utilized (RPMs divided by ASMs)

⁽⁸⁾ The percentage of seats that must be occupied by revenue passengers in order for us to break even on a pre-tax income basis

⁽⁹⁾ The average amount one passenger pays to fly one mile

⁽¹⁰⁾ Passenger revenue divided by ASMs

⁽¹¹⁾ Operating expenses, divided by ASMs

⁽¹²⁾ The average amount of time per day that an aircraft flown is operated in revenue service

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

FORWARD-LOOKING STATEMENTS

The information contained in this section has been derived from our historical financial statements and should be read together with our historical financial statements and related notes included elsewhere in this document. The discussion below contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties including, but not limited to: consumer demand and acceptance of services offered by us, our ability to achieve and maintain acceptable cost levels, fare levels and actions by competitors, regulatory matters, general economic conditions, commodity prices, and changing business strategies. Forward-looking statements are subject to a number of factors that could cause actual results to differ materially from our expressed or implied expectations, including, but not limited to: our performance in future periods, our ability to generate working capital from operations, our ability to take delivery of and to finance aircraft, the adequacy of our insurance coverage, and the results of litigation or investigation. Our forward-looking statements can be identified by the use of terminology such as “anticipates,” “expects,” “intends,” “believes,” “will” or the negative thereof, or variations thereon or comparable terminology. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

OVERVIEW

All of the operations of AirTran Holdings, Inc. are conducted by our wholly owned subsidiary, AirTran Airways, Inc. (Airways). Airways is one of the largest low cost scheduled airlines in the United States in terms of departures and seats offered. We operate scheduled airline service primarily in short-haul markets principally in the eastern United States, with a majority of our flights originating and terminating at our hub in Atlanta, Georgia. As of March 1, 2006, we operated 85 Boeing 717-200 (B717) and 23 Boeing 737-700 (B737) aircraft making approximately 600 scheduled flights per day to 47 airports across the United States, serving more than 60 communities in 25 states, the District of Columbia and the Bahamas.

Our plans for 2006 focus on continuing the growth of our operations. We intend to do this by:

• adding two new B717 and 18 new B737 aircraft to our fleet;

• improving productivity;

• keeping our unit costs at levels that rank among the best in the industry;

• looking for new market opportunities that will satisfy the transportation needs of our customers; and

• providing our customers with a travel experience worth repeating.

We expect our mix of low fares, excellent customer service, an affordable Business Class product, and one of the youngest all-Boeing aircraft fleets will provide product value that customers will find attractive.

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YEAR IN REVIEW

2005 was another challenging year for the airline industry; the year was marked by intense competition, high energy prices, hurricanes, and capacity growth by airlines. As a result we have seen three of our competitors enter bankruptcy with one competitor liquidating in early 2006. At one point during 2005 nearly half of all of the domestic U.S. capacity was in bankruptcy. Despite the challenges of 2005, we concluded the year as one of a few domestic passenger airlines to report a profit, recording $1.7 million in net income for the year.

The revenue environment improved throughout 2005 as several carriers reduced capacity. In our markets the competitive capacity reductions have been in the range of 12% to 15% year over year. It is likely that further reductions in overall capacity will occur, including in the markets we serve.

Our business model is based in part on low costs and our success in reducing costs has ensured our ability to persevere through the difficult economic environment we have faced, not only during 2005 but also during prior years as well. Our low costs have also given us a strategic advantage that allows us to grow profitably while our competitors have been unable to do the same. As a result a number of airlines have incurred substantial losses in 2005 and are attempting to restructure their operations, gain wage concessions from their employees and lower their costs, including filing for bankruptcy protection.

Highlights from 2005 include the following:

• Secured financing on all pre-delivery purchase deposits through 2007

• Ratified agreements with our flight attendants and mechanics and inspectors

• Named Best Low-Fare Airline by Entrepreneur Magazine for 2005

• Initiated new service to Richmond, Indianapolis, Charlotte, and Detroit

• Secured financing commitments for all 2006 aircraft deliveries

• Received top FAA recognition for maintenance excellence

RESULTS OF OPERATIONS

2005 Compared to 2004

Summary

We recorded operating income of $13.4 million, net income of $1.7 million and diluted earnings per common share of $0.02 for the year ended December 31, 2005. For the comparative period in 2004, we recorded operating income of $32.8 million, net income of $12.3 million, and diluted earnings per common share of $0.14. These 2004 results included $1.3 million in other income(expense), primarily related to payment of a break-up fee to us in connection with our unsuccessful bid for certain leased gates and other assets of another airline at Chicago’s Midway airport.

Operating Revenues

Our operating revenues for the twelve months ended December 31, 2005 increased $409.1 million (39.3 percent), primarily due to a 39.0 percent increase in passenger revenues. The increase in passenger revenues was largely due to a 33.3 percent increase in passengers, as measured by revenue passenger miles (RPMs), and an increase in our average yield per RPM of 4.2 percent to 12.36 cents per RPM. The increase in yield resulted primarily from a 10.0 percent increase in our average fare to $83.98. This increase in yield, when combined with our 2.7 percentage point increase in passenger load factor, resulted in an 8.3 percent increase in passenger unit revenues or passenger revenue available seat miles (RASM) to 9.09 cents per ASM.

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During the twelve months ended December 31, 2005, we took delivery of six B717 aircraft and 12 B737 aircraft. As a result, our capacity, as measured by available seat miles (ASMs), increased 28.3 percent. Our traffic, as measured by RPMs, increased 33.3 percent, resulting in a 2.7 percentage point increase in passenger load factor to 73.5 percent.

Operating Expenses

Our operating expenses for the twelve months ended December 31, 2005 increased $428.6 million (42.5 percent) or 11.0 percent on an ASM basis. Our financial results were significantly affected by changes in the price of fuel. During 2005 we experienced record high aircraft fuel prices driven by sharp increases in the cost of crude oil and disruptions to the Gulf Coast refineries as a result of hurricanes.

In general, our operating expenses are significantly affected by changes in our capacity, as measured by ASMs. The following table presents our unit costs, defined as operating expenses per ASM, for the indicated periods:

	Twelve months ended December 31,				Percent change
	2005		2004
Aircraft fuel	3.08	¢	2.07	¢	48.8	%
Salaries, wages and benefits	2.14		2.28		(6.1	)
Aircraft rent	1.25		1.26		(0.8	)
Maintenance, materials and repairs	0.66		0.58		13.8
Landing fees and other rents	0.53		0.52		1.9
Distribution	0.44		0.42		4.8
Marketing and advertising	0.24		0.23		(4.3	)
Aircraft insurance and security services	0.15		0.19		(21.1	)
Depreciation	0.13		0.12		8.3
Other operating	0.73		0.75		(2.7	)
Total CASM	9.35	¢	8.42	¢	11.0	%

Aircraft fuel increased 48.8 percent on an ASM basis, primarily due to escalating fuel prices. Our fuel price per gallon, including all fees and taxes, increased 53.6 percent from $1.20 for the twelve months ended December 31, 2004 to $1.85 for twelve months ended December 31, 2005. The level of our flight operations, as measured by block hours flown, increased 23.3 percent while our fuel consumption per block hour increased slightly 0.6 percent to 667 gallons. In a continued effort to reduce our fuel costs, we have begun adding winglets to our B737 aircraft as they are delivered. These enhancements extend the aircraft range, improve performance, and reduce fuel costs.

Salaries, wages and benefits decreased 6.1 percent on an ASM basis, primarily due to gains in productivity driven by the increased number of aircraft and higher daily utilization. We employed approximately 6,700 full-time equivalent employees, as of December 31, 2005, representing a 13.5 percent increase over the comparative period in 2004.

Maintenance, materials and repairs increased 13.8 percent on an ASM basis. On a block hour basis, maintenance costs increased 18.8 percent to $266 per block hour due to the expiration of warranties on the B717 aircraft and an increase in airframe checks. As the original manufacturer warranties expire on our

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B717 and B737 aircraft, the maintenance, repair and overhaul of aircraft engines and a significant number of aircraft systems become covered by maintenance agreements with FAA-approved contractors. Under our maintenance agreements, we pay monthly charges based on either the number of flight hours flown or the number of landings.

Aircraft insurance and security services decreased 21.1 percent on an ASM basis. While the addition of 18 new Boeing aircraft to our fleet for the twelve-month period ending December 31, 2005 increased our total insured hull value and related insurance premiums, the decrease on an ASM basis is primarily due to a reduction in hull and liability insurance rates and security costs for our 2005 fleet coverage.

Depreciation increased 8.3 percent on an ASM basis, primarily due to the addition of three B737 for the twelve-month period ending December 31, 2005 as well as, the purchase of spare aircraft parts for the new B737 fleet. With the exception of the three B737’s, all aircraft additions during the year were lease financed rather than purchased.

Nonoperating (Income) Expense

Other (income) expense, net decreased by $2.4 million (18.4 percent). Increases in rates earned on cash and higher investment balances increased interest income by $6.5 million. Interest expense increased by $5.3 million and debt issuance cost amortization expense increased by $1.1 million, primarily due to the issuance of new debt relating to new aircraft financing during the twelve months ended December 31, 2005. Capitalized interest income increased $3.6 million due to a $63.7 million increase in progress payment balances on aircraft commitments in 2005 compared to 2004. Additionally $1.3 million of other income is included in our 2004 results relating to payment of a break-up fee to us in connections with our unsuccessful bid for certain leased gates and other assets of another airline at Chicago’s Midway airport.

Income Tax Expense

Our effective income tax rate was 41.1 percent and 38.8 percent for the twelve months ended December 31, 2005, and 2004, respectively. Our tax expense for December 31, 2005 includes a one-time benefit of $1.7 million resulting from an adjustment to our deferred tax liabilities for a decrease in our state effective rate. The overall rate increase resulted primarily from permanent differences related to stock compensation.

At December 31, 2005 and 2004, NOL carryforwards for income tax purposes were approximately $264.2 million and $233.5 million, respectively, which begin to expire in 2017. Management has determined that it is more likely than not that the deferred tax assets will be realized due to the reversal of deferred tax liabilities and projected short term income, therefore no valuation allowance has been recorded at December 31, 2005 and 2004.

2004 Compared to 2003

Summary

Our performance during 2004 marked a major financial milestone – we surpassed one billion dollars in total revenues for the year. We recorded operating income of $32.8 million, net income of $12.3 million and diluted earnings per common share of $0.14 for the twelve months ended December 31, 2004. These 2004 results reflect a $0.8 million net credit primarily related to our unsuccessful bid for certain leased gates and other assets of another airline at Chicago’s Midway airport. For the comparative period in 2003, we recorded operating income of $86.3 million, net income of $100.5 million, and diluted earnings per common share of $1.21.

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Operating Revenues

Our operating revenues for the twelve months ended December 31, 2004 increased $123.4 million (13.4 percent), primarily due to a 13.0 percent increase in passenger revenues. The increase in passenger revenues was largely due to an 18.7 percent increase in traffic, as measured by revenue passenger miles (RPMs), offset by a decrease in our average yield per RPM of 4.8 percent to 11.86 cents per RPM. The decrease in yield resulted from a 5.1 percent increase in our average passenger trip length to 644 miles combined with a 0.1 percent decrease in our average fare to $76.33. This decrease in yield, when combined with our 0.3 percentage point decrease in passenger load factor, resulted in a 5.3 percent decrease in passenger unit revenues or passenger revenue available seat miles (RASM) to 8.39 cents per ASM.

We placed an order with an aircraft manufacturer in 2003 for up to 110 aircraft, including options and purchase rights. During the twelve months ended twelve months ended December 31, 2004, we took delivery of six B717 aircraft and eight B737 aircraft and retired one McDonnell Douglas DC-9 aircraft. As a result, our capacity, as measured by available seat miles (ASMs), increased 19.2 percent. Our traffic, as measured by RPMs, increased 18.7 percent, resulting in a 0.3 percentage point decrease in passenger load factor to 70.8 percent.

Other revenues increased $8.1 (28.7 percent) million, primarily due to fees earned from our AirTran Airways branded credit card issued by a third party financial institution, in addition to change and cancellation fees derived from our overall increase in traffic.

Operating Expenses

Our operating expenses for the twelve months ended December 31, 2004 increased $176.9 million (21.3 percent) or increased 1.7 percent on an ASM basis. In general, our operating expenses are significantly affected by changes in our capacity, as measured by ASMs. In addition, our financial results are significantly affected by changes in the fuel price. During 2004, we experienced then record aircraft fuel prices derived from sharp increases in the cost of crude oil. The following table presents our unit costs, defined as operating expenses per ASM, for the indicated period:

	Twelve months ended December 31,				Percent change
	2004		2003
Aircraft fuel	2.07	¢	1.78	¢	16.3	%
Salaries, wages and benefits	2.28		2.31		(1.3	)
Aircraft rent	1.26		1.24		1.6
Other operating	0.75		0.78		(3.8	)
Maintenance, materials and repairs	0.58		0.63		(7.9	)
Landing fees and other rents	0.52		0.52		—
Distribution	0.42		0.45		(6.7	)
Marketing and advertising	0.23		0.24		(4.2	)
Aircraft insurance and security services	0.19		0.20		(5.0	)
Depreciation	0.12		0.13		(7.7	)
Total CASM	8.42	¢	8.28	¢	1.7	%

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Aircraft fuel, including fuel-hedging activities, increased 16.3 percent on an ASM basis. The cost of aircraft fuel reached then record highs during 2004 with our average per gallon cost, including all fees, taxes, and hedging activities increasing 22.4 percent to 120.42 cents. Our overall fuel consumption also increased 13.4 percent primarily due to the growth of our operations. Improvements to our fuel consumption per block hour partially offset our greater fuel consumption and the record price increases. Our fuel consumption improved 2.0 percent per block hour compared to 2003. Our fuel performance improvements directly relate to our transition to an aircraft fleet comprised of two aircraft types that are significantly more fuel-efficient than the DC-9s that were replaced. We retired our last DC-9 aircraft at the beginning of 2004 and accepted delivery of fourteen new B737 and B717 aircraft during the remainder of the year. Our fixed-price fuel contracts and fuel cap contracts reduced our fuel expense by $38.6 million and $7.4 million during 2004 and 2003, respectively.

Maintenance, materials and repairs decreased 7.9 percent on an ASM basis. On a block hour basis, maintenance costs decreased 3.0 percent to approximately $224 per block hour. As the original manufacturer warranties expire on our B717 aircraft the maintenance, repair and overhaul of major aircraft engine, parts and components become covered by previously negotiated agreements with FAA-approved maintenance contractors. Contractually we pay monthly fees based on the level of our operations, generally measured by either the number of flight hours flown or the number of landings. Our increased level of operations during the year and the related costs associated with our maintenance agreements predominantly account for the overall increase in this area.

Distribution costs decreased 6.7 percent on an ASM basis primarily due to the overall decrease of passenger revenues derived from travel agency sales. Although total distribution costs have increased, these costs as a percentage of passenger revenues have decreased as more of our passengers have shifted their bookings directly onto our website. We recognize significant cost savings when our sales are booked directly through our website as opposed to more traditional methods, such as travel agents.

Depreciation decreased 7.7 percent on an ASM basis. Overall depreciation expense increased due to the purchase of two new B737 aircraft. However, with the exception of two B737s, all aircraft additions during the year were lease-financed rather than purchased.

Non-operating Expenses

Other (income) expense, net increased by $13.7 million primarily due to the receipt in 2003 of a government reimbursement pursuant to the Wartime Act of $38.1 million, partially offset by a $12.3 million charge related to the write off of unamortized debt discount and issuance costs due to the early retirement of debt and of conversion of debt to equity and by a $8.9 million reduction in 2004 in interest expense as a result of having reduced our outstanding debt obligations.

LIQUIDITY AND CAPITAL RESOURCES

Our primary source of funds is cash provided by operations and cash provided by financing activities. Our primary uses of cash are for working capital (including labor and fuel costs), capital expenditures and general corporate purposes, which may include the acquisition of other airlines and their assets, whether in connection with bankruptcy proceedings relating to such carriers of their assets or otherwise in other investments in strategic alliances, code-sharing agreements or other business arrangements.

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Our total cash, including cash and cash equivalents, restricted cash and short-term investments totaled $390.1 million and $342.3 million at December 31, 2005, and 2004, respectively. Short-term investments represent auction rate securities with reset periods less than 12 months.

Operating activities for the twelve months ended December 31, 2005 generated $64.6 million of cash compared to $38.1 million for the comparable period in 2004. The increase was, primarily, due to an increase in passenger bookings for future travel, a decrease in prepaid fuel inventories and an increase in accounts payable and accrued liabilities due primarily to deferred credits that we received during 2005 and an increase in our outstanding payables due to increased operations. This was offset by lower net income, an increase in other assets, primarily prepaid aircraft rent and maintenance reserves, and an increase in restricted cash during 2005 for our outstanding letters of credits.

Investing activities for the twelve months ended December 31, 2005 used $80.2 million in cash compared to $73.3 million in 2004. Our investing activities primarily consist of capital expenditures related to aircraft, aircraft purchase deposits required for scheduled deliveries in future periods and purchases and sales of auction rate securities that for cash investments. Additionally, cash is used for the purchase of spare parts and equipment related to the B717 and B737 aircraft fleets.

Financing activities for the twelve months ended December 31, 2005 generated $78.6 million of cash compared to $3.9 million for the comparable period in 2004. During 2005, we generated cash from the issuance of debt financing for aircraft pre-delivery deposits of $96.7 million, offset by debt repayments of $24.6 million.

Commitments

Our contractual commitments to be paid as follows as of December 31, 2005 (in millions) are:

Nature of commitment	Total		2006		2007 -2008		2009 -2010		Thereafter
Operating lease payments for aircraft and facility obligations(1)	$	6,074.0	$	265.5	$	647.2	$	752.4	$	4,408.9
Aircraft fuel purchases		23.2		14.9		8.3		—		—
Long-term debt obligations (1)		1,180.7		139.0		173.5		153.5		714.7
Other		6.0		1.5		3.0		1.5		—
Total contractual obligations and Commitments	$	7,283.9	$	420.9	$	832.0	$	907.4	$	5,123.6

(1) Includes related interest payments and assumes that we will lease all aircraft, except for fifteen aircraft committed under debt financing, even though financing has not been arranged for all aircraft.

A variety of assumptions were necessary in order to derive the information described in the above table, including, but not limited to: (i) the timing of aircraft delivery dates; and (ii) estimated rental factors which are correlated to floating interest rates prior to delivery. Our actual results may differ from these estimates under different assumptions or conditions.

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Aircraft Purchase Commitments:

In the year ended December 31, 2005, we took delivery of six B717 and 12 B737 aircraft of which six B717 and nine B737 were leased, under operating leases. The three additional B737 aircraft were purchased and financed with debt.

As of December 31, 2005, we had on order two Boeing 717 aircraft with delivery dates in 2006 and 55 Boeing 737 aircraft with delivery dates between 2006 and 2009. In January 2006, we exercised an option for the delivery of one additional B737 with a 2007 delivery date.

The table below illustrates all aircraft scheduled for delivery through 2010, including the effect of the aforementioned transaction:

	B737 Deliveries			B717 Deliveries
	Firm	Options	Purchase Rights	Firm	Options
2006	18	—	—	2	—
2007	19	—	—	—	—
2008	4	14	—	—	—
2009	15	—	—	—	—
2010	—	—	10	—	—
Total	56	14	10	2	—

Of the 56 B737 aircraft on order, we secured lease financing on seven of the aircraft through an arrangement with an aircraft leasing company and have secured debt financing for 15 B737 aircraft through arrangements with financial institutions. Additionally, we have entered into sale/leaseback transactions with the aircraft leasing company referred to above with respect to six related spare engines to be delivered through 2010.

During 2006, we are scheduled to take delivery of two remaining B717 aircraft, which are to be leased through an affiliate of the aircraft manufacturer. Additionally we are scheduled to take delivery of 18 B737 aircraft during 2006, of which seven of such B737 aircraft are to be acquired pursuant to individual operating leases through the aircraft leasing arrangements and 11 B737 aircraft are to be financed through debt. Additionally, we have entered into sale/leaseback transactions with that aircraft leasing company with respect to six related spare engines to be delivered between the remainder of 2005 and 2010.

During 2005, in connection with our agreements with an aircraft manufacturer, Airways was refunded $29.8 million in previously paid aircraft deposits while paying $9.5 million in new aircraft deposits under the agreement for the acquisition of B737 aircraft.

Debt:

Permanent Aircraft Financing Facilities:

Through December 31, 2005, we have entered into three separate facilities (each a “permanent facility”) for purposes of financing the acquisition of B737 aircraft on order with an aircraft manufacturer.

We entered into the first permanent facility in August 2004, pursuant to which we financed the acquisition of three B737 aircraft. We took delivery of the three B737 aircraft in August 2004, July 2005 and August 2005, respectively. In conjunction with the financing of these B737 aircraft, we issued equipment notes as aircraft were delivered for an aggregate amount of $87.0 million, which are scheduled to mature between August 2016 and August 2017. The equipment notes bear interest at a floating rate per annum above the six-month US Dollar London Interbank Offering rate (LIBOR) in effect at the commencement of each semi-annual period, and payments of principal and interest under the notes are payable semi-annually. Each note is secured by a first mortgage on the aircraft to which it relates, valuing at approximately $96.5 million as of December 31, 2005.

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We entered into the second permanent facility in September 2004, pursuant to which we financed the acquisition of three additional B737 aircraft. We took delivery of such aircraft in September 2004, June 2005 and January 2006, respectively. In conjunction with the financing of these B737 aircraft, we issued equipment notes as aircraft were delivered for an aggregate amount of $85.5 million, which are scheduled to mature between September 2016 and January 2018. The notes bear interest at a floating rate per annum above the six-month US Dollar LIBOR in effect at the commencement of each semi-annual period, and payments of principal and interest under the notes are payable semi-annually. Each note is secured by a first mortgage on the aircraft to which it relates, valuing at approximately $63.7 million as of December 31, 2005.

We entered into the third permanent facility in September 2005, pursuant to which we shall be entitled to borrow up to $354 million for purposes of acquiring 12 B737 aircraft currently scheduled to be delivered to us in 2006 and 2007 and satisfying our repayment obligations under a related pre-delivery payment financing facility, which is described in more detail below. On the delivery date of each aircraft subject to this third permanent facility, we will issue equipment notes evidencing the loans made under this permanent facility for that aircraft. The equipment notes will mature on the twelfth anniversary of the delivery date of the aircraft to which such notes relate and will be secured by the aircraft to which such loans relate. We intend to obtain a loan in respect of the first aircraft subject to this permanent facility during May 2006.

On February 14, 2006, we entered into a fourth permanent facility, pursuant to which we shall be entitled to borrow up to $58 million for purposes of acquiring two B737 aircraft on their respective delivery dates. We obtained a loan under this fourth permanent facility on February 14, 2006 for purposes of acquiring the first of the aircraft subject to this facility. In connection with the financing of that aircraft, we issued an equipment note for $29 million. The note is scheduled to mature during February 2018. The note bears interest at a floating rate per annum above the six-month LIBOR, and payments of principal and interest under the note are payable semi-annually. We intend to obtain a loan in respect of the second aircraft subject to this facility during March 2006.

Pre-delivery Payment Financings:

Through December 31, 2005, we have entered into three separate facilities (each a “PDP facility”) for purposes of financing our obligations to make pre-delivery payments in respect of B737 aircraft on order with an aircraft manufacturer.

During May 2005, we closed the first PDP facility, “PDP-1”, pursuant to which we were entitled to draw an amount equal to $19.6 million to fund a portion of our obligations to make pre-delivery payments in respect of six B737 aircraft scheduled to be delivered through March 2006. Drawings made under PDP-1 bear interest at a floating rate per annum above the one-month US Dollar LIBOR. PDP-1 is secured by certain rights under our purchase agreement with an aircraft manufacturer for the six B737 aircraft. As of December 31, 2005, PDP-1 was fully drawn and $9.9 million was outstanding thereunder. All outstanding amounts related to PDP-1 will have been repaid prior to delivery of the last of the six aircraft in March 2006.

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On September 1, 2005, we closed the second PDP facility, “PDP-2”, pursuant to which we are entitled to draw amounts sufficient to fund all of our obligations to make pre-delivery payments in respect of 12 B737 aircraft currently scheduled to be delivered in 2006 and 2007. PDP-2 was entered into in conjunction with the September 2005 permanent facility for $354 million as described above. Drawings made under PDP-2 bear interest at a floating rate per annum above the one-month US Dollar LIBOR. PDP-2 is secured by certain rights under our purchase agreement with an aircraft manufacturer for the 12 B737 aircraft. As of December 31, 2005, $57.2 million is outstanding under PDP-2, which is equivalent to pre-delivery payments due and paid by us to the aircraft manufacturer for the 12 B737 aircraft through such date. We intend to make additional drawings under PDP-2 for approximately $264.2 million through February 2006, at which time our deposit requirements for the 12 aircraft will be met.

On December 7, 2005, we closed the third PDP facility, “PDP-3”, pursuant to which we are entitled to draw amounts up to $65 million to fund a portion of our obligations to make pre-delivery payments in respect of 19 B737 aircraft currently scheduled to be delivered in 2007 and 2008. Drawings made under PDP-3 bear interest at a floating rate per annum above the one-month US Dollar LIBOR. PDP-3 is secured by certain rights under our purchase agreement with an aircraft manufacturer for the 19 B737 aircraft. As of December 31, 2005, $20.0 million is outstanding under PDP-3. We intend to make additional drawings under PDP-3 for approximately $45 million, through April 2007, at which time the deposit requirements for the 19 aircraft will have been met.

Credit Agreement:

During April 2005, we signed a new credit agreement with a bank lender. The new credit agreement included a revolving line of credit for up to $25 million, and, additionally, allowed us to obtain letters of credit for up to $15 million and enter into hedge agreements with the bank. Any advances on the revolving line of credit would bear interest at a base rate plus a margin of 1.5 percent per annum. In September 2005, as a result of obtaining additional financing, we terminated the credit agreement in conjunction with obtaining additional financing. As a result of the termination of the line of credit, $11.3 million of restricted cash on the accompanying consolidated balance sheet relates to outstanding letters of credit, primarily for airport facilities, as of December 31, 2005.

Other Commitments:

In May 2004, we opened a two bay hangar facility at Hartsfield-Jackson Atlanta International Airport. The 56,700 square-foot hangar will hold four of our B717 aircraft simultaneously and has a 20,000 square-foot; two-story office building attached to the hangar to house engineers and other support staff. We have a 20-year lease on the facility which expires in 2024.

Aquarium:

As a presenting sponsor of the Georgia Aquarium, we have committed to pay $7.5 million in five yearly installments expiring October 31, 2010.

Other Sources of Liquidity:

The Company has various options available to meet its capital and operating commitments including internally generated funds and various borrowing or leasing options. Additionally the Company has an outstanding shelf registration which it may utilize to raise funds for aircraft financings or other purposes in the future. There can be no assurance that financing will be available for all B737 aircraft deliveries or for other capital expenditures not covered by firm financing commitments. Should fuel prices remain high and if we are unable to raise prices to cover our costs, we may slow our growth, including through the subleasing of certain numbers of our aircraft.

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Off-Balance Sheet Arrangements

An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the company, or that engages in leasing, hedging or research and development arrangements with the company.

We have no arrangements of the types described in the first three categories that we believe may have a material current or future affect on our financial condition, liquidity or results of operations. Certain guarantees that we do not expect to have a material current or future effect on our financial condition, liquidity or resulted operations are disclosed in Note 7 to our consolidated financial statements.

Effective October 1, 2003, we adopted FASB Interpretation 46 (FIN 46), “Consolidation of Variable Interest Entities.” FIN 46 requires the consolidation of certain types of entities in which a company absorbs a majority of another entity’s expected losses, receives a majority of the other entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the other entity. These entities are called “variable interest entities” or “VIEs”. The principal characteristics of VIEs are (1) an insufficient amount of equity to absorb the entity’s expected losses; (2) equity owners as a group are not able to make decisions about the entity’s activities, or (3) equity that does not absorb the entity’s losses or receive the entity’s residual returns. “Variable interests” are contractual, ownership or other monetary interests in an entity that change with fluctuations in the entity’s net asset value. As a result, VIEs can arise from items such as lease agreements, loan arrangements, guarantees or service contracts.

If an entity is determined to be a VIE, the entity must be consolidated by the “primary beneficiary”. The primary beneficiary is the holder of the variable interests that absorb a majority of the VIE’s expected losses or receive a majority of the entity’s residual returns in the event no holder has a majority of the expected losses. There is no primary beneficiary in cases where no single holder absorbs the majority of the expected losses or receives a majority of the residual returns. The determination of the primary beneficiary is based on projected cash flows at the inception of the variable interest.

We have variable interests in our aircraft leases. The lessors are trusts established specifically to purchase, finance and lease aircraft to us. These leasing entities meet the criteria of VIEs. We are generally not the primary beneficiary of the leasing entities if the lease terms are consistent with market terms at the inception of the lease and do not include a residual value guarantee, a fixed-price purchase option or similar feature that obligates us to absorb decreases in value or entitles us to participate in increases in the value of the aircraft. This is the case in the majority of our aircraft leases, however we have two aircraft leases that contain fixed-price purchase options that allow us to purchase the aircraft at predetermined prices on specified dates during the lease term. We have not consolidated the related trusts because even taking into consideration these purchase options, we are not the primary beneficiary based on our cash flow analysis.

Critical Accounting Policies and Estimates

General. The discussion and analysis of our financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and

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related disclosure of contingent assets and liabilities at the date of our financial statements. Our actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and are sufficiently sensitive to result in materially different results under different assumptions and conditions. The following is a description of what we believe to be our most critical accounting policies and estimates (see Note 1 to the Consolidated Financial Statements).

Revenue Recognition. Passenger revenue is recognized when transportation is provided. Ticket sales for transportation which has not yet been provided are recorded as air traffic liability. Air traffic liability represents tickets sold for future travel dates. The balance of the air traffic liability fluctuates throughout the year based on seasonal travel patterns and fare sale activity. Nonrefundable tickets expire one year from the date the ticket is purchased. A percentage of tickets expire unused. We estimate the amount of unused tickets based on historical experience. Passenger traffic commissions and related fees are expensed when the related revenue is recognized. Passenger traffic commissions and related fees not yet recognized are included as a prepaid expense.

Stock-based compensation. The adoption of SFAS No. 123(R), Share Based Payment, in 2006 will require the recording of stock-based compensation expense for issuances under our equity incentive plans over their requisite service period using a fair value approach similar to the current pro forma disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) does not mandate an option-pricing model to be used in determining fair value, but does require that the model selected consider certain variables. Different models would result in different valuations. Regardless of the method selected, significant judgment is required for some of the valuation variables. The most significant of these is the volatility of our common stock and the estimated term over which our stock options will be outstanding. The valuation calculation is sensitive to even slight changes in these estimates.

Although there will be no impact to our overall cash flows, the adoption of SFAS No. 123(R) will have a impact on our results of operations. Most of the stock-based compensation expense to be recorded in 2006 will relate to restricted stock awards and purchases under our employee stock purchase plan and not to stock options, as we accelerated the vesting of 0.4 million outstanding stock options in September 2005. We will use the modified prospective method to account for stock based compensation. We expect that the adoption of SFAS 123R will reduce 2006 earnings by less than $1 million.

Frequent Flyer Program. We accrue a liability for the estimated incremental cost of providing free travel for awards earned under our A+ Rewards Program based on awards we expect to be redeemed. We adjust this liability based on points earned and redeemed as well as for changes in the estimated incremental costs.

Points under our A+ Rewards Program may also be earned using our branded credit card. A pro-rated portion of revenue earned from this credit card is deferred and recognized as passenger revenue when transportation is likely to be provided, based on estimates of fair value of tickets to be redeemed. Amounts received in excess of the tickets’ fair values are recognized in income currently.

Accounting for Long-Lived Assets. When appropriate, we evaluate our long-lived assets in accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” We record impairment losses on long-lived assets used in operations when events or circumstances indicate that the assets may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the net book

35

value of those assets. In making these determinations, we utilize certain assumptions, including, but not limited to: (i) estimated fair market value of the assets; and (ii) estimated future cash flows expected to be generated by these assets, which are based on additional assumptions such as asset utilization, length of service the asset will be used in our operations, and estimated salvage values.

We have approximately $510.6 million of long-lived assets as of December 31, 2005 on a cost basis, including approximately $418.3 million of flight equipment and related equipment on a cost basis.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk-Sensitive Instruments and Positions

We are subject to certain market risks, including interest rates and commodity prices (i.e., aircraft fuel). The adverse effects of changes in these markets pose a potential loss as discussed below. The sensitivity analyses do not consider the effects that such adverse changes may have on overall economic activity, nor do they consider additional actions we may take to mitigate our exposure to such changes. Actual results may differ. See the Notes to the Consolidated Financial Statements for a description of our financial accounting policies and additional information.

Interest Rates

As of December 31, 2005 and 2004, the fair value of our long-term debt was estimated to be $536.6 million and $344.9 million, respectively, based upon discounted future cash flows using current incremental borrowing rates for similar types of instruments or market prices. Market risk, estimated as the potential increase in fair value resulting from a hypothetical 100 basis point decrease in interest rates, was approximately $79.3 million as of December 31, 2005, and approximately $11.2 million as of December 31, 2004. Our long-term debt obligations that bear fixed rates of interest may be prepaid without penalty prior to their respective maturity dates and, therefore, a change in market interest rates generally would not affect our financial position, results of operations or cash flows. If interest rates average 10% higher in 2006 than in 2005, for our variable-rate debt, our interest expense would increase by approximately $1.0 million.

Aviation Fuel

Our results of operations can be significantly impacted by changes in the price and availability of aircraft fuel. Aircraft fuel expense for the years ended 2005 and 2004 represented approximately 32.9 percent and 24.6 percent of our operating expenses, respectively. Increases in fuel prices or a shortage of supply could have a material effect on our operations and operating results. Based in our 2006 projected fuel consumption, a 10 percent increase in the average price per gallon of aircraft fuel for the year ended December 31, 2005, would increase fuel expense for the next twelve months by approximately $37.5 million including the effects of our fuel purchase contracts. Comparatively, based on 2005 fuel usage, a 10 percent increase in fuel prices would have resulted in an increase in fuel expense of approximately $47.3 million, including the effects of our contracts. As of December 31, 2005, utilizing fixed-price arrangements and cap arrangements, we agreed to purchase approximately 31.0 percent and 15.4 percent of our anticipated fuel needs at a weighted average price of $1.65 and 1.54, respectively, per gallon of aviation fuel for 2006 and 2007, including delivery to our operations hub in Atlanta and other locations.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements and Supplemental Data

	Page
AirTran Holdings, Inc.
Report of Independent Registered Public Accounting Firm	38
Consolidated Statements of Income - Years ended December 31, 2005, 2004, and 2003	39
Consolidated Balance Sheets - December 31, 2005 and 2004	41
Consolidated Statements of Cash Flows - Years ended December 31, 2005, 2004, and 2003	43
Consolidated Statements of Stockholders’ Equity - Years ended December 31, 2005, 2004, and 2003	44
Notes to Consolidated Financial Statements	45

The following consolidated financial statement schedule is included in Item 15(d):

Schedule II(a) - Valuation and Qualifying Accounts - AirTran Holdings, Inc.

All other schedules, for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission, are not required under the related instructions or are inapplicable and therefore have been omitted.

37

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of AirTran Holdings, Inc.

We have audited the accompanying consolidated balance sheets of AirTran Holdings, Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AirTran Holdings, Inc. and subsidiaries at December 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of AirTran Holdings, Inc.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2006 expressed an unqualified opinion on management’s assessment of the effectiveness of internal control over financial reporting and an adverse opinion on the effectiveness of internal control over financial reporting.

/s/ Ernst & Young LLP

Atlanta, Georgia

March 9, 2006

38

AirTran Holdings, Inc.

Consolidated Statements of Income

(In thousands, except per share data)

	Year ended December 31,
	2005			2004			2003
Operating Revenues:
Passenger	$	1,397,295		$	1,005,263		$	889,950
Other		53,249			36,159			28,090
Total operating revenues		1,450,544			1,041,422			918,040
Operating Expenses:
Aircraft fuel		472,774			247,980			178,737
Salaries, wages and benefits		329,299			273,514			231,728
Aircraft rent		192,394			150,959			124,203
Maintenance, materials and repairs		101,964			69,514			63,600
Landing fees and other rents		80,774			62,322			52,810
Distribution		67,395			50,890			45,354
Marketing and advertising		36,400			27,569			24,112
Aircraft insurance and security services		23,100			22,888			19,684
Depreciation		20,224			14,628			12,628
Other operating		112,832			88,314			78,866
Total operating expenses		1,437,156			1,008,578			831,722
Operating Income		13,388			32,844			86,318
Other (Income) Expense:
Interest income		(11,771	)		(5,275	)		(3,345	)
Interest expense		22,237			19,428			28,303
Other		—			(1,332	)		—
Payment under the Emergency Wartime Supplemental Appropriations Act		—			—			(38,061	)
Deferred debt discount/issuance cost write-off		—			—			12,257
Other (income) expense, net		10,466			12,821			(846	)
Income Before Income Taxes		2,922			20,023			87,164
Income tax expense (benefit)		1,200			7,768			(13,353	)
Net Income	$	1,722		$	12,255		$	100,517

See accompanying notes to consolidated financial statements.

39

AirTran Holdings, Inc.

Consolidated Statements of Income (Continued)

(In thousands, except per share data)

	Year ended December 31,
	2005		2004		2003
Earnings Per Common Share
Net Income Per Share, Basic	$	0.02	$	0.14	$	1.33
Net Income Per Share, Diluted	$	0.02	$	0.14	$	1.21
Weighted-Average Shares Outstanding
Basic		87,337		85,261		75,345
Diluted		90,185		89,523		86,607

See accompanying notes to consolidated financial statements.

40

AirTran Holdings, Inc.

Consolidated Balance Sheets

(In thousands, except per share data)

	December 31,
	2005			2004
ASSETS
Current Assets:
Cash and cash equivalents	$	370,572		$	307,493
Restricted cash		19,443			7,854
Short-term investments		75			26,975
Accounts receivable, less allowance of $494 and $627 at December 31, 2005 and 2004, respectively		29,795			19,376
Spare parts and supplies, less allowance for obsolescence of $1,292 and $987 at December 31, 2005 and 2004, respectively		10,945			28,311
Deferred income taxes		5,678			7,442
Prepaid expenses and other current assets		18,150			14,613
Total current assets		454,658			412,064
Property and Equipment:
Flight equipment		418,319			294,966
Less: Accumulated depreciation		(43,676	)		(34,036	)
		374,643			260,930
Purchase deposits for flight equipment		133,530			69,833
Other property and equipment		92,269			82,854
Less: Accumulated depreciation		(39,158	)		(29,682	)
		53,111			53,172
Total property and equipment		561,284			383,935
Other Assets:
Goodwill		8,350			8,350
Trademarks and trade names		21,567			21,567
Debt issuance costs		10,285			7,607
Deferred income taxes		18,825			16,708
Prepaid aircraft rent		57,850			43,577
Other assets		26,090			11,923
Total assets	$	1,158,909		$	905,731

See accompanying notes to consolidated financial statements.

41

AirTran Holdings, Inc.

Consolidated Balance Sheets (Continued)

(In thousands, except per share data)

	December 31,
	2005			2004
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	38,082		$	20,988
Accrued and other liabilities		98,001			80,024
Air traffic liability		115,157			87,571
Current portion of capital lease obligations		717			886
Current portion of long-term debt		70,515			12,950
Total current liabilities		322,472			202,419
Long-term capital lease obligations		13,971			14,559
Long-term debt		387,396			285,575
Other liabilities		83,150			69,142
Commitments and Contingencies
Stockholders’ Equity:
Preferred stock, $.01 par value per share, 5,000 shares authorized, no shares issued or outstanding		—			—
Common stock, $.001 par value per share, 1,000,000 shares authorized, and 88,791 and 86,617 shares issued and outstanding at December 31, 2005 and 2004, respectively		89			87
Additional paid-in capital		376,627			361,063
Unearned compensation		(4,028	)		(4,624	)
Accumulated deficit		(20,768	)		(22,490	)
Total stockholders’ equity		351,920			334,036
Total liabilities and stockholders’ equity	$	1,158,909		$	905,731

See accompanying notes to consolidated financial statements.

42

AirTran Holdings, Inc.

Consolidated Statements of Cash Flows

(In thousands)

	Year ended December 31,
	2005			2004			2003
Operating activities:
Net income	$	1,722		$	12,255		$	100,517
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		22,160			15,982			15,741
Amortization of deferred gains from sales/leaseback of aircraft		(4,385	)		(4,385	)		(4,961	)
Provisions for uncollectible accounts		516			709			510
Deferred debt discount/issuance cost		—			—			12,257
Loss on asset disposal		2,307			256			—
Deferred income taxes		1,200			7,618			(13,608	)
Stock based compensation		3,513			2,460
Other		80			113			—
Changes in current operating assets and liabilities:
Restricted cash		(11,589	)		1,944			24,375
Accounts receivable		(10,935	)		(2,631	)		1,156
Inventories		17,061			(9,446	)		(10,961	)
Other assets		(37,402	)		(18,431	)		(15,234	)
Accounts payable, accrued and other liabilities		52,781			22,850			1,888
Air traffic liability		27,586			8,825			21,566
Net cash provided by operating activities		64,615			38,119			133,246
Investing activities:
Purchases of property and equipment		(35,359	)		(26,449	)		(20,802	)
Aircraft purchase deposits payments		(71,692	)		(19,842	)		(44,447	)
Purchases of available-for-sale securities		(829,100	)		(26,975	)		—
Sales of available-for-sale-securities		856,000			—			—
Net cash used for investing activities		(80,151	)		(73,266	)		(65,249	)
Financing activities:
Issuance of long-term debt		96,690			—			125,582
Debt issuance costs		(4,610	)		(1,163	)		(3,918	)
Payments on long-term debt		(24,561	)		(5,879	)		(90,467	)
Buy back of detachable stock purchase warrants		—			—			(11,690	)
Proceeds from sale of common stock, net of expenses		11,096			10,975			147,052
Net cash provided by financing activities		78,615			3,933			166,559
Net increase (decrease) in cash and cash equivalents		63,079			(31,214	)		234,556
Cash and cash equivalents at beginning of year		307,493			338,707			104,151
Cash and cash equivalents at end of year	$	370,572		$	307,493		$	338,707

See accompanying notes to consolidated financial statements.

43

AirTran Holdings, Inc.

Consolidated Statements of Stockholders’ Equity

(In thousands)

	Common Stock			Additional Paid-in Capital			Unearned Compensation			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Equity
	Shares	Amount
Balance at January 1, 2003	71,132	$	71	$	187,885		$	—		$	(809	)	$	(135,262	)	$	51,885
Issuance of common stock for exercise of options	2,082		2		6,874			—			—			—			6,876
Issuance of common stock under stock purchase plan	117		—		937			—			—			—			937
Issuance of common stock for debt	1,015		1		5,499			—			—			—			5,500
Issuance of common stock in secondary offering	9,116		9		139,230			—			—			—			139,239
Issuance of common stock for detachable purchase stock warrants exercised	747		1		(1	)		—			—			—			—
Buy back of detachable stock purchase warrants	—		—		(11,690	)		—			—			—			(11,690	)
Tax benefit related to exercise of nonqualified stock options	—		—		8,411			—			—			—			8,411
Net income	—		—		—			—			—			100,517			100,517
Unrealized gain on derivative instruments	—		—		—			—			538			—			538
Total comprehensive income																	101,055
Balance at December 31, 2003	84,209		84		337,145			—			(271	)		(34,745	)		302,213
Issuance of common stock for exercise of options	2,292		2		9,717			—			—			—			9,719
Issuance of common stock under stock purchase plan	116		1		1,255			—			—			—			1,256
Unearned compensation on common stock issues	—		—		7,084			(7,084	)		—			—			—
Amortization of unearned compensation	—		—		—			2,460						—			2,460
Tax benefit related to exercise of nonqualified stock options	—		—		5,862			—			—			—			5,862
Net income	—		—		—			—			—			12,255			12,255
Unrealized gain on derivative instruments	—		—		—			—			271			—			271
Total comprehensive income																	12,526
Balance at December 31, 2004	86,617		87		361,063			(4,624	)		—			(22,490	)		334,036
Issuance of common stock for exercise of options	1,783		2		9,775			—			—			—			9,777
Issuance of common stock under stock purchase plan	145		—		1,320			—			—			—			1,320
Unearned compensation on common stock issues	246		—		2,917			(2,917	)		—			—			—
Amortization of unearned compensation	—		—		—			3,513			—			—			3,513
Tax benefit related to exercise of nonqualified stock options and restricted stock	—		—		1,552			—			—			—			1,552
Net income	—		—		—			—			—			1,722			1,722
Balance at December 31, 2005	88,791	$	89	$	376,627		$	(4,028	)	$	—		$	(20,768	)	$	351,920

See accompanying notes to consolidated financial statements.

44

AirTran Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2005

Note 1 - Summary of Significant Accounting Policies

Basis of Presentation

Our accompanying Consolidated Financial Statements include the accounts of AirTran Holdings, Inc. (Holdings) and our wholly owned subsidiaries, including our principal subsidiary, AirTran Airways, Inc. (Airways). All significant intercompany accounts and transactions have been eliminated in consolidation.

Business

Airways offers scheduled airline services to 47 locations across the United States, primarily in short-haul markets principally in the eastern United States.

The financial and operating results for any interim period are not indicative of those for the entire year. Air travel tends to be seasonal with the highest level of travel during the winter months to Florida and the summer months to the northeastern and western United States.

Use of Estimates

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

Cash, Cash Equivalents and Restricted Cash

All highly liquid investments with maturities of three months or less when purchased are considered to be cash equivalents. Restricted cash primarily represents amounts escrowed relating to aircraft leases and collateral to support credit card holdbacks for advance ticket sales.

Short-Term Investments

Short-term investments consist of auction rate securities with auction reset periods of less than 12 months, classified as available-for-sale securities and stated at fair value.

Accounts Receivable

Accounts receivable are due primarily from major credit card processors, travel agents, co-branded credit card arrangements, and from municipalities related to guaranteed revenue agreements. We provide an allowance for doubtful accounts equal to the estimated losses expected to be incurred in the collection of accounts receivable based on historical credit card chargebacks and miscellaneous receivables based on specific analysis. Collateral is generally not required on accounts receivable.

Spare Parts and Supplies

Spare parts and supplies consist of expendable aircraft spare parts, supplies, and prepaid aircraft fuel. These items are stated at the lower of cost or market using the first-in, first-out method (FIFO). These items are charged to expense when used. Allowances for obsolescence are provided over the estimated useful life of the related aircraft and engines for spare parts expected to be on hand at the date aircraft are retired from service.

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Property and Equipment

Property and equipment are stated on the basis of cost. Flight equipment is depreciated to its salvage values of 10%, using the straight-line method. The estimated salvage values and depreciable lives are periodically reviewed for reasonableness, and revised if necessary. The estimated useful lives for airframes, engines and aircraft parts are 30 years. Other property and equipment is depreciated over three to 10 years. Leasehold improvements are depreciated over the economic life of the asset or the lease term, whichever is shorter.

Measurement of Impairment

In accordance with Statement of Financial Accounting Standards No. 144 (SFAS 144), “Accounting for the Impairment or Disposal of Long-Lived Assets”, we record impairment losses on long-lived assets used in operations when events or circumstances indicate that the assets may be impaired, the undiscounted cash flows estimated to be generated by those assets are less than the net book value of those assets and the fair value is less than the net book value.

Intangibles

Intangibles are recorded at cost. Excess of cost over fair value of net assets acquired (goodwill) and indefinite-lived intangibles, such as trade names, are not amortized but are subject to periodic impairment reviews in accordance with Statement of Financial Accounting Standards No. 142 (SFAS 142). We performed annual impairment tests in the fourth quarter of 2005, 2004, and 2003. Our tests indicated that we did not have any impairment of our trade name or of our goodwill. Accumulated amortization was $6.5 million at December 31, 2005, 2004 and 2003.

Capitalized Interest

Interest attributable to funds used to finance the acquisition of new aircraft is capitalized as an additional cost of the related asset. Interest is capitalized at our weighted-average interest rate on long-term debt or, where applicable, the interest rate related to specific borrowings. Capitalization of interest ceases when the asset is ready for service. For the years ended December 31, 2005, 2004 and 2003, the Company incurred approximately $22.2 million, $19.4 million, and $28.3 million in interest expense, respectively, net of capitalized interest of $15.3 million, $7.3 million and $2.0 million, respectively.

Aircraft and Engine Maintenance

Maintenance repair costs for major components on our B717 aircraft, including engines and auxiliary power units (APU), covered under maintenance agreements with FAA approved contractors, are expensed monthly based on flight hours flown or landings. Maintenance on airframes and other components as well as maintenance on our B737 aircraft engines are expensed as incurred.

Advertising Costs

Advertising costs are charged to expense in the period the costs are incurred. Advertising expense was approximately $35.0 million, $27.0 million and $22.8 million for the years ended December 31, 2005, 2004 and 2003, respectively.

During 2005 we entered into an advertising barter transaction in which we exchanged flight credits in our frequent flyer program for promotional consideration. The transaction was recorded at the fair value of the credits exchanged resulting in approximately $4.6 million of advertising expense in 2005. The revenue relating to the flight credits will be recognized as passenger revenue as the credits are utilized or expire. As of December 31, 2005, $0.4 million was recognized in passenger revenues.

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Revenue Recognition

Passenger revenue is recognized when transportation is provided. Ticket sales for transportation which has not yet been provided are recorded as air traffic liability. Air traffic liability represents tickets sold for future travel dates. Nonrefundable tickets expire one year from the date the ticket is purchased. A percentage of tickets expire unused. We estimate the amount of future exchanges, net of forfeitures, for all unused tickets once the flight date has passed. These estimates are based on historical experience. Passenger traffic commissions and related fees are expensed when the related revenue is recognized. Passenger traffic commissions and related fees not yet recognized are included as a prepaid expense.

Frequent Flyer Program

We accrue a liability for the estimated incremental cost of providing free travel for awards earned under our A+ Rewards Program based on awards we expect to be redeemed. We adjust this liability based on points earned and redeemed as well as for changes in the estimated incremental costs.

Points under our A+ Rewards Program may also be earned using our branded credit cards. A pro-rated portion of revenue earned from this credit card is deferred, based on estimates of fair value of tickets to be redeemed and recognized as passenger revenue when transportation is likely to be provided. Amounts received in excess of the tickets’ fair values are recognized in income currently.

Stock-Based Compensation

We grant stock options and restricted awards from time to time to certain of our officers, directors, and key employees. We account for stock option grants in accordance with Accounting Principles Board Opinion No. 25 (APB 25), “Accounting for Stock Issued to Employees,” and related interpretations and accordingly only recognize compensation expense for stock options granted where the market price of the underlying stock exceeds the exercise price of the stock option on the date of grant.

Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation,” provides an alternative to APB 25 in accounting for stock-based compensation issued to employees. The following table illustrates the effect on net income and earnings per common share if we had applied the fair value method to measure stock-based compensation, which is described more fully in Note 10, as required under the disclosure provisions of SFAS No. 123.

	For Year Ended December 31,
	2005			2004			2003
	(In thousands, except per share data)
Net income, as reported	$	1,722		$	12,255		$	100,517
Add: Stock-based employee compensation expense included in reported income, net of related tax effects		2,059			1,500			—
Deduct: Stock-based employee compensation expense determined under the fair value based method, net of related tax effects		(3,891	)		(3,815	)		(5,425	)
Pro forma net income (loss)	$	(110	)	$	9,940		$	95,092
EARNINGS PER SHARE:
Basic, as reported	$	0.02		$	0.14		$	1.33
Basic, pro forma	$	(0.00	)	$	0.12		$	1.26
Diluted, as reported	$	0.02		$	0.14		$	1.21
Diluted, pro forma	$	(0.00	)	$	0.11		$	1.10

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In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R is a revision of SFAS No. 123 and supersedes APB 25. Among other items, SFAS 123R eliminates the use of APB 25 and the intrinsic value method of accounting for stock based compensation and requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant date fair value of those awards in the financial statements.

SFAS 123R permits companies to adopt its requirements using either a “modified prospective” method or a “modified retrospective” method. Under the “modified prospective” method, compensation cost is recognized in payments granted after that date based on the requirements of SFAS 123 for all unvested awards granted prior to the effective date of SFAS 123R. Under the “modified retrospective” method, the requirements are the same as under the “modified prospective” method but also permits entities to restate financial statements of previous periods based on pro forma disclosures made in accordance with SFAS 123.

We currently utilize a standard option pricing model, Black-Scholes, to measure the fair value of the stock options granted to employees for disclosure purposes. While SFAS 123R permits entities to continue to use such a model, the standard also permits the use of a binomial or lattice model. We have determined that we will continue to use the Black-Scholes method for valuing options.

SFAS 123R also requires that the benefits associated with the tax deductions in excess of recognized compensation cost be reported as a financing cash flow rather than as an operating cash flow, as under the current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after the effective date. These amounts cannot be estimated because they depend on, among other things, when employees exercise stock options.

On January 1, 2006, we will be required to adopt SFAS 123R. We will use the modified prospective method to account for stock based compensation. We expect that the adoption of SFAS 123R will reduce 2006 earnings by less than $1 million.

On September 13, 2005, we accelerated the vesting of unvested stock options awarded more than one year prior to such date to employees and officers under our stock option plans. The affected options had exercise prices greater than the current market price of the stock ($10.68 per share) on the date of acceleration. Options to purchase approximately 352,000 additional shares became exercisable as a result of the vesting acceleration. Typically, stock options granted by us vest equally over a three year period. Of the accelerated options, approximately 201,000 are held by the Company’s pilots with the remainder held by the Company’s officers and management employees. No options held by the Company’s Chairman and CEO were accelerated. The purpose of accelerating the vesting of these options was to allow the Company to avoid compensation expense in fiscal 2006 and 2007 associated with unvested options upon adoption of SFAS No. 123R, Share-Based Payment, in January 2006. The charge to the Consolidated Statements of Income, which would otherwise have been recorded in accordance with the provisions of SFAS No. 123R, is estimated to be approximately $1 million, net of tax, of which approximately $0.8 million, net of tax, would have been recognized in fiscal 2006. The pro forma compensation expense for the year ended December 31, 2005, disclosed in the table above includes approximately $1.2 million net of tax, from the acceleration of the vesting of all unvested stock options with an exercise price greater than $10.68 as of September 13, 2005.

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Reclassification

Certain 2004 and 2003 amounts have been reclassified to conform to 2005 classifications. These reclassifications have no material impact on the Consolidated Statements of Income, Consolidated Statements of Cash Flow or Consolidated Statements of Shareholder’s Equity.

Note 2 - Government Compensation and Grants

In May 2003, we received and recognized in earnings $38.1 million in cash from the United States government pursuant to the Wartime Act enacted in April 2003. This amount was a reimbursement for our proportional share of passenger security and air carrier security fees paid or collected by U.S. air carriers as of the date of enactment of the legislation, together with other items. The legislation included the following highlights:

• $2.3 billion was paid to carriers for reimbursement of airline security fees that had been paid or collected by the air carriers as of the date of enactment. Additionally, collection of the security fees from passengers was not required from June 1, 2003 to September 30, 2003.

• $100 million was paid to carriers for reimbursement for direct costs associated with installing strengthened flight deck doors and locks. We received $1.7 million during the third quarter of 2003.

• Aviation war risk insurance provided by the government was extended for one year to August 2004.

Note 3 - Commitments and Contingencies

Fuel Risk Management:

Efforts to reduce our exposure to increases in the price and availability of aviation fuel include the utilization of fuel purchase contracts involving both fixed-price arrangements and cap arrangements. Fixed-price arrangements consist of an agreement to purchase defined quantities of aviation fuel from a third party at defined prices. Cap arrangements consist of an agreement to purchase defined quantities of aviation fuel from a third party at a price not to exceed a defined price, limiting our exposure to upside market risk. As of December 31, 2005, utilizing fixed-price and cap arrangements we agreed to purchase approximately 31.0 percent and 15.4 percent of our anticipated fuel needs at a weighted average price of $1.65 and 1.54, respectively, per gallon of aviation fuel for 2006 and 2007, including delivery to our operations hub in Atlanta and other locations.

Aircraft Purchase Commitments:

As of December 31, 2005, we had on order two Boeing 717 aircraft with delivery dates in 2006 and 55 Boeing 737 aircraft with delivery dates between 2006 and 2009. In January 2006, we exercised an option for the delivery of one additional B737 with a 2007 delivery date.

The table below illustrates all aircraft scheduled for delivery through 2010, including the effect of the aforementioned transaction:

	B737 Deliveries			B717 Deliveries
	Firm	Options	Purchase Rights	Firm	Options
2006	18	—	—	2	—
2007	19	—	—	—	—
2008	4	14	—	—	—
2009	15	—	—	—	—
2010	—	—	10	—	—
Total	56	14	10	2	—

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Of the 56 B737 aircraft on order we secured lease financing on seven of the aircraft through an arrangement with an aircraft leasing company and have secured debt financing for 15 B737 aircraft through arrangements with financial institutions. Additionally, we have entered into sale/leaseback transactions with the aircraft leasing company referred to above with respect to six related spare engines to be delivered through 2010.

During 2006, we are scheduled to take delivery of two remaining B717 aircraft, which are to be leased through an affiliate of the aircraft manufacturer. Additionally we are scheduled to take delivery of 18 B737 aircraft during 2006, of which seven of such B737 aircraft are to be acquired pursuant to individual operating leases through the aircraft leasing arrangements and 11 B737 aircraft are to be financed through debt. Additionally, we have entered into sale/leaseback transactions with that aircraft leasing company with respect to six related spare engines to be delivered between the remainder of 2005 and 2010.

During 2005, in connection with our agreements with an aircraft manufacturer, Airways was refunded $29.8 million in previously paid aircraft deposits while paying $93.5 million in new aircraft deposits under the agreement for the acquisition of B737 aircraft.

Aquarium:

As a presenting sponsor of the Georgia Aquarium, we have committed to pay $7.5 million in five yearly installments expiring October 31, 2010.

General Indemnifications:

We are party to many routine contracts under which we indemnify third parties for various risks. We have not accrued any liability for any of these indemnities, as the amount is not determinable or estimable. These indemnities consist of the following:

Certain of our debt agreements related to certain aircraft-secured notes payable through 2017 contain language, whereby, we have agreed to indemnify certain holders of certificates evidencing the debt associated with such notes, as necessary, to compensate them for any costs incurred by or any reduction in receivables due to such certificate holders resulting from broadly defined regulatory changes that impose or modify any reserve, special deposit or similar requirements relating to any extensions of credit or other assets of or any deposits with or other liabilities of such certificate holders. Additionally, if it becomes unlawful for such certificate holders to make or maintain the investment or credit evidenced by the certificates, we have agreed to pay such certificate holders an amount necessary to cause the interest rate with respect to the certificates to be a rate per annum equal to 4.88% over the rate specified by such certificate holders as the cost to them of obtaining funds in dollars in the United States in an amount equal to the pool balance of the certificates. The maximum potential payment under these indemnities cannot be determined.

Our aircraft lease transaction documents contain customary indemnities concerning withholding taxes in which we are responsible in some circumstances should withholding taxes be imposed for paying such amounts of additional rent, as is necessary to ensure that the lessor still receives, after taxes, the rent stipulated in the lease agreements. These provisions apply on leases expiring through 2022. The maximum potential payment under these indemnities cannot be determined.

In our aircraft financing agreements, we typically indemnify the financing parties, the trustee acting on their behalf and, other related parties against liabilities that arise from the manufacture, design, ownership, financing, use, operation, and maintenance of the aircraft for tort liability, whether or not these liabilities arise out of or relate to the negligence of these indemnified parties except for their gross negligence or willful misconduct. We believe that we are covered by insurance (subject to deductibles) for most tort liabilities and related indemnities, as described above with respect to the aircraft we operate. Additionally, if there is a change in the law which results in the imposition of any reserve, capital adequacy, special deposit, or similar requirement which will increase the cost to the lender, we will pay the lender the additional amount necessary to compensate the lender for the actual cost increase.

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We have various leases with respect to real property and various agreements among airlines relating to fuel consortia or fuel farms at airports in which we have agreed to standard language indemnifying the lessor against environmental liabilities associated with the real property covered under the agreement, even if we are not the party responsible for the environmental damage. In the case of fuel consortia at the airports, these indemnities are generally joint and several among the airlines. We cannot quantify the maximum potential exposure under these indemnities and we do not currently have liability insurance that protects us against environmental damages.

Under certain contracts with third parties, we indemnify the third party against legal liability arising out of an action by a third party. The terms of these contracts vary and the potential exposure under these indemnities cannot be determined. Generally, we have liability insurance protecting us from obligations undertaken under these indemnities.

Note 4 - Financial Instruments and Risk Management

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents, short-term investments, and accounts receivable. We maintain cash and cash equivalents and short-term investments with various high credit-quality financial institutions or in short-duration, high-quality debt securities. Investments are stated at fair value, which approximates cost. We periodically evaluate the relative credit standing of those financial institutions that are considered in our investment strategy. There were no material realized or unrealized gains or losses on our available-for-sale securities for the years ended December 31, 2005, 2004 or 2003. We use specific identification of securities for determining gains and losses. Contractual maturities of our available-for-sale securities at December 31, 2005 exceed 10 years while the auction re-set periods are 28 to 35 days. The balance of these available-for-sale securities at December 31, 2005 and 2004 was approximately $0.1 million and $27 million, respectively.

The estimated fair value of other financial instruments, excluding debt, approximate their carrying amount. The fair values of long-term debt are based on quoted market prices, if available, or are estimated using discounted cash flow analyses, based on current incremental borrowing rates for similar types of borrowing arrangements. The carrying amounts and estimated fair values of long-term debt were $473.0 million and $536.6 million, respectively, at December 31, 2005, and $314.0 million and $344.9 million, respectively, at December 31, 2004.

The majority of our receivables result from the sale of tickets to individuals, mostly through the use of major credit cards. These receivables are short-term, generally being settled shortly after sale. Concentration of credit risk with respect to accounts receivable is limited, due to the large number of customers comprising our customer base.

As of December 31, 2005, approximately 43 percent of our employees were represented by unions. While there can be no assurance that our generally good labor relations with our employees will continue we have established as a significant component of our business strategy the preservation of good relations with our employees.

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Note 5 - Accrued and Other Liabilities

The components of accrued and other liabilities were (in thousands):

	December 31,
	2005			2004
Deferred gains from sale/leaseback of aircraft	$	62,366		$	66,751
Accrued salaries, wages and benefits		32,383			33,042
Accrued interest		17,309			9,890
Deferred credits		15,503			2,339
Accrued federal excise taxes		9,120			8,513
Unremitted fees collected from passengers		7,624			5,659
Fuel		3,094			—
Accrued maintenance		2,461			2,644
Accrued insurance		1,381			3,848
Other		29,910			16,480
		181,151			149,166
Less non-current deferred gains from sale/leaseback of aircraft		(57,968	)		(62,353	)
Less non-current other		(18,745	)		(5,023	)
Less non-current deferred rent		(6,437	)		(1,766	)
Accrued and other liabilities	$	98,001		$	80,024

Note 6 - Debt

The components of long-term debt, including capital lease obligations were (in thousands):

	December 31,
	2005			2004
Floating rate aircraft notes payable due 2017, 5.63% weighted average interest rate	$	138,906		$	57,500
7.00% Convertible notes due 2023		125,000			125,000
Aircraft notes payable through 2017, 10.68% weighted-average interest rate		107,036			116,025
Floating rate aircraft pre-delivery deposit financing payable through 2007, 5.74%		57,153			—
Floating rate aircraft pre-delivery deposit financing payable through 2008, 6.30%		19,950			—
Floating rate aircraft pre-delivery deposit financing payable through 2006, 6.65%		9,866			—
Capital lease obligations payable through 2015, 14.03% weighted-average interest rate		14,688			15,445
Total long-term debt		472,599			313,970
Less current maturities		(71,232	)		(13,836	)
	$	401,367		$	300,134

Maturities of long-term debt and capital lease obligations for the next five years and thereafter, in aggregate, are (in thousands): 2006-$71,232; 2007-$57,502; 2008-$16,765; 2009-$16,250; 2010-$18,690; thereafter-$292,160.

Debt:

Permanent Aircraft Financing Facilities:

Through December 31, 2005, we have entered into three separate facilities (each a “permanent facility”) for purposes of financing the acquisition of B737 aircraft on order with an aircraft manufacturer.

We entered into the first permanent facility in August 2004, pursuant to which we financed the acquisition of three B737 aircraft. We took delivery of the three B737 aircraft in August 2004, July 2005 and August 2005, respectively. In conjunction with the financing of these B737 aircraft, we issued equipment notes as aircraft were delivered for an aggregate amount of $87.0 million, which are scheduled to mature between August 2016 and August 2017. The equipment notes bear interest at a floating rate per annum above the six-month US Dollar London Interbank Offering rate (LIBOR) in effect at the commencement of each semi-annual period, and payments of principal and interest under the notes are payable semi-annually. Each note is secured by a first mortgage on the aircraft to which it relates, valuing at approximately $96.5 million as of December 31, 2005.

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We entered into the second permanent facility in September 2004, pursuant to which we financed the acquisition of three additional B737 aircraft. We took delivery of such aircraft in September 2004, June 2005 and January 2006, respectively. In conjunction with the financing of these B737 aircraft, we issued equipment notes as aircraft were delivered for an aggregate amount of $85.5 million, which are scheduled to mature between September 2016 and January 2018. The notes bear interest at a floating rate per annum above the six-month US Dollar LIBOR in effect at the commencement of each semi-annual period, and payments of principal and interest under the notes are payable semi-annually. Each note is secured by a first mortgage on the aircraft to which it relates, valuing at approximately $63.7 million as of December 31, 2005.

We entered into the third permanent facility in September 2005, pursuant to which we shall be entitled to borrow up to $354 million for purposes of acquiring 12 B737 aircraft currently scheduled to be delivered to us in 2006 and 2007 and satisfying our repayment obligations under a related pre-delivery payment financing facility, which is described in more detail below. On the delivery date of each aircraft subject to this third permanent facility, we will issue equipment notes evidencing the loans made under this permanent facility for that aircraft. The equipment notes will mature on the twelfth anniversary of the delivery date of the aircraft to which such notes relate and will be secured by the aircraft to which such loans relate. We intend to obtain a loan in respect of the first aircraft subject to this permanent facility during May 2006.

On February 14, 2006, we entered into a fourth permanent facility, pursuant to which we shall be entitled to borrow up to $58 million for purposes of acquiring two B737 aircraft on their respective delivery dates. We obtained a loan under this fourth permanent facility on February 14, 2006 for purposes of acquiring the first of the aircraft subject to this facility. In connection with the financing of that aircraft, we issued an equipment note for $29 million. The note is scheduled to mature during February 2018. The note bears interest at a floating rate per annum above the six-month LIBOR, and payments of principal and interest under the note are payable semi-annually. We intend to obtain a loan in respect of the second aircraft subject to this facility during March 2006.

Pre-delivery Payment Financings:

Through December 31, 2005, we have entered into three separate facilities (each a “PDP facility”) for purposes of financing our obligations to make pre-delivery payments in respect of B737 aircraft on order with an aircraft manufacturer.

During May 2005, we closed the first PDP facility, “PDP-1”, pursuant to which we were entitled to draw an amount equal to $19.6 million to fund a portion of our obligations to make pre-delivery payments in respect of six B737 aircraft scheduled to be delivered through March 2006. Drawings made under PDP-1 bear interest at a floating rate per annum above the one-month US Dollar LIBOR. PDP-1 is secured by certain rights under our purchase agreement with an aircraft manufacturer for the six B737 aircraft. As of December 31, 2005, PDP-1 was fully drawn and $9.9 million was outstanding thereunder. All outstanding amounts related to PDP-1 will have been repaid prior to delivery of the last of the six aircraft in March 2006.

On September 1, 2005, we closed the second PDP facility, “PDP-2”, pursuant to which we are entitled to draw amounts sufficient to fund all of our obligations to make pre-delivery payments in respect of 12 B737 aircraft currently scheduled to be delivered in 2006 and 2007. PDP-2 was entered into in conjunction with the September 2005 permanent facility for $354 million as described above. Drawings made under PDP-2 bear interest at a floating rate per annum above the one-month US Dollar LIBOR. PDP-2 is secured by certain rights under our purchase agreement with an aircraft manufacturer for the 12 B737 aircraft. As of December 31, 2005, $57.2 million is outstanding under PDP-2, which is equivalent to pre-delivery payments due and paid by us to the aircraft manufacturer for the 12 B737 aircraft through such date. We intend to make additional drawings under PDP-2 for approximately $264.2 million through February 2006, at which time our deposit requirements for the 12 aircraft will be met.

On December 7, 2005, we closed the third PDP facility, “PDP-3”, pursuant to which we are entitled to draw amounts up to $65 million to fund a portion of our obligations to make pre-delivery payments in respect of 19 B737 aircraft currently scheduled to be delivered in 2007 and 2008. Drawings made under PDP-3 bear interest at a floating rate per annum above the one-month US Dollar LIBOR. PDP-3 is secured by certain rights under our purchase agreement with an aircraft manufacturer for the 19 B737 aircraft. As of December 31, 2005, $20.0 million is outstanding under PDP-3. We intend to make additional drawings under PDP-3 for approximately $45 million, through April 2007, at which time the deposit requirements for the 19 aircraft will have been met.

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Note 7 - Leases

Total rental expense charged to operations for aircraft, facilities and office space for the years ended December 31, 2005, 2004 and 2003 was approximately $238.0 million, $187.1 million and $155.1 million, respectively.

We lease 77 B717s under leases with terms that expire through 2022. We have the option to renew the B717 leases for periods ranging from one to four years. The B717 leases have purchase options at or near the end of the lease term at fair market value, and two have purchase options based on a stated percentage of the lessor’s defined cost of the aircraft at the end of the 13th year of the lease term. Forty-one of the B717 leases are the result of sale/leaseback transactions. Deferred gains from these transactions are being amortized over the terms of the leases. At December 31, 2005 and 2004, unamortized deferred gains were $62.4 million and $66.8 million, respectively. See Note 5. We also lease facilities from local airport authorities or other carriers, as well as office space under operating leases with terms ranging up to 12 years. In addition, we lease ground equipment and certain rotables under capital leases.

We lease fifteen B737-700s under leases with terms that expire through 2021. We have the option to extend the lease term for 12 months up to 39 months. There are no purchase options.

The amounts applicable to capital leases included in property and equipment were (in thousands):

	As of December 31,
	2005			2004
Flight equipment	$	21,560		$	21,560
Less: Accumulated depreciation		(3,322	)		(2,281	)
Flight equipment-net	$	18,238		$	19,279

The following schedule outlines the future minimum lease payments at December 31, 2005, under non-cancelable operating leases and capital leases with initial terms in excess of one year (in thousands):

	Capital Leases			Operating Leases
2006	$	2,002		$	251,714
2007		2,042			249,531
2008		2,157			240,298
2009		2,354			226,932
2010		2,575			221,155
Thereafter		10,812			2,144,584
Total minimum lease payments		21,942		$	3,334,214
Less: amount representing interest		(7,254	)
Present value of future payments		14,688
Less: current obligations		(717	)
Long-term obligations	$	13,971

Amortization of assets recorded under capital leases is included as “Depreciation” in the accompanying consolidated statements of income.

Effective October 1, 2003, we adopted FASB Interpretation 46 (FIN 46), “Consolidation of Variable Interest Entities.” FIN 46 requires the consolidation of certain types of entities in which a company absorbs a majority of another entity’s expected losses, receives a majority of the other entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the other entity. These entities are

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called “variable interest entities” or “VIEs”. The principal characteristics of VIEs are (1) an insufficient amount of equity to absorb the entity’s expected losses, (2) equity owners as a group are not able to make decisions about the entity’s activities, or (3) equity that does not absorb the entity’s losses or receive the entity’s residual returns. “Variable interests” are contractual, ownership or other monetary interests in an entity that change with fluctuations in the entity’s net asset value. As a result, VIEs can arise from items such as lease agreements, loan arrangements, guarantees or service contracts.

If an entity is determined to be a VIE, the entity must be consolidated by the “primary beneficiary.” The primary beneficiary is the holder of the variable interests that absorb a majority of the VIE’s expected losses or receive a majority of the entity’s residual returns in the event no holder has a majority of the expected losses. There is no primary beneficiary in cases where no single holder absorbs the majority of the expected losses or receives a majority of the residual returns. The determination of the primary beneficiary is based on projected cash flows at the inception of the variable interest.

We have variable interests in our aircraft leases. The lessors are trusts established specifically to purchase, finance and lease aircraft to us. These leasing entities meet the criteria of VIEs. We are generally not the primary beneficiary of the leasing entities if the lease terms are consistent with market terms at the inception of the lease and do not include a residual value guarantee, fixed-price purchase options or similar feature that obligates us to absorb decreases in value or entitles us to participate in increases in the value of the aircraft. This is the case in the majority of our aircraft leases; however we have two aircraft leases that contain fixed-price purchase options that allow us to purchase the aircraft at predetermined prices on specified dates during the lease term. We have not consolidated the related trusts because even taking into consideration these purchase options, we are not the primary beneficiary based on our cash flow analysis.

Note 8 - Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per common share (in thousands, except per share data):

	For the years ending December 31,
	2005		2004		2003
Numerator:
Net income	$	1,722	$	12,255	$	100,517
Plus income effect of assumed conversion-interest on convertible debt		—		—		4,565
Income before assumed conversion, diluted	$	1,722	$	12,255	$	105,082
Denominator:
Weighted-average shares outstanding, basic		87,337		85,261		75,345
Effect of dilutive stock options		2,187		3,639		3,936
Effect of dilutive restricted shares		97		—		—
Effect of detachable stock purchase warrants		564		623		1,216
Effect of convertible debt		—		—		6,110
Adjusted weighted-average shares outstanding, diluted		90,185		89,523		86,607
Basic earnings per common share	$	0.02	$	0.14	$	1.33
Diluted earnings per common share	$	0.02	$	0.14	$	1.21

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On September 30, 2004, the Emerging Issues Task Force, or EITF, reached consensus on Issue No. 04-08, “The Effect of Contingently Convertible Instruments on Diluted Earnings per Share”, which changes the treatment of contingently convertible debt instruments in the calculation of diluted earnings per share. EITF Issue No. 04-08 provides that these debt instruments be included in earnings per share computation, if dilutive, regardless of whether the contingent feature has been met. This change does not have any effect on net income, but it does affect the related per share amounts. We have adopted EITF Issue No. 04-08 as of December 31, 2004. In the third quarter 2003, the notes met the convertibility requirements under the debt and we included, if dilutive, the assumed conversion of our convertible notes issued May 2003 in diluted earnings per share calculations in subsequent periods as a result of meeting those requirements.

The assumed conversions of convertible debt in 2005 and 2004 were anti-dilutive and 11.2 million shares were excluded from the computation of weighted-average shares outstanding used in computing diluted earnings per common share.

Note 9 – Common Stock

We have one class of common stock. Holders of shares of common stock are entitled to one vote per share. At December 31, 2005, 6,796,617 shares of common stock are reserved for future issuance upon exercise of stock options.

On October 1, 2003, we completed a public offering of 9,116,000 shares of Holdings’ common stock at a price of $16.00 per share, raising net proceeds of approximately $139.2 million, after deducting discounts and commissions paid to the underwriters and other expenses incurred with the offering.

On October 1, 2003, we used $11.7 million of the proceeds of the public offering of Holdings’ common stock to purchase from an aircraft manufacturer affiliate warrants held by it to purchase 1.0 million shares of Holdings’ common stock based on the public offering price of the stock of $16.00 less the exercise price of the warrants.

Additionally we have outstanding detachable warrants issued in March 2001, to an aircraft manufacturer affiliate for the purchase of one million shares of our common stock at $4.51 per share. The warrants had an estimated value of $4.5 million when issued and expire five years after issuance.

Note 10 - Stock Option Plans

Our 1993 Incentive Stock Option Plan provides for the grant of options to officers, directors and key employees to purchase up to 4.8 million shares of common stock at prices not less than the fair value of the shares on the dates of grant. With respect to individuals owning more than 10 percent of the voting power of all classes of our common stock, the exercise price per share shall not be less than 110 percent of the fair value of the shares on the date of grant. Our 2002 Long-term Incentive Plan, 1996 Stock Option Plan, and 1994 Stock Option Plan provide up to 5 million, 5 million, and 4 million incentive stock options or nonqualified options, respectively, to be granted to our officers, directors, key employees and consultants.

In connection with the acquisition of Airways Corporation in 1997, we assumed the Airways Corporation 1995 Stock Option Plan (Airways Plan) and the Airways Corporation 1995 Director Stock Option Plan (Airways DSOP). Under the Airways Plan, up to 1.2 million incentive stock options or nonqualified options may be granted to our officers, directors, key employees or consultants. Under the Airways DSOP, up to 150,000 nonqualified options may be granted to directors.

Vesting and term of all options is determined by the Board of Directors and may vary by optionee; however, the term may be no longer than 10 years from the date of grant.

Pro forma information regarding net income and earnings per common share is required by SFAS 123, which also requires that the information be determined as if we had accounted for our employee stock options

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granted subsequent to December 31, 1994, under the fair value method of that statement. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for 2004, and 2003, respectively: risk-free interest rates of 3.74 percent, and 3.05 percent; no dividend yields; volatility factors of the expected market price of our common stock of 0.625, and 0.630; and a weighted-average expected life of the options of 5 years.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because our employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period.

A summary of stock option activity under the aforementioned plans is as follows:

	Options		Weighted- Average Price
Balance at January 1, 2003	9,784,989		$	5.73
Granted	848,808			5.84
Exercised	(2,082,000	)		3.25
Canceled	(56,023	)		13.86
Balance at December 31, 2003	8,495,774		$	6.20
Granted	514,405			12.40
Exercised	(2,147,149	)		12.66
Canceled	(40,773	)		4.26
Balance at December 31, 2004	6,822,257		$	7.20
Granted	—			—
Exercised	(1,773,550	)	$	5.56
Canceled	(191,843	)	$	8.81
Balance at December 31, 2005	4,856,864		$	7.77
Exercisable at December 31, 2005	4,604,928		$	7.89

The following table summarizes information concerning outstanding and exercisable options at December 31, 2005:

Options Outstanding					Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted- Average Remaining Contractual Life (Years)	Weighted- Average Exercise Price		Number Exercisable	Weighted- Average Exercise Price
2.78 - 4.00	1,329,867	4.1	$	3.29	1,329,867	$	3.29
4.13 - 5.97	1,095,968	5.9		4.95	929,298		4.96
6.08 - 9.12	1,377,522	5.8		8.07	1,292,434		8.16
10.00 - 13.03	449,307	8.1		12.06	449,129		12.06
13.80 - 21.38	604,200	0.1		18.82	604,200		18.82
$2.78 - 21.38	4,856,864	4.9	$	7.77	4,604,928	$	7.89

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We had 5,373,793, and 6,366,369 options exercisable at December 31, 2004, and 2003, respectively. We exercised 1.8 million, 2.1 million and 2.1 million options during 2005, 2004, and 2003, respectively. The tax benefit related to those options of $1.6 million, $5.9 million, and $8.4 million, respectively, is recorded in additional paid in capital on the Consolidated Statement of Stockholders’ Equity.

The weighted-average fair value of options granted during 2004, and 2003, with option prices equal to the market price on the date of grant, was $7.24, and $3.14, respectively.

There were no options granted during 2004 and 2003 with options prices greater than the market price of the stock on the date of grant.

The weighted-average fair value of options granted during 2004 and 2003, with option prices less than the market price on the date of grant was $9.52 and $4.35, respectively.

During 2005 and 2004 we granted stock awards to our officers and key employees pursuant to our 2002 Long-Term Incentive Plan. Stock awards are grants that entitle the holder to shares of our common stock as the award vests. The market value of the stock awards at the date of the grant is recorded as unearned compensation, a component of stockholders’ equity, and is being charged on a straight-line basis to expense over the respective vesting period. During 2005 and 2004 we granted approximately 320,000 and 650,000 stock awards, respectively, with a weighted average fair value of $9.11 and $10.91, respectively. We recorded deferred compensation related to such awards of $2.9 million and $7.1 million during 2005 and 2004, respectively. Approximately $3.5 million and $2.5 million of deferred compensation were amortized as compensation expense during 2005 and 2004, respectively.

Note 11 - Income Taxes

The components of the provision (benefit) for income taxes are as follows (in thousands):

	For the years ending December 31,
	2005			2004		2003
Current provision (benefit):
Federal	$	—		$	—	$	—
State		—			150		255
Total current provision (benefit)		—			150		255
Deferred provision:
Federal		1,878			4,368		(12,853	)
State		(678	)		3,250		(755	)
Total deferred provision		1,200			7,618		(13,608	)
Provision (benefit) for income taxes	$	1,200		$	7,768	$	(13,353	)

58

A reconciliation of taxes computed at the statutory federal tax rate on income before income taxes to the provision (benefit) for income taxes is as follows (in thousands):

	For the years ending December 31,
	2005			2004			2003
Tax computed at federal statutory rate	$	1,023		$	7,008		$	30,508
State income tax, net of federal tax benefit		107			820			2,672
Change in state effective tax rate		(1,695	)		48			—
Reduction state net operating loss carryforwards		910			2,532			—
Debt discount amortization		—			—			591
Utilization of preacquisition net operating loss carryforwards		—			—			2,252
Stock grant, non-deductible compensation expense		627			431			—
Other		228			220			331
Valuation allowance, including the effect of changes to prior year deferred tax assets		—			(3,291	)		(49,707	)
	$	1,200		$	7,768		$	(13,353	)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax liabilities and assets are as follows (in thousands):

	As of December 31,
	2005		2004
Deferred tax liabilities:
Depreciation	$	89,375	$	69,923
Rent expense		23,028		18,492
Gross deferred tax liabilities		112,403		88,415
Deferred tax assets:
Deferred gains from sale and leaseback of aircraft		23,138		25,432
Accrued liabilities		12,681		6,073
Federal operating loss carryforwards		91,744		71,910
State operating loss carryforwards		4,089		3,484
AMT credit carryforwards		3,292		3,292
Other		1,962		2,374
Gross deferred tax assets		136,906		112,565
Valuation allowance		—		—
Net deferred tax assets		136,906		112,565
Total net deferred taxes	$	24,503	$	24,150

At December 31, 2005 and 2004, federal net operating loss carryforwards for income tax purposes were approximately $264.2 million and $233.5 million, respectively, which begin to expire in 2017. State net operating loss carryforwards at December 31, 2005 and 2004, respectively, were $160.4 million and $129.6 million. In addition, our AMT credit carryforwards for income tax purposes were $3.3 million at December 31, 2005 and 2004. Management has determined that it is more likely than not that the deferred tax assets will be realized, and therefore, no valuation allowance has been recorded at December 31, 2005 and 2004.

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Note 12 - Employee Benefit Plans

Effective January 1, 1998, we consolidated our 401(k) plans (the Plan). All employees, except pilots, are eligible to participate in the consolidated Plan, a defined contribution benefit plan that qualifies under Section 401(k) of the Internal Revenue Code. Participants may contribute up to 15 percent of their base salary to the Plan. Our contributions to the Plan are discretionary. The amount of our contributions to the Plan expensed in 2005, 2004, and 2003 was approximately $0.6 million, $0.3 million and $0.2 million, respectively.

Effective in the third quarter of 2000, we agreed to fund, on behalf of our mechanics and inspectors, a monthly fixed contribution per eligible employee to their union’s pension plan. In May of 2001, a similar agreement was made on behalf of our maintenance training instructors. During 2005, 2004 and 2003, we expensed approximately $0.4 million, $0.4 million and $0.3 million, respectively, related to these agreements. Beginning in January 2002, additional agreements with our stores clerks and ground service equipment employees took effect that call for a monthly fixed amount per eligible employee to be made to the union’s pension plan. During 2005, 2004 and 2003, the contributions to this plan were less than $0.1 million. At the time these agreements take effect, the eligible employee may continue making contributions to the Plan, but there will be no company match.

Effective August 1, 2001, the AirTran Airways Pilot Savings and Investment Plan (Pilot Savings Plan) was established. This plan is designed to qualify under Section 401(k) of the Internal Revenue Code. Funds previously invested in the Plan, representing contributions made by and for pilots, were moved to the Pilot Savings Plan during 2001. Eligible employees may contribute up to the IRS maximum allowed. We will not match pilot contributions to this Pilot Savings Plan. Effective on August 1, 2001, we also established the Pilot-Only Defined Contribution Pension Plan (DC Plan) which qualifies under Section 403(b) of the Internal Revenue Code. Company contributions were 10.5 percent during 2003, 2004 and 2005, respectively. We expensed $10.0 million, $8.2 million and $5.4 million in contributions to the DC Plan during the years ended 2005, 2004 and 2003, respectively.

Under our 1995 Employee Stock Purchase Plan, employees who complete 12 months of service are eligible to make periodic purchases of our common stock at up to a 15 percent discount from the market value on the offering date. The Board of Directors determines the discount rate, which was increased to 10 percent from 5 percent effective November 1, 2001. We are authorized to issue up to 4 million shares of common stock under this plan. During 2005, 2004, and 2003, the employees purchased a total of 144,597, 116,488 and 117,125 shares, respectively, at an average price of $9.13, $9.84 and $8.00 per share, respectively.

Note 13 - Supplemental Cash Flow Information

Supplemental cash flow information is summarized as follows for the years ended December 31, (in thousands):

	2005			2004		2003
Supplemental disclosure of cash flow activities:
Cash paid for interest, net of amounts capitalized	$	11,038		$	14,832	$	22,400
Cash paid (received) for income taxes, net of amounts refunded		(46	)		107		231
Non-cash financing and investing activities:
Purchase and sale/leaseback of aircraft		—			—		22,359
Gain on sale/leaseback of aircraft and payment of debt		—			—		3,000
Conversion of debt to equity		—			—		5,500
Acquisition of equipment for capital leases		—			15,513		—
Aircraft debt financing		86,500			57,500		—

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Note 14- Quarterly Financial Data (Unaudited)

Summarized quarterly financial data for 2005 and 2004 is as follows (in thousands, except per share data):

	Quarter
	First			Second		Third			Fourth
Fiscal 2005
Operating revenues	$	299,707		$	366,323	$	374,644		$	409,870
Operating income (loss)		(9,441	)		19,536		1,239			2,054
Net income (loss)		(8,029	)		11,359		(228	)		(1,380	)
Earnings (loss) per share, basic	$	(0.09	)	$	0.13	$	—		$	(0.02	)
Earnings (loss) per share, diluted	$	(0.09	)	$	0.13	$	—		$	(0.02	)
	Quarter
	First			Second		Third			Fourth
Fiscal 2004
Operating revenues	$	241,406		$	275,004	$	245,640		$	279,372
Operating income (loss)		10,276			31,018		(11,992	)		3,542
Net income (loss)		4,113			16,786		(9,769	)		1,125
Earnings (loss) per share, basic	$	0.05		$	0.20	$	(0.11	)	$	0.01
Earnings (loss) per share, diluted	$	0.05		$	0.18	$	(0.11	)	$	0.01

The results of the fourth quarter of 2005 include expense of $2.7 million, net of tax, related to an advertising barter transaction in which we exchanged flight credits in our frequent flyer program for promotional consideration.

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

Not applicable.

ITEM 9A CONTROLS AND PROCEDURES

Disclosure Controls and Procedures. We maintain controls and procedures designed to ensure that we are able to collect the information we are required to disclose in the reports we file with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934 as amended (the “Exchange Act”).

Based on this evaluation our Chief Executive Officer and Chief Financial Officer have concluded that, as a result of the material weakness in our internal control over financial reporting discussed below, our disclosure controls and procedures were not effective as of the end of the period covered by this annual report.

Management’s Annual Report on Internal Control over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements.

61

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2005. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on that assessment, we have concluded that our internal control over financial reporting was not effective as of December 31, 2005 due to a material weakness.

A material weakness is a control deficiency, or combination of control deficiencies, that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As of December 31, 2005, the Company has determined that a material weakness exists relating to inadequate staffing and a lack of financial accounting expertise. This deficiency resulted in certain adjustments to revenue, advertising expense, depreciation, and deferred compensation. Although none of these adjustments were material, until this deficiency is remediated, there is more than a remote likelihood that a material misstatement to the annual or interim Consolidated Financial Statements could occur and not be prevented or detected by the Company’s controls in a timely manner. Because of this material weakness, we have concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2005 based on the criteria in the Internal Control – Integrated Framework.

Management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2005, has been audited by Ernst & Young, LLP, independent registered public accounting firm who also audited our consolidated financial statements. Ernst & Young’s attestation report on management’s assessment of our internal control over financial reporting appears below.

Remediation of Material Weakness in Internal Control.

The lack of staff resources and financial expertise arose due to employee turnover and the inability of the Company to timely fill accounting and other financial related positions. Our management, with the oversight of the Company’s Audit Committee, has devoted considerable effort to remediating the material weakness identified. However, as of December 31, 2005, the Company had not fully remediated the material weakness in the Company’s internal control over financial reporting. The Company’s remediation plan is as follows:

• The Company has staffed a number of key accounting and financial management positions and is diligently seeking to fill open supporting staff positions.

• The Company will add additional accounting management positions.

• The Company will provide education regarding effective review procedures to the appropriate accounting and financial personnel.

In addition, the Company will continue to monitor the effectiveness of these remedial actions and make any further changes as management determines to be appropriate.

Other than the changes identified above, there have been no changes to our internal control over financial reporting that occurred that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of AirTran Holdings, Inc.

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, that AirTran Holdings, Inc. did not maintain effective internal control over financial reporting as of December 31, 2005 because of the effect of a material weakness related to inadequate staffing and lack of sufficient accounting expertise, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). AirTran Holdings, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has been identified and included in management’s assessment. In its assessment as of December 31, 2005, management has determined that a material weakness exists relating to inadequate staffing and a lack of financial accounting expertise. This deficiency resulted in certain adjustments to revenue, advertising expense, and depreciation and deferred compensation. Although no material misstatements were discovered, until this deficiency is remediated, there is a more than remote likelihood that a material misstatement to the annual or interim consolidated financial statements could occur and not be prevented or detected by the Company’s controls in a timely manner. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2005 consolidated financial statements, and this report does not affect our report dated March 9, 2006 on those financial statements.

In our opinion, management’s assessment that AirTran Holdings, Inc. did not maintain effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, because of the effect of the material weakness described above on the achievement of the control criteria, AirTran Holdings, Inc. has not maintained effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria.

/s/ Ernst & Young LLP

Atlanta, Georgia

March 9, 2006

ITEM 9B OTHER INFORMATION

Not applicable.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Code of Ethics

We have adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-K. This Code of Ethics applies to our principal executive officer, principal financial officer and principal accounting officer. This Code of Ethics is publicly available on our website at airtran.com or upon request by writing to AirTran Holdings, Inc. Attn: Investor Relations, 9955 AirTran Boulevard, Orlando, Florida 32827. If we make substantial amendments to our Code of Ethics or grant any waiver, including any implicit waiver, we will disclose the nature of such amendment or waiver on our website or in a report on Form 8-K within five days of such amendment or waiver.

Audit Committee Financial Expert

Our Board of Directors has determined that at least two persons serving on the Audit Committee are each considered an “audit committee financial expert” as defined under Item 401(h) of Regulation S-K. Don Chapman, the Chairman of the Audit Committee, and Peter D’Aloia, Director, are each an “audit committee financial expert” and are independent as defined under the applicable SEC and NYSE rules.

Certain information required by this Item is incorporated herein by reference to our Proxy Statement to be used in connection with the solicitation of proxies for our annual meeting of stockholders to be held May 24, 2006, which Proxy Statement is to be filed with the Commission (2005 Proxy Statement).

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference to our 2006 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Certain information required by this Item is incorporated herein by reference to our 2006 Proxy Statement.

Securities Authorized for Issuance Under Equity Compensation Plans

Plan Category	(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights	(b) Weighted-average exercise price of outstanding options, warrants and rights		(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders (1)	5,826,103	$	7.77	970,514
Equity compensation plans not approved by security holders	—		n/a	—
Total	5,826,103	$	7.77	970,514

(1) Includes our 1993, 1994 and 1996 Stock Option Plans and our 2002 Long-Term Incentive Plan.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not applicable.

ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is incorporated herein by reference to our 2006 Proxy Statement.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE

	Page
(a)(1) Financial Statements (included in Item 8 of this Report)     AirTran Holdings, Inc.
Report of Independent Registered Public Accounting Firm	38
Consolidated Statements of Income      - Years ended December 31, 2005, 2004, and 2003	39
Consolidated Balance Sheets      - December 31, 2005 and 2004	41
Consolidated Statements of Cash Flows      - Years ended December 31, 2005, 2004, and 2003	43
Consolidated Statements of Stockholders’ Equity      - Years ended December 31, 2005, 2004, and 2003	44
Notes to Consolidated Financial Statements	45

(a)(2) Financial Statement Schedules (included in Item 15(d) below)

Schedule II(a) - Valuation and Qualifying Accounts - AirTran Holdings, Inc.

(a)(3) The following exhibits are filed herewith or incorporated by reference as indicated. Exhibit numbers refer to Item 601 of Regulation S-K.

Exhibit No.	Description
3.1	Articles of Incorporation (1)
3.2	By-Laws (As Amended and Restated on July 28, 2005) (13)
4.1	See the Articles of Incorporation filed as Exhibit 3.1 and Bylaws filed as Exhibit 3.2
10.1	Incentive Stock Option Agreement dated June 1, 1993, between ValuJet Airlines, Inc. and Lewis H. Jordan (2)(3)
10.2	1993 Incentive Stock Option Plan (2)(3)
10.3	1994 Stock Option Plan (2)(3)
10.4	1995 Employee Stock Purchase Plan (4)
10.5*	Purchase Agreement between McDonnell Douglas Corporation and ValuJet Airlines, Inc. dated December 6, 1995 (5)
10.6	Agreement and Lease of Premises Central Passenger Terminal Complex Hartsfield Atlanta International Airport (5)
10.7	1996 Stock Option Plan (3)(6)
10.8	Airways Corporation 1995 Stock Option Plan (3)(8)
10.9	Airways Corporation 1995 Directors Stock Option Plan (3)(8)
10.10	Lease of headquarters in Orlando, Florida, dated November 14, 1995 (9)
10.11	Orlando International Lease and Use Agreement (10)
10.12	Orlando Tradeport Maintenance Hangar Lease Agreement by and between Greater Orlando Aviation Authority and Page AvJet Corporation dated December 11, 1989 (11)
10.13	Amendment No. 1 to Orlando Tradeport Maintenance Hangar Lease Agreement by and between Greater Orlando Aviation Authority and Page AvJet Corporation dated June 22, 1990 (11)
10.14	Agreement and Second Amendment to Orlando Tradeport Maintenance Hangar Lease Agreement by and between Greater Orlando Aviation Authority and the Company dated January 25, 1996 (11)

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10.15	Note Purchase Agreement dated as of November 3, 1999, among the Company, AirTran Airways, Inc., State Street Bank and Trust Company of Connecticut National Association and First Security Bank, National Association (12)
10.16	Note Agreement, dated April 12, 2001, between AirTran Holdings, Inc. and Boeing Capital Loan Corporation, including as an exhibit thereto the form of notes (15)
10.17	Warrant Agreement, dated April 12, 2001, between AirTran Holdings, Inc. and Wilmington Trust Company (14)
10.18	Purchase Agreement, dated April 12, 2001, among AirTran Holdings, Inc., AirTran Airways, Inc. and Boeing Capital Loan Corporation (15)
10.19	Indenture, dated as of April 12, 2001, between AirTran Airways, Inc. and Wilmington Trust Company, as trustee, including as an exhibit thereto the form of note (15)
10.20	Employment Agreement dated as of October 6, 2001, between the Company and Joseph B. Leonard (16)
10.21	Employment Agreement dated as of October 28, 2004, between the Company and Joseph B. Leonard (3) (17)
10.22*	Aircraft General Terms Agreement Number AGTA-CQT, dated July 3, 2003, by and between The Boeing Company (“Boeing”), and AirTran Airways, Inc. (“AirTran”) (18)
10.23*	Purchase Agreement Number 2444, dated July 3, 2003 (“Purchase Agreement 2444”), between Boeing and AirTran, as supplemented by Purchase Agreement 2444 Supplement No. 1, by and between Boeing and AirTran (18)
10.24*	Letter Agreements to Purchase Agreement 2444, each dated July 3, 2003, by and between Boeing and AirTran (18)
10.25*	General Terms Agreement No. CFM-03-0017 (“GTA CFM-03-0017”), dated June 30, 2003, by and between CFM International Inc. (“CFM”) and AirTran, as supplemented by Letter Agreement No. 1 to GTA CFM-03-0017, dated June 30, 2003, by and between CFM and AirTran, and Letter Agreement No. 1-A, dated September 10, 2003, by and between CFM and AirTran (18)
10.26*	Maintenance Cost Per Hour Engine Service Agreement, dated August 13, 2003, by and between GE Engine Services, Inc. and AirTran (18)
10.27	Aircraft Lease Common Terms Agreement, dated August 15, 2003, by and between Aviation Financial Services, Inc. and AirTran (18)
10.28*	Form of Aircraft Lease Agreement entered into with respect to twenty-two (23) Boeing model 737-700 aircraft, together with the cover page from each of the twenty-two (23) individual Aircraft Lease Agreements (18)
10.29	Engine Lease Common Terms Agreement, dated August 15, 2003, by and between Aviation Financial Services, Inc. and AirTran (18)
10.30*	Form of Engine Lease Agreement entered into with respect to six (6) CFM International model CFM56-7B20 engines, together with the cover pages from each of the six (6) individual Engine Lease Agreements (18)
10.31*	Letter Agreement 5-1005-JSW-737, dated July 3, 2003, by and between Boeing and AirTran (18)
10.32*	Amendment No. 11 to Purchase Agreement No. DAC95-40-D, dated July 3, 2003, by and between McDonnell Douglas Corporation, a wholly owned subsidiary of Boeing (“MDC”), and AirTran (18)
10.33*	Amendment No. 6 to Letter Agreement No. 1 to Purchase Agreement No. DAC95-40-D, dated July 3, 2003, by and between MDC and AirTran (18)
10.34*	B717 Lease Financing Letter Agreement, dated July 3, 2003, by and between Boeing and AirTran (18)
10.35*	AirTran Holdings, Inc. Amended and Restated 2002 Long Term Incentive Plan (17)
10.36*	Loan Agreement, dated as of August 31, 2005, by and among AirTran Airways, Inc. (“AirTran”), as Borrower, The Parties Identified in Schedule 1 thereto as Lenders, as Lenders, and The Royal Bank of Scotland plc, New York Brach (“RBS”), as Security Agent (20)
10.37*	Credit Agreement, dated as of August 31, 2005, by and among AirTran, as Borrower, Each Lender Identified in Schedule 1 thereto, as Lenders, and RBS, as Security Agent (20)

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10.38*	Security Agreement, dated as of August 31, 2005, by and between AirTran, as Borrower, and RBS, as Security Agent (20)
10.39*	Credit Agreement, dated as of December 7, 2005, by and among AirTran, as Borrower, Each Lender Identified in Schedule 1 thereto, as Lenders, and HSH Nordbank AG, New York Branch, as Security Agent
10.40*	Security Agreement, dated as of December 7, 2005, by and between AirTran, as Borrower, and HSH Nordbank AG, New York Branch, as Security Agent
10.41*	Association of Flight Attendants — CWA, AFL-CIO, Flight Attendant Labor Contract with AirTran Airways, Effective June 1, 2005, Amendable December 1, 2008 (7)
10.42	Notice to executive officers of AirTran Holdings, Inc. regarding the acceleration of incentive options and acceleration of non-qualified options (23)
21.1	Subsidiaries of AirTran Holdings, Inc. (19)
21.2	Subsidiaries of AirTran Airways, Inc. (19)
23	Consent of Independent Registered Public Accounting Firm
31.1	CEO certification pursuant to Rule 13(a)-14 or 15(d)-14
31.2	CFO certification pursuant to Rule 13(a)-14 or 15(d)-14
32.1	CEO certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	CFO certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1	Instructions on requesting copies of AirTran Holdings, Inc.’s Corporate Governance Guidelines, Code of Ethics and the charters for the Audit, Compensation and Corporate Governance Committees
99.2	Letter of Resignation from Robert L. Priddy (22)

* Pursuant to 17 CFR 240.24b-2, confidential information was omitted from these Exhibits and was filed separately with the Securities and Exchange Commission pursuant to a Confidential Treatment Request filed with the Commission.

(1) Incorporated by reference to the Company’s Registration Statement on Form S-4, registration number 33-95232, filed with the Commission on August 1, 1995 and amendments thereto.

(2) Incorporated by reference to the Company’s Registration Statement on Form S-1, registration number 33-78856, filed with the Commission on May 12, 1994 and amendments thereto.

(3) Management contract or compensation plan or arrangement required to be filed as an exhibit to this Report on Form 10-K pursuant to Item 14(c) of Form 10-K.

(4) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, (Commission File No. 0-24164), filed with the Commission on August 11, 1995.

(5) Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 1995, (Commission File No. 0-24164), filed with the Commission on March 29, 1996 and amendment thereto.

(6) Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 1996, (Commission File No. 0-24164), filed with the Commission on March 31, 1997.

(7) Incorporated by reference to the Company’s report on Form 8-K, (Commission File No. 1-15991), filed with the Commission on May 26, 2005.

(8) Incorporated by reference to Airways Corporation’s Registration Statement on Form S-4, registration number 33-93104, filed with the Commission.

(9) Incorporated by reference to the Quarterly Report on Form 10-Q of Airways Corporation (Commission File No. 0-26432) for the quarter ended December 31, 1995.

(10) Incorporated by reference to the Quarterly Report on Form 10-Q of Airways Corporation (Commission File No. 0-26432) for the quarter ended December 31, 1996.

(11) Incorporated by reference to the Annual Report on Form 10-K of Airways Corporation (Commission File No. 0-26432) for the year ended March 31, 1997.

(12) Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, (Commission File No. 0-26914), filed with the Commission on March 30, 2000.

(13) Incorporated by reference to the Company’s report on Form 8-K, (Commission File No. 1-15991), filed with the Commission on August 1, 2005.

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(14) Incorporated by reference to the Company’s Current Report on Form 8-K, (Commission File No. 1-15991), filed with the Commission on June 18, 2001.

(15) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, (Commission File No. 1-15991), for the quarter ended June 30, 2001.

(16) Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, (Commission File No. 1-15991), filed with the Commission on March 28, 2002.

(17) Incorporated by reference to the Company’s report on Form 8-K, (Commission File No. 1-15991), filed with the Commission on May 19, 2005.

(18) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, (Commission File No. 1-15991), filed with the Commission on November 14, 2003.

(19) Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, (Commission File No. 1-15991), filed with the Commission on March 26, 2003.

(20) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, (Commission File No. 1-15991), filed with the Commission on November 9, 2005.

(21) Incorporated by reference to the Company’s report on Form 8-K, (Commission File No. 1-15991), filed with the Commission on May 6, 2005.

(22) Incorporated by reference to the Company’s report on Form 8-K, (Commission File No. 1-15991), filed with the Commission on September 16, 2005.

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SIGNATURES

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

AIRTRAN HOLDINGS, INC. (Registrant)
By:	/s/ Joseph B. Leonard Joseph B. Leonard Chairman and Chief Executive Officer Date: March 9, 2006

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

/s/ Joseph B. Leonard Joseph B. Leonard Chairman of the Board and Chief Executive Officer	March 9, 2006
/s/ Robert L. Fornaro Robert L. Fornaro President and Chief Operating Officer	March 9, 2006
/s/ Stanley J. Gadek Stanley J. Gadek Senior Vice President, Finance, and Chief Financial Officer (Principal Accounting and Financial Officer)	March 9, 2006
/s/ J. Veronica Biggins J. Veronica Biggins Director	March 9, 2006
/s/ Don L. Chapman Don L. Chapman Director	March 9, 2006
/s/ Jere A. Drummond Jere A. Drummond Director	March 9, 2006
/s/ John F. Fiedler John F. Fiedler Director	March 9, 2006
/s/ Lewis H. Jordan Lewis H. Jordan Director	March 9, 2006
/s/ Robert L. Priddy Robert L. Priddy Director	March 9, 2006
/s/ William J. Usery William J. Usery Director	March 9, 2006
/s/ Peter D’Aloia Peter D’Aloia Director	March 9, 2006

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AirTran Holdings, Inc.

Schedule II (a) - Valuation and Qualifying Accounts

(In thousands)

	BALANCE AT BEGINNING OF PERIOD		CHARGED TO COSTS AND EXPENSES			CHARGED TO OTHER ACCOUNTS - DESCRIBE			DEDUCTIONS - DESCRIBE			BALANCE AT END OF PERIOD
Year ended December 31, 2005
Allowance for Doubtful Accounts	$	627	$	516		$	—		$	649	(2)	$	494
Allowance for Obsolescence		987		305			—			—			1,292
Valuation Allowance for Deferred Tax Assets		—		—			—						—
Total	$	1,614	$	821		$	—		$	649		$	1,786
Year ended December 31, 2004
Allowance for Doubtful Accounts	$	603	$	709		$	—		$	685	(2)	$	627
Allowance for Obsolescence		733		301			—			47	(3)		987
Reserve for Lease Termination		4,021		—			—			4,021	(4)		—
Valuation Allowance for Deferred Tax Assets		4,053		(1,326	)		(2,727	)(5)		—			—
Total	$	9,410	$	(316	)	$	(2,727	)	$	4,753		$	1,614
Year ended December 31, 2003
Allowance for Doubtful Accounts	$	1,425	$	510		$	—		$	1,332	(2)	$	603
Allowance for Obsolescence		1,212		866			—			1,345	(3)		733
Reserve for Lease Termination		5,068		—			—			1,047	(4)		4,021
Valuation Allowance for Deferred Tax Assets		56,048		(15,860	)		(36,135	)(1)		—			4,053
Total	$	63,753	$	(14,484	)	$	(36,135	)	$	3,724		$	9,410

(1) Reversal of valuation allowance—$1.7 million to goodwill, $8.4 million to additional paid-in capital and $26.1 million to deferred tax assets and liabilities

(2) Uncollectible amounts charged to allowance for doubtful accounts

(3) Obsolete items charged to allowance for obsolescence

(4) Lease payments for B737 aircraft charged against the reserve

(5) $2.7 million write-off of state net operating loss carryforwards against valuation allowance

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INDEX TO EXHIBITS

Exhibit No.	Description
3.1	Articles of Incorporation (1)
3.2	By-Laws (As Amended and Restated on July 28, 2005 (13)
4.1	See the Articles of Incorporation filed as Exhibit 3.1 and Bylaws filed as Exhibit 3.2
10.1	Incentive Stock Option Agreement dated June 1, 1993, between ValuJet Airlines, Inc. and Lewis H. Jordan (2)(3)
10.2	1993 Incentive Stock Option Plan (2)(3)
10.3	1994 Stock Option Plan (2)(3)
10.4	1995 Employee Stock Purchase Plan (4)
10.5*	Purchase Agreement between McDonnell Douglas Corporation and ValuJet Airlines, Inc. dated December 6, 1995 (5)
10.6	Agreement and Lease of Premises Central Passenger Terminal Complex Hartsfield Atlanta International Airport (5)
10.7	1996 Stock Option Plan (3)(6)
10.8	Airways Corporation 1995 Stock Option Plan (3)(8)
10.9	Airways Corporation 1995 Directors Stock Option Plan (3)(8)
10.10	Lease of headquarters in Orlando, Florida, dated November 14, 1995 (9)
10.11	Orlando International Lease and Use Agreement (10)
10.12	Orlando Tradeport Maintenance Hangar Lease Agreement by and between Greater Orlando Aviation Authority and Page AvJet Corporation dated December 11, 1989 (11)
10.13	Amendment No. 1 to Orlando Tradeport Maintenance Hangar Lease Agreement by and between Greater Orlando Aviation Authority and Page AvJet Corporation dated June 22, 1990 (11)
10.14	Agreement and Second Amendment to Orlando Tradeport Maintenance Hangar Lease Agreement by and between Greater Orlando Aviation Authority and the Company dated January 25, 1996 (11)
10.15	Note Purchase Agreement dated as of November 3, 1999, among the Company, AirTran Airways, Inc., State Street Bank and Trust Company of Connecticut National Association and First Security Bank, National Association (12)
10.16	Note Agreement, dated April 12, 2001, between AirTran Holdings, Inc. and Boeing Capital Loan Corporation, including as an exhibit thereto the form of notes (15)
10.17	Warrant Agreement, dated April 12, 2001, between AirTran Holdings, Inc. and Wilmington Trust Company (14)
10.18	Purchase Agreement, dated April 12, 2001, among AirTran Holdings, Inc., AirTran Airways, Inc. and Boeing Capital Loan Corporation (15)
10.19	Indenture, dated as of April 12, 2001, between AirTran Airways, Inc. and Wilmington Trust Company, as trustee, including as an exhibit thereto the form of note (15)
10.20	Employment Agreement dated as of October 6, 2001, between the Company and Joseph B. Leonard (16)
10.21	Employment Agreement dated as of October 28, 2004, between the Company and Joseph B. Leonard (3) (17)
10.22*	Aircraft General Terms Agreement Number AGTA-CQT, dated July 3, 2003, by and between The Boeing Company (“Boeing”), and AirTran Airways, Inc. (“AirTran”) (18)

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10.23*	Purchase Agreement Number 2444, dated July 3, 2003 (“Purchase Agreement 2444”), between Boeing and AirTran, as supplemented by Purchase Agreement 2444 Supplement No. 1, by and between Boeing and AirTran (18)
10.24*	Letter Agreements to Purchase Agreement 2444, each dated July 3, 2003, by and between Boeing and AirTran (18)
10.25*	General Terms Agreement No. CFM-03-0017 (“GTA CFM-03-0017”), dated June 30, 2003, by and between CFM International Inc. (“CFM”) and AirTran, as supplemented by Letter Agreement No. 1 to GTA CFM-03-0017, dated June 30, 2003, by and between CFM and AirTran, and Letter Agreement No. 1-A, dated September 10, 2003, by and between CFM and AirTran (18)
10.26*	Maintenance Cost Per Hour Engine Service Agreement, dated August 13, 2003, by and between GE Engine Services, Inc. and AirTran (18)
10.27	Aircraft Lease Common Terms Agreement, dated August 15, 2003, by and between Aviation Financial Services, Inc. and AirTran (18)
10.28*	Form of Aircraft Lease Agreement entered into with respect to twenty-two (22) Boeing model 737-700 aircraft, together with the cover page from each of the twenty-two (22) individual Aircraft Lease Agreements (18)
10.29	Engine Lease Common Terms Agreement, dated August 15, 2003, by and between Aviation Financial Services, Inc. and AirTran (18)
10.30*	Form of Engine Lease Agreement entered into with respect to six (6) CFM International model CFM56-7B20 engines, together with the cover pages from each of the six (6) individual Engine Lease Agreements (18)
10.31*	Letter Agreement 5-1005-JSW-737, dated July 3, 2003, by and between Boeing and AirTran (18)
10.32*	Amendment No. 11 to Purchase Agreement No. DAC95-40-D, dated July 3, 2003, by and between McDonnell Douglas Corporation, a wholly owned subsidiary of Boeing (“MDC”), and AirTran (18)
10.33*	Amendment No. 6 to Letter Agreement No. 1 to Purchase Agreement No. DAC95-40-D, dated July 3, 2003, by and between MDC and AirTran (18)
10.34*	B717 Lease Financing Letter Agreement, dated July 3, 2003, by and between Boeing and AirTran (18)
10.35*	AirTran Holdings, Inc. Amended and Restated 2002 Long Term Incentive Plan (17)
10.36*	Loan Agreement, dated as of August 31, 2005, by and among AirTran Airways, Inc. (“AirTran”), as Borrower, The Parties Identified in Schedule 1 thereto as Lenders, as Lenders, and The Royal Bank of Scotland plc, New York Branch (“RBS”), as Security Agent (20)
10.37*	Credit Agreement, dated as of August 31, 2005, by and among AirTran, as Borrower, Each Lender Identified in Schedule 1 thereto, as Lenders, and RBS, as Security Agent (20)
10.38*	Security Agreement, dated as of August 31, 2005, by and between AirTran, as Borrower, and RBS, as Security Agent (20)

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10.39*	Association of Flight Attendants — CWA, AFL-CIO, Flight Attendant Labor Contract with AirTran Airways, Effective June 1, 2005, Amendable December 1, 2008
10.40	Notice to executive officers of AirTran Holdings, Inc. regarding the acceleration of incentive options and acceleration of non-qualified options
21.1	Subsidiaries of AirTran Holdings, Inc. (19)
21.2	Subsidiaries of AirTran Airways, Inc. (19)
23	Consent of Independent Registered Public Accounting Firm
31.1	CEO certification pursuant to Rule 13(a)-14 or 15(d)-14
31.2	CFO certification pursuant to Rule 13(a)-14 or 15-(d)-14
32.1	CEO certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	CFO certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1	Instructions on requesting copies of AirTran Holdings, Inc.’s Corporate Governance Guidelines, Code of Ethics and the charters for the Audit, Compensation and Corporate Governance Committees
99.2	Letter of Resignation from Robert L. Priddy (21)

* Pursuant to 17 CFR 240.24b-2, confidential information was omitted from these Exhibits and was filed separately with the Securities and Exchange Commission pursuant to a Confidential Treatment Request filed with the Commission.

(1) Incorporated by reference to the Company’s Registration Statement on Form S-4, registration number 33-95232, filed with the Commission on August 1, 1995 and amendments thereto.

(2) Incorporated by reference to the Company’s Registration Statement on Form S-1, registration number 33-78856, filed with the Commission on May 12, 1994 and amendments thereto.

(3) Management contract or compensation plan or arrangement required to be filed as an exhibit to this Report on Form 10-K pursuant to Item 14(c) of Form 10-K.

(4) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, (Commission File No. 0-24164), filed with the Commission on August 11, 1995.

(5) Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 1995, (Commission File No. 0-24164), filed with the Commission on March 29, 1996 and amendment thereto.

(6) Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 1996, (Commission File No. 0-24164), filed with the Commission on March 31, 1997.

(7) Incorporated by reference to the Company’s report on Form 8-K, (Commission File No. 1-15991), filed with the Commission on May 26, 2005.

(8) Incorporated by reference to Airways Corporation’s Registration Statement on Form S-4, registration number 33-93104, filed with the Commission.

(9) Incorporated by reference to the Quarterly Report on Form 10-Q of Airways Corporation (Commission File No. 0-26432) for the quarter ended December 31, 1995.

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(10) Incorporated by reference to the Quarterly Report on Form 10-Q of Airways Corporation (Commission File No. 0-26432) for the quarter ended December 31, 1996.

(11) Incorporated by reference to the Annual Report on Form 10-K of Airways Corporation (Commission File No. 0-26432) for the year ended March 31, 1997.

(12) Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, (Commission File No. 0-26914), filed with the Commission on March 30, 2000.

(13) Incorporated by reference to the Company’s report on Form 8-K, (Commission File No. 1-15991), filed with the Commission on August 1, 2005.

(14) Incorporated by reference to the Company’s Current Report on Form 8-K, (Commission File No. 1-15991), filed with the Commission on June 18, 2001.

(15) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, (Commission File No. 1-15991), for the quarter ended June 30, 2001.

(16) Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, (Commission File No. 1-15991), filed with the Commission on March 28, 2002.

(17) Incorporated by reference to the Company’s Form 8-K, (Commission File No. 1-15991), filed with the Commission on May 19, 2005.

(18) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, (Commission File No. 1-15991), filed with the Commission on November 14, 2003.

(19) Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, (Commission File No. 1-15991), filed with the Commission on March 26, 2003.

(20) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, (Commission File No. 1-15991), filed with the Commission on November 9, 2005.

(21) Incorporated by reference to the Company’s report on Form 8-K, (Commission File No. 1-15991), filed with the Commission on May 6, 2005.

(22) Incorporated by reference to the Company’s report on Form 8-K, (Commission File No. 1-15991), filed with the Commission on September 16, 2005.

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EX-10.39

EXHIBIT 10.39

CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE
24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE OMITTED CONFIDENTIAL INFORMATION APPEARS ON NINE (9) PAGES OF THIS EXHIBIT.

CREDIT AGREEMENT

dated as of December 7, 2005

among

AIRTRAN AIRWAYS, INC., as Borrower,

EACH LENDER IDENTIFIED ON SCHEDULE 1 HERETO, as Lenders,

and

HSH NORDBANK AG, NEW YORK BRANCH, as Security Agent

Pre-Delivery Payment Financing

for up to Nineteen (19) Boeing model 737-7BD Aircraft

each equipped with

Two (2) CFM International model CFM56 engines

TABLE OF CONTENTS

1.	DEFINITIONS AND CONSTRUCTION	2
2.	COMMITMENTS; BORROWER’S NOTICE OF PAYMENT DATES; CLOSING PROCEDURE	2
3.	LOAN CERTIFICATES, EXPENSES, FEES AND INCREASED COSTS	4
4.	CONDITIONS	7
5.	REPRESENTATIONS AND WARRANTIES	9
6.	COVENANTS OF BORROWER.	13
7.	LENDER COVENANTS.	15
8.	SECURITY AGENT’S COVENANTS	15
9.	ASSIGNMENT OR TRANSFER OF INTEREST	16
10.	INDEMNITIES	18
11.	SECURITY AGENT	33
12.	GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL	36
13.	INTENTIONALLY OMITTED	37
14.	CONFIDENTIALITY	37
15.	MISCELLANEOUS	37

ANNEX A	Definitions
EXHIBIT A	Form of Borrowing Notice
EXHIBIT B	Form of Transfer Certificate
SCHEDULE 1	Accounts; Addresses
SCHEDULE 2	Commitments
SCHEDULE 3	Aircraft; Scheduled Delivery Months
SCHEDULE 4	Non-Deferrable Advance Payments under the Purchase Agreement

i

CREDIT AGREEMENT

THIS CREDIT AGREEMENT (this “Agreement”), dated as of December 7, 2005, is by and among (i) AIRTRAN AIRWAYS, INC. a Delaware corporation, (the “Borrower”), (ii) each LENDER IDENTIFIED ON SCHEDULE 1 HERETO (“Lenders”) and (iii) HSH NORDBANK AG, NEW YORK BRANCH, not in its individual capacity, except as expressly state herein, but solely as agent for the Lenders (“Security Agent”).

W I T N E S S E T H:

WHEREAS, Borrower and Airframe Manufacturer have entered into the Purchase Agreement, pursuant to which, among other things, Airframe Manufacturer agreed to manufacture and sell to Borrower, and Borrower agreed to purchase and take delivery of, among other things, nineteen (19) Boeing model 737-7BD aircraft, each equipped with two (2) CFM International model CFM56-7B20 engines, each to be delivered during the Scheduled Delivery Months (the “Aircraft”); and

WHEREAS, Borrower desires to borrow from Lenders, and Lenders desire to lend to Borrower, a portion of the non-deferrable Advance Payments (as defined in the Purchase Agreement) made or to be made by Borrower to Airframe Manufacturer in respect of the Aircraft pursuant to the Purchase Agreement.

NOW THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree as follows:

1. DEFINITIONS AND CONSTRUCTION

Except as otherwise defined in this Agreement, including its annexes, schedules and exhibits, terms used herein in capitalized form shall have the meanings attributed thereto in Annex A of the Security Agreement. Annex A of the Security Agreement also contains rules of usage that control construction of this Agreement.

2. COMMITMENTS; BORROWER’S NOTICE OF PAYMENT DATES; CLOSING PROCEDURE

(a) Subject to the terms and conditions of this Agreement, each Lender agrees to make a secured loan to the Borrower in respect of each Advance (herein called, for each Advance, a “Drawing”) on a Borrowing Date to be designated pursuant to Section 2(e) hereof, but in no event later than the Commitment Termination Date. In the case of each Lender, such Drawing shall be equal to such Lender’s Participation Percentage set forth opposite such Lender’s name in Schedule 2 hereto (as amended in accordance with the text of Schedule 2 and in a manner consistent with Schedule 4) multiplied by the amount of such Advance (for each Lender, such Lender’s “Commitment” with respect to such Advance); provided, that the aggregate amount of Drawings for all Advances to be made by any Lender shall not exceed the amount in Dollars set forth opposite such Lender’s name in Schedule 2 hereto as its Maximum Commitment (its “Maximum Commitment”). All Drawings made under this Agreement shall be evidenced in single series of Loan Certificates issued with respect to all Drawings. If any Lender shall default in its obligation to make the amount of its Commitment available pursuant to this

2

Section 2(a) in respect of any Advance, no other Lender shall have an obligation to increase the amount of its Commitment for such Advance and the obligations of the non-defaulting Lender shall remain subject to the terms and conditions set forth in this Agreement. Without limiting the above, if the Security Agent disburses a Lender’s Commitment in relation to an Advance without first having received funds from a Lender, then that Lender hereby indemnifies Security Agent against any loss it may incur as a result of such failure to fund by that Lender.

(b) As more particularly set forth in Section 2.2 of the Security Agreement, Borrower shall execute and deliver to each Lender with appropriate insertions a Loan Certificate to evidence such Lender’s Maximum Commitment. The Loan Certificates shall be issued such that each Lender receives a Loan Certificate. Each Drawing shall be evidenced by this Agreement, the Loan Certificates, and notations made from time to time by each Lender in its books and records, including computer records. Each Lender shall record in its books and records, including computer records, the principal amount of the Drawings owing to it from time to time. Absent evidence to the contrary, each Lender’s books and records shall constitute presumptive evidence of the accuracy of the information contained therein. Failure by any Lender to make any such notation or record shall not affect the obligations of Borrower to such Lender with respect to the repayment of its Drawings.

(c) Borrower agrees to give the Security Agent at least five (5) Business Days’ prior written notice (the “Borrowing Notice”) of the Effective Date and the Borrowing Date for each Advance, which Borrowing Date shall be a Business Day not later than the Commitment Termination Date, which notice shall specify any funding instructions and shall be in substantially the form of Exhibit A.

(d) On the date of the execution and delivery of this Agreement and the satisfaction of the conditions precedent in Sections 4(a) and (b) (the “Effective Date”), Lenders shall make Drawings (subject to the limitations set forth in Section 2(a)) in respect of certain Advances which were paid by Borrower prior to the Effective Date. The proceeds of such Drawings shall be paid to Borrower to the account specified in the Borrowing Notice; provided, however, that Borrower shall remain responsible for, and shall have paid, its Cash Contribution for each Aircraft for which such Advances have been paid. On the first (1^st) Business Day of each calendar month following the Effective Date (each such Business Day and the Effective Date, also referred to individually as a “Borrowing Date”) and the satisfaction (or waiver) of the conditions precedent in Section 4(b) hereof, the Lenders shall make Drawings (subject to the limitations set forth in Section 2(a)) in respect of Advances which are then due and payable by Borrower to Airframe Manufacturer. The proceeds of such Drawings shall be paid to Airframe Manufacturer (or to Borrower, if Borrower shall have paid such Advances to Airframe Manufacturer on or prior to the Borrowing Date thereof) by wire transferring (or by making other arrangements reasonably satisfactory to Security Agent and Airframe Manufacturer or Borrower (as the case may be)) such amounts to account or the accounts specified by Borrower in the applicable Borrowing Notice; provided, however, that Borrower shall remain responsible for, and shall have paid, its Cash Contribution for such Advances.

(e) If an Event of Default shall have occurred and be continuing, each Lender may cancel its Commitments, and upon notice of such cancellation to Borrower, the Commitments shall be cancelled and of no further effect. If an Event of Default under Sections 3(d), (e) or (f) of the Security Agreement shall have occurred and be continuing, the Commitments shall automatically, without any action or notice, be cancelled and of no further effect.

3

(f) Borrower agrees to indemnify each Lender for, and to hold each Lender harmless from, any loss or expense (including any Break Loss) that such Lender may sustain or incur as a consequence of (a) failure by the Borrower in making a borrowing after the Borrower has given a Borrowing Notice requesting the same in accordance with the provisions of this Agreement other than as a result of a breach by such Lender to make its Commitment available pursuant to Section 2(a), (b) failure by the Borrower in making any prepayment of Loan Certificates after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment of Loan Certificates on a day that is not the last day of an Interest Period with respect thereto. This covenant shall survive the termination of this Agreement and the payment of the Loan Certificates and all amounts payable hereunder.

(g) The closing with respect to the financing of each Advance shall take place at the offices of Smith, Gambrell & Russell, LLP, Promenade II, Suite 3100, 1230 Peachtree Street, N.E., Atlanta, Georgia 30309.

3. LOAN CERTIFICATES, EXPENSES, FEES AND INCREASED COSTS

(a) Loan Certificates. Each Loan Certificate shall bear interest and be repaid in accordance with the applicable terms of this Agreement and the Security Agreement.

(b) Transaction Expenses. As to the Drawing(s) made on the Effective Date, if the Transactions in respect of such Drawing(s) are consummated, or do not close for any reason other than a Lender’s breach of its obligations under Section 2 hereof, Borrower agrees to the pay such Lender’s and Security Trustee’s Transaction Expenses related to such Drawing(s).

(c) Upfront Fee. In consideration of the Lenders’ Commitments hereunder, Borrower shall pay to Paying Agent an amount equal to the Upfront Fee in immediately available funds on the Effective Date. Paying Agent shall distribute such fee to the Lenders pursuant to the Paying Agent Agreement.

(d) Commitment Fee. Borrower agrees to pay the Commitment Fee in arrears on the last Business Day of the calendar quarter following the Effective Date and on the last Business Day of each calendar quarter thereafter and on the Commitment Termination Date. Such Commitment Fee shall be calculated on the basis of a year of 360 days and actual number of days elapsed and shall accrue on the average daily unused portion of the aggregate Maximum Commitment during the preceding calendar quarter or part thereof. Borrower shall continue to pay the Commitment Fee until the earlier to occur of (i) the date on which the Commitments are terminated or cancelled and (ii) the Commitment Termination Date. The Commitment Fee shall be payable by Borrower to Paying Agent on the due date thereof in immediately available funds no later than 11:00 a.m., New York City time, on such date to the Payment Account. Paying Agent shall distribute the Commitment Fee when received to the Lenders pursuant to the Paying Agent Agreement. For purposes hereof, the aggregate unused Maximum Commitment of the Lenders shall be reduced by an amount equal to the amount by which (i) Borrower notifies Security Agent in writing that it wishes to reduce the aggregate unused Maximum Commitment

4

of the Lenders (provided, the aggregate unused Maximum Commitment of the Lenders may not following any such reduction be increased) or (ii) a Lender cancels or terminates all or a portion of its Commitment pursuant to Section 2(e) hereof.

(e) Increased Costs.

(i) Borrower shall pay directly to each Lender such amounts as such Lender may determine to be necessary to compensate such Lender for any increase in costs that such Lender determines are attributable to its making or maintaining of its Commitment or the loans evidenced by its Loan Certificates or funding arrangements utilized in connection with such loans, or any reduction in any amount receivable by such Lender hereunder in respect of any of its Commitments, such loans or such arrangements (such increases in costs and reductions in amounts receivable being herein called “Additional Costs”) and resulting from any Regulatory Change that:

(1) imposes any tax that is the functional equivalent of any reserve, special deposit or similar requirement of the sort covered by clause (2) below; or

(2) imposes or modifies any reserve, special deposit or similar requirements (including any Reserve Requirement) relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Lender, or any such obligations; or

(3) imposes any other condition affecting this Agreement or its Loan Certificates (or any of such extensions of credit or liabilities) or any such obligation.

(ii) Without limiting the effect of the foregoing provisions of this Section 3(e) (but without duplication), Borrower shall pay directly to each Lender from time to time on request such amounts as such Lender shall determine to be necessary to compensate such Lender (or, without duplication, the holding company of which such Lender is a subsidiary) for any increase in costs that are attributable to the maintenance by such Lender (or any lending office or such holding company), pursuant to any law or regulation or any interpretation, directive or request (whether or not having the force of law and whether or not failure to comply therewith would be unlawful so long as compliance therewith is standard banking practice in the relevant jurisdiction) of any court or governmental or monetary authority following (A) any Regulatory Change or (B) implementing any risk-based capital guideline or other similar requirement issued by any government or governmental or supervisory authority at the national level, of capital in respect of its Commitments or Loan Certificates or funding arrangements utilized in connection with the Loan Certificates; such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of such Lender (or any lending office or such bank holding company) would have achieved but for such law, regulation, interpretation, directive or request.

(iii) Each Lender shall notify Borrower of any event occurring after the date of this Agreement entitling such Lender to compensation under clauses (ii) or (iii) of this

5

Section 3(e). Each Lender will use commercially reasonable efforts (at Borrower’s expense) to mitigate the amount of the Additional Costs associated with such event, including designating a different lending office for the Loan Certificates of such Lender affected by such event if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the opinion of such Lender, result in any economic, legal or regulatory disadvantage to such Lender (other than economic disadvantages for which Borrower agrees to indemnify such Lender and which indemnity is acceptable to such Lender in its discretion acting reasonably and in good faith based on its credit assessment of Borrower). Each Lender will furnish to the Borrower an Officer’s Certificate setting forth in reasonable detail (1) the events giving rise to such Additional Costs, (2) the basis for determining and allocating such Additional Costs and (3) the amount of each request by such Lender for compensation under clauses (ii) or (iii) of this Section 3(e) (subject, however, to any limitations such Lender may require in respect of disclosure of confidential information relating to its capital structure), together with a statement that the determinations and allocations made in respect of the Additional Costs comply with the provisions of this Section 3(e), including as provided in the last sentence of this clause (iii). Determinations and allocations by any Lender for purposes of this Section 3(e) of the effect of any Regulatory Change pursuant to clause (i) of this Section 3(e), or of the effect of capital maintained pursuant to clause (ii) of this Section 3(e), on its costs or rate of return of maintaining Loan Certificates or its funding, or on amounts receivable by it in respect of Loan Certificates, and of the amounts required to compensate such Lender under this Section 3(e), shall be conclusive absent manifest error, provided that such determinations and allocations are made on a reasonable basis and, in the case of allocations, are made fairly.

(iv) The Borrower shall not be required to make payments under this Section 3(e) to any Lender if (1) a claim hereunder arises through circumstances peculiar to such Lender and which do not affect commercial banks in the same jurisdiction generally, or (2) the claim arises out of a relocation by such Lender of its lending office (except any such relocation effected pursuant to Section 3(e)(iii)), or (3) such Lender is not seeking similar compensation for such costs from its borrowers generally in commercial equipment related loans, or (4) the claim arises as the result of any law or regulation or any interpretation, directive or request of any court or governmental or monetary authority in any jurisdiction other than an Accepted Jurisdiction.

(f) Agency Fee. On the Effective Date and on each anniversary of the Effective Date until all amounts owing hereunder have been fully repaid, Borrower shall pay to Security Agent an amount equal to the Agency Fee in immediately available funds

(g) ***

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4. CONDITIONS

(a) Conditions Precedent to the Effectiveness of the Commitments. The effectiveness of this Agreement is subject to the fulfillment (or waiver) prior to or on the Effective Date of the following conditions precedent:

(i) Each Lender receives executed counterparts or conformed copies of the following documents and such counterparts have been duly authorized, executed and delivered by the parties thereto, are in full force and effect and are in form and substance reasonably satisfactory to Security Agent:

(1) the Holdings Guarantee;

(2) the Security Agreement;

(3) the Consent and Agreement;

(4) the Engine Consent and Agreement;

(5) the Paying Agent Agreement;

(6) the Loan Certificates; and

(7) the Remarketing Agreement.

(ii) Security Agent shall have received the following, in each case in form and substance reasonably satisfactory to Security Agent:

(1) (x) a copy of Borrower’s certificate of incorporation, by-laws, and resolutions, in each case certified by the secretary or an assistant secretary of Borrower, duly authorizing Borrower’s execution, delivery, and performance of this Agreement, the Security Agreement and each other document required to be executed and delivered by Borrower on or before each Borrowing Date in accordance with the provisions hereof and thereof; (y) incumbency certificate of Borrower as to the Person(s) authorized to execute and deliver the Operative Agreements on its behalf; and (z) good-standing certificate for Borrower for Delaware and Florida; and

(2) (x) a copy of Holdings’ articles of incorporation, by-laws, and resolutions, in each case certified by the secretary or an assistant secretary of Holdings, duly authorizing Holdings’ execution, delivery, and performance of the Holdings Guarantee required to be executed and delivered by Holdings on or before the Effective Date in accordance with the provisions hereof and thereof; (y) incumbency certificate of Holdings as to the Person(s) authorized to execute and deliver the Holdings Guarantee on its behalf; and (z) good-standing certificate for Holdings for Nevada.

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(iii) Lenders and Security Agent shall have received opinions addressed to the Lenders and Security Agent from (1) Borrower’s internal counsel, (2) Smith, Gambrell & Russell, LLP, special counsel to Borrower and (3) Vedder, Price, Kaufman & Kammholz, P.C., special counsel to the Lenders and Security Agent, each in form and substance reasonably satisfactory to the Security Agent.

(iv) Financing Statements related to the Collateral shall have been duly filed or shall be in the process of being filed in the appropriate jurisdiction.

(v) Paying Agent shall have received for account of the Lenders the Upfront Fee and Security Agent shall have received the payment of the Agency Fee due on the Effective Date.

(vi) Security Agent shall have received certified (but redacted) copies of (1) the provisions of the Purchase Agreement and the GTA specifically assigned to Security Agent pursuant to the terms of the Security Agreement and (2) the Back-Stop Letter.

(vii) ***

(b) Conditions Precedent to each Lender’s Participation in each Advance. Each Lender’s obligation to lend its respective Commitments to the Borrower in respect of each Advance (including Advances made by Borrower on or prior to the applicable Borrowing Date) is subject to the fulfillment (or waiver) prior to or on the Borrowing Date for such Advance of the following conditions precedent:

(i) Security Agent shall have received the Borrowing Notice with respect to the Borrowing Date for such Advance pursuant to Section 2(c) hereof.

(ii) After giving effect to the filing of the Financing Statements, the Security Agreement shall have a duly-perfected first-priority security interest in all of Borrower’s right, title, and interest in the Collateral, subject only to Permitted Liens.

(iii) No change shall have occurred after the date of the execution and delivery of this Agreement in applicable Law which would make it a violation of Law for the Lenders to make their respective Commitments for such Advance available to acquire their respective Loan Certificates or to realize the benefits of the security afforded by the Security Agreement.

(iv) On such Borrowing Date, (A) the representations and warranties of the Borrower contained in Section 5(a) of this Agreement shall be true and accurate in all material respects as though made on and as of such date except to the extent that such representations and warranties relate solely to an earlier date (in which case such representations and warranties shall be true and accurate in all material respects on and as of such earlier date), (B) no Special Default or Event of Default exists, and (C) since June

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30, 2005 there shall have been no Material Adverse Change with respect to the Borrower; and Security Agent shall have received an Officer’s Certificate to the effect of (A), (B) and (C).

(v) No action or proceeding shall have been instituted nor shall any action be threatened in writing before any Governmental Entity, nor shall any order, judgment or decree have been issued or proposed to be issued by any Governmental Entity at the time of such Borrowing Date to set aside, restrain, enjoin or prevent the completion and consummation of this Agreement or the transaction contemplated hereby.

(vi) No material adverse change in the LIBOR market shall have occurred which would materially impair the ability of the Lenders to lend its respective Commitments to Borrower.

(vii) ***

(viii) ***

(ix) Borrower shall have paid to Airframe Manufacturer an amount equal to its Cash Contribution due and payable to Airframe Manufacturer on such Borrowing Date.

(x) In respect an Uncovered Aircraft to which such Drawings to be made on the applicable Borrowing Date relate, HSH shall have obtained an approval from its credit committee to make the secured loans contemplated hereby to be made by HSH in respect of the Advances related to the Uncovered Aircraft. The parties hereto understand and agree that this clause (x) shall not be applicable in respect of Drawings related to any Aircraft that is not an Uncovered Aircraft.

(c) Conditions Precedent to Borrower’s Obligations. It is hereby agreed that Borrower’s obligation to borrow the Commitments with respect to each Advance is subject to the satisfaction (or waiver), on or before the Borrowing Date for such Advance of the following conditions precedent:

(i) Borrower receives executed originals of the documents described in Section 4(a)(i) and such documents are reasonably satisfactory to Borrower.

(ii) Each of the conditions in Subsections (iii) and (v) of Section 4(b) are satisfied unless the failure of any such condition to be satisfied is the result of any action or inaction by Borrower.

5. REPRESENTATIONS AND WARRANTIES

(a) Borrower Representations and Warranties. Borrower represents and warrants to each Lender and Security Agent that on the date hereof and on each Borrowing Date:

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(i) Borrower is a corporation validly existing and in good standing under the Laws 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 each of the Operative Agreements to which Borrower is or will be a party. Borrower 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 does not constitute or would not give rise to a Materially Adverse Change to Borrower.

(ii) The execution and delivery by Borrower of, and performance by Borrower of its obligations under, the Operative Agreements to which Borrower is or will be a party have been, duly authorized by all necessary corporate action on the part of Borrower.

(iii) Borrower’s execution and delivery of, and performance of its obligations under, the Operative Agreements to which Borrower is or will be a party do not, (1) violate any provision of Borrower’s certificate of incorporation or by-laws, (2) violate any Law applicable to or binding on Borrower, or (3) violate or constitute any default under, or result in the creation of any Lien (other than as permitted under the Security Agreement) under, any lease, loan or other material agreement to which Borrower is or will be a party or by which Borrower or any of its properties is bound.

(iv) Borrower’s execution and delivery of, and performance of its obligations under, the Operative Agreements to which Borrower is or will be a party do not require the consent or approval of, the giving of notice to, the registration with, the recording or filing of any documents with, or the taking of any other action in respect of (1) any trustee or other holder of any debt of Borrower, or (2) any Governmental Entity, other than (x) the Financing Statements, and (y) filings, recordings, notices, or other ministerial actions pursuant to any routine recording, contractual, or regulatory requirements.

(v) Each of the Operative Agreements to which Borrower is or will be a party have been, duly authorized, executed, and delivered by Borrower and the Operative Agreements to which Borrower is or will be a party constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, and other similar Laws affecting the rights of creditors generally or by general principles of equity.

(vi) Except as set forth in Holdings’ most recent annual report on Form 10-K, quarterly report on Form 10-Q or current report on Form 8-K filed by with the SEC on or prior to September 30, 2005, no action, claim or proceeding is now pending or, to Borrower’s Actual Knowledge, threatened, against Borrower before any Governmental Entity, that is reasonably likely to be determined adversely to Borrower and if determined adversely to Borrower would result in a Material Adverse Change.

(vii) Holdings’ audited consolidated balance sheet for its most-recent fiscal year ended December 31, 2004, included in Holdings’ most-recent annual report on Form

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10-K filed by Holdings with the SEC, and the related consolidated statements of operations and cash flows for the period then ended, have been prepared in accordance with GAAP and fairly present in all material respects in accordance with GAAP the financial condition of Holdings and its consolidated subsidiaries as of such date and the results of its operations and cash flows for such period, and since the date of such balance sheet, there has been no Material Adverse Change in such financial condition or operations, except for matters disclosed in (1) the financial statements referred to above, or (2) any subsequent report filed with the SEC before September 30, 2005.

(viii) On the Borrowing Date, except for the filing of the Financing Statements, no further action, including filing or recording any document (including any financing statement under UCC Article 9) is necessary in order to establish and perfect Security Agent’s Lien on the Collateral, as against Borrower and any other Person, in any applicable jurisdictions in the United States.

(ix) Each of the Purchase Agreement and the GTA are in full force and effect and neither Borrower nor, to the Actual Knowledge of Borrower, either of the Airframe Manufacturer or the Engine Manufacturer is in default of its obligations thereunder.

(x) Neither Borrower nor any Person authorized to act on its behalf has directly or indirectly offered any beneficial interest or Security relating to the ownership of any interest in the Collateral, or any of the Loan Certificates or any other interest in or security under the Security Agreement or any other interest in or security under such Collateral, for sale to, or solicited any offer to acquire any such interest or security from, or has sold any such interest or security to, any Person in violation of the Securities Act.

(xi) Borrower holds all licenses, permits and franchises from the appropriate Government Entities necessary to authorize Borrower to engage in air transportation and to carry on scheduled commercial passenger service as currently conducted, except where the failure to hold any such license, permit, or franchise would not give rise to a Materially Adverse Change to Borrower.

(xii) Borrower is not an “investment company” or a company controlled by an “investment company” within the meaning of the Investment Company Act of 1940.

(xiii) No Person acting on behalf of Borrower is or will be entitled to any broker’s fee, commission, or finder’s fee in connection with the transactions contemplated by this Agreement, other than Borrower’s Advisor.

(xiv) Borrower will not directly or indirectly use any of the proceeds from the issuance of the Loan Certificates so as to result in a violation of Regulation T, U or X of the Board of Governors of the Federal Reserve System.

(xv) None of the Reserved Provisions adversely affect in any material respect the rights assigned to Security Agent pursuant to the Security Agreement.

(xvi) The purchase price allowance granted by Engine Manufacturer to Borrower pursuant to the GTA is not assignable by Borrower to any third party and does not appear in any purchase price invoice prepared by Airframe Manufacturer for Boeing model 737 aircraft purchased by Borrower pursuant to the Purchase Agreement.

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(b) Lenders’ Representations and Warranties. Each Lender represents and warrants to each other Lender, Borrower and Security Agent on the date hereof and on each Borrowing Date:

(i) This Agreement has been duly authorized, executed, and delivered by it and this Agreement constitutes its legal, valid, and binding obligation enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, and other similar Laws affecting the rights of creditors generally or general principles of equity.

(ii) No Person acting on behalf of it is or will be entitled to any broker’s fee, commission, or finder’s fee in connection with the transactions contemplated by this Agreement, other than the Lenders’ Advisor.

(iii) No portion of the funds it uses to purchase, acquire and hold the Loan Certificates or interest directly or indirectly constitutes, or may be deemed under the Code or ERISA or any rulings, regulations, or court decisions thereunder to constitute, the assets of any Plan.

(c) Security Agent’s Representations and Warranties. The Security Agent represents and warrants to Borrower and the Lenders on the date hereof and on each Borrowing Date:

(i) Security Agent is a validly existing and in good standing under the Laws of the Germany and has banking and trust authority to execute and deliver, and perform its obligations under, each of the Operative Agreements to which it is or will be a party.

(ii) Each of the Operative Agreements to which Security Agent is or will be a party have been duly authorized, executed, and delivered by Security Agent and the Operative Agreements to which Security Agent is or will be a party constitute, legal, valid, and binding obligations of Security Agent enforceable against Security Agent in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, or other similar Laws affecting the rights of creditors generally or by general principles of equity.

(iii) No Liens will be attributable to Security Agent in respect of all or any part of the Collateral (other than Liens created by the Operative Agreements).

(iv) Neither Security Agent nor any Person authorized to act on its behalf has directly or indirectly offered any beneficial interest or Security relating to the Collateral or any of the Loan Certificates or any other interest in or security under the Collateral for sale to, or solicited any offer to acquire any such interest or security from, or has sold any such interest or security to, any Person.

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6. COVENANTS OF BORROWER.

(a) Liens. Borrower will not directly or indirectly create, incur, assume, or suffer to exist any Lien on or with respect to the Collateral, title thereto, or any interest of Borrower therein, except Permitted Liens. Borrower shall promptly, at its own expense, take such action as may be necessary duly to discharge (by bonding or otherwise) any such Lien other than a Permitted Lien arising at any time.

(b) Except as otherwise permitted in the Security Agreement, Borrower shall not enter into any agreement amending or supplementing the Purchase Agreement, the GTA or the Back-Stop Letter in any manner that would adversely affect in any material respect the rights of the Security Agent or the Lenders.

(c) Borrower Merger.

(i) Borrower shall not convey all or substantially all of its assets in one or a series of related transactions or consolidate with or merge into any other Person under circumstances in which Borrower is not the surviving corporation, unless, only in the case of a consolidation or merger:

(1) after giving effect to such consolidation or merger, such Person is organized, existing, and in good standing under the Laws of the United States, any state of the United States, or the District of Columbia, and, upon consummation of such transaction, such Person will be a U.S. Air Carrier; and

(2) such Person (aa) executes, prior to or contemporaneously with the consummation of such transaction, such agreements, if any, as are in the reasonable opinion of Security Agent necessary to evidence the assumption by such Person of liability for all of the obligations of the Borrower under the Security Agreement and the other Operative Documents, (bb) make such recordings and filings, and take such other action with respect to the Operative Documents, as shall be necessary in the reasonable opinion of Security Agent to protect its security interest in the Collateral and obtain all consents of Airframe Manufacturer and the Engine Manufacturer to the extent necessary; and (cc) cause to be delivered to Security Agent and the Lenders such legal opinions as any of them may reasonably request in connection with the matters specified in the preceding clauses (aa) and (bb); and

(3) such Person, immediately after giving effect to such transaction, shall have a tangible net worth of not less than (aa) Borrower’s tangible net worth (determined in each case in accordance with GAAP) as of the Effective Date or (bb) Borrower’s tangible net worth (determined in each case in accordance with GAAP) immediately prior to such transaction.

(ii) Upon any such consolidation or merger of Borrower with any Person in accordance with this Section 6(b), such Person will succeed to, and be substituted for, and may exercise every right and power of, Borrower under the Operative Agreements with the same effect as if such Person had been named as “Borrower” therein.

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(d) Corporate Existence, U.S. Air Carrier. Borrower shall at all times maintain its corporate existence, except as permitted by Section 6(c), and shall at all times remain a U.S. Air Carrier.

(e) Notice of Change of Location. Borrower will give to Security Agent timely written notice (but in any event at least thirty (30) days before the expiration of the period of time specified under applicable Law to prevent lapse of perfection) of any change of its jurisdiction of organization (as defined in UCC Article 9), and will promptly take any action required by Section 6(f)(2) as a result of such relocation.

(f) Certain Assurances. With respect to the Collateral:

(1) Borrower shall duly execute, acknowledge, and deliver (or cause to be executed, acknowledged, and delivered) all such further documents, and shall do and cause to be done such further things, as Security Agent reasonably requests to accomplish the purposes of the Operative Agreements, provided that any document so executed by Borrower will not expand any obligations or limit any rights of Borrower in respect of any of the Operative Agreements.

(2) Borrower will cause the Financing Statements and all continuation statements (and any amendments necessitated by any combination, consolidation, or merger of Borrower, or any relocation of its jurisdiction of organization) in respect of the Financing Statements to be prepared and duly and timely filed and recorded to the extent permitted under the UCC or similar Law of any applicable jurisdiction.

(3) Borrower shall pay all reasonable costs and expenses (including costs and disbursements of counsel) incurred by Security Agent, Paying Agent and the Lenders after the date hereof in connection with (A) any supplements or amendments of the Operative Agreements (including, without limitation, any related recording costs) (other than with respect to any supplement or amendment requested pursuant to Section 6(f)(1) above), (B) any Default, (C) any successful enforcement or collection proceedings resulting therefrom or in connection with the negotiation of any restructuring or “work-out” (whether or not consummated), or (D) the successful enforcement of this Section 6.

(g) Securities Laws. Neither Borrower nor any Person authorized to act on its behalf will directly or indirectly offer any beneficial interest or Security relating to the ownership of any interest in the Collateral or any of the Loan Certificates, for sale to, or solicit any offer to acquire any such interest or security from, or sell any such interest or security to, any Person in violation of the Securities Act or applicable state or foreign securities Laws.

(h) Aircraft Acquisition Financing. Borrower shall approach HSH and NordLB (jointly) prior to approaching any other bank or financial institution to provide HSH and NordLB (jointly) the opportunity to propose acquisition financing (lease or otherwise) terms to Borrower, which terms Borrower may accept or reject in its sole discretion.

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(i) Purchase Agreements. Borrower shall:

(1) duly perform all of its obligations under each of the Purchase Agreement and the GTA to the extent relating to the Aircraft against which Drawings are outstanding and take all actions necessary to keep the Purchase Agreement and the GTA to the extent relating to the Aircraft against which Drawings are outstanding in full force and effect;

(2) immediately notify Security Agent of any material default by Borrower or any material default of which Borrower has notice by Airframe Manufacturer or Engine Manufacturer under, or of any cancellation, termination or rescission or purported cancellation, termination or rescission of either the Purchase Agreement or the GTA to the extent relating to the Aircraft against which Drawings are outstanding;

(3) not in any way modify, cancel, terminate or amend either the Purchase Agreement or the GTA in respect of the Aircraft against which Drawings are outstanding, except as expressly permitted by the Security Agreement or this Agreement;

(4) not accept delivery of any Aircraft from the Airframe Manufacturer before repaying to the Lenders all amounts owing in respect of the Drawings relating to that Aircraft.

7. LENDER COVENANTS.

(a) Withholding Taxes. Each Lender agrees that if it is a Non-U.S. Person, to reimburse (on an After-Tax Basis) to Borrower or Paying Agent, as applicable for any amounts paid (including pursuant to obligations under any of the Operative Agreements) with respect to any United States withholding Taxes (and related interest, penalties, and additions to tax) as a result of any false, inaccurate or untrue statement in any certificate or form provided by it to Borrower or Paying Agent pursuant to Section 2.3 of the Security Agreement in connection with such withholding Taxes. Any amount payable under this Section 7(a) shall be paid within thirty (30) days after such Lender receives a written demand therefor (which shall state in reasonable detail the basis for and calculation of such claim).

(b) Compliance. Each Lender agrees that obligations and agreements under the Security Agreement and the Paying Agent Agreement which are specified to be obligations and agreements of the Lenders will apply as if it were a party to the Security Agreement and the Paying Agent Agreement.

(c) Consents. Each Lender hereby and by acceptance of a Loan Certificate covenants and agrees, for Borrower’s benefit, that it shall not unreasonably withhold, delay or condition any consent, waiver, approval or other action requested of it under the terms of this Agreement or any of the other Operative Agreements which by its terms are not to be unreasonably withheld, delayed or conditioned.

8. SECURITY AGENT’S COVENANTS

(a) Liens. Security Agent (a) will not directly or indirectly create, incur, assume, or suffer to exist any Lien attributable to it on or with respect to all or any part of the Collateral (other than Liens created by the Operative Agreements), (b) will, at its own cost and expense, promptly take such action as is necessary to discharge any such Lien attributable to Security

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Agent on all or any part of the Collateral, and (c) will personally hold harmless and indemnify Borrower and its Affiliates, successors, and permitted assigns, and the Collateral from and against (1) any and all Expenses, and (2) any interference with the possession, operation, or other use of all or any part of the Collateral, imposed on, incurred by, or asserted against any of the foregoing as a consequence of any such Lien.

(b) Securities Laws. Security Agent will not offer any beneficial interest or security relating to the ownership of any interest in the Collateral or any of the Loan Certificates for sale to, or solicit any offer to acquire any such interest or security from, or sell any such interest or security to, any Person in violation of the Securities Act or applicable state or foreign securities Laws.

(c) Performance of Agreements. Security Agent shall perform its obligations under the Operative Agreements in accordance with their terms.

9. ASSIGNMENT OR TRANSFER OF INTEREST

(a) Lenders.

(i) Transfer. Subject to Sections 9(a)(ii) and (iii) below and Section 2.7 of the Security Agreement, any Lender may, at any time, with the prior written consent of Borrower (not to be unreasonably withheld), Transfer or grant participations in all or any portion of its Commitment, Loan Certificates or all or any portion of its interest in or represented by its Commitment or Loan Certificates to a Transferee; provided, that any participant in any such participations shall not have any direct rights under the Operative Agreements or any Lien on all or any part of any of the Collateral; further provided, that Borrower shall not be deemed to have unreasonably withheld its consent if (1) in Borrower’s reasonable determination, such Transfer or participation would diminish Borrower’s rights or increase Borrower’s liability or obligations or the amounts thereof (including with respect to withholding Taxes) above that which would result had any such Transfer or participation not occurred, (2) in connection with a Transfer of all or any part of its Commitment (which, for the avoidance of doubt, refers to the committed loan amounts subject to this Agreement which have not yet been drawn upon), the proposed Transferee does not have a credit rating issued by Standard & Poor’s, Moody’s or Fitch Ratings of A or better or (3) if, after giving effect to any such Transfer, there shall be more than four (4) Lenders (inclusive of HSH and NordLB) at any time (it being understood that each of HSH and NordLB shall have at least one opportunity to Transfer all or any party of its respective Commitments or Loan Certificates, unless otherwise agreed to between HSH and NordLB). In the case of any Transfer, the Transferee, by execution and delivery of a Transfer Certificate in connection with such Transfer, shall be bound by all of the covenants of the transferring Lender in the Operative Agreements.

(ii) Securities Law. Each Lender agrees that it will not Transfer any portion of its Commitment, any Loan Certificate which it holds or any interest in, or represented by, any Loan Certificate which it holds in violation of the Securities Act or any applicable state, federal or foreign securities Law.

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(iii) ERISA. Each Lender agrees that it will not Transfer any Loan Certificate which it holds or any interest in, or represented by, any Loan Certificate which it holds unless the proposed Transferee thereof first provides Borrower with the following:

(1) a written representation and covenant that no portion of the funds it uses to purchase and acquire such Loan Certificate or interest directly or indirectly constitutes, or may be deemed under the Code or ERISA or any rulings, regulations, or court decisions thereunder to constitute, the assets of any Plan; and

(2) a written covenant that it will not Transfer its Loan Certificate or any interest in, or represented by, any Loan Certificate unless the subsequent Transferee also makes the representation described in clause (1) of this Section 9(a)(iii) and agrees to comply with this clause (2).

(b) Transfer at Request of Borrower. In the event that Indemnified Withholding Taxes become payable by Borrower pursuant to Section 10(c)(i) hereof with respect to payments by Borrower to a Lender under a Loan Certificate or pursuant to any Operative Agreement and the elimination or sufficient reduction of such Indemnified Withholding Taxes pursuant to a transfer described in the last sentence of such Section 10(c)(i) is not accomplished, such Lender shall, upon the written request of Borrower, sell the affected Loan Certificate to a Person to which payments under the Loan Certificate would not be subject to withholding Taxes under then applicable Law for an amount which, together with any supplemental payment by Borrower in connection with such sale, shall be equal to the par value of such affected Loan Certificate plus accrued but unpaid interest thereon plus any Breakage Amount. Out-of-pocket costs and expenses, if any, (including reasonable fees and disbursements of counsel) reasonably incurred by a Lender and Security Agent in connection with any such transfer shall be for the account of Borrower.

(c) Effect of Transfer; Costs. Upon any Transfer in accordance with Section 9(a) (other than any Transfer by any Lender to the extent it only grants participations in Loan Certificates it holds or in its interest therein or represented thereby), the Transferee shall be deemed a “Lender” for all purposes of the Operative Agreements, and the transferring Lender shall be released from all of its liabilities and obligations with respect to such transferred Loan Certificate under the Operative Agreements to the extent such liabilities and obligations arise after such Transfer and, in each case, to the extent such liabilities and obligations are assumed by the Transferee; provided, that such transferring Lender (and its Affiliates, successors, assigns, agents, representatives, directors, and officers) will continue to have the benefit of any rights or indemnities under any Operative Agreement vested or relating to circumstances, conditions, acts, or events before such Transfer. The transferring Lender agrees that it shall reimburse, or shall cause the Transferee to reimburse, Borrower and Security Agent for all of their reasonable out-of-pocket costs and expenses (including reasonable fees and disbursements of counsel) incurred in connection with any such Transfer.

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10. INDEMNITIES

(a) General Indemnity.

(i) Whether or not any of the transactions contemplated by this Agreement are consummated, Borrower shall indemnify, protect, defend, and hold harmless each Indemnitee from, against, and in respect of, and shall pay on an After-Tax Basis, any and all Expenses of any kind or nature whatsoever that may be imposed on, incurred or suffered 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:

(1) the Operative Agreements or the enforcement of any of the terms of any of the Operative Agreements;

(2) (aa) any claim or penalty arising out of violations of applicable Laws by Borrower, and (bb) any Liens in respect of the Collateral;

(3) following delivery thereof, the Aircraft, the Airframe, any Engine or any part thereof, including with respect thereto, (aa) the manufacture, design, purchase, acceptance, nonacceptance, rejection, ownership, registration, reregistration, deregistration, delivery, nondelivery, lease, sublease, assignment, possession, use, non-use, operation, maintenance, testing, repair, overhaul, condition, alteration, modification, addition, improvement, storage, airworthiness, replacement, repair, sale, substitution, return, abandonment, redelivery, transfer of title or other disposition of the Aircraft, any Engine or any part thereof, (bb) tort liability, whether or not arising out of the negligence of any Indemnitee (whether active, passive or imputed), (cc) death or property damage of passengers, shippers, or others or (dd) environmental control, noise, or pollution; and

(4) any breach of or failure to perform or observe, or any other noncompliance with, any covenant, agreement, or other obligation to be performed by Borrower under any Operative Agreement to which it is party or the falsity of any representation or warranty of Borrower in any Operative Agreement to which it is party.

(ii) Notwithstanding anything in Section 10(a)(i), Borrower shall not be required to indemnify, protect, defend, and hold harmless any Indemnitee pursuant to Section 10(a)(i) against any Expense of such Indemnitee:

(1) for any Taxes or a loss of Tax benefit, whether or not Borrower is required to indemnify therefor pursuant to Section 10(c);

(2) to the extent attributable to any Transfer (voluntary or involuntary) by or on behalf of such Indemnitee of any Loan Certificate or interest therein, except for reasonable out-of-pocket costs and expenses incurred as a result of any such Transfer requested in writing by Borrower or made or effected pursuant to the exercise of remedies under any Operative Agreement;

(3) to the extent attributable to the gross negligence or willful misconduct of such Indemnitee or any “Related Indemnitee” (as defined at the end of this Section 10(a)(ii)) (other than gross negligence or willful misconduct imputed to such Person solely by reason of its interest in the Collateral or any Operative Agreement);

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(4) 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 Agreement;

(5) 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 Agreement;

(6) to the extent attributable to the offer or sale, by such Indemnitee or any Related Indemnitee, of any interest in its Commitments, the Loan Certificates, 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 Borrower);

(7) with respect to Paying Agent’s failure to distribute funds received and distributable by it in accordance with the Paying Agent Agreement;

(8) other than during the existence 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 Agreement, other than any requested by Borrower or required by or made pursuant to the terms of the Operative Agreements (unless such requirement results from the actions of an Indemnitee not required by or made pursuant to the Operative Agreements);

(9) to the extent attributable to any amount which any Indemnitee expressly agrees to pay (other than amounts required to be paid by such Indemnitee in connection with the enforcement of its rights and remedies hereunder and under any Operative Agreement) or such Indemnitee expressly agrees shall not be paid by or be reimbursed by Borrower;

(10) to the extent that it is an ordinary and usual operating or overhead expense;

(11) for any Lien attributable to such Indemnitee or any Related Indemnitee that Borrower is not obligated to discharge under the Operative Agreements;

(12) if another provision of an Operative Agreement specifies the extent of Borrower’s responsibility or obligation to such Indemnitee with respect to such Expense, to the extent of Borrower’s specified responsibility or obligation; or

(13) to the extent incurred by or asserted against an Indemnitee as a result of any “prohibited transaction” caused by it, within the meaning of ERISA § 406 or Code § 4975(c)(1).

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For purposes of this Section 10(a), a Person shall be considered a “Related Indemnitee” of an Indemnitee if that 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 assign of any of the foregoing (other than pursuant to a Transfer). For the avoidance of doubt, no Transferee of a Loan Certificate shall be entitled under this Section 10(a) to be indemnified, protected, defended or held harmless against any Expense to the extent that any prior holder of such Loan Certificate would not have been entitled to such rights and protections at the time of its transfer.

(iii) The provisions of this Section 10(a) constitute a separate agreement with respect to each Indemnitee, and is enforceable directly by each such Indemnitee.

(iv) If an Indemnitee makes a claim for any Expense indemnifiable under this Section 10(a), such Indemnitee shall give prompt written notice thereof to Borrower. Notwithstanding the foregoing, any Indemnitee’s failure to notify Borrower as provided in this Section 10(a)(iv), or in Section 10(a)(v), shall not release Borrower from any of its obligations to indemnify such Indemnitee hereunder, except to the extent that such failure results in an additional Expense to Borrower (in which event Borrower shall not be responsible for such additional Expense) or materially impairs Borrower’s ability to contest such claim.

(v)

(1) If any action, suit, or proceeding for which Borrower is responsible under this Section 10(a) is brought against any Indemnitee, such Indemnitee shall notify Borrower of the commencement thereof, and Borrower may, at its expense, participate in and, to the extent that it so desires (subject to the provisions of the following paragraph), assume and control the defense thereof and, subject to Section 10(a)(v)(3), settle or compromise it.

(2) Borrower or its insurer(s) shall have the right, at its or their expense, to investigate and control the defense of, any action, suit, or proceeding, relating to any Expense for which indemnification is sought pursuant to this Section 10(a), and each Indemnitee shall cooperate reasonably and in good faith with Borrower or its insurer(s) with respect thereto; provided, that Borrower shall not be entitled to control the defense of any such action, suit, or proceeding, or to compromise any such Expense, while (a) any Event of Default exists, (b) if such proceedings will involve a material risk of the sale, forfeiture, or loss of, or the creation of any Lien (other than Permitted Lien) on the Collateral, unless Borrower shall have posted a bond or other security or collateral reasonably satisfactory to Security Agent in respect to such risk, or (c) if such proceedings entail any material risk of criminal liability or material civil liability. In connection with any such Borrower-controlled action, suit, or proceeding, such Indemnitee shall have the right to participate therein, at its sole cost and expense, with counsel reasonably satisfactory to Borrower, provided that such Indemnitee’s participation does not, in the reasonable opinion of the independent counsel appointed by Borrower or its insurers to conduct such proceedings, interfere with

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the defense of such case. In connection with any Indemnitee-controlled action, suit, or proceeding, Borrower or its insurers shall have the right to participate therein, at its or their sole cost and expense, with counsel reasonably satisfactory to any such Indemnitee, provided that Borrower’s or its insurers’ participation does not, in the reasonable opinion of the independent counsel appointed by any such Indemnitee to conduct such suit or proceedings, materially interfere with the defense of such case.

(3) In no event shall any Indemnitee enter into a settlement or other compromise with respect to any Expense without Borrower’s prior written consent (which shall not be unreasonably withheld or delayed), unless such Indemnitee waives its right to be indemnified with respect to such Expense under this Section 10(a).

(4) To the extent that any Expense indemnified by Borrower hereunder may be covered by insurance maintained by Borrower, at Borrower’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.

(5) If an Indemnitee is not a party to this Agreement, Borrower may require such Indemnitee to agree in writing to the terms of this Section 10(a) and Section 12 before making any payment to such Indemnitee under this Section 10.

(6) Nothing in this Section 10(a)(v) shall require an Indemnitee to contest any Expense or to assume responsibility for or control of any judicial proceeding with respect thereto.

(vi) Borrower will promptly provide the relevant Indemnitee with such information not within the control of such Indemnitee (but in Borrower’s control or reasonably available to Borrower) which such Indemnitee reasonably requests, and will otherwise cooperate with such Indemnitee so as to enable such Indemnitee to fulfill its obligations under Section 10(a)(v). The Indemnitee shall promptly supply Borrower with such information not within the control of Borrower (but in such Indemnitee’s control or reasonably available to such Indemnitee) which Borrower reasonably requests to control or participate in any proceeding to the extent permitted by Section 10(a)(v).

(vii) Upon payment in full by or on behalf of Borrower of any indemnity provided for under this Agreement, Borrower, 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 or in connection with any indemnity claim of such Indemnitee under Section 11(d)) in respect of the matter as to which such indemnity was paid. Each Indemnitee will give such further assurances or agreements and cooperate with Borrower to permit Borrower to pursue such claims, to the extent reasonably requested by Borrower and at Borrower’s expense.

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(viii) If an Indemnitee receives any refund, in whole or in part, with respect to any Expense paid by Borrower hereunder, that Indemnitee will promptly pay such amount refunded (but not an amount in excess of the amount Borrower or any of its insurers has paid in respect of such Expense) over to Borrower, unless a Special Default or Event of Default exists, in which case such amount shall be paid over to Security Agent to hold as security for Borrower’s obligations under the relevant Operative Agreements or, if requested by Borrower, applied to satisfy those obligations.

(b) Expenses. Borrower shall pay all reasonable out-of-pocket costs and expenses (including the reasonable fees and disbursements of counsel) incurred by Security Agent, Paying Agent or the Lenders in connection with any waiver, consent or approval or amendment or modification of any Operative Agreement to the extent requested by Borrower. Each Lender agrees that it shall reimburse Borrower, Paying Agent and Security Agent for all reasonable out-of-pocket costs and expenses (including the reasonable fees and disbursements of counsel) incurred by Borrower, Paying Agent and Security Agent in connection with any waiver, consent or approval or amendment or modification of any Operative Agreement requested by it or Security Agent, unless such amendment or modification is requested pursuant to Section 6(f)(1) hereof or requested in connection with the existence of a Default.

(c) General Tax Indemnity.

(i) Withholding Taxes. Except as provided in Section 10(c)(i), Borrower agrees that each payment paid by Borrower or Paying Agent under the Loan Certificates, and any other payment or indemnity paid by Borrower or Paying Agent to or for the benefit of a Lender under any Operative Agreement, shall be free of all withholdings or deductions with respect to Taxes of any nature unless the withholding or deduction is required by applicable Law, and if Borrower or Paying Agent is required by applicable Law to make any such withholding or deduction for any such payment, (1) Borrower shall (or cause Paying Agent on its behalf to) make all such withholdings or deductions, (2) if and to the extent that all or any portion of the required withholdings or deductions constitutes Indemnified Withholding Taxes, the amount payable by Borrower shall be increased by Borrower so that, after Paying Agent makes all required withholdings or deductions, such Lender receives the same amount that it would have received had no such withholdings or deductions with respect to such Indemnified Withholding Taxes been made, with the amount payable by Borrower with respect to such Indemnified Withholding Taxes being calculated on an After-Tax Basis, and (3) Borrower shall (or cause Paying Agent on its behalf to) pay the full amount withheld or deducted to the relevant Taxing Authority in accordance with applicable Law. The term “Indemnified Withholding Taxes” shall mean, with respect to any Loan Certificate or other payment or indemnity paid by Borrower or Paying Agent to or for the benefit of a Lender under any Operative Agreement, withholding taxes imposed by the U.S. Government, but only to the extent that, as a result of a change in law or regulation or interpretation thereof or a change in a tax treaty to which the United States is a party, in each case that occurs after the later of (x) the Borrowing Date applicable to such Loan Certificates and (y) the date the Lender owning such Loan Certificates became a Lender, such withholding taxes become applicable with respect to a payment by Borrower or Paying Agent to or for the benefit of the Lender (if none had previously been imposed or required) or the rate

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applicable to a previously imposed or required withholding tax is increased; provided that, if the particular Lender is based in a jurisdiction other than an Accepted Jurisdiction, the amount of Indemnified Withholding Taxes shall not exceed the amount of Indemnified Withholding Taxes that would be applicable if the Lender were based in an Accepted Jurisdiction or other jurisdiction to which such Loan Certificates have been transferred solely pursuant to this Section 10(c)(i). In the event that Indemnified Withholding Taxes become payable by Borrower as provided above, the Lender will, if possible and without any adverse consequences, transfer the Loan Certificates to another jurisdiction that is mutually acceptable to Borrower and such Lender so that either (1) no such Indemnified Withholding Taxes would be applicable to subsequent payments to or for the benefit of such Lender following such transfer (taking into account the provisions of Treas. Reg. § 1.881-3 and the limitation on benefits provisions of any applicable tax treaty) or (2) the rate of the Indemnified Withholding Taxes applicable to subsequent payments to such Lender following such transfer (taking into account the provisions of Treas. Reg. § 1.881-3 and the limitation on benefits provisions of any applicable tax treaty) would not exceed the rate of the Indemnified Withholding Taxes applicable to payments to such Lender prior to such transfer and the applicable change in law or regulation or the interpretation thereof or change in tax treaty.

(ii) General Tax Indemnity. Except as provided in Section 10(c)(iii) and whether or not any of the transactions contemplated hereby are consummated, Borrower shall pay, indemnify, protect, defend, and hold harmless each Tax Indemnitee from all Taxes imposed by any Taxing Authority imposed on or asserted against any Tax Indemnitee or the Collateral, or any interest in any of the foregoing (whether or not indemnified against by any other Person), upon or with respect to the Operative Agreements or the transactions or payments contemplated thereby, including any Tax imposed upon or with respect to (w) any Operative Agreement (including any Loan Certificates), (x) following delivery thereof, the Aircraft, the Airframe, any Engine, any part, any data, or any other thing delivered or to be delivered therewith, (y) following delivery thereof, the purchase, manufacture, acceptance, rejection, sale, transfer of title, return, ownership, mortgaging, delivery, transport, charter, rental, lease, re-lease, sublease, assignment, possession, repossession, presence, use, condition, storage, preparation, maintenance, modification, alteration, improvement, operation, registration, transfer or change of registration, reregistration, repair, replacement, overhaul, location, control, imposition of any Lien, financing, refinancing requested by Borrower, abandonment, or other disposition of the Aircraft, the Airframe, any Engine, any part, any data, or any other thing delivered therewith or (z) interest, fees, or other income, proceeds, receipts, or earnings, whether actual or deemed, arising upon, in connection with, or in respect of any of the Operative Agreements (including the property or income or other proceeds with respect to property held as part of the Collateral) or the transactions contemplated thereby.

(iii) Certain Exceptions. The provisions of Sections 10(c)(i) and 10(c)(ii) shall not apply to, and Borrower shall have no liability hereunder for, Taxes:

(1) imposed on a Tax Indemnitee by the federal government of the United States or any Taxing Authority or governmental subdivision of the United

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States or therein (including any state or local Taxing Authority) (aa) on, based on, or measured by gross or net income or gross or net receipts, including capital gains taxes, excess profits taxes, minimum taxes from tax preferences, alternative minimum taxes, branch profits taxes, accumulated earnings taxes, personal holding company taxes, succession taxes and estate taxes, and any withholding taxes on, based on, or measured by gross or net income or receipts, or (bb) on, or with respect to, or measured by capital or net worth or in the nature of a franchise tax or a tax for the privilege of doing business (other than Indemnified Withholding Taxes, sales, use, rental, stamp, documentary, license, or property Taxes and value added Taxes (that are not imposed in direct substitution for an income Tax));

(2) imposed on a Tax Indemnitee by any Taxing Authority or governmental subdivision thereof or therein outside of the United States (including any Taxing Authority in or of a territory, possession or commonwealth of the United States) (aa) on, based on, or measured by gross or net income or gross or net receipts, including capital gains taxes, excess profits taxes, minimum taxes from tax preferences, alternative minimum taxes, branch profits taxes, accumulated earnings taxes, personal holding company taxes, succession taxes and estate taxes, and any withholding taxes on, based on, or measured by gross or net income or receipts, or (bb) on, or with respect to, or measured by capital or net worth or in the nature of a franchise tax or a tax for the privilege of doing business (other than, in the case of clause (aa) or (bb), (y) sales, use, rental, stamp, documentary, license, or property Taxes and value added Taxes (that are not imposed in direct substitution for an income Tax), or (z) any Taxes imposed by any Taxing Authority (other than a Taxing Authority within whose jurisdiction such Tax Indemnitee is incorporated or organized or maintains its principal place of business) if such Tax Indemnitee would not have been subject to Taxes of such type by such jurisdiction but for (i) the activities of any Borrower Person in such jurisdiction, (ii) the status of any Borrower Person as a foreign entity or as an entity owned in whole or in part by foreign persons, (iii) any Borrower Person having made (or having been deemed to have made) payments to or for the benefit of such Tax Indemnitee from the relevant jurisdiction, or (iv) any Borrower Person being incorporated or organized or maintaining a place of business or conducting activities in such jurisdiction);

(3) on, with respect to, or measured by any trustee fees, commissions, or compensation received by Security Agent;

(4) that are being contested as provided in Section 10(c)(iv) below;

(5) imposed on any Tax Indemnitee to the extent that such Taxes result from the gross negligence or willful misconduct of such Tax Indemnitee or any Affiliate thereof;

(6) imposed on or with respect to a Tax Indemnitee (including a transferee thereof in those cases in which the Tax on transfer is imposed on, or is

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collected from, the transferee) as a result of a transfer or other disposition (including a deemed transfer or disposition) by such Tax Indemnitee or any of its Related Tax Indemnitees of any or all of its interest in the Collateral, any interest arising under the Operative Agreements, or any Loan Certificate, or as a result of a transfer or disposition (including a deemed transfer or disposition) of any interest in a Tax Indemnitee (other than (1) a substitution or replacement of the Collateral by a Borrower Person that is treated for Tax purposes as a transfer or disposition, or (2) a transfer requested by Borrower or required by the Operative Agreements or pursuant to an exercise of remedies upon a then-existing Event of Default);

(7) in excess of those that would have been imposed had there not been a transfer or other disposition excluded from indemnification by Section 10(c)(iii)(6) by or to such Tax Indemnitee or any of its Related Tax Indemnitees;

(8) consisting of any interest, penalties, or additions to Tax imposed on a Tax Indemnitee as a result (in whole or in part) of a failure of such Tax Indemnitee or any of its Related Tax Indemnitees to properly and timely file any Tax return that it is required to file, unless such failure is caused by Borrower’s failure to fulfill its obligations (if any) under Section 10(c)(vii) with respect to such Tax return;

(9) resulting from, or that would not have been imposed but for, any Liens arising as a result of claims against, or acts or omissions of, or otherwise attributable to such Tax Indemnitee or any of its Related Tax Indemnitees that Borrower is not obligated to discharge under the Operative Agreements;

(10) imposed on a Tax Indemnitee as a result of the breach by such Tax Indemnitee or any of its Related Tax Indemnitees of any covenant of such Tax Indemnitee or any Affiliate thereof contained in any Operative Agreement or the inaccuracy of any representation or warranty by such Tax Indemnitee or any Affiliate thereof in any Operative Agreement;

(11) in the nature of an intangible or similar Tax imposed upon or with respect to the value or principal amount of the interest of a Lender in any Loan Certificate or the loan evidenced thereby, but only if such Taxes are in the nature of franchise Taxes or result from the conduct of business by such Tax Indemnitee in the taxing jurisdiction and, in each case, are imposed because of the place of incorporation or the activities unrelated to the Transactions in the taxing jurisdiction of such Tax Indemnitee;

(12) imposed on a Tax Indemnitee by a Taxing Authority of a jurisdiction outside the United States, to the extent that such Taxes result from a connection between the Tax Indemnitee or any of its Related Tax Indemnitees and such jurisdiction imposing such Tax unrelated to the Transactions; or

(13) relating to ERISA or to Code § 4975.

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For purposes of this Section 10(c), a Person shall be considered a “Related Tax Indemnitee” of a Tax Indemnitee if that Person is an Affiliate or employer of such Tax Indemnitee, a director, officer, employee, agent or servant of such Tax Indemnitee or any such Affiliate, or a successor or permitted assign of any of the foregoing (other than pursuant to a Transfer).

(iv) Payment.

(1) Borrower’s indemnity obligation to a Tax Indemnitee under this Section 10(c) shall equal the amount which, after taking into account any Tax currently payable upon the receipt or accrual of the amounts payable under this Section 10(c) and any current tax benefits realized by such Tax Indemnitee as a result of the indemnifiable Tax (including any benefits realized as a result of such Tax Indemnitee’s use of an indemnifiable Tax as a credit against Taxes not indemnifiable under this Section 10(c)), shall equal the amount of the Tax indemnifiable under this Section 10(c).

(2) At Borrower’s written request, the computation of the amount of any indemnity payment owed by Borrower or any amount owed by a Tax Indemnitee to Borrower pursuant to this Section 10(c) shall be verified and certified by an independent public accounting firm selected by such Tax Indemnitee and reasonably satisfactory to Borrower. Each Tax Indemnitee shall upon written request provide to such accounting firm such information in such Tax Indemnitee’s possession or control as is reasonably necessary, for the performance of such verification (subject to the accounting firm’s execution and delivery of a confidentiality agreement in form and substance reasonably acceptable to the Tax Indemnitee). Such verification shall be binding on Borrower and the Tax Indemnitee. The costs of such verification (including the fee of such public accounting firm) shall be borne by Borrower unless such verification results in an adjustment in Borrower’s favor of 5% or more of the net present value of the payment as computed by such Tax Indemnitee, in which case the costs shall be paid by such Tax Indemnitee.

(3) Each Tax Indemnitee shall provide Borrower with such certifications, and such information and documentation in such Tax Indemnitee’s possession or control, as Borrower reasonably requests in writing that are necessary to minimize any indemnity payment pursuant to this Section 10(c) and which such Tax Indemnitee can provide without incurring material adverse consequences under applicable Law, and Borrower shall, on written request from such Tax Indemnitee, reimburse such Tax Indemnitee for its reasonable out-of-pocket expenses incurred in providing such certifications, information and documentation to Borrower. If the Tax Indemnitee believes that providing to Borrower the certifications, information and documentation requested by Borrower would result in the incurrence of material adverse consequences under applicable Law, the Tax Indemnitee shall notify Borrower of the basis of that belief and the Tax Indemnitee and Borrower shall promptly meet to discuss the matter and, if Borrower and the Tax Indemnitee are unable to agree whether such

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material adverse consequences would result, shall appoint an independent accounting firm to resolve the issue on terms similar to those set forth in Section 10(c)(iv)(2) hereof (except that Borrower and the Tax Indemnitee shall share equally the costs of such accounting firm).

(4) Each Tax Indemnitee shall promptly forward to Borrower any written notice, bill, or advice that such Tax Indemnitee receives from any Taxing Authority concerning any Tax for which it seeks indemnification under this Section 10(c). Borrower shall pay any amount for which it is liable pursuant to this Section 10(c) directly to the appropriate Taxing Authority if legally permissible, or, upon written demand of a Tax Indemnitee, to such Tax Indemnitee within 30 days of such demand (or, if a contest occurs in accordance with Section 10(c)(v), within 30 days after a Final Determination (as defined below)), but in no event more than three Business Days before the related Tax is due. If requested by a Tax Indemnitee in writing, Borrower shall furnish at its expense to the appropriate Tax Indemnitee the original or a certified copy of a receipt for Borrower’s payment of any Tax paid by Borrower (if such a receipt is reasonably obtainable from the applicable Taxing Authority), or such other evidence of payment of such Tax as is reasonably acceptable to such Tax Indemnitee. Borrower shall also furnish at its expense promptly upon written request such data as any Tax Indemnitee reasonably requires to enable such Tax Indemnitee to comply with the requirements of any taxing jurisdiction; provided that Borrower shall not be required to furnish such data if (x) such data are not within the possession or control of Borrower (unless Borrower is required to maintain such data pursuant to applicable Law) or (y) such data are not customarily furnished by U.S. domestic air carriers under similar circumstances (unless such data are specifically requested by a Taxing Authority). For purposes of this Section 10(c), a “Final Determination” is (1) a decision, judgment, decree, or other order by any court of competent jurisdiction that occurs pursuant to the provisions of Section 10(c)(v), which decision, judgment, decree, or other order has become final and unappealable, (2) a closing agreement or settlement agreement entered into in accordance with Section 10(c)(v) that has become binding and is not subject to further review or appeal (absent fraud, misrepresentation, etc.), or (3) the termination of administrative proceedings and the expiration of the time for instituting a claim in a court proceeding; provided that, notwithstanding the foregoing, the positions taken by such Tax Indemnitee on its Tax returns and filings, dealing with Tax authorities and, subject to the provisions of Section 10(c)(v) hereof, in any Tax proceedings shall be in the sole, good-faith discretion of such Tax Indemnitee and, subject to the provisions of Section 10(c)(iv)(2) hereof, no Person shall have the right to require disclosure of the Tax returns or filings of such Tax Indemnitee, provided further that, in the case of any Tax credit or other Tax benefit that is limited in its availability, in the aggregate, to such Tax Indemnitee (and is not directly and fully traceable to the Tax paid or indemnified by Borrower without such limitations), the allocation of such Tax credit or other Tax benefit shall be made in a manner consistent with the requirements of applicable Law, and if and to the extent such allocation is not addressed by applicable Law, in proportion to other Tax credits or Tax benefits

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claimed by such Tax Indemnitee (taking into account any requirement of applicable Law concerning segregation or basketing of similar Tax credits or Tax benefits), by multiplying the amount of such Tax credit or Tax benefit by the ratio of the Tax credit or Tax benefit realized by the Tax Indemnitee by reason of any Tax paid or indemnified by Borrower over the total of such available Tax credits or Tax benefits for the Tax year at issue (taking into account any requirement of applicable Law concerning segregation or basketing of similar Tax credits or Tax benefits).

(5) If any Tax Indemnitee actually realizes a net tax savings by reason of any Tax paid or indemnified by Borrower pursuant to this Section 10(c) (whether such tax savings arise by means of a foreign tax credit, depreciation or cost recovery deduction, or otherwise), and such net savings is not otherwise taken into account in computing such payment or indemnity, such Tax Indemnitee shall pay to Borrower an amount equal to the lesser of (1) the amount of such net tax savings, plus any additional net tax savings recognized as the result of any payment made pursuant to this sentence, and (2) the amount of all payments pursuant to this Section 10(c) by Borrower to such Tax Indemnitee (less any payments previously made by such Tax Indemnitee to Borrower pursuant to this Section 10(c)(iv)(5)) (and the excess, if any, of the amount described in clause (1) over the amount described in clause (2) shall be carried forward and applied to reduce pro tanto any subsequent obligations of Borrower to make payments to such Tax Indemnitee pursuant to this Section 10(c)); provided, that such Tax Indemnitee shall not be required to make any payment pursuant to this sentence so long as a Special Default or an Event of Default exists. If a tax benefit is later disallowed or denied, the disallowance or denial shall be treated as a Tax indemnifiable under Section 10(c)(ii) without regard to the provisions of Section 10(c)(iii) (other than Section 10(c)(iii)(5), (8) or (10)). Each such Tax Indemnitee shall in good faith use reasonable efforts in filing its tax returns and in dealing with Taxing Authorities to seek and claim any such tax benefit.

(v) Contest.

(1) If a written claim is made against a Tax Indemnitee for Taxes with respect to which Borrower could be liable for payment or indemnity hereunder, or if a Tax Indemnitee determines that a Tax is due for which Borrower could have an indemnity obligation hereunder, such Tax Indemnitee shall promptly notify Borrower in writing of such claim (provided, that failure so to notify Borrower shall not relieve Borrower of its indemnity obligations hereunder except to the extent that such failure has a material adverse effect on Borrower’s indemnification obligations hereunder or on Borrower’s rights to successfully contest such claim), and shall take no action with respect to such claim without Borrower’s prior written consent for 30 days following Borrower’s receipt of such notice; provided, that, if applicable Law requires such Tax Indemnitee to take action before the end of such 30-day period, such Tax Indemnitee shall, in such notice to Borrower, so inform Borrower, and such Tax Indemnitee shall take no action for as long as it is legally able to avoid taking action. Such Tax Indemnitee

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shall (provided that Borrower shall have agreed to keep such information confidential other than to the extent necessary in order to contest the claim, such agreement to be delivered to the Tax Indemnitee and in form and substance reasonably acceptable to it) furnish Borrower with copies of the relevant portions of any requests for information from any Taxing Authority relating to such Taxes with respect to which Borrower may be required to indemnify hereunder. If requested by Borrower in writing within 30 days after its receipt of such notice, such Tax Indemnitee shall, at Borrower’s expense (including all reasonable out-of-pocket costs and expenses, including reasonable attorneys’ and accountants’ fees and disbursements incurred in connection with, and reasonably allocable to, the contest of such Tax), in good faith contest (or, if permitted by applicable Law, allow Borrower to contest) through appropriate administrative and judicial proceedings the validity, applicability, or amount of such Taxes by (x) resisting payment thereof, (y) not paying the Taxes except under protest if protest is necessary and proper, or (z) if the payment is made, using reasonable efforts to obtain a refund thereof in an appropriate administrative or judicial proceeding. If requested to do so by Borrower in writing, the Tax Indemnitee shall appeal any adverse administrative or judicial decision, except that the Tax Indemnitee shall not be required to pursue any appeals to the United States Supreme Court. If and to the extent that the Tax Indemnitee is able, using reasonable efforts, to separate the contested issue or issues from other issues arising in the same administrative or judicial proceeding that are unrelated to the Transactions without (in such Tax Indemnitee’s good faith judgment) adversely affecting such Tax Indemnitee, such Tax Indemnitee shall permit Borrower to control the conduct of any such proceeding and shall provide to Borrower (at Borrower’s cost and expense) such information or data in such Tax Indemnitee’s control or possession and reasonably necessary to conduct such contest. If the contest is being controlled by a Tax Indemnitee, such Tax Indemnitee shall consult with Borrower in good faith regarding the manner of contesting such claim, and shall keep Borrower reasonably informed regarding the progress of such contest. If the contest is being controlled by Borrower, Borrower shall consult with the applicable Tax Indemnitee in good faith regarding the manner of contesting such claim, and shall keep such Tax Indemnitee reasonably informed regarding the progress of such contest. A Tax Indemnitee shall not fail to take any action expressly required by this Section 10(c)(v) (including any action regarding any appeal of an adverse determination with respect to any claim) or settle or compromise any claim without Borrower’s prior written consent (except as contemplated by Sections 10(c)(v)(2) or (3)).

(2) Notwithstanding the foregoing, in no event shall a Tax Indemnitee be required to pursue any contest (or to permit Borrower to pursue any contest) unless (1) Borrower agrees to pay such Tax Indemnitee on demand all reasonable out-of-pocket costs and expenses that such Tax Indemnitee incurs in connection with contesting such Taxes, including all reasonable out-of-pocket costs and expenses and reasonable attorneys’ and accountants’ fees and disbursements, in each case, to the extent reasonably allocable to the contest of such Taxes, (2) if such contest involves the payment of the claim, Borrower advances the amount

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thereof (to the extent indemnified hereunder) that is required to be paid before commencing the contest on an interest-free After-Tax Basis to such Tax Indemnitee (and such Tax Indemnitee shall promptly pay to Borrower any net realized tax benefits resulting from such advance, including any tax benefits resulting from making such payment), (3) the action to be taken will not result in any material risk of forfeiture, sale, or loss of, or the creation of a Lien (other than a Permitted Lien) on, the Collateral (unless Borrower makes provisions to protect the interests of any such Tax Indemnitee in a manner reasonably satisfactory to such Tax Indemnitee) or any material risk of criminal liability or material civil liability (provided, that such Tax Indemnitee shall notify Borrower in writing promptly after it becomes aware of any such risks), (4) no Event of Default exists (unless Borrower has provided security reasonably acceptable to the Tax Indemnitee for its obligations hereunder or has advanced to such Tax Indemnitee, before proceeding or continuing with such contest, the amount of the Tax being contested, plus any interest and penalties and an amount estimated in good faith by such Tax Indemnitee for expenses) and (5) before commencing any judicial action controlled by Borrower, such Tax Indemnitee shall have received written confirmation from Borrower that the Taxes that are the subject of such Tax claim are indemnified by Borrower hereunder, provided, that Borrower shall not be bound by such confirmation to the extent that the Final Determination of the contest articulates conclusions of law and fact that demonstrate Borrower is not liable hereunder for the Taxes that are the subject of such Tax claim. Notwithstanding the foregoing, if any Tax Indemnitee releases, waives, compromises, or settles any claim that may be indemnifiable by Borrower pursuant to this Section 10(c) without Borrower’s written permission, Borrower’s obligation to indemnify such Tax Indemnitee with respect to such claim (and all directly-related claims, and claims based on the outcome of such claim) shall terminate, and such Tax Indemnitee shall repay to Borrower any amount previously paid or advanced to such Tax Indemnitee with respect to such claim (other than previously incurred costs and expenses of contest described in clause (1) of this paragraph), plus interest at the rate that would have been payable by the relevant Taxing Authority on a refund of such Tax.

(3) Notwithstanding anything contained in this Section 10(c), a Tax Indemnitee will not be required to contest the imposition of any Tax, and shall be permitted to settle or compromise any claim without Borrower’s consent, if such Tax Indemnitee (1) waives its right to indemnity under this Section 10(c) with respect to such Tax (and any directly-related claim, and any claim the outcome of which is determined based upon the outcome of such claim), (2) pays to Borrower any amount previously paid or advanced by Borrower pursuant to this Section 10(c) with respect to such Tax (other than previously incurred costs and expenses of contest described in clause (1) of this paragraph), plus interest at the rate that would have been payable by the relevant Taxing Authority on a refund of such Tax, and (3) agrees to discuss with Borrower the views or positions of any relevant Taxing Authority with respect to the imposition of such Tax.

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(vi) Refund. If any Tax Indemnitee receives a refund of, or is entitled to a credit against other liability for, all or any part of any Taxes paid, reimbursed, or advanced by Borrower, such Tax Indemnitee shall pay to Borrower within 30 days of such receipt an amount equal to the lesser of (a) the amount of such refund or credit plus any net tax benefit (taking into account any Taxes incurred by such Tax Indemnitee by reason of the receipt of such refund or realization of such credit) actually realized by such Tax Indemnitee as a result of any payment by such Tax Indemnitee made pursuant to this sentence (including this clause (a)), and (b) such tax payment, reimbursement, or advance by Borrower to such Tax Indemnitee theretofore made pursuant to this Section 10(c) (and the excess, if any, of the amount described in clause (a) over the amount described in clause (b) shall be carried forward and applied to reduce pro tanto any subsequent obligation of Borrower to make payments to such Tax Indemnitee pursuant to this Section 10(c)). If, in addition to such refund or credit, such Tax Indemnitee receives (or is credited with) an amount representing interest on the amount of such refund or credit, such Tax Indemnitee shall pay to Borrower within 30 days after receiving or realizing such credit that proportion of such interest fairly attributable to Taxes paid, reimbursed, or advanced by Borrower before the receipt of such refund or realization of such credit. Anything herein to the contrary notwithstanding, a Tax Indemnitee shall not be required to make any payment pursuant to this Section 10(c)(vi) so long as a Special Default or an Event of Default exists.

(vii) Tax Filing. Borrower shall, at its expense, timely file any report, return, or statement that is required to be filed with respect to any Tax which is subject to indemnification under this Section 10(c) (except for any such report, return, or statement which a Tax Indemnitee has timely notified Borrower in writing that such Tax Indemnitee intends to file, or for which such Tax Indemnitee is required by law to file, in its own name); provided, that the relevant Tax Indemnitee shall furnish Borrower with any information in such Tax Indemnitee’s possession or control that is reasonably necessary to file any such return, report, or statement and that Borrower reasonably requests in writing. Borrower shall either file such report, return, or statement and send a copy to such Tax Indemnitee, or, if Borrower is not permitted to file such report, return, or statement, it shall notify such Tax Indemnitee of such requirement and prepare and deliver such report, return, or statement to such Tax Indemnitee in a manner reasonably satisfactory to such Tax Indemnitee within a reasonable time before the time such report, return, or statement is to be filed; provided, that the relevant Tax Indemnitee shall either furnish Borrower with any information in such Tax Indemnitee’s possession or control that is reasonably necessary to file any such return, report, or statement and that Borrower reasonably requests in writing or such Tax Indemnitee shall itself be responsible for completing and filing such report, return or statement if it fails to, or elects not to, provide Borrower with the requested information.

(viii) Forms. Each Tax Indemnitee agrees to furnish from time to time to Borrower, Paying Agent, or such other Person as Borrower or Paying Agent shall designate, at Borrower’s or Paying Agent’s request, such duly-executed and properly-completed forms as may be necessary or appropriate in order to claim any reduction of or exemption from any withholding or other Tax imposed by any Taxing Authority, if (i) such reduction or exemption is available to such Tax Indemnitee without such Tax

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Indemnitee’s incurring material adverse consequences under applicable Law, and (ii) Borrower has provided such Tax Indemnitee with any information necessary to complete such form not otherwise reasonably available to such Tax Indemnitee. If the Tax Indemnitee believes that claiming such reduction or exemption would result in its incurring material adverse consequences under applicable Law, the Tax Indemnitee shall notify Borrower of the basis of that belief, and the Tax Indemnitee and Borrower shall promptly meet to discuss the matter and, if the Tax Indemnitee and Borrower are unable to agree whether such material adverse consequences would result, shall appoint an independent accounting firm to resolve the issue on terms similar to those set forth in Section 10(c)(iv)(2) hereof (except that the Tax Indemnitee and Borrower shall share equally the costs of such accounting firm).

(ix) Non-Parties. If a Tax Indemnitee is not a party to this Agreement, Borrower may require the Tax Indemnitee to agree in writing, in a form reasonably acceptable to Borrower, to the terms of this Section 10(c) and Section 12 before any payment shall be due to such Tax Indemnitee under this Section 10(c).

(d) Payments. Except as otherwise provided herein, any payments which Borrower or an Indemnitee or Tax Indemnitee is obligated to make pursuant to Section 10(a) or Section 10(c) shall be paid on the 30th day after demand, but not before five (5) days before the date such Expense or Tax is due or payable by such Indemnitee or Tax Indemnitee, as applicable. If Borrower shall have requested to contest a Tax or Expense as provided in this Section 10 and shall have duly complied with all the terms of this Section 10, Borrower’s liability for indemnification under this Section 10 shall, at Borrower’s election, be deferred until a final determination is made with respect to such contest. At such time, Borrower shall become obligated for the payment of any indemnification hereunder resulting from the outcome of such contest, and within fifteen (15) days following such final determination, any amounts so due hereunder shall be paid by Borrower to the Indemnitee or Tax Indemnitee, as applicable. Such payments shall be made directly to the relevant Indemnitee or Tax Indemnitee or to Borrower, in immediately available funds at such bank or to such account as specified by such Indemnitee or Tax Indemnitee or Borrower (as applicable) in written directives to the payor, or, if no such direction has been given, by check of the payor payable to the order of, and mailed to, such Indemnitee or Tax Indemnitee or Borrower (as applicable) by certified mail, postage prepaid, at its address as set forth in this Agreement.

(e) Interest. If any amount, payable by Borrower, any Indemnitee, or any Tax Indemnitee under Section 10(a) or Section 10(c) is not paid when due, the Person obligated to make such payment shall pay on demand, to the extent permitted by Law, to the Person entitled thereto, interest on any such amount for the period from and including the due date for such amount to but excluding the date the amount is paid, at the Past-Due Rate. Such interest shall be paid in the same manner as the unpaid amount in respect of which such interest is due.

(f) Benefit of Indemnities. Borrower’s obligations for indemnities, obligations, adjustments, and payments in Section 10(a) or Section 10(c) are expressly made for the benefit of, and shall be enforceable by, the Indemnitee or Tax Indemnitee entitled thereto as and to the extent provided herein, notwithstanding any provision of the Security Agreement.

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11. SECURITY AGENT

(a) Appointment and Powers. Each Lender hereby and by acceptance of a Loan Certificate irrevocably appoints, designates and authorizes HSH Nordbank AG, New York Branch, as Security Agent under this Agreement and under each other Operative Agreement, irrevocably appoints HSH Nordbank AG, New York Branch, as a “representative” of the Lenders within the meaning of Section 9-511 of the UCC and irrevocably authorizes Security Agent to take such action on its behalf under the provisions of this Agreement and each other Operative Agreements and to exercise the powers and perform the duties as are expressly delegated to it by the terms of this Agreement or any other Operative Agreement, together with such powers as are reasonably incidental thereto. Security Agent hereby accepts such appointments, designations and authorizations. Notwithstanding any provision to the contrary contained in this Agreement or in any other Operative Agreement, Security Agent shall not have any duties or responsibilities, except those expressly set forth herein and in the Operative Agreements, nor shall Security Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Operative Agreement or otherwise exist against Security Agent.

(b) Limitation on Security Agent’s Liability. Except as expressly provided in Section 8(b) hereof, neither Security Agent nor any of its directors, officers, employees or agents shall be liable or responsible for any action taken or omitted to be taken by it or them under or in connection with the Operative Agreements, except for its or their own gross negligence, willful misconduct or knowing violations of Law. Security Agent shall not be responsible to any Lender for (a) any recitals, statements, representations or warranties contained in the Operative Agreements or in any certificate or other document referred to or provided for in, or received by any of the Lenders under, the Operative Agreements, (b) the validity, effectiveness or enforceability of the Operative Agreements or any such certificate or other document, (c) the value or sufficiency of the Collateral or (d) any failure by Borrower to perform any of its obligations under the Operative Agreements. Security Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact so long as Security Agent was not grossly negligent in selecting or directing such agents or attorneys-in-fact. Security Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone or telecopier) believed by it to be genuine and correct and to have been signed or given by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by Security Agent.

(c) Rights as Lender. If the Security Agent is also a Lender, it shall, in its capacity as a Lender, have the same rights and powers under the Operative Agreements as any other Lender and may exercise the same as though it were not acting as Security Agent, and the term “Lender” or “Lenders” shall include such Person in its individual capacity. Each Person acting as Security Agent (whether or not such Person is a Lender) and its Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with Borrower and its Affiliates as if it were not acting as Security Agent.

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(d) Indemnification. Each Lender agrees to indemnify Security Agent (to the extent not reimbursed by Borrower under the Operative Agreements), ratably on the basis of the unpaid Original Amounts of the Loan Certificates held by such Lenders (or, if no Loan Certificates are at the time issued, ratably on the basis of their respective Commitments applicable to such Aircraft), for any and all Expenses that may be imposed on, incurred by or asserted against Security Agent (including the costs and expenses that Borrower is obligated to pay under the Operative Agreements) in any way relating to or arising out of the Operative Agreements or any other documents contemplated thereby or referred to therein or the transactions contemplated thereby or the enforcement of any of the terms thereof or of any such other documents, provided that no such Lender shall be liable for any of the foregoing to the extent such Expenses arise from the gross negligence, willful misconduct or knowing violations of Law by Security Agent.

(e) Non-reliance on Security Agent and other Lenders. Each Lender agrees that it has made and will continue to make, independently and without reliance on Security Agent or any other Lender, and based on such documents and information as it deems appropriate, its own credit analysis of Borrower, its own evaluation of the Collateral and its own decision to enter into the Operative Agreements and to take or refrain from taking any action in connection therewith. Security Agent shall not be required to keep itself informed as to the performance or observance by Borrower of the Operative Agreements or any other document referred to or provided for therein or to inspect the properties or books of Borrower or the Collateral. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by Security Agent under the Operative Agreements, Security Agent shall have no obligation to provide any Lender with any information concerning the business, status or condition of Borrower, the Operative Agreements or the Collateral that may come into the possession of Security Agent or any of its Affiliates.

(f) Successor Security Agent.

(1) The institution acting as Security Agent or any successor thereto may resign at any time without cause by giving at least thirty (30) days’ prior written notice to Borrower and each Lender, such resignation to be effective upon the acceptance by a successor institution of its appointment as Security Agent. In addition, a Majority in Interest of the Lenders may at any time (but only with the consent of Borrower, which consent shall not be unreasonably withheld, delayed or conditioned) remove the institution acting as Security Agent without cause by an instrument in writing delivered to Borrower and Security Agent, and Security Agent shall promptly notify each Lender thereof in writing, such removal to be effective upon the acceptance by a successor institution of its appointment as Security Agent. In the case of the resignation or removal of the institution acting as Security Agent, a Majority in Interest of the Lenders may appoint a successor by an instrument signed by such holders, which successor shall be subject to Borrower’s reasonable approval. If a successor is not appointed within thirty (30) days after such notice of resignation or removal, Security Agent, Borrower or any Lender may apply to any court of competent jurisdiction to appoint a successor to act until such time, if any, as a successor is appointed as provided above. The court-appointed successor shall immediately and without further act be superseded by any successor appointed by a Majority in Interest of the Lenders as above provided.

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(2) Any successor institution acting as Security Agent, however appointed, shall execute and deliver to Borrower and the predecessor institution acting as Security Agent an instrument accepting such appointment and assuming the obligations of Security Agent arising from and after the time of such appointment, and thereupon, without further act, such successor shall become vested with all the estates, properties, rights, powers, and duties of the predecessor hereunder as if originally named Security Agent herein; but nevertheless upon the written request of such successor Security Agent, such predecessor shall execute and deliver an instrument transferring to such successor, all the estates, properties, rights, and powers of such predecessor, and such predecessor shall duly assign, transfer, deliver, and pay over to such successor all money or other property then held by such predecessor hereunder. Any successor Security Agent shall be bound by all actions taken or omitted to be taken under the Operative Agreements by each predecessor Security Agent.

(3) Any successor institution acting as Security Agent, however appointed, shall be a bank or trust company that has a combined capital and surplus of at least $500,000,000, if such an institution is then willing, able, and legally qualified to perform the duties of Security Agent hereunder upon reasonable or customary terms.

(g) Notice of Default. If Security Agent obtains Actual Knowledge of a Default, Security Agent shall notify each Lender. Subject to Sections 4 of the Security Agreement and Section 11(h) hereof, Security Agent shall take such action, or refrain from taking such action, with respect to an Event of Default or Default (including with respect to the exercise of any rights or remedies hereunder) as Security Agent shall be instructed in writing by a Majority in Interest of the Lenders. If Security Agent does not receive instructions as above provided within twenty (20) days after delivering notice of such Event of Default to the relevant Lenders, Security Agent may (subject to instructions thereafter received pursuant to the preceding provisions of this Section 11(g)) take such action, or refrain from taking such action (but shall be under no duty to take or refrain from taking any action) with respect to such Event of Default as it determines to be advisable in the best interests of such Lenders; provided, that Security Agent may not sell the Collateral without the consent of all Lenders. Unless it has Actual Knowledge, Security Agent shall not be deemed to have knowledge of a Default or an Event of Default (except that Borrower’s failure to pay any installment of principal or interest within one Business Day after it becomes due shall constitute knowledge of a Default) unless notified in writing by Borrower or one or more Lenders.

(h) Instructions from a Majority in Interest of Lenders. Except as provided in Sections 4 and 6.1 of the Security Agreement, upon the written instructions at any time and from time to time of a Majority in Interest of the Lenders, Security Agent shall, in respect of an Aircraft and the transaction contemplated with respect thereto, take such of the following actions as shall be specified in such instructions: (a) give such notice or direction or exercise such right, remedy, or power under any of the Operative Agreements as shall be specified in such instructions, (b) approve as satisfactory to Security Agent all matters required by any of the Operative Agreements to be satisfactory to Security Agent, and (c) enter into any amendment, modification or supplement of any of the Operative Agreements or grant consents, waivers or approvals requested by Borrower under any of the Operative Agreements.

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(i) Reports, Notices, etc. Security Agent will furnish to each Lender, promptly upon receipt thereof, duplicates or copies of all reports, notices, requests, demands, certificates, and other instruments furnished by Borrower to Security Agent under any of the Operative Agreements.

12. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL

(a) THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY, AND PERFORMANCE.

(b) EACH PARTY HERETO HEREBY IRREVOCABLY AGREES, ACCEPTS, AND SUBMITS ITSELF TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN THE CITY AND COUNTY OF NEW YORK AND OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, IN CONNECTION WITH ANY LEGAL ACTION, SUIT, OR PROCEEDING WITH RESPECT TO ANY MATTER RELATING TO OR ARISING OUT OF OR IN CONNECTION WITH THE OPERATIVE AGREEMENTS.

(c) EACH PARTY HERETO HEREBY IRREVOCABLY CONSENTS AND AGREES TO THE SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES, AND DOCUMENTS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH SUIT, ACTION, OR PROCEEDING MAY BE MADE BY MAILING COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, AT THE ADDRESS SET FORTH PURSUANT TO SECTION 15(a). EACH PARTY HERETO HEREBY AGREES THAT SERVICE UPON IT, OR ANY OF ITS AGENTS, IN EACH CASE IN ACCORDANCE WITH THIS SECTION 12(c), SHALL CONSTITUTE VALID AND EFFECTIVE PERSONAL SERVICE UPON SUCH PARTY, AND EACH PARTY HERETO HEREBY AGREES THAT THE FAILURE OF ANY OF ITS AGENTS TO GIVE ANY NOTICE OF SUCH SERVICE TO ANY SUCH PARTY SHALL NOT IMPAIR OR AFFECT IN ANY WAY THE VALIDITY OF SUCH SERVICE ON SUCH PARTY OR ANY JUDGMENT RENDERED IN ANY ACTION OR PROCEEDING BASED THEREON.

(d) EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY LEGAL ACTION OR PROCEEDING BROUGHT HEREUNDER IN ANY OF THE ABOVE-NAMED COURTS, THAT SUCH ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT VENUE FOR THE ACTION OR PROCEEDING IS IMPROPER, OR THAT ANY OPERATIVE AGREEMENT MAY NOT BE ENFORCED IN OR BY SUCH COURTS.

(e) EACH PARTY HERETO HEREBY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION IN ANY COURT IN ANY JURISDICTION BASED UPON OR ARISING OUT OF OR RELATING TO THE OPERATIVE AGREEMENTS.

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13. INTENTIONALLY OMITTED

14. CONFIDENTIALITY

Each Lender, Borrower, Holdings and Security Agent shall keep confidential the terms of this Agreement and the Operative Agreements and all information furnished to them from time to time hereunder or thereunder (which is marked confidential) and shall not disclose, or cause to be disclosed, the same to any Person, except (a) to prospective and permitted Transferees of the interests of any Lender or such Transferees’ counsel, independent insurance brokers, auditors, or other agents who are under an obligation of confidentiality with respect to such information or who otherwise agree to hold such information confidential, (b) to any Lender’s, Security Agent’s, Holdings’ or Borrower’s counsel, independent insurance brokers, auditors, or other agents, Affiliates, or investors who agree to hold such information confidential, (c) as may be required by any statute, court, or administrative order or decree, legal process, or governmental ruling or regulation, including those of any applicable regulatory authority, federal or state banking examiners, taxing authorities, or any stock exchange, or (d) to such other Persons as are reasonably deemed necessary by the disclosing party in order to protect the interests of such party or for the purposes of enforcing such documents by such party; provided, that any and all disclosures permitted by clauses (c) and (d) above shall be made only to the extent reasonably deemed necessary to meet the specific requirements or needs of the Persons making such disclosures.

15. MISCELLANEOUS

(a) Notices. Unless otherwise expressly permitted by the terms hereof, all notices, requests, demands, authorizations, directions, consents, waivers, and other communications required or permitted to be made, given, furnished, or filed hereunder shall be in writing (and the specification of a writing in certain instances and not in others does not imply an intention that a writing is not required as to the latter), shall refer specifically to this Agreement, and shall be personally delivered, sent by fax or telecommunications transmission (which in either case provides written confirmation to the sender of its delivery), sent by registered mail or certified mail, return receipt requested, postage prepaid, or sent by next-business-day courier service, in each case to the address or fax number set forth for such party in Schedule 1, or to such other address or number as such party hereafter specifies by notice to the other parties hereto. Each such notice, request, demand, authorization, direction, consent, waiver, or other communication shall be effective when received or, if made, given, furnished, or filed by fax or telecommunication transmission, when confirmed.

(b) Survival. The indemnities and the representations and warranties (as and when made) in this Agreement shall survive the Transfer of any interest by any Lender in an Loan Certificate it holds, and the expiration or other termination of any Operative Document, except as expressly provided herein or therein.

(c) Amendments. No provision of this Agreement may be amended, supplemented, waived, modified, discharged, terminated, or otherwise varied orally, but only by an instrument in writing that specifically identifies the provision of this Agreement that it purports to amend, supplement, waive, modify, discharge, terminate, or otherwise vary and is signed by the party

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against whom the enforcement of the amendment, supplement, waiver, modification, discharge, termination, or variance is sought. Each such amendment, supplement, waiver, modification, discharge, termination, or variance shall be effective only in the specific instance and for the specific purpose for which it is given. No provision of this Agreement shall be varied or contradicted by oral communication, course of dealing or performance, or other manner not set forth in writing and signed by the party against whom enforcement of the same is sought.

(d) Severability. If any provision of this Agreement is held invalid, illegal, or unenforceable in any respect in any jurisdiction, then, to the extent permitted by Law, (a) the remainder of any affected provision (to the extent not invalid, illegal or unenforceable) and all other provisions hereof shall remain in full force and effect in such jurisdiction, and (b) such invalidity, illegality, or unenforceability shall not affect the validity, legality, or enforceability of such provision in any other jurisdiction. If, however, any Law pursuant to which any provision is held invalid, illegal, or unenforceable may be waived, the parties hereto hereby waive that Law to the full extent permitted, to the end that this Agreement shall be a valid and binding agreement in all respects, enforceable in accordance with its terms.

(e) Counterparts. This Agreement and any amendments, waivers, consents, or supplements hereto may be executed in any number of counterparts (or upon separate signature pages bound together into one or more counterparts), each fully-executed set of which shall be an original.

(f) No Waiver. No failure on the part of any party hereto to exercise, and no delay by any party hereto in exercising, any of its rights, powers, remedies, or privileges under this Agreement or otherwise available to it shall impair, prejudice, or waive any such right, power, remedy, or privilege or be construed as a waiver of any breach hereof or default hereunder or as an acquiescence therein, nor shall any single or partial exercise of any such right, power, remedy, or privilege preclude any other or further exercise thereof by it or the exercise of any other right, power, remedy, or privilege by it. No notice to or demand on any party hereto in any case shall, unless otherwise required under this Agreement, entitle such party to any other or further notice or demand in similar or other circumstances, or waive the rights of any party hereto to any other or further action in any circumstances without notice or demand.

(g) Third Party Beneficiaries. This Agreement is not intended to, and shall not, provide any Person not a party hereto (except the Persons referred to in Section 10 who are intended third-party beneficiaries of Section 10) with any rights of any nature whatsoever against any of the parties hereto, and no Person not a party hereto shall have any right, power, or privilege in respect of any party hereto, or have any benefit or interest, arising out of this Agreement.

(h) Entire Agreement. This Agreement, together with the other Operative Agreements, on and as of the date hereof, constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and all prior understandings or agreements, whether written or oral, among any of the parties hereto with respect to such subject matter are hereby superseded in their entireties.

(i) Further Assurances. Each party hereto shall execute, acknowledge, and deliver (or shall cause to be executed, acknowledged, and delivered) all such further agreements, instruments, certificates, or other documents, and shall do and cause to be done such further things, as any other party hereto reasonably requests in connection with the administration of, or to carry out more effectively the purposes of, or to assure and confirm better to such other party the rights and benefits to be provided under, this Agreement and the other Operative Agreements.

[Remainder of Page Intentionally Blank.]

38

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

AIRTRAN AIRWAYS, INC.,	NORDDEUTSCHE LANDESBANK GIROZENTRALE,
as Borrower	as Lender
By	By
Name:	Name:
Title:	Title:
	By
	Name:
	Title:
	HSH NORDBANK AG, NEW YORK BRANCH,
	as Lender
	By
	Name:
	Title:
	By
	Name:
	Title:
	HSH NORDBANK AG, NEW YORK BRANCH,
	as Security Agent
	By
	Name:
	Title:
	By
	Name:
	Title:

39

EXHIBIT A

FORM OF:

BORROWING NOTICE

HSH Nordbank AG, New York Branch

230 Park Avenue

New York, New York 10169-0005

Attn: Mr. Eric Dollman/ Ms. Sylvie Morvan

Borrowing Notice dated [                    ], 200[  ] (this “Notice”) by AirTran Airways, Inc. (“Borrower”).

Reference is made to the Credit Agreement, dated as of December 7, 2005 (as executed and delivered and as in effect from time to time, [and, prior to execution and delivery, the most recently circulated draft thereof,]* the “Credit Agreement”), among Borrower, each Lender identified on Schedule 1 hereto (collectively, the “Lenders”) and HSH Nordbank AG, New York Branch, as Security Agent for the Lenders (the “Security Agent”). Unless specified herein, terms defined in the Security Agreement, dated as of December 7, 2005 (as executed and delivered and as in effect from time to time, [and, prior to execution and delivery, the most recently circulated draft thereof,]^* the “Security Agreement”), between Borrower and Security Agent are used herein with the same meanings.

This Notice constitutes the notice required by Section 2(e) of the Credit Agreement. The Borrower hereby requests that each Lender pay the amount of its Commitment for the Advance which is due and payable on the Borrowing Date (defined below).

In connection with the foregoing, Borrower specifies the following information with respect to the Drawings requested hereby:

(A) Borrowing Date: [                        ]

(B) The amount of the Drawings to be made: [            ]

(C) Each Lender’s Commitment in respect of the Drawings is: [            ]

(D) The Aircraft to which such Drawings relate: [    ]. The Drawings are to be allocated among the Aircraft as set forth in Schedule 1 hereto.

* To be added to first drawing notice only.

Exh A-1

(E) Account information of Borrower:

Bank: ***

The Lenders and each of their permitted successors and assigns are intended third party beneficiaries of this Borrowing Notice.

[Borrower agrees to indemnify each Lender for, and to hold each Lender harmless from, any loss or expense (including any Break Loss) that such Lender may sustain or incur as a consequence of failure by the Borrower in making a borrowing after Borrower has given this Borrowing Notice requesting the same in accordance with the provisions of the Credit Agreement other than as a result of a breach by such Lender to make its Commitment available pursuant to Section 2(a) of the Credit Agreement.]*

This Notice is governed by the laws of the State of New York.

[Remainder of Page Intentionally Left Blank.]

* To be added to first drawing notice only.

*** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Page 4 of 9 pages containing information redacted pursuant to a request for confidential treatment.

Exh A-2

IN WITNESS WHEREOF, Borrower has caused this Notice to be duly executed by its officer thereunto duly authorized on the day and year first above written.

AIRTRAN AIRWAYS, INC.

By:

Name:

Title:

Exh A-3

SCHEDULE 1 TO BORROWING NOTICE

Aircraft MSN	Amount of Drawing	Attributable to [Lender 1]	Attributable to [Lender 2]
Total

Exh A-4

EXHIBIT B

FORM OF:

TRANSFER CERTIFICATE

[                    ] [    ], [        ]

AirTran Airways, Inc.

9955 AirTran Blvd.

Orlando, Florida 32827

Attn: General Counsel

HSH Nordbank AG, New York Branch

230 Park Avenue

New York, New York 10169-0005

Attn: Mr. Eric Dollman/ Ms. Sylvie Morvan

Re: Credit Agreement, dated December 7, 2005 (as amended, varied, novated or supplemented from time to time, the “Agreement”), by and among AirTran Airways, Inc., as Borrower (“Borrower”), each Lender identified in Schedule 1 to the Agreement as Lenders (“Lenders”) and HSH Nordbank AG, New York Branch, as Security Agent for the Lenders (the “Security Agent”).

This Transfer Certificate is being delivered to your attention pursuant to Section 9(a) of the Agreement in connection with Transferring Lender’s Transfer to Transferee of Loan Certificate No. [    ], dated [                    ] [    ], [        ], issued by Borrower (the “Loan Certificate”).

1. Terms defined in the Security Agreement, dated December 7, 2005, by and between Borrower and Security Agent shall, subject to any contrary indication herein, have the same meanings in this Transfer Certificate. The terms Transferring Lender, Transferee and Transfer Date are defined in the attached Schedule I hereto.

2. With effect from the Transfer Date, the Transferring Lender hereby Transfers to Transferee, and Transferee hereby assumes from Transferring Lender, all of Transferring Lender’s right, title and interest in and to, and all of its duties, liabilities and obligations arising on or before the Transfer Date under, the Loan Certificate.

3. Transferee hereby agrees, for the benefit of the Lenders, Borrower and Security Agent, that with effect from the Transfer Date, it will perform, in accordance with the terms of the Agreement and the other Operative Agreements, all duties, liabilities and obligations which by the terms hereof have been assumed by it, and hereby agrees to be bound by any and all consents, approvals, elections or other actions given, made or taken by Transferring Lender prior to the Transfer Date. With effect from the Transfer Date, Transferring Lender hereby releases the Lenders, Borrower and Security Agent from their respective duties, liabilities and obligations owing to Transferring Lender under the

Exh B-1

Agreement and all other Operative Agreements; provided, that such release is not intended to extinguish, and such release shall not be construed to extinguish, any such obligations, duties and liabilities existing on the Transfer Date, all of which shall survive such release and be performed directly to and for the benefit of Transferee.

4. Transferee hereby represents and warrants, and agrees for the benefit of the Lenders, Borrower and Security Agent, that:

a. No portion of the funds it uses to purchase, acquire and hold the Loan Certificate or any interest therein directly or indirectly constitutes, or may be deemed under the Code or ERISA or any rulings, regulations, or court decisions thereunder to constitute, the assets of any Plan.

b. It will not Transfer any Loan Certificate which it holds or any interest in, or represented by, any Loan Certificate which it holds unless the proposed Transferee thereof first provides Borrower with the following:

(1) a written representation and covenant that no portion of the funds it uses to purchase, acquire and hold such Loan Certificate or interest directly or indirectly constitutes, or may be deemed under the Code or ERISA or any rulings, regulations, or court decisions thereunder to constitute, the assets of any Plan; and

(2) a written covenant that it will not Transfer any Loan Certificate or any interest in, or represented by, any Loan Certificate unless the subsequent Transferee also makes the representation described in clause (1) above and agrees to comply with this clause (2).

c. It will not Transfer any Loan Certificate which it holds or any interest in, or represented by, any Loan Certificate which it holds in violation of the Securities Act or any applicable state or foreign securities Law.

5. Transferee and Transferring Lender hereby represent and warrant, and agree for the benefit of the Lenders, Borrower and Security Agent, that:

a. the Transfer of the Loan Certificate by Transferring Lender to Transferee does not violate the Securities Act or any applicable state or foreign securities Law; and

b. the Transfer of the Loan Certificate by Transferring Lender to Transferee complies with all of the requirements of Section 9(a) of the Agreement.

6. This Transfer Certificate and the rights, benefits and obligations of the parties under this Transfer Certificate shall be governed by and construed in accordance with the laws of the State of New York.

Exh B-2

IN WITNESS WHEREOF, each of the parties have executed this Transfer Certificate as of the date first written above.

[TRANSFERRING LENDER]

By:

Name:

Title:

[TRANSFEREE]

By:

Name:

Title:

Exh B-3

SCHEDULE I

TO

TRANSFER CERTIFICATE

1. Transferring Lender:

2. Transferee:

3. Transfer Date: The date on which the Transfer contemplated by this Transfer Certificate is evidenced by registration of such Transfer on the Loan Certificate Register

Address for Notices and Accounts of Transferee for purposes of Schedule 1 to Loan Agreement:

Address:                                                                  Account:

Exh B-4

SCHEDULE 1

ACCOUNTS; ADDRESSES

BORROWER
Address:	Account:
AirTran Airways, Inc.	***
9955 AirTran Blvd
Orlando, Florida 32827
Att: General Counsel
Tel: ***
Fax: ***
LENDERS
Address:	Account:

*** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Page 5 of 9 pages containing information redacted pursuant to a request for confidential treatment.

SCH 1-1

Norddeutsche Landesbank Girozentrale	***
Ship and Aircraft Finance Department
Contain Person: Claudia Ziemer/ Gerda Hollerer
Friedrichswall 10
30159 Hannover
Germany
Tel: ***
Fax: ***
HSH Nordbank AG, New York Branch	***
230 Park Avenue
New York, New York 10169-0005
Attn: Mr. Eric Dollman
Tel: ***
Email: ***
Attn: Ms. Sylvie Morvan
Tel: ***
Email: ***
SECURITY AGENT
Address:	Account:

*** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Page 6 of 9 pages containing information redacted pursuant to a request for confidential treatment.

SCH 1-2

HSH Nordbank AG, New York Branch	***
230 Park Avenue
New York, New York 10169-0005
Attn: Mr. Eric Dollman
Tel: ***
Email: ***
Attn: Ms. Sylvie Morvan
Tel: ***
Email: ***

*** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Page 7 of 9 pages containing information redacted pursuant to a request for confidential treatment.

SCH 1-3

SCHEDULE 2

COMMITMENTS

Lender	Participation Percentage	Maximum Commitment
HSH Nordbank AG, New York Branch	***	***
Norddeutsche Landesbank Girozentrale	***	***
Total	***	$65,000,000

The Participation Percentages set forth above are in respect of the Advances for the Aircraft that are not part of the Uncovered Aircraft. The Participation Percentages in respect of the Advances for the Uncovered Aircraft are as follows:

Lender		Participation Percentage
HSH Nordbank AG, New York Branch		***
Norddeutsche Landesbank Girozentrale	0.0%	***
Total		***

The Participation Percentages for the Aircraft that are not Uncovered Aircraft may be increased, as contemplated in Schedule 4 of the Credit Agreement, such that the Participation Percentage of each Lender in respect of such Aircraft is different from the Participation Percentage first specified above, provided however that at no time shall a Lender’s Maximum Commitment exceed such Lender’s Maximum Commitment specified above.

*** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Page 8 of 9 pages containing information redacted pursuant to a request for confidential treatment.

For the avoidance of doubt, NordLB is not liable to make any Advances in connection with Uncovered Aircraft, and its Participation Percentage for such Uncovered Aircraft shall be zero, as specified in Schedule 4.

SCH 2-1

SCHEDULE 3

AIRCRAFT; SCHEDULED DELIVERY MONTHS

Model	MSN	Scheduled Delivery Month
737-700	35788*	January 2007
737-700	35789*	February 2007
737-700	33931	March 2007
737-700	33932	April 2007
737-700	36073*	April 2007
737-700	33933	May 2007
737-700	33934	June 2007
737-700	36091*	June 2007
737-700	33935	July 2007
737-700	TBD*	July 2007
737-700	33936	August 2007
737-700	33937	September 2007
737-700	33938	October 2007
737-700	33939	November 2007
737-700	33940	December 2007
737-700	33941	January 2008
737-700	33942	February 2008
737-700	33943	March 2008
737-700	33944	April 2008

SCH 3-1

SCHEDULE 4

NON-DEFERRABLE ADVANCE PAYMENTS UNDER THE PURCHASE AGREEMENT

***

*** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Page 9 of 9 pages containing information redacted pursuant to a request for confidential treatment.

SCH 4-1

EX-10.40

EXHIBIT 10.40

CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE OMITTED CONFIDENTIAL INFORMATION APPEARS ON SIX (6) PAGES OF THIS EXHIBIT.

SECURITY AGREEMENT

dated as of December 7, 2005

between

AIRTRAN AIRWAYS, INC.,

Borrower

and

HSH NORDBANK AG, NEW YORK BRANCH,

Security Agent

Pre-Delivery Payment Financing for up to

Nineteen (19) Boeing model 737-7BD Aircraft

each to be equipped with

Two (2) CFM International model CFM56 engines

TABLE OF CONTENTS

1.	DEFINITIONS	5
2.	THE CERTIFICATES	5
2.1	FORM OF LOAN CERTIFICATES.	5
2.2	TERMS OF LOAN CERTIFICATES; DRAWINGS.	5
2.3	[INTENTIONALLY OMITTED.]	6
2.4	DISTRIBUTION OF FUNDS RECEIVED.	6
2.5	METHOD OF PAYMENT.	8
2.6	[INTENTIONALLY OMITTED].	9
2.7	REGISTRATION, TRANSFER AND EXCHANGE OF LOAN CERTIFICATES.	9
2.8	MUTILATED, DESTROYED, LOST OR STOLEN LOAN CERTIFICATES.	10
2.9	PAYMENT OF EXPENSES ON TRANSFER.	10
2.10	PREPAYMENT.	10
3.	EVENTS OF DEFAULT	11
4.	REMEDIES	13
4.1	GENERAL; ACCELERATION.	13
4.2	DISCONTINUANCE OF PROCEEDINGS.	14
4.3	WAIVER OF PAST DEFAULTS.	14
4.4	REMEDIES CUMULATIVE.	14
5.	INTENTIONALLY OMITTED	14
6.	SUPPLEMENTS AND AMENDMENTS TO THIS SECURITY AGREEMENT AND OTHER DOCUMENTS	14
6.1	INSTRUCTIONS OF A MAJORITY IN INTEREST OF LENDERS.	14
6.2	SECURITY AGENT PROTECTED.	15
7.	MISCELLANEOUS	15
7.1	TERMINATION OF SECURITY AGREEMENT.	15
7.2	NO LEGAL TITLE TO COLLATERAL IN HOLDERS.	16
7.3	SALE OF COLLATERAL BY SECURITY AGENT IS BINDING.	16
7.4	SECURITY AGREEMENT FOR BENEFIT OF SECURITY AGENT AND HOLDERS.	16
7.5	NO ACTION CONTRARY TO BORROWER’S RIGHTS; QUIET ENJOYMENT.	16
7.6	NOTICES.	16
7.7	SEVERABILITY.	16
7.8	NO ORAL MODIFICATIONS OR CONTINUING WAIVERS.	17
7.9	SUCCESSORS AND ASSIGNS.	17
7.10	HEADINGS.	17
7.11	NORMAL COMMERCIAL RELATIONS.	17
7.12	GOVERNING LAW; COUNTERPART FORM.	17
7.13	JURISDICTION.	17
7.14	WAIVER OF JURY TRIAL.	18

i

ANNEX A	DEFINITIONS
EXHIBIT A	Form of Loan Certificate
SCHEDULE 1	Purchase Agreement Reserved Provisions
SCHEDULE 2	GTA Reserved Provisions

ii

SECURITY AGREEMENT

THIS SECURITY AGREEMENT, dated as of December 7, 2005 (this “Security Agreement”), is by and between AIRTRAN AIRWAYS, INC. (the “Borrower”) and HSH NORDBANK AG, NEW YORK BRANCH, not in its individual capacity, except as expressly stated herein, but solely as Security Agent for the Lenders (together with its successors hereunder in such capacity, the “Security Agent”).

RECITALS:

WHEREAS, Borrower desires by this Security Agreement, among other things (i) to provide for the issuance by Borrower to the Lenders of Loan Certificates evidencing participation by the Lenders in the secured loans as provided in the Credit Agreement made with respect to each Advance, and (ii) to provide for the assignment, mortgage and pledge by Borrower to Security Agent, as the Collateral hereunder, among other things, certain of Borrower’s right, title and interest in and to the Purchase Agreement and the GTA, as security for, among other things, Borrower’s obligations to the Lenders;

WHEREAS, all things have been done to make the Loan Certificates, when executed by Borrower and issued and delivered hereunder, the valid, binding and enforceable obligations of Borrower; and

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

GRANTING CLAUSE:

NOW, THEREFORE, THIS SECURITY AGREEMENT WITNESSETH, that, to secure the prompt payment of the principal amount of, interest on, Break Loss on, and all other amounts due with respect to all Loan Certificates and to secure Borrower’s performance and observance of all the agreements, covenants, and provisions herein, for the benefit of the Lenders, and in consideration of the premises and of the covenants herein, and of the acceptance of the Loan Certificates by the holders thereof, and for other good and valuable consideration the receipt and adequacy whereof are hereby acknowledged, Borrower hereby grants, bargains, sells, assigns, transfers, conveys, mortgages and pledges to Security Agent (and its successors in trust and assigns), for the security and benefit of the Lenders, a security interest in and Lien on all Borrower’s right, title and interest in, to, and under the following described property, rights, and privileges, whether now existing or hereafter acquired (which, collectively, together with all property hereafter specifically subject to the Lien of this Security Agreement by the terms hereof or any supplement hereto, are included within, and are referred to as, the “Collateral”):

(1) The Purchase Agreement, including, without limitation, (i) the right to purchase each of the Aircraft pursuant to and in accordance with the Purchase Agreement

1

upon valid tender by Airframe Manufacturer; (ii) all claims for damages in respect of each of the Aircraft arising as a result of any default by Airframe Manufacturer under the Purchase Agreement or by any vendor or other supplier of components or other parts or equipment installed on or in any of the Aircraft referred to therein, including, without limitation, all warranty, service life policy and indemnity provisions contained in the Purchase Agreement and all claims thereunder; (iii) any and all rights of Borrower to compel performance of the terms of the Purchase Agreement in respect of the Aircraft; and (iv) any and all rights to receive any credits, refunds, rebates or other discounts due to Borrower with respect to the purchase price of the Aircraft (and the Engines) pursuant to the Purchase Agreement (except to the extent specifically excluded by the terms of the Operative Documents), together with all rights, powers, privileges, options and other benefits of Borrower in respect thereof, including, without limitation, the right to make all waivers and agreements, to give and receive all notices and other instruments or communications, and to take such action upon the occurrence of a default in respect of such provisions, including the commencement, conduct and consummation of legal, administrative or other proceedings, as shall be permitted thereby or by law, and to do any and all other things which Borrower is or may be entitled to do in respect of such provisions;

(2) Subject to the terms and conditions of the Engine Consent and Agreement, the GTA, including, without limitation, (i) all claims for damages in respect of each of the Engines arising as a result of any default by the Engine Manufacturer under the GTA or by any vendor or other supplier of components or other parts or equipment installed on or in any of the Engines referred to therein, including, without limitation, all warranty and indemnity provisions contained in the GTA and all claims thereunder; and (ii) any and all rights of Borrower to compel performance of the terms of the GTA in respect of the Engines, together with all rights, powers, privileges, options and other benefits of Borrower in respect thereof, including, without limitation, the right to make all waivers and agreements, to give and receive all notices and other instruments or communications, and to take such action upon the occurrence of a default in respect of such provisions, including the commencement, conduct and consummation of legal, administrative or other proceedings, as shall be permitted thereby or by law, and to do any and all other things which Borrower is or may be entitled to do in respect of such provisions;

(3) all payments or proceeds payable to Borrower with respect to either the Purchase Agreement or the GTA in respect of the Aircraft and/or the Engines or any part thereof as the result of the sale or other disposition thereof, and all estate, right, title and interest of every nature whatsoever of Borrower in and to the same and every part thereof;

(4) all monies and securities deposited or required to be deposited with Security Agent pursuant to any term of this Security Agreement or required to be held by Security Agent hereunder; and

(5) all proceeds of the foregoing.

2

Any and all properties referred to in this Granting Clause which are hereafter acquired by Borrower, shall, without further conveyance, assignment or act by Borrower or Security Agent thereby become and be subject to the security interest hereby granted as fully and completely as though specifically described herein. Anything in this Security Agreement to the contrary notwithstanding, the following rights with respect to the Purchase Agreement and the GTA are reserved to and retained by Borrower and not assigned hereby or subjected to any Lien or security interest hereunder:

(i) all rights and interests in and to the Purchase Agreement and the GTA as and to the extent the same relate to aircraft and engines other than the Aircraft and the Engines, or to any other matters not pertaining to the Aircraft or the Engines,

(ii) the rights to demand, accept and retain all rights in and to property, data, services, product support and other agreements of Airframe Manufacturer and/or Engine Manufacturer related to the Aircraft and Engines under the Purchase Agreement or the GTA, which are (1) made available to Borrower based on the number of aircraft and engines purchased by Borrower thereunder; and/or (2) available for the benefit of Borrower only during such times that AirTran is the owner or operator of the Aircraft or the Engines,

(iii) the rights to obtain services and training pursuant to the Purchase Agreement or the GTA,

(iv) any and all rights to receive the allowance due to Borrower pursuant to the GTA, and

(v) all rights, powers and privileges set forth in the Reserved Provisions.

Anything in this Security Agreement to the contrary notwithstanding:

(1) Borrower shall at all times remain liable (A) to Airframe Manufacturer to perform all the duties and obligations of “Customer” under the Purchase Agreement, and (B) to Engine Manufacturer to perform all the duties and obligations of “Airline” under the GTA, in each case to the same extent as if this Security Agreement had not been executed;

(2) Security Agent’s exercise of any of the rights assigned hereunder shall not release Borrower from any of its duties or obligations to Airframe Manufacturer under the Purchase Agreement or to Engine Manufacturer under the GTA, except to the extent that such exercise constitutes performance of such duties and obligations; and

(3) except as provided in the next paragraph, neither Security Agent nor any Lender shall have any obligation or liability under the Purchase Agreement or the GTA by reason of, or arising out of, this Security Agreement, or be obligated to perform any of Borrower’s obligations or duties under the Purchase Agreement or the GTA, or to make any payment thereunder, or to make any inquiry as to the sufficiency of any payment received by any of them, or to present or file any claim or to take any other action to collect or enforce any claim for any payment assigned under this Security Agreement.

3

Notwithstanding anything to the contrary in this Security Agreement, the Consent and Agreement or the Engine Consent and Agreement, but without in any way releasing Borrower from any of its duties or obligations under the Purchase Agreement, the GTA, or this Security Agreement, Security Agent confirms for the benefit of Airframe Manufacturer and Engine Manufacturer that, insofar as the provisions of the Purchase Agreement or the GTA relate to the Aircraft or the Engines (respectively), in exercising any rights under the Purchase Agreement or under the GTA, or in making any claim with respect to the Aircraft, Engines or other goods and services delivered or to be delivered pursuant to the Purchase Agreement or the GTA, the terms and conditions thereof (including warranty disclaimers, liability exclusions, indemnity, and insurance) shall apply to and bind Security Agent to the same extent as Borrower. At Borrower’s cost and expense, Security Agent further agrees, expressly for the benefit of Airframe Manufacturer and Engine Manufacturer, that upon the written request of Airframe Manufacturer or Engine Manufacturer, Security Agent will promptly execute and deliver such further assurances and documents and take such further action as Airframe Manufacturer or Engine Manufacturer reasonably requests in order to obtain the full benefits of Security Agent’s agreements in this paragraph. Except as provided in the Consent and Agreement and the Engine Consent and Agreement, Borrower and Security Agent understand and acknowledge that no further assignment of the Purchase Agreement or GTA, including, without limitation, assignments for security purposes, are permitted without the express written consent of Airframe Manufacturer or Engine Manufacturer (as the case may be).

Notwithstanding any of the foregoing provisions of this Granting Clause, but subject to the express provisions of the other articles of this Security Agreement, so long as Security Agent has not commenced the exercise of remedies under Section 4 hereof, Borrower shall have the right, to the exclusion of Security Agent and any others claiming by, through or under Security Agent, to exercise in Borrower’s name all rights and powers of (x) the “Customer” with respect to the Aircraft under the Purchase Agreement and (y) the “Airline” with respect to the Engines under the GTA, provided, that, Borrower may not enter into any amendment, modification or supplement to either Purchase Agreement or the GTA to the extent related to the Aircraft or any right assigned hereunder without the written consent of Security Agent if such amendment, modification or supplement would (1) result in a change to the configuration and/or specification of an Aircraft (other than by reason of modification to such Aircraft required by the FAA) that increases the purchase price thereof unless Borrower, at the time of such amendment, modification or supplement, pays the amount of such increase to Airframe Manufacturer as an additional advance payment under the Purchase Agreement, or (2) diminish (other than in any de minimis respect) the rights assigned hereunder to Security Agent.

HABENDUM CLAUSE:

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

4

Borrower hereby constitutes Security Agent the true and lawful attorney of Borrower, irrevocably, granted for good and valuable consideration and coupled with an interest and with full power of substitution, and with full power (in the name of Borrower or otherwise) to ask for, require, demand, receive, compound, and give acquittance for any and all money and claims for money due and to become due under or arising out of the Purchase Agreement and the GTA, and all other property which now or hereafter constitutes part of the Collateral, to endorse any checks or other instruments or orders in connection therewith, and to file any claims or to take any action or to institute any proceedings that Security Agent deems reasonably necessary; provided, that Security Agent shall not exercise any such rights except during the existence of an Event of Default. Upon Security Agent’s written request, Borrower will promptly and duly execute and deliver (or cause to be duly executed and delivered) any and all such further instruments and documents (including UCC continuation statements) as Security Agent shall reasonably request to perfect, preserve, or protect the mortgage, security interests, and assignments created or intended to be created hereby, or to obtain for Security Agent the full benefits of the mortgage, pledge and assignment hereunder and of the rights and powers herein granted.

Borrower hereby represents and warrants that (except as permitted herein) it has not assigned or pledged any of its right, title and interest hereby assigned to Security Agent.

Borrower, Agent and Security Agent further agree as follows:

1. DEFINITIONS

The terms defined in Annex A, when capitalized as in Annex A, have the same meanings when used in this Security Agreement. Annex A also contains rules of usage that control construction in this Security Agreement.

2. THE CERTIFICATES

2.1 Form of Loan Certificates.

The Loan Certificates shall be substantially in the form of Exhibit A.

2.2 Terms of Loan Certificates; Drawings.

(a) On the Effective Date, Borrower shall issue a Loan Certificate to each Lender in an aggregate original principal amount equal to such Lender’s Maximum Commitment. Borrower shall be entitled to make Drawings under each Loan Certificate in accordance with Section 2(a) of the Credit Agreement.

(b) Each Loan Certificate shall bear interest on the unpaid principal amount of Drawings made thereunder from time to time outstanding from and including the date thereof until such principal amount is paid in full. Such interest shall accrue with respect to each Interest Period at the Applicable Rate in effect for such Interest Period and shall be payable in arrears on each Interest Payment Date and on the date such Loan Certificate is paid in full. Interest hereunder and under the Loan Certificates shall be calculated on the basis of a year of 360 days and actual number of days elapsed. If any sum payable under the Loan Certificates or under this Security Agreement falls due on a day which is not a Business Day, then such sum shall be

5

payable on the next succeeding Business Day; provided that, in the case of principal of and interest on the Loan Certificates payable on a Interest Payment Date, if by virtue of such extension such payment would fall in the next succeeding month, such sum shall be payable on the next preceding Business Day. Notwithstanding any provisions in the Operative Agreements to the contrary, if the Interest Period in respect of Drawings relating to an Aircraft is scheduled to commence on a date that is less than one (1) month prior to the scheduled Delivery Date of the Aircraft to which such Drawing(s) relates, Borrower, upon written notice to Security Agent given by Borrower within five (5) Business Days prior to the commencement of such Interest Period, may designate that, for purposes of such Drawings, the Applicable Rate shall be calculated at rate per annum equal to Cost of Funds.

(c) The principal amount of Drawings relating to an Aircraft, together with all accrued and unpaid interest thereon and any Break Loss, made under each Loan Certificate shall be due and payable in full upon the earlier of (1) the Delivery Date of the Aircraft to which such Drawings relates, (2) the last day of the third (3^rd) calendar month following the Scheduled Delivery Month of the Aircraft to which such Drawings relates and (3) April 30, 2008 (with the earliest of these dates being the related “Maturity Date”). Borrower may not delay the delivery of an Aircraft beyond the last day of the third (3^rd) calendar month following the Scheduled Delivery Month for such Aircraft without the prior written consent of Security Agent. If Security Agent so provides its written consent in respect of a delay in delivery of an Aircraft as aforesaid, then the Maturity Date in respect of the Drawings to which such Aircraft relates shall extend to the earlier of (1) the Delivery Date for such Aircraft and (2) the date agreed to by Security Agent.

(d) Each Loan Certificate shall bear interest at the Past Due Rate on any unpaid principal amount of Drawings made thereunder and, to the extent permitted by applicable law, interest (other than interest accrued at the Past Due Rate) and other amounts due thereunder and hereunder, not paid when due (whether at stated maturity, by acceleration or otherwise), for any period during which the same shall be overdue, payable on demand by the respective Lender given through Security Agent.

(e) The Loan Certificates shall be executed on behalf of Borrower by one of its authorized officers. Loan Certificates bearing the signatures of individuals who were at any time the proper officers of Borrower shall bind Borrower, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the delivery of such Loan Certificates or did not hold such offices at the respective dates of such Loan Certificates. No Loan Certificates shall be issued hereunder except those provided for in Section 2.2(a) and any Loan Certificates issued in exchange or replacement therefor pursuant to the terms of this Security Agreement.

2.3 [Intentionally Omitted.]

2.4 Distribution of Funds Received.

(a) All amounts payable hereunder shall be paid to Paying Agent into the account specified for Paying Agent pursuant to the Paying Agent Agreement (the “Payment Account”).

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(b) Provided that no Event of Default has occurred and is then continuing, each installment of interest payable on the Loan Certificates shall be distributed as promptly as possible on or after the date that such amount is deposited in the Payment Account and becomes immediately available to Paying Agent to the Lenders ratably, without priority of one over the other, to the payment in full of the aggregate amount of interest due under the Loan Certificates in an amount equal to (i) accrued interest at the rate provided in each Loan Certificate, and (ii) any overdue interest thereon.

(c) Provided that no Event of Default has occurred and is then continuing, each payment made by Borrower as repayment of Drawings relating to an Aircraft upon the Maturity Date thereof shall be distributed as promptly as possible on or after the date that such amount is deposited in the Payment Account and becomes immediately available to Paying Agent:

FIRST, to the Lenders ratably, without priority of one over the other, to the payment in full of the aggregate amount of interest due under the Loan Certificates in respect of the Drawings being repaid in an amount equal to (i) accrued interest at the rate provided in each Loan Certificate, and (ii) any overdue interest thereon plus the Break Loss, if any, due to the Lenders in respect of such payment; and

SECOND, to the Lenders ratably, without priority of one over the other, to the payment in full of the unpaid principal amount of Drawings which are being repaid.

(d) Upon any partial optional repayment of the Loan Certificates pursuant to Section 2.10(a) hereof, the amount paid by Borrower shall be applied against the amounts which Borrower is obligated to pay in connection with such prepayment pursuant to Section 2.10(a) (it being understood that no prepayment shall be permitted under Section 2.10(a) unless Borrower pays a sufficient amount to satisfy the amounts owed by it under Section 2.10(a) in connection with such prepayment).

(e) After an Event of Default shall have occurred, and so long as such Event of Default shall be continuing, all amounts deposited in the Payment Account and all proceeds resulting from a sale of any of the Collateral shall be applied in the following order of priority:

FIRST, to the extent not theretofore paid by or on behalf of Borrower, to pay all costs and expenses of Security Agent incurred in connection with the performance of its duties hereunder or under any other Operative Agreement, including reasonable attorneys’ fees and expenses and all costs and expenses incurred by Security Agent in connection with its entering upon, taking possession of, holding, operating, managing, selling or otherwise disposing of the Collateral or any part thereof, any and all Taxes, assessments or other charges of any kind prior to the Lien of any Operative Agreement that Security Agent determined in good faith to pay or be paid, and all amounts payable to Security Agent hereunder or under any of the Operative Agreements in respect of any indemnities or other obligations of Borrower;

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SECOND, to the Lenders ratably, without priority of one over the other, to the payment of all accrued and unpaid interest on, all of the Loan Certificates (including Break Loss, if any, and interest on account of overdue payments of principal and interest) then due the Lenders under the Credit Agreement or any of the Loan Certificates and any costs, fees and expenses that are payable to the Lenders under the Credit Agreement or any of the Loan Certificates;

THIRD, to the Lenders ratably, without priority of one over the other, to the payment of the unpaid principal amount of Drawings made under all of the Loan Certificates; and

FOURTH, the balance, if any, thereof thereafter remaining, to Borrower or such other Person(s) as may then lawfully be entitled thereto.

2.5 Method of Payment.

The principal amount of, interest on, and other amount due under each Loan Certificate or hereunder will be payable in Dollars by wire transfer of immediately available funds not later than 11:00 a.m., New York time, on the due date of payment to Paying Agent for distribution in the manner provided herein (any payment received after such time being deemed received on the next following Business Day). Subject to receipt of the funds by Paying Agent as outlined above, Paying Agent will pay or cause to be paid all amounts to be paid by Borrower hereunder and under any Loan Certificate to the holder thereof (including all amounts distributed pursuant to Section 2.4 of this Security Agreement) by transferring, or causing to be transferred, by wire transfer of immediately available funds in Dollars to an account nominated by such holder. If Paying Agent fails to initiate the transfer by federal wire transfer of any such payment as provided in the foregoing sentence after its receipt of funds at the place and before the time specified above by reason of its failure to use ordinary care, Paying Agent shall compensate such holders for loss of use of funds at the Applicable Rate until such payment is made, and Paying Agent shall be entitled to any interest earned on such funds until such payment is made. Any payment made hereunder shall be made without any presentment or surrender of any Loan Certificate, except that, in the case of the final payment in respect of any Loan Certificate, such Loan Certificate shall be surrendered to Paying Agent for cancellation promptly after such payment. Notwithstanding any other provision of this Security Agreement to the contrary, Paying Agent shall not be required to make, or cause to be made, wire transfers as aforesaid before the first Business Day on which it is practicable for Paying Agent to do so in view of the time of day when the funds to be so transferred were received by it if such funds were received after 2:00 p.m., New York time, at the place of payment. Before the due presentment for registration of transfer of any Loan Certificate, Borrower, Paying Agent and Security Agent shall deem and treat the Person in whose name any Loan Certificate is registered on the Certificate Register as the absolute owner and holder of such Loan Certificate for the purpose of receiving payment of all amounts payable with respect to such Loan Certificate and for all other purposes, and neither Borrower, Paying Agent nor Security Agent shall be affected by any notice to the contrary. So long as any signatory to the Credit Agreement or nominee thereof shall be a registered Lender, all payments to it shall be made to the account of such Lender specified in Schedule 1 of the Credit Agreement, and otherwise in the manner provided in or pursuant to the Credit Agreement, unless and until it specifies some other account or manner of payment by notice to Paying Agent consistent with this Section 2.5.

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2.6 [Intentionally Omitted].

2.7 Registration, Transfer and Exchange of Loan Certificates.

Security Agent shall keep a register (the “Certificate Register”) in which Security Agent shall provide for the registration of Loan Certificates and the registration of transfers of Loan Certificates. No such transfer shall be given effect unless and until registered hereunder. Security Agent is hereby appointed “Certificate Registrar” for the purpose of registering Loan Certificates and transfers of Loan Certificates as herein provided. A holder of any Loan Certificate intending to exchange such Loan Certificate shall surrender such Loan Certificate to Security Agent, together with a written request from the registered holder thereof for the issuance of a new Loan Certificate, specifying (in the case of a surrender for transfer) the name(s) and address(es) of the new holder(s). Upon surrender for registration of transfer of any Loan Certificate, Borrower shall execute, and Security Agent shall authenticate and deliver, in the name(s) of the designated transferee(s), one or more new Loan Certificate of a like aggregate original principal amount At the Lender’s option, Loan Certificates may be exchanged for other Loan Certificates of any authorized denominations of a like aggregate original principal amount, upon surrender of the Loan Certificates to be exchanged to Security Agent. Whenever any Loan Certificates are so surrendered for exchange, Borrower shall execute, and Security Agent shall authenticate and deliver, the Loan Certificates which the Lender making the exchange is entitled to receive. All Loan Certificates issued upon any registration of transfer or exchange of Loan Certificates (whether under this Section 2.7 or under Section 2.8 or otherwise under this Security Agreement) shall be the valid obligations of Borrower evidencing the same respective obligations, and entitled to the same security and benefits under this Security Agreement, as the Loan Certificates surrendered upon such registration of transfer or exchange. Every Loan Certificate presented or surrendered for registration of transfer, shall (if so required by Security Agent) be duly endorsed, or be accompanied by a Transfer Certificate in form satisfactory to Security Agent duly executed by the Lender or such holder’s attorney duly authorized in writing. Security Agent shall make a notation on each new Loan Certificate of the amount of principal amounts of Drawings previously made under, and the payments of principal previously made, on the old Loan Certificate or Loan Certificates with respect to which such new Loan Certificate is issued and the date to which interest on such old Loan Certificate or Loan Certificates has been paid. Interest shall be deemed to have been paid on such new Loan Certificate to the date on which interest shall have been paid on such old Loan Certificate, and the principal amounts of Drawings and all payments of the principal marked on such new Loan Certificate, as provided above, shall be deemed to have been made thereon. Borrower shall not be required to exchange any surrendered Loan Certificates as provided above during the 10-day period preceding the due date of any payment on such Loan Certificate. Borrower shall in all cases deem the Person in whose name any Loan Certificate shall have been issued and registered as the absolute owner and holder of such Loan Certificate for the purpose of receiving payment of all amounts payable by Borrower with respect to such Loan Certificate, and for all other purposes, until Borrower receives from Security Agent a notice stating otherwise and such change is reflected on the Certificate Register. Security Agent will promptly notify Borrower of each registration of a transfer of a Loan Certificate. Any such transferee of a Loan Certificate, by its acceptance of a

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Loan Certificate, agrees to the provisions of this Security Agreement and the Credit Agreement applicable to Lenders and shall be deemed to have covenanted to the parties to the Credit Agreement as to the matters covenanted by the original Lender in the Credit Agreement. Subject to compliance by the Lender and its transferee (if any) of the requirements in this Section 2.6, Security Agent and Borrower shall use all reasonable efforts to issue new Loan Certificates upon transfer or exchange within ten (10) Business Days of the date a Loan Certificate is surrendered for transfer or exchange.

2.8 Mutilated, Destroyed, Lost or Stolen Loan Certificates.

If any Loan Certificate shall become mutilated, destroyed, lost, or stolen, upon the written request of the holder of such Loan Certificate, Borrower shall execute, and Security Agent shall authenticate and deliver, in replacement thereof, a new Loan Certificate of a like aggregate original principal amount and Series, dated the same date, and captioned as issued in connection with the Aircraft. If the Loan Certificate being replaced has become mutilated, such Loan Certificate shall be surrendered to Security Agent and a photocopy thereof shall be furnished to Borrower. If the Loan Certificate being replaced has been destroyed, lost, or stolen, the holder of such Loan Certificate shall furnish to Borrower and Security Agent (a) such security or indemnity as they require to save Borrower and Security Agent harmless, and (b) evidence satisfactory to Borrower and Security Agent of the destruction, loss, or theft of such Loan Certificate and of the ownership thereof. If a “qualified institutional buyer” of the type referred to in paragraph (a)(1)(i)(A), (B), (D), or (E) of Rule 144A under the Securities Act (a “QIB”) is the holder of any such destroyed, lost, or stolen Loan Certificate, then the written indemnity of such QIB, signed by an authorized officer thereof, in favor of, delivered to, and in form reasonably satisfactory to Borrower shall be accepted as satisfactory indemnity and security, and no further indemnity or security shall be required as a condition to the execution and delivery of such new Loan Certificate. Subject to the Lender’s compliance with the requirements in this Section 2.8, Security Agent and Borrower shall use all reasonable efforts to issue new Loan Certificates within ten (10) Business Days after receiving the Lender’s written request therefor.

2.9 Payment of Expenses on Transfer.

(a) No service charge shall be made to a Lender for any registration of transfer or exchange of Loan Certificates, but Security Agent, as Certificate Registrar, may require payment from any such Lender of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Loan Certificates.

(b) Security Agent shall cancel all Loan Certificates surrendered for replacement, redemption, transfer, exchange, payment, or cancellation, and shall destroy the cancelled Loan Certificates.

2.10 Prepayment.

(a) Borrower may prepay all or any part of the unpaid principal amount of Drawings made under any of the Loan Certificates upon at least five (5) Business Days’ prior written notice to Security Agent and the Lenders. The Loan Certificates shall be prepaid in whole or in

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part without penalty or premium (except as provided below) together with accrued interest on the amount to be prepaid; provided, except in the case of a prepayment of Loan Certificates with respect to which Indemnified Withholding Taxes are then payable by Borrower pursuant to Section 10(c) of the Credit Agreement, Borrower may not prepay an aggregate unpaid principal amount of less than One Million Dollars ($1,000,000); and provided, further, that notwithstanding anything to the contrary in this Security Agreement, the proceeds of any partial prepayment shall be distributed by Paying Agent to the Lenders ratably, except in the case of a prepayment of Loan Certificates with respect to which Indemnified Withholding Taxes are then payable by Borrower pursuant to Section 10(c) of the Credit Agreement, in which case the proceeds of such prepayment shall be distributed to the Lender or Lenders of the Loan Certificates to which such Indemnified Withholding Taxes relate. If a prepayment date is not a Payment Date, the prepayment price shall be increased by the amount of any Break Loss associated with any such prepayment.

(b) Within ten (10) days’ of the occurrence of any of the events described in clauses (1), (2), (3) or (4) below, Borrower shall prepay on the date specified in its notice of prepayment delivered pursuant to paragraph (c) below the unpaid principal amount of Drawings made under the Loan Certificates in full, but not in part, together with accrued interest thereon to the date of prepayment and all other amounts due thereunder and hereunder and under the other Operative Agreements to Paying Agent: (1) upon the termination or cancellation by Borrower and/or Airframe Manufacturer of, or the release by Airframe Manufacturer of Borrower’s obligations under, the Purchase Agreement in respect of the Aircraft to which such Drawings relate; (2) upon the rendering as illegal any material provisions of the Credit Agreement or this Security Agreement; (3) if Borrower and Airframe Manufacturer shall amend or modify the Back-Stop Letter in any manner which reduces the amount of financing available thereunder in respect of the Aircraft to which such Drawings relate or adversely affects in any material respects the conditions precedent to Borrower’s ability to make drawings thereunder in respect of the Aircraft to which such Drawings relate, without Security Agent’s prior written consent; or (4) upon the termination by Borrower and Airframe Manufacturer of the Back-Stop Letter in respect of the Aircraft to which such Drawings relate, without Security Agent’s prior written consent. The Security Agent will give notice of prepayment to the relevant Lenders under this Section 2.10(b) promptly. If a prepayment under this Section 2.10(b) is not made on an Interest Payment Date, Borrower shall pay, in addition to the amounts described above, any Break Loss associated with any such prepayment.

3. EVENTS OF DEFAULT

“Event of Default” means any of the following events:

(a) Borrower fails to pay (1) principal of and, interest on, any Loan Certificate when due, and such failure shall continue unremedied for a period of five (5) Business Days, or (2) any other amount payable by it to Security Agent or the Lenders under this Security Agreement or the Loan Agreement when due, and such failure continues for a period in excess of ten (10) Business Days after Borrower has received written notice from Security Agent of the failure to make such payment when due;

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(b) Borrower or Holdings fails to observe or perform (or caused to be observed and performed) in any material respect any other covenant, agreement, or obligation of Borrower or Holdings in any Operative Agreement, and such failure continues unremedied for a period of thirty (30) days from and after the date Borrower receives written notice thereof from Security Agent;

(c) any representation or warranty made by Borrower or Holdings in any Operative Agreement proves to have been untrue or inaccurate in any material respect as of the date made, is material at the time in question, and, is capable of being cured and remains uncured (to the extent of the adverse impact of such incorrectness on the interest of Security Agent or any Lender) for a period in excess of thirty (30) days from and after the date of written notice thereof from Security Agent to Borrower or Holdings;

(d) Borrower or Holdings consents to the appointment of or taking possession by a receiver, trustee, or liquidator of itself or of a substantial part of its property, or Borrower or Holdings admits in writing its inability to pay its debts generally as they come due or makes a general assignment for the benefit of its creditors, or Borrower or Holdings files a voluntary petition in bankruptcy or a voluntary petition or an answer seeking reorganization, liquidation, or other relief as debtor 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 Borrower seeks relief as debtor 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 Borrower or Holdings seeks an agreement, composition, extension, or adjustment with its creditors under such laws;

(e) an order, judgment, or decree is entered by any court of competent jurisdiction appointing, without Borrower’s or Holding’s consent, a receiver, trustee, or liquidator of Borrower or Holdings or of all or substantially all of its property, or all or substantially all of the property of Borrower or Holdings is sequestered, or any other relief in respect of Borrower or Holdings as a debtor is granted 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 remains in force undismissed, unstayed, and unvacated for a period of ninety (90) days after the date of entry thereof;

(f) a petition against Borrower or Holdings 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 ninety (90) days thereafter, or if, under the provisions of any Law providing for reorganization or winding-up of corporations that applies to Borrower or Holdings, any court of competent jurisdiction assumes jurisdiction, custody, or control of Borrower or Holdings or of substantially all of the property of Borrower or Holdings, and such jurisdiction, custody, or control remains in force unrelinquished, unstayed, and unterminated for a period of 90 days;

(g) except as provided in Section 7.1 hereof, the Lien of this Security Agreement shall cease to exist or cease to be duly perfected (in either case) for a period of more than ten (10) Business Days, unless such circumstance is not capable of being cured, in which case the Event of Default shall arise on the date on which circumstance occurred; or

(h) Borrower shall suffer the loss or suspension of its air carrier operating certificate for a period of 30 days or more.

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4. REMEDIES

4.1 General; Acceleration.

(a) If an Event of Default shall have occurred and be continuing, then and in every such case, Security Agent may exercise any or all of the rights and powers and pursue any and all of the remedies pursuant to this Section 4, and shall have and may exercise all of the rights and remedies of a secured party under the Uniform Commercial Code, including, without limitation, the right to purchase the Aircraft from Airframe Manufacturer (subject to the Consent and Agreement).

(b) If an Event of Default referred to in Subsections (d), (e) or (f) of Section 3 shall have occurred, then and in every such case all unfunded Commitments shall be terminated, the unpaid principal amount of Drawings made under all Loan Certificates then outstanding, together with interest accrued but unpaid thereon, and all other amounts due to the holders of the Loan Certificates thereunder and hereunder and under the other Operative Agreements, shall, unless Security Agent acting upon the instructions of the Majority in Interest of Lenders shall otherwise direct, immediately and without further act become due and payable, without presentment, demand, protest or notice, all of which are hereby waived.

(c) If any other Event of Default shall have occurred and be continuing, then and in every such case, Security Agent may at any time, by written notice or notices to Borrower, (i) terminate all unfunded Commitments and/or (ii) declare all the Loan Certificates to be due and payable, whereupon the unpaid principal amount of Drawings made under all Loan Certificates then outstanding, together with accrued but unpaid interest thereon, and all other amounts due to the Lenders thereunder, hereunder and under the other Operative Agreements, shall immediately and without further act become due and payable without presentment, demand, protest or other notice, all of which are hereby waived.

(d) If the unpaid principal amount of Drawings made under the Loan Certificates shall have become due and payable pursuant to this Section 4.1, there shall also become due and payable to each Lender upon demand, without presentment, protest or notice, all of which are hereby waived, the Break Loss (if any) therefor.

(e) The Security Agent agrees to give to Borrower at least ten (10) days’ prior written revocable notice of any foreclosure of the Lien of this Security Agreement, or of any other action to cause Borrower to lose its rights under either the Purchase Agreement or the GTA (which period of notice the parties hereto confirm is commercially reasonable).

(f) Subject to the consent of a Majority in Interest of Lenders, each Lender shall be entitled, at any sale pursuant to this Section 4, to credit against any purchase price bid at such sale by such Lender all or any part of the unpaid obligations owing to such Lender and secured by the Lien of this Security Agreement. Security Agent and Lenders shall, upon any such purchase, acquire good title to the property so purchased, to the extent permitted by applicable law, free of all rights of redemption.

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4.2 Discontinuance of Proceedings.

If Security Agent institutes any proceeding to enforce any right, power, or remedy under this Security Agreement by foreclosure, entry, or otherwise, and such proceedings is discontinued or abandoned for any reason or is determined adversely to Security Agent, then and in every such case Borrower and Security Agent shall, subject to any determination in such proceedings, be restored to their former positions and rights hereunder with respect to the Collateral, and all rights, remedies, and powers of Borrower or Security Agent shall continue as if no such proceedings had been instituted.

4.3 Waiver of Past Defaults.

Upon written instruction from a Majority in Interest of the Lenders, Security Agent shall waive any past Default hereunder and its consequences, and upon any such waiver such Default shall cease to exist and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Security Agreement, but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon; provided, that in the absence of written instructions from all relevant Lenders, Security Agent shall not waive any Default (a) in the payment of principal, and interest and other amounts due under any Loan Certificate then outstanding, or (b) in respect of a covenant or provision hereof which, under Section 7, cannot be modified or amended without the consent of all Lenders.

4.4 Remedies Cumulative.

Each and every right, power, and remedy given to Security Agent specifically or otherwise in this Security Agreement shall be cumulative and shall be in addition to every other right, power, and remedy herein specifically given or now or hereafter existing at Law, in equity, or by statute, and each and every right, power, and remedy whether specifically herein given or otherwise existing may be exercised from time to time and as often and in such order as Security Agent deems expedient, and the exercise or the beginning of the exercise of any right, power, or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any other right, power, or remedy. No delay or omission by Security Agent in the exercise of any right, remedy, or power or in the pursuance of any remedy shall impair any such right, power, or remedy or be construed to be a waiver of any default on the part of Borrower or to be an acquiescence therein.

5. INTENTIONALLY OMITTED

6. SUPPLEMENTS AND AMENDMENTS TO THIS SECURITY AGREEMENT AND OTHER DOCUMENTS

6.1 Instructions of a Majority in Interest of Lenders.

Security Agent agrees for and on behalf of each Lender that it shall not enter into any amendment, waiver, or modification of, or supplement or consent to, any Operative Agreement without the written consent of a Majority in Interest of Lenders, but upon the written request of a Majority in Interest of Lenders, Security Agent shall from time to time enter into any such supplement or amendment, or execute and deliver any such waiver, modification, or consent, as

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is specified in such request (and, to the extent required, agreed to by Borrower, Airframe Manufacturer, or Engine Manufacturer); provided, that, without the consent of each holder of an affected Loan Certificate then outstanding, no such amendment, waiver, or modification shall (1) modify this Section 6.1, or Section 2 or 3, the definitions of “Event of Default”, “Default”, “Majority in Interest of Lenders”, or “Lenders”, or the percentage of Lenders required to take or approve any action hereunder, (2) reduce the amount, or change the time of payment or method of calculation of any amount, of principal, or interest with respect to any Loan Certificate, (3) reduce, modify, or amend any indemnities in favor of Security Agent or the Lenders (except that Security Agent may consent to any waiver or reduction of an indemnity payable to it), (4) permit the creation of any additional Lien on the Collateral or any part thereof (other than Permitted Liens), or deprive any Lender of the benefit of the Lien of this Security Agreement on the Collateral, except as provided in connection with the exercise of remedies under Article 4, or (5) amend the Consent and Agreement or the Engine Consent and Agreement.

6.2 Security Agent Protected.

If, in the opinion of the institution acting as Security Agent hereunder, any document required to be executed by it pursuant to Section 6.1 affects any right, duty, immunity, or indemnity with respect to such institution under this Security Agreement, such institution may in its discretion decline to execute such document.

7. MISCELLANEOUS

7.1 Termination of Security Agreement.

(a) Upon (or at any time after) payment in full of the principal amount of Drawings made under, interest on and Break Loss, if any, and all other amounts due under, or otherwise due to the Lenders of, all Loan Certificates and provided that (i) the Commitments shall have terminated and (ii) there shall then be no other amounts due to the Lenders and Security Agent hereunder or under the Credit Agreement or the other Operative Agreements or otherwise secured hereby, Security Agent shall, at Borrower’s expense, execute and deliver to or as directed in writing by Borrower an appropriate instrument releasing the Collateral from the Lien of this Security Agreement and such other instruments or documents as may be reasonably requested by Borrower to give effect to such release.

(b) In addition, upon (or at any time after) payment in full of principal amount of Drawings made under, interest on and Break Loss, if any, and all other amounts due under, or otherwise due to the Lenders of, all Drawings related to an Aircraft and provided that there shall then be no other amounts due to the Lenders and Security Agent hereunder or under the Credit Agreement or the other Operative Agreements or otherwise secured hereby in respect of such Drawings, Security Agent shall execute and deliver to or as directed in writing by Borrower an appropriate instrument releasing the Collateral to the extent it relates to the Aircraft relating to such Drawings from the Lien of this Security Agreement, and Security Agent shall execute and deliver such instrument as aforesaid and, at Borrower’s expense, will execute and deliver such other instruments or documents as may be reasonably requested by Borrower to give effect to such release.

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7.2 No Legal Title to Collateral in Holders.

No holder of a Loan Certificate shall have legal title to any part of the Collateral. No transfer, by operation of law or otherwise, of any Loan Certificate or other right, title and interest of any holder of a Loan Certificate in and to the Collateral or hereunder shall operate to terminate this Security Agreement or entitle such holder or any successor or transferee of such holder to an accounting or to the transfer to it of legal title to any part of the Collateral.

7.3 Sale of Collateral by Security Agent is Binding.

Any sale or other conveyance of the Collateral, or any part thereof (including any part thereof or interest therein), by Security Agent made pursuant to this Security Agreement shall bind the Lenders and shall be effective to transfer or convey all right, title, and interest of Security Agent, Borrower, and such holders in and to such Collateral or part thereof. No purchaser or other grantee shall be required to inquire as to the authorization, necessity, expediency, or regularity of such sale or conveyance or as to the application of any sale or other proceeds with respect thereto by Security Agent.

7.4 Security Agreement for Benefit of Security Agent and Holders.

Nothing in this Security Agreement, whether express or implied, shall be construed to give to any Person other than Borrower, Security Agent, and the Lenders any legal or equitable right, remedy or claim under or in respect of this Security Agreement.

7.5 No Action Contrary to Borrower’s Rights; Quiet Enjoyment.

Notwithstanding any of the provisions of this Security Agreement to the contrary, so long as no Event of Default shall have occurred and be continuing, Security Agent agrees that neither it nor any Person claiming by, through or under Security Agent, will not take any action in violation of Borrower’s rights, including the right to purchase the Aircraft under the Purchase Agreement in accordance with the terms of this Security Agreement by Borrower.

7.6 Notices.

Unless otherwise expressly specified or permitted by the terms hereof, all notices, requests, demands, authorizations, directions, consents, waivers, or other communications provided or permitted by this Security Agreement to be made, given, furnished, or filed shall be made, given, furnished, or filed, and shall become effective, in the manner prescribed in the Credit Agreement.

7.7 Severability.

Any provision of this Security Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any such prohibition or unenforceability in any particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

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7.8 No Oral Modifications or Continuing Waivers.

No term or provision of this Security Agreement or the Loan Certificates may be changed, waived, discharged, or terminated orally, but only by an instrument in writing signed by Borrower and Security Agent, in compliance with Section 6.1. Any waiver of the terms hereof or of any Loan Certificate shall be effective only in the specific instance and for the specific purpose given.

7.9 Successors and Assigns.

All covenants and agreements herein shall bind and benefit each of the parties hereto and the permitted successors and assigns of each, all as herein provided. Any request, notice, direction, consent, waiver, or other instrument or action by Security Agent or any Lender shall bind the successors and assigns of Security Agent or such Lender. Each Lender by its acceptance of a Loan Certificate agrees to be bound by this Security Agreement and all provisions of the Operative Agreements applicable to a Lender.

7.10 Headings.

The headings of the Articles and sections herein and in the table of contents hereto are for convenience of reference only, and shall not define or limit any of the terms or provisions hereof.

7.11 Normal Commercial Relations.

Anything in this Security Agreement to the contrary notwithstanding, Security Agent may conduct any banking or other financial transactions, and have banking or other commercial relationships, with Borrower, fully to the same extent as if this Security Agreement were not in effect, including the making of loans or other extensions of credit to Borrower for any purpose whatsoever, whether related to any of the transactions contemplated hereby or otherwise.

7.12 Governing Law; Counterpart Form.

THIS SECURITY AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY, AND PERFORMANCE. This Security Agreement is being delivered in the state of New York. This Security Agreement may be executed in separate counterparts (or upon separate signature pages bound together into one or more counterparts), each fully-executed set of which shall be an original.

7.13 Jurisdiction.

(a) EACH PARTY HERETO HEREBY IRREVOCABLY AGREES, ACCEPTS, AND SUBMITS ITSELF TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN THE CITY AND COUNTY OF NEW YORK AND OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, IN CONNECTION WITH ANY LEGAL ACTION, SUIT, OR PROCEEDING WITH RESPECT TO ANY MATTER RELATING TO OR ARISING OUT OF OR IN CONNECTION WITH THE OPERATIVE AGREEMENTS.

17

(b) EACH PARTY HERETO HEREBY IRREVOCABLY CONSENTS AND AGREES TO THE SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES, AND DOCUMENTS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH SUIT, ACTION, OR PROCEEDING MAY BE MADE BY MAILING COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, AT THE ADDRESS SET FORTH PURSUANT TO SECTION 15(a) OF THE CREDIT AGREEMENT. EACH PARTY HERETO HEREBY AGREES THAT SERVICE UPON IT, OR ANY OF ITS AGENTS, IN EACH CASE IN ACCORDANCE WITH THIS SECTION 7.13(b), SHALL CONSTITUTE VALID AND EFFECTIVE PERSONAL SERVICE UPON SUCH PARTY, AND EACH PARTY HERETO HEREBY AGREES THAT THE FAILURE OF ANY OF ITS AGENTS TO GIVE ANY NOTICE OF SUCH SERVICE TO ANY SUCH PARTY SHALL NOT IMPAIR OR AFFECT IN ANY WAY THE VALIDITY OF SUCH SERVICE ON SUCH PARTY OR ANY JUDGMENT RENDERED IN ANY ACTION OR PROCEEDING BASED THEREON.

(c) EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY LEGAL ACTION OR PROCEEDING BROUGHT HEREUNDER IN ANY OF THE ABOVE-NAMED COURTS, THAT SUCH ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT VENUE FOR THE ACTION OR PROCEEDING IS IMPROPER, OR THAT ANY OPERATIVE AGREEMENT MAY NOT BE ENFORCED IN OR BY SUCH COURTS.

7.14 Waiver of Jury Trial.

EACH PARTY HERETO HEREBY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION IN ANY COURT IN ANY JURISDICTION BASED UPON OR ARISING OUT OF OR RELATING TO THE OPERATIVE AGREEMENTS.

[Remainder of Page Intentionally Left Blank.]

18

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

AIRTRAN AIRWAYS, INC.,

as Borrower

By:

Name:

Title:

HSH NORDBANK AG, NEW YORK BRANCH,

as Security Agent

By:

Name:

Title:

By:

Name:

Title:

ANNEX A

DEFINITIONS AND CONSTRUCTION

GENERAL PROVISIONS

(a) In each Operative Agreement, unless otherwise expressly provided, a reference to:

(1) each of “Borrower”, “Lender”, “Security Agent”, “Paying Agent” and any other Person includes any successor in interest to it and any permitted transferee, permitted purchaser, or permitted assignee of it;

(2) any agreement or other document (including any annex, schedule, or exhibit thereto, or any other part thereof) includes that agreement or other document as amended, supplemented, or otherwise modified from time to time in accordance with its terms and in accordance with the Operative Agreements, and any agreement or other document entered into in substitution or replacement therefor;

(3) any provision of any Law includes any such provision as amended, modified, supplemented, substituted, reissued, or reenacted before the Effective Date, and thereafter from time to time;

(4) “Agreement”, “this Agreement”, “hereby”, “herein”, “hereto”, “hereof”, “hereunder”, and words of similar import, when used in any Operative Agreement, refer to such Operative Agreement as a whole and not to any particular provision of such Operative Agreement;

(5) “including”, “include”, and terms or phrases of similar import means “including, without limitation”; and

(6) a reference to a “Section”, an “Exhibit”, an “Annex”, or a “Schedule” in any Operative Agreement, or in any annex thereto, is a reference to a section of, or an exhibit, an annex, or a schedule to, such Operative Agreement or such annex, respectively.

(b) Each exhibit, annex, and schedule to any Operative Agreement is incorporated in, and is a part of, such Operative Agreement.

(c) Unless otherwise defined or specified in the Credit Agreement, 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 Agreement are for convenience only, and shall not in any way affect the construction of, or be taken into consideration in interpreting, such Operative Agreement.

Annex A-1

DEFINED TERMS

Accepted Jurisdiction: The United States, France, Germany, The Netherlands, Ireland, the United Kingdom, Austria or Luxemburg.

Actual Knowledge: actual knowledge of a vice president or more-senior officer of such Person or any other officer of such Person having responsibility for the transactions contemplated by the Operative Agreements; provided, that each party shall be deemed to have “Actual Knowledge” of any matter as to which it has received notice pursuant to Section 15(a) of the Credit Agreement.

Additional Costs: as defined in Section 3(e) of the Credit Agreement.

Advance: each non-deferrable Advance Payment (as defined in the Purchase Agreement) paid or payable by Borrower in respect of each Aircraft in accordance with the terms of the Purchase Agreement.

Affiliate: with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such Person. For purposes of this definition, “control” means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract, or otherwise, and “controlling”, “controlled by”, and “under common control with” have correlative meanings.

After-Tax Basis: a basis such that any payment to be received or receivable by any Person is supplemented by a further payment to that Person so that the sum of all the two payments, after deducting all Taxes (taking into account any current credits or current deductions attributable to the event or circumstances giving rise to the requirement that original payment be made) currently payable by such Person or any of its Affiliates under any applicable Law or governmental authority, is equal to the payment due to such Person.

Agency Fee: ***

AGTA-CQT: means the Aircraft General Terms Agreement AGTA-CQT, dated as of July 3, 2003, by and between Airframe Manufacturer and Borrower.

Aircraft: each Boeing model 737-700 aircraft specified by manufacturer’s serial number in Schedule 3 to the Credit Agreement, together with all buyer-furnished equipment, manuals and technical records related thereto.

Airframe Manufacturer: The Boeing Company.

*** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Page 1 of 6 pages containing information redacted pursuant to a request for confidential treatment.

Annex A-1

Applicable Margin: *** per annum.

Applicable Rate: for any Interest Period, a rate per annum equal to the LIBOR Rate for such Interest Period plus the Applicable Margin.

Back-Stop Letter: the letter agreement, dated July 3, 2003, from The Boeing Company to Borrower regarding the financing of the acquisition of Boeing model 737 aircraft subject to the Purchase Agreement.

Bankruptcy Code: the United States Bankruptcy Code, 11 U.S.C. § 101 et seq.

Borrower’s Advisor: SkyWorks Capital, LLC.

Borrower Person: Borrower and any Affiliate of Borrower.

Borrowing Date: as specified in Section 2(d) of the Credit Agreement.

Borrowing Notice: as specified in Section 2(e) of the Credit Agreement.

Break Loss: (A) where the Applicable Rate is not based on the LIBOR Rate, the amount, if any, required to compensate each Lender for any losses, costs or expenses (excluding loss of profit) which it may incur as the result of the prepayment or acceleration (or the failure to make any such prepayment on the date irrevocably scheduled therefor) of any Loan Certificate held by it on a date other than the last day of the then current Interest Period therefor, including, without limitation, losses, costs or expenses incurred in connection with unwinding or liquidating any deposits or funding or financing arrangement with its funding sources, as reasonably determined by such Lender and (B) where the Applicable Rate is based on the LIBOR Rate, an amount equal to the excess, if any, of (i) the amount of interest which otherwise would have accrued on the principal amount so prepaid or accelerated to the last day of such Interest Period (the “Break Period”) at the LIBOR Rate therefor over (ii) the amount of interest which would have accrued during the Break Period on the principal amount so prepaid or accelerated at an interest rate the affected Lender would have obtained in the London interbank market for United States dollar deposits of leading banks on such prepayment or acceleration date with maturities comparable to the Break Period (as reasonably determined by such Lender).

Business Day: any day other than a Saturday, Sunday, or other day on which commercial banks are authorized or required by law to close in New York, NY, Orlando, FL, or the city and state in which Security Agent is located or receives or disburses funds and, if in relation to the payment of interest and principal of any Loan Certificate, or any prepayment thereof, a day on which Dollar transactions are effected in London, England, and, for the Effective Date and for each date on which a Drawing is to be made, Frankfurt, Germany.

*** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Page 2 of 6 pages containing information redacted pursuant to a request for confidential treatment.

Annex A-2

Cash Contribution: (1) in respect of the Advances for an Aircraft that is not an Uncovered Aircraft, an amount equal to *** of an Advance and (2) in respect of the Advances for the Uncovered Aircraft, an amount equal to *** of an Advance, ***.

Cash Equivalents: the following securities (which shall mature within thirty (30) days of the date of purchase thereof): (1) direct obligations of the U.S. Government; (2) obligations fully guaranteed by the U.S. Government; (3) certificates of deposit issued by, or bankers’ acceptances of, or time deposits or a deposit account with, Paying Agent or any bank, trust company, or national banking association incorporated or doing business under the laws of the United States or any state thereof having a combined capital and surplus and retained earnings of at least $1 billion and having a rate of “A” or better from Standard & Poor’s; or (4) commercial paper of any issuer doing business under the laws of the United States or one of the states thereof and in each case having a rating assigned to such commercial paper by Standard & Poor’s or Moody’s equal to or higher than A1 or P1, respectively.

Certificate Register: as defined in Section 2.7 of the Security Agreement.

Citizen of the United States: as defined in Section 40102(a)(15) of the Transportation Code and in the FARs.

Code: the Internal Revenue Code of 1986, as amended, or any successor thereto; provided, that, when used in relation to a Plan, “Code” shall be interpreted in accordance with the regulations and rulings issued thereunder.

Collateral: as defined in the Granting Clause of the Security Agreement.

Commitment: as defined in Section 2(a) of the Credit Agreement.

Commitment Fee:*** per annum of the unused portion of the aggregate Maximum Commitment in respect of all Advances.

Commitment Termination Date: April 31, 2007 or such later date as agreed to by Borrower and Security Agent.

Consent and Agreement: the consent and agreement, dated as of December 7, 2005, among Borrower, Security Agent and Airframe Manufacturer.

Cost of Funds: the rate determined by each Lender (acting reasonably and in good faith) as its cost of funds for such period, plus the Applicable Margin.

*** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Page 3 of 6 pages containing information redacted pursuant to a request for confidential treatment.

Annex A-3

Credit Agreement: Credit Agreement, dated as of December 7, 2005, among Borrower, the Lenders and Security Agent, as such Credit Agreement may be amended or supplemented from time to time pursuant to the applicable provisions thereof.

***

Default: (1) any event or condition that, with the giving of notice or the lapse of time, would become an Event of Default, or (2) any Event of Default.

Delivery Date: the date on which an Aircraft is tendered for delivery by Airframe Manufacturer to Borrower which shall be a Business Day.

Dollars, United States Dollars, or $: the lawful currency of the United States.

Drawing: in respect of any Advance, the borrowing made by Borrower on the Borrowing Date with respect to such Advance from each Lender.

Effective Date: as defined in Section 2(d) of the Credit Agreement.

Eligible Account: an account established by and with an Eligible Institution at Paying Agent’s request, which institution agrees, for all purposes of the UCC (including UCC Article 8), that (1) such account shall be a “securities account” (as defined in UCC § Section 8-501), (2) all property (other than cash) credited to such account shall be treated as a “financial asset” (as defined in UCC § 8-102(9)), (3) Security Agent shall be the “entitlement holder” (as defined in UCC § 8-102(7)) of such account, (4) it will comply with all entitlement orders issued by Security Agent to the exclusion of Borrower, and (5) the “securities intermediary jurisdiction” (under UCC § 8-110(e)) shall be the state of New York.

Eligible Institution: a depository institution organized under the laws of the United State of America or any 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 from Moody’s and Standard & Poor’s of at least A-3 or its equivalent.

Engines: in respect of each Airframe, each of the two CFM International, Inc. model CFM56-7B20 engines delivered with such Airframe under the Purchase Agreement.

Engine Consent and Agreement: the consent and agreement of Engine Manufacturer in respect of the Security Agreement.

Engine Manufacturer: CFM International, Inc.

ERISA: the Employee Retirement Income Security Act of 1974.

Event of Default: as defined in Section 3 of the Security Agreement.

*** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Page 4 of 6 pages containing information redacted pursuant to a request for confidential treatment.

Annex A-4

Expenses: any and all liabilities, obligations, losses, damages, settlements, penalties, claims, actions, suits, costs, expenses, and disbursements (including reasonable fees and disbursements of legal counsel, accountants, appraisers, inspectors, or other professionals, and costs of investigation).

FAA: the Federal Aviation Administration of the United States or any Governmental Entity succeeding to the functions of the Federal Aviation Administration.

Financing Statements: the UCC-1 financing statements covering the Collateral (as defined in the Security Agreement) by Borrower, as debtor, showing Security Agent as secured party, for filing in Delaware and each other jurisdiction where filing is necessary to perfect its Lien on such Collateral.

Fitch Rating: Fitch Ratings Ltd.

GAAP: generally accepted accounting principles as set forth in the statements of financial accounting standards issued by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants, as varied by any applicable financial accounting rules or regulations issued by the SEC or the Public Company Accounting Oversight Board, and applied on a basis consistent with prior periods except as may be disclosed in the pertinent Person’s financial statements.

Governmental Entity: (1) 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 (2) any other governmental entity having jurisdiction over any matter contemplated by the Operative Agreements or relating to the observance or performance of the obligations of any of the parties to the Operative Agreements.

GTA: General Terms Agreement No. CFM-03-0017, dated June 30, 2003, by and between Engine Manufacturer and Borrower including all exhibits thereto, together with all letter agreements entered into that by their terms constitute part of such GTA, all to the extent included in the Granting Clause of the Security Agreement.

Holdings: AirTran Holdings, Inc., a Nevada corporation.

Holdings Guarantee: the Guarantee, dated as of December 7, 2005, from Holdings.

HSH: HSH Nordbank AG, New York Branch.

Indemnified Withholding Taxes: has the meaning specified in Section 10(c)(i) of the Credit Agreement.

Indemnitee: (1) the Lenders, (2) Security Agent, (3) Paying Agent, (4) each Affiliate of the Persons described in clauses (1) through (3) above, (5) the directors, officers, employees, and agents of each of the Persons described in clauses (1) through (4) above and (5) the successors and permitted assigns of the persons described in clauses (1) through (4) above.

Annex A-5

Interest Payment Date: the first day of each calendar month succeeding the applicable Borrowing Date and the Maturity Date thereof; provided that, if any such date shall not be a Business Day, then the relevant Interest Payment Date shall be the next succeeding Business Day.

Interest Period: (a) initially, the period commencing on the first Borrowing Date and ending on but excluding the first Interest Payment Date and (b) thereafter, each successive period commencing on the day following the final day of the preceding Interest Period and ending on but excluding the next succeeding Interest Payment Date.

Law: (1) any constitution, treaty, statute, law, decree, regulation, order, rule, or directive of any Governmental Entity, and (2) any judicial or official administrative interpretation or application of, or decision under, any of the foregoing having the force of law.

Lender: (1) initially each Person identified in Schedule 2 of the Credit Agreement as a Lender, and (2) thereafter any Person registered as a holder of one or more Loan Certificates.

Lenders’ Advisor: SkyBlue Capital, LLC

LIBOR Rate: with respect to any Interest Period (if for a period equal to at least one month), a rate per annum (calculated on the basis of a 360-day year and actual days elapsed) equal to the rate per annum at which Dollar deposits are offered in the London interbank market for a one-month period as such rate (rounded upwards to the nearest 1/16 of 1%) as displayed on Telerate Page 3750 at approximately 11:00 a.m., London time (or as soon thereafter as practicable), or if such service no longer displays any such quote, the arithmetic mean (rounded upwards to the nearest 1/16 of 1%) of such rates as displayed on Reuters Page LIBO at approximately 11:00 a.m., London time (or as soon thereafter as practicable), or if such service no longer displays any such quote, the arithmetic mean (rounded upwards to the nearest 1/16 of 1%) of such rates, as quoted by two reputable dealers selected by Security Agent and Borrower, in any case on the date two (2) Business Days.

Lien: any mortgage, pledge, lien, charge, claim, encumbrance, lease, or security interest affecting the title to or any interest in property.

Loan Certificate: any loan certificate issued under the Security Agreement in the form specified in Section 2.1 and Exhibit A thereof (as such form may be varied pursuant to the terms of the Security Agreement), or any Loan Certificate issued under such Security Agreement in exchange for or replacement of any such Loan Certificate.

Majority in Interest of Lenders: as of a particular date of determination, the Lenders holding more than 50% of an amount equal to the sum of (i) the unused Maximum Commitment plus (ii) the aggregate unpaid principal amount of all Drawings made as of such date.

Material Adverse Change: with respect to any Person, means any event, condition, or circumstance that materially adversely affects such Person’s business, operating or financial condition, or its ability to observe or perform its obligations, liabilities, and agreements under the Operative Agreements.

Annex A-6

Maturity Date: as defined in Section 2.2(c) of the Security Agreement.

Maximum Commitment: as defined in Section 2(a) of the Credit Agreement.

Moody’s: Moody’s Investors Service, Inc.

Non-U.S. Person: any Person, other than a United States person as defined in Code Section 7701(a)(30).

NordLB: Norddeutsche Landesbank Girozentrale

Officer’s Certificate: of any party to the Credit Agreement, a certificate signed by the chairman, the president, any vice president (including those with varying ranks such as executive, senior, assistant, or staff vice president), the treasurer, or the secretary of such party.

Operative Agreements: the Credit Agreement, the Security Agreement, the Loan Certificates, the Consent and Agreement, the Engine Consent and Agreement, the Holdings Guarantee and the Paying Agent Agreement and any amendments or supplements of any of the foregoing.

Participation Percentage: in respect of each Lender, the percentage set forth for such Lender on Schedule 2 to the Credit Agreement.

Past-Due Rate: the lesser of Applicable Rate plus *** per annum and the maximum rate permitted under applicable Law.

Paying Agent: Wells Fargo Bank Northwest, National Association, or such other entity becoming the Paying Agent pursuant to Section 8 of the Paying Agent Agreement.

Paying Agent Agreement: the Paying Agent Agreement, dated as of December 7, 2005, by and among Borrower, Security Agent and Paying Agent.

Payment Account: such account as described in Section 2.4(a) of the Security Agreement.

Permitted Lien: (a) the rights of Security Agent under the Operative Agreements; (b) Liens arising by, through or under any Lender or Security Agent; (c) Liens for Taxes either not yet due or being contested in good faith by appropriate procedures if such Liens and such procedures do not involve a material risk of the sale, forfeiture, or loss of the Collateral, or the interest of Security Agent or any Lender therein, or impair the Lien of the Security Agreement and for which adequate reserves have been established under GAAP; (d) Liens arising out of any judgment or award against Borrower, if, within sixty (60) days after the entry thereof, that judgment or award is discharged or vacated, or has its execution stayed pending appeal, or is

*** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Page 5 of 6 pages containing information redacted pursuant to a request for confidential treatment.

Annex A-7

discharged, vacated, or reversed within sixty (60) days after the expiration of such stay, and if during any such 60-day period there is not, or any such judgment or award does not involve, any material risk of the sale, forfeiture, or loss of the Collateral, or the interest of Security Agent or any Lender therein, or impair the Lien of the Security Agreement; and (e) any other Lien with respect to which Borrower shall have provided a bond, cash collateral, or other security adequate in the reasonable opinion of Security Agent.

Person or person: an individual, firm, partnership, joint venture, trust, trustee, Governmental Entity, organization, association, corporation, limited liability company, government agency, committee, department, authority, and other body, corporate or incorporate, whether having distinct legal status or not, or any member of any of the same.

Plan: any employee benefit plan within the meaning of ERISA § 3(3), or any plan within the meaning of Code § 4975(e)(1).

Purchase Agreement: Purchase Agreement No. 2444, dated July 3, 2003, between Airframe Manufacturer and Borrower (which incorporates by reference AGTA-CQT), including all exhibits thereto, together with all letter agreements entered into that by their terms constitute part of such Purchase Agreement, all to the extent included in the Granting Clause of the Security Agreement.

Regulatory Change: with respect to any Lender, any change that occurs after the date of the Security Agreement in Federal, state or foreign law or regulations (including Regulation D) or the adoption or making after such date of any interpretation, directive or request applying to a class of banks or financial institutions including such Lender of or under any Federal, state or foreign law or regulations (whether or not having the force of law and whether or not failure to comply therewith would be unlawful so long as compliance therewith is standard banking practice in the relevant jurisdiction) by any court or governmental or monetary authority charged with the interpretation or administration thereof. For the avoidance of doubt, the coming into effect of any applicable law or regulations, policies, orders, directives or guidelines issued by any governmental body, monetary authority or other regulatory organization (whether or not having the force of law) with respect to, arising out of, or in connection with the matters discussed and/or set forth in the proposals set forth in the June 1999 Consultative Paper issued by the Basle Committee on Banking Supervision (as modified, supplemented, revised and/or superseded by any subsequent proposal, consultative paper or other document) shall be deemed a Regulatory Change, except to the extent that compliance therewith has been made mandatory with respect to any Lender on or prior to the Effective Date.

Remarketing Agreement: means the Remarketing Agreement and Support Agreement, dated as of December 7, 2005, by and between Security Agent and Airframe Manufacturer.

Reserved Provisions: means (1) as they relate to the Purchase Agreement, each and all of the provisions and agreements identified in Schedule 1 of the Security Agreement, as the same may be amended, supplemented or modified from time to time and (2) as they relate to the GTA, each and all of the provisions and agreements identified in Schedule 2 of the Security Agreement, as the same may be amended, supplemented or modified from time to time.

Annex A-8

Reserve Requirement: for any Loan Certificate, the average maximum rate at which reserves (including, without limitation, any marginal, supplemental or emergency reserves) are required to be maintained during the Interest Period in respect of such Loan Certificate under Regulation D by member banks of the Federal Reserve System in New York City with deposits exceeding one billion Dollars against “Eurocurrency liabilities” (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement includes any other reserves required to be maintained by such member banks by reason of any Regulatory Change with respect to (i) any category of liabilities that includes deposits by reference to which the LIBOR Rate is to be determined or (ii) any category of extensions of credit or other assets that includes the Loan Certificates.

SEC: the Securities and Exchange Commission of the United States, or any Governmental Entity succeeding to the functions of such Securities and Exchange Commission.

Securities Act: the Securities Act of 1933.

Security: a “security” as defined in Section 2(l) of the Securities Act.

Security Agreement: the Security Agreement, dated as of December 7, 2005, between Borrower and Security Agent, as such Security Agreement may be amended or supplemented from time to time pursuant to the applicable provisions thereof.

Scheduled Delivery Month: for each Aircraft, the date specified in Schedule 3 to the Credit Agreement.

***

Special Default: a Default under Section 3 (a), (d), (e) or (f) of the Security Agreement.

Standard & Poor’s: Standard & Poor’s Rating Services, a division of McGraw-Hill, Inc.

Tax Indemnitee: (1) each Lender, (2) Security Agent, (3) Paying Agent and (4) the successors, assigns, officers, directors, employees and agents of the foregoing.

Taxes: all taxes (including, without limitation, franchise, excise, stamp, value added, income, gross receipts, sales, use property (personal and rent) and intangible taxes), levies, imposts, duties, charges, assessments, or withholdings of any nature whatsoever imposed by any Taxing Authority, and any penalties, additions to tax, fines, or interest thereon or additions thereto.

Taxing Authority: any federal, state, or local government or other taxing authority in the United States, any foreign government or any political subdivision or taxing authority thereof, any international taxing authority, or any territory or possession of the United States or any political subdivision or taxing authority of any thereof.

*** Represents material which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Page 6 of 6 pages containing information redacted pursuant to a request for confidential treatment.

Annex A-9

Transaction Expenses: the reasonable out-of-pocket costs and expenses incurred by Security Agent and each of the Lenders in connection with the preparation, negotiation, execution, and delivery of the Operative Agreements and the recording or filing of any documents, certificates, or instruments in accordance with any Operative Agreement, including the reasonable fees and disbursements of legal counsel for Security Agent and the Lenders incurred in connection therewith.

Transfer: the transfer, sale, assignment, or other conveyance of all or interest in any property, right or interest.

Transfer Certificate: a transfer certificate substantially in the form set out in Exhibit B to the Credit Agreement.

Transferee: a Person to whom any Lender purports or intends to Transfer any or all of its right, title and interest in its Commitments or Loan Certificate it holds, as described in Section 9(a) of the Credit Agreement

Transportation Code: subtitle VII of title 49, United States Code.

UCC: means the Uniform Commercial Code as in effect in State of New York.

Uncovered Aircraft: the Aircraft identified in Schedule 3 to the Credit Agreement with an asterisk appearing at the end of its manufacturer’s serial number.

United States or U.S.: the United States of America; provided, that for geographic purposes, “United States” means the 50 states and the District of Columbia of the United States of America.

Upfront Fee: has the meaning specified in the Upfront Fee Letter.

Upfront Fee Letter: means the letter agreement, dated as of December 7, 2005, by and between Borrower and Security Agent, in connection with payment by Borrower to Security Agent of the Upfront Fee.

U.S. Air Carrier: any United States air carrier who is a Citizen of the United States holding an air carrier operating certificate issued by the Secretary of Transportation pursuant to chapter 447 of the Transportation Code for aircraft capable of carrying 10 or more individuals or 6000 pounds or more of cargo, and as to whom there is in force an air carrier operating certificate issued pursuant to FAR Part 121, or who may operate as an air carrier by certification or otherwise under any successor or substitute provisions therefor or in the absence thereof.

U.S. Person: any Person that is a “United State person” as defined in Code Section 7701(a)(30).

Annex A-10

EXHIBIT A

FORM OF:

LOAN CERTIFICATE

No. [    ]	New York, New York
$ [            ]	[                        ], 2005

AirTran Airways, Inc., a Delaware corporation (the “Borrower”) hereby promises to pay to [ ] (or its registered transferees), the principal sum of $[            ], or, if less the aggregate unpaid principal amount of all Drawings made hereunder, plus any Break Loss and other sums becoming due and owing under the Operative Agreements, together with interest at the Applicable Rate on the unpaid principal amount of all Drawings made hereunder from and including the date hereof until paid in full. The unpaid principal amount of all Drawings made hereunder shall be due and payable on the Maturity Date. Interest shall accrue with respect to each Interest Period at the Applicable Rate in effect for such Interest Period and shall be payable in arrears on each Interest Payment Date and on the date this Loan Certificate is paid in full. The Interest Periods for the Drawing evidenced by this Loan Certificate can vary in accordance with Section 2.2(b) of the Security Agreement. Interest shall be calculated on the basis of a year of 360 days and actual number of days elapsed. If any date on which a payment under this Loan Certificate 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 following Business Day (unless if by virtue of such extension such day would fall in the next succeeding calendar month, in which case such payment shall be made on the immediately preceding Business Day).

For purposes hereof, “Security Agreement” means the Security Agreement, dated as of December 7, 2005, between Borrower and HSH Nordbank AG, New York Branch (“Security Agent”), as amended or supplemented from time to time. All terms used in this Loan Certificate, if defined in the Security Agreement and not in this Loan Certificate, have the same meanings as in the Security Agreement.

This Loan Certificate shall bear interest, payable on demand, at the Past-Due Rate (calculated on the basis of a 360-day year and actual number of days elapsed) on any overdue payment of principal, interest or any other amount required to be made hereunder for the period that it is overdue. Amounts shall be overdue if not paid when due (whether at stated maturity, by acceleration, or otherwise).

A Certificate Register shall be maintained by Security Agent for the purpose of registering transfers and exchanges of Loan Certificates, in the manner provided in Section 2.7 of the Security Agreement.

The principal, interest, any Break Loss and other amounts due hereunder shall be payable in Dollars in immediately available funds to Paying Agent. Each such payment shall be made without any presentment or surrender of this Loan Certificate. However, this Loan Certificate shall be surrendered to Security Agent for cancellation promptly after any final payment.

Exh A-1

The holder hereof, by its acceptance of this Loan Certificate, agrees that (except as otherwise provided in the Security Agreement) each payment of principal, Break Loss and interest received by it hereunder shall be applied in accordance with Section 2.4 of the Security Agreement.

This Loan Certificate is one of the Loan Certificate referred to in the Security Agreement which have been or are to be issued by Borrower pursuant to the Security Agreement. The Collateral is held by Security Agent as security, in part, for the Loan Certificate. The provisions of this Loan Certificate are subject to the Security Agreement. Refer to the Security Agreement for a complete statement of (1) the rights and obligations of the holder of this Loan Certificate, and the nature and extent of the security for this Loan Certificate, (2) the rights and obligations of the holders of any other Loan Certificate executed and delivered under the Security Agreement, and the nature and extent of the security for any other Loan Certificates executed and delivered under the Security Agreement, and (3) each holder hereof agrees by its acceptance of this Loan Certificate to the terms and conditions in the Security Agreement.

Before this Loan Certificate is duly presented for registration of transfer, Borrower, Paying and Security Agent shall treat the person in whose name this Loan Certificate is registered as the owner hereof for all purposes, whether or not this Loan Certificate is overdue, and neither Borrower, Paying Agent nor Security Agent shall be affected by notice to the contrary.

This Loan Certificate is subject to redemption as provided in Section 2.10 of the Security Agreement and Section 10(c)(i) of the Credit Agreement, but not otherwise. In addition, this Loan Certificate may be accelerated as provided in Section 4.1 of the Security Agreement.

Unless the certificate of authentication hereon has been executed by or on behalf of Security Agent by manual signature, this Loan Certificate shall not be entitled to any benefit under the Security Agreement or be valid or obligatory for any purpose.

THIS LOAN CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. All remaining provisions of Section 12 of the Credit Agreement are incorporated by reference as if more fully set forth herein.

Exh A-2

IN WITNESS WHEREOF, Borrower has executed this Loan Certificate.

AIRTRAN AIRWAYS, INC.,

as Borrower

By:

Name:

Title:

Exh A-3

CERTIFICATE OF AUTHENTICATION

This is one of the Loan Certificate referred to in the Security Agreement (as defined in the foregoing Loan Certificate).

HSH NORDBANK AG, NEW YORK BRANCH,

as Security Agent

By:

Name:

Title:

By:

Name:

Title:

SCHEDULE 1

PURCHASE AGREEMENT RESERVED PROVISIONS

1.	Section 1.3 of Article 1 of the AGTA-CQT.
2.	Exhibit B to the AGTA-CQT.
3.	Section 5.4 of Article 5 of Purchase Agreement No. 2444
4.	Exhibit CS1 to Purchase Agreement No. 2444
5.	Purchase Agreement No. 2444 Supplement No. 1 (other than Sections 1, 2 and 5 thereof)
6.	Purchase Agreement No. 2444 Supplement No. 2 (other than Sections 1.1, 1.2, 4.2 and 5 thereof)
7.	Purchase Agreement No. 2444 Supplement No. 3
8.	Purchase Agreement No. 2444 Supplement No. 4
9.	Purchase Agreement No. 2444 Supplement No. 5
10.	Purchase Agreement No. 2444 Supplement No. 7
11.	Letter Agreement No. 2444-01
12.	Letter Agreement No. 2444-03
13.	Letter Agreement No. 2444-04
14.	Letter Agreement No. 2444-05
15.	Letter Agreement No. 2444-06
16.	Letter Agreement No. 6-1162-SSM-2322 R1
17.	Letter Agreement No. 6-1162-SSM-2323
18.	Letter Agreement No. 6-1162-SSM-2324 (other than Sections 1.1, 2, 7 and 10 thereof)
19.	Letter Agreement No. 6-1162-SSM-2325
20.	Letter Agreement No. 6-1162-SSM-2326
21.	Letter Agreement No. 6-1162-SSM-2327
22.	Letter Agreement No. 6-1162-SSM-2406
23.	Letter Agreement No. 6-1162-SSM-2426 (R1)
24.	Letter Agreement No. 6-1162-SSM-2429 (other than Sections 7 and 6 thereof)(Note: the reference to Section 6 in the preceding parenthetical is in reference to the confidentiality provisions of such letter agreement, which was inadvertently designated as Section 6 thereof.)
25.	Letter Agreement No. 6-1162-SSM-2431 (other than Sections 9 and 9 thereof)(Note: the second reference to Section 9 in the preceding parenthetical is in reference to the confidentiality provisions of such letter agreement, which was inadvertently designated as Section 9 thereof.)
26.	Letter Agreement No. 6-1162-SSM-2433
27.	Sections 4 and 5 of the Letter Agreement No. 6-1162-SSM-2435
28.	Letter Agreement No. 6-1162-SSM-2436 (other than Sections 1, 2 and 7 thereof)
29.	Letter Agreement No. 6-1162-JWL-0107(R1)

Sch 1-1

SCHEDULE 2

GTA RESERVED PROVISIONS

All terms, conditions, provisions, letter agreements, amendments and other agreements related to the GTA, other than Article 9 and Exhibit A of the GTA.

Sch 2-1

EX-23

Exhibit 23

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:

(i) Registration Statement (Form S-8 No. 33-87658) pertaining to the ValuJet Airlines, Inc. 1993 Incentive Stock Option Plan and the ValuJet Airlines, Inc. 1994 Stock Option Plan,

(ii) Registration Statement (Form S-8 No. 33-91624) pertaining to the ValuJet Airlines, Inc. 1995 Employee Stock Purchase Plan,

(iii) Registration Statement (Form S-8 No. 33-98568) pertaining to the Airways Corporation 1995 Stock Option Plan and 1995 Director Stock Option Plan,

(iv) Registration Statement (Form S-3 No. 333-62863) of AirTran Holdings, Inc.,

(v) Registration Statement (Form S-3 No. 33-83048) of ValuJet Airlines, Inc.,

(vi) Registration Statement (Form S-8 No. 333-82727) pertaining to the AirTran 1996 Stock Option Plan,

(vii) Registration Statement (Form S-3 No. 333-41480) of AirTran Holdings, Inc.,

(viii) Registration Statement (Form S-8 No. 333-103209) pertaining to the AirTran Holdings, Inc. 2002 Long-Term Incentive Plan,

(ix) Registration Statement (Form S-4 No. 333-67300) of AirTran Airways, Inc.,

(x) Registration Statement (Form S-3 No. 333-107415) of AirTran Holdings, Inc.,

(xi) Registration Statement (From S-3 No. 333-127590) of AirTran Holdings, Inc; and

(xii) Registration Statements (Form S-8 No. 333-127595) pertaining to the AirTran Holdings, Inc. Amended and Restated 2002 Long-Term Incentive Plan

of our reports dated March 9, 2006, with respect to the consolidated financial statements and schedule of AirTran Holdings, Inc., AirTran Holdings, Inc. management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of AirTran Holdings, Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 2005.

/s/ Ernst & Young LLP

Atlanta, Georgia

March 9, 2006

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Joseph B. Leonard, certify that:

1. I have reviewed this annual report on Form 10-K of AirTran Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation ; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 9, 2006 By: /s/ Joseph B. Leonard Joseph B. Leonard Chairman of the Board and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Stanley J. Gadek, certify that:

1. I have reviewed this annual report on Form 10-K of AirTran Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 9, 2006 By: /s/ Stanley J. Gadek Stanley J. Gadek Senior Vice President, Finance, and Chief Financial Officer

EX-32.1

Exhibit 32.1

AIRTRAN HOLDINGS, INC.

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of AirTran Holdings, Inc. (the “Company”) on Form 10-K for the year ending December 31, 2003, as filed with the United States Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph B. Leonard, Chairman and Chief Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

March 9, 2006	By:	/s/ Joseph B. Leonard
		Joseph B. Leonard
		Chairman and Chief Executive Officer

EX-32.2

Exhibit 32.2

AIRTRAN HOLDINGS, INC.

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of AirTran Holdings, Inc. (the “Company”) on Form 10-K for the year ending December 31, 2003, as filed with the United States Securities and Exchange Commission on the date hereof (the “Report”), I, Stanley J. Gadek, Senior Vice President, Finance, Treasurer and Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

March 9, 2006	By:	/s/ Stanley J. Gadek
		Stanley J. Gadek
		Senior Vice President, Finance, and
		Chief Financial Officer

EX-99.1

Exhibit 99.1

Copies of our Corporate Governance Guidelines, Code of Conduct and Ethics and the charters for our Audit, Compensation and Corporate Governance Committees are available free of charge on our website, airtran.com, or upon request by writing to:

AirTran Holdings, Inc.

Attn: Investor Relations

9955 AirTran Boulevard

Orlando, Florida 32827