10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended September 30, 2004

Commission File Number 0-15495

Mesa Air Group, Inc.

(Exact name of registrant as specified in its charter)

Nevada	85-0302351
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
410 North 44th Street, Suite 700, Phoenix, Arizona	85008 (Zip Code)
(Address of Principal Executive Offices)

Registrant’s telephone number, including area code:

(602) 685-4000

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

None

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

Common Stock, No Par Value

(Title of Class)

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during 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 þ          No o

      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.     o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes þ          No o

      The aggregate market value of the voting stock held by non-affiliates of the Registrant as of December 1, 2004: Common Stock, no par value: $226.0 million.

      On December 1, 2004, the Registrant had outstanding 30,794,571 shares of Common Stock.

Documents Incorporated by Reference

Portions of the registrant’s proxy statement for the 2004 annual meeting of stockholders

TABLE OF CONTENTS

EX-10.17

EX-21.1

EX-23.1

EX-31.1

EX-31.2

EX-32.1

EX-32.2

MESA AIR GROUP, INC.

2004 FORM 10-K REPORT

TABLE OF CONTENTS

		Page
		No.
PART I
Item 1.	Business		2
Item 2.	Properties		20
Item 3.	Legal Proceedings		21
Item 4.	Submission of Matters to a Vote of Security Holders		21
PART II
Item 5.	Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters		24
Item 6.	Selected Financial Data		25
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 7A.	Quantitative and Qualitative Disclosure about Market Risk		41
Item 8.	Financial Statements and Supplementary Data		41
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		73
Item 9A.	Controls and Procedures		73
Item 9B.	Other Information		73
PART III
Item 10.	Directors and Executive Officers of the Registrant		74
Item 11.	Executive Compensation		74
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		74
Item 13.	Certain Relationships and Related Transactions		74
Item 14.	Principal Accountant Fees and Services		74
PART IV
Item 15.	Exhibits, Financial Statement Schedules		74

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PART I

Forward-Looking Statements

      This Form 10-K Report contains certain statements including, but not limited to, information regarding the replacement, deployment, and acquisition of certain numbers and types of aircraft, and projected expenses associated therewith; costs of compliance with Federal Aviation Administration regulations and other rules and acts of Congress; the passing of taxes, fuel costs, inflation, and various expenses to the consumer; the relocation of certain operations of Mesa; the resolution of litigation in a favorable manner and certain projected financial obligations. These statements, in addition to statements made in conjunction with the words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” and similar expressions, are forward-looking statements within the meaning of the Safe Harbor provision of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to future events or the future financial performance of Mesa and only reflect management’s expectations and estimates. The following is a list of factors, among others, that could cause actual results to differ materially from the forward-looking statements: changing business conditions in certain market segments and industries; changes in Mesa’s code-sharing relationships; the inability of America West, US Airways or United Airlines to pay their obligations under the code-share agreements; the inability of United Airlines and/or US Airways to successfully restructure and emerge from bankruptcy; the ability of US Airways to reject our code-share agreements in bankruptcy; an increase in competition along the routes Mesa operates or plans to operate; material delays in completion by the manufacturer of the ordered and yet-to-be delivered aircraft; availability and cost of funds for financing new aircraft; changes in general economic conditions; changes in fuel price; changes in regional economic conditions; Mesa’s relationship with employees and the terms of future collective bargaining agreements; the impact of current and future laws, additional terrorist attacks; Congressional investigations, and governmental regulations affecting the airline industry and Mesa’s operations; bureaucratic delays; amendments to existing legislation; consumers unwilling to incur greater costs for flights; unfavorable resolution of negotiations with municipalities for the leasing of facilities; and risks associated with litigation outcomes. One or more of these or other factors may cause Mesa’s actual results to differ materially from any forward-looking statement. Mesa is not undertaking any obligation to update any forward-looking statements contained in this Form 10-K.

      All references to “we,” “our,” “us,” or “Mesa” refer to Mesa Air Group, Inc. and its predecessors, direct and indirect subsidiaries and affiliates.

Item 1. Business

General

      Mesa Air Group, Inc. (“Mesa” or the “Company”) is a holding company whose principle subsidiaries operate as regional air carriers providing scheduled passenger and airfreight service. The Company serves 181 cities in 43 states, the District of Columbia, Canada, Mexico and the Bahamas. At September 30, 2004, the Company operated a fleet of 180 aircraft and had approximately 1,000 daily departures.

      Approximately 99% of our consolidated passenger revenues for the fiscal year ended September 30, 2004 were derived from operations associated with code-share agreements. Our subsidiaries have code-share agreements with America West Airlines, Inc. (“America West”), Midwest Airlines, Inc. (“Midwest Airlines”), United Airlines, Inc. (“United Airlines” or “United”) and US Airways, Inc. (“US Airways”). These code-share agreements allow use of the code-share partners’ flight designator code to identify flights and fares in computer reservation systems, permit use of logos, service marks, aircraft paint schemes and uniforms similar to the code-share partner and provide coordinated schedules and joint advertising. The remaining passenger revenues are derived from our independent operations.

      In addition to carrying passengers, we carry freight and express packages on our passenger flights and have interline small cargo freight agreements with many other carriers. We also have contracts with the U.S. Postal Service for carriage of mail to the cities we serve and occasionally operate charter flights when our aircraft are not otherwise used for scheduled service.

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      Our airline operations are conducted by the following airline subsidiaries:

•  Mesa Airlines, Inc. (“Mesa Airlines”), a Nevada corporation, operates regional jet and turboprop aircraft as America West Express under a code-share agreement with America West, primarily at America West’s operations hubs located in Phoenix and Las Vegas; as US Airways Express under a code-share agreement with US Airways, primarily at US Airways’ hubs on the East Coast; as United Express under a code-share agreement with United Airlines, at various United hubs across the country.

•  Air Midwest, Inc. (“Air Midwest”), a Kansas corporation, operates Beechcraft 1900D 19-seat turboprop aircraft as US Airways Express under separate code-share agreements with US Airways at certain US Airways’ hubs on the East Coast as well as Kansas City. Air Midwest’s flights in Kansas City code-share with both Midwest Airlines and US Airways. Air Midwest operates as America West Express in Phoenix. Air Midwest also operates as Mesa Airlines in Albuquerque, New Mexico and in select Essential Air Service (“EAS”) markets. The Albuquerque flights and certain EAS markets are “Independent Operations” and are not subject to a code- sharing agreement with a major carrier.

•  Freedom Airlines, Inc. (“Freedom”), a Nevada corporation, operated CRJ-900 regional jets during the past fiscal year pursuant to the Company’s code-share agreement with America West. As of November 2004, all of the CRJ aircraft previously operated by Freedom have been transitioned to Mesa Airlines. Freedom is currently pursuing certification to operate Beechcraft 1900D aircraft.

      Unless the context indicates otherwise, the terms “Mesa,” “the Company,” “we,” “us,” or “our,” refer to Mesa Air Group, Inc. and its subsidiaries.

Corporate Structure

      Mesa is a Nevada corporation with its principal executive office in Phoenix, Arizona.

      In addition to operating the airline subsidiaries listed above, we also have the following other subsidiaries:

•  MPD, Inc., a Nevada corporation, doing business as Mesa Pilot Development and MPD, operates training programs for student pilots in conjunction with San Juan College in Farmington, New Mexico and Arizona State University in Tempe, Arizona.

•  Regional Aircraft Services, Inc., a California corporation, performs aircraft component repair and overhaul services with locations in Reading, Pennsylvania and Phoenix, Arizona. In October 2004, RAS announced plans to expand operations to include certain other aviation related services offered to Mesa subsidiaries as well as other airlines and related aviation entities.

•  MAGI Insurance, Ltd., a Barbados, West Indies based captive insurance company, was established for the purpose of obtaining more favorable aircraft liability insurance rates.

•  Ritz Hotel Management Corp., a Nevada Corporation, was established to facilitate the Company’s acquisition and management of a Phoenix area hotel property used for crew in training accommodations.

•  Mesa Air Group — Aircraft Inventory Management, LLC (“MAG-AIM”), an Arizona Limited Liability Company, was established to purchase, distribute and manage Mesa’s inventory of spare rotable and expendable parts.

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Aircraft in Operation

      The following table sets forth our aircraft fleet (owned and leased) in operation by aircraft type as of September 30, 2004:

		Canadair		Canadair		Canadair		Embraer
		Regional		Regional		Regional		Regional
		Jet-200		Jet-700		Jet-900		Jet-145		Beechcraft		DeHavilland
		(CRJ-200)		(CRJ-700)		(CRJ-900)		(ERJ-145)		1900D		Dash 8-200		Total
US Airways Express			21		—		—		36		22		—		79
America West Express			18		—		24		—		4		6		52
United Express			15		15		—		—		—		10		40
Mesa Airlines			—		—		—		—		9		—		9
	Total		54		15		24		36		35		16		180

Code-Share Agreements

      Our airline subsidiaries have agreements with America West, US Airways, United Airlines and Midwest Airlines to use those carriers’ designation codes (commonly referred to as a “code-share agreements”). These code-share agreements allow use of the code-share partner’s flight designator code to identify flights and fares in computer reservation systems, permit use of logos, service marks, aircraft paint schemes and uniforms similar to the code-share partner’s and provide coordinated schedules and joint advertising. Our passengers traveling on flights operated pursuant to code-share agreements receive mileage credits in the respective frequent flyer programs of our code-share partners, and credits in those programs can be used on flights operated by the Company.

      The financial arrangement with our code-share partners involves either a revenue-guarantee or pro-rate arrangement. The America West (regional jet and Dash-8), United (regional jet and Dash-8), and US Airways (regional jet) code-share agreements are revenue-guarantee flying agreements. Under the terms of these flying agreements, the major carrier controls marketing, scheduling, ticketing, pricing and seat inventories. The Company receives a guaranteed payment based upon a fixed minimum monthly amount plus amounts related to departures and block hours flown in addition to direct reimbursement of expenses such as fuel, landing fees and insurance. Among other advantages, revenue-guarantee arrangements reduce the Company’s exposure to fluctuations in passenger traffic and fare levels, as well as fuel prices. The US Airways, Midwest Airlines and America West Beechcraft 1900D turboprop code-share agreements are pro-rate agreements, for which the Company receives an allocated portion of each passenger’s fare and pays all of the costs of transporting the passenger.

      The following table summarizes our available seat miles (“ASMs”) flown and revenue recognized under our code-share agreements for the years ended September 30, 2004 and 2003:

	Fiscal 2004								Fiscal 2003
					Passenger								Passenger
	ASM’s				Revenue				ASM’s				Revenue
	In thousands
America West (Revenue-Guarantee)		2,983,969	42	%	$	323,889	37	%		2,012,185	45	%	$	252,181	44	%
US Airways (Revenue-Guarantee)		2,471,476	35	%		304,290	35	%		1,778,365	40	%		218,457	38	%
Frontier (Revenue-Guarantee)		55,949	1	%		7,440	1	%		154,544	3	%		19,199	3	%
United (Revenue-Guarantee)		1,269,454	18	%		171,493	20	%		20,487	1	%		6,101	1	%
America West (Pro-rate)		21,372	—			4,558	1	%		5,790	—			1,017	—
US Airways (Pro-rate)		211,195	3	%		47,177	5	%		295,726	7	%		63,205	11	%
Frontier (Pro-rate)		—	—			—	—			91,746	2	%		8,129	1	%
Mesa Airlines		94,269	1	%		9,568	1	%		94,864	2	%		9,293	2	%
Total		7,107,684			$	868,415				4,453,707			$	577,582

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America West Code-Sharing Agreement

Revenue-Guarantee

      As of September 30, 2004, we operated 24 CRJ-900, 18 CRJ-200, and six Dash-8 aircraft for America West under a revenue-guarantee code-share agreement. The code-share agreement provides for the Company to increase its aircraft fleet up to 38 CRJ-900s. In addition, America West has an option to increase its CRJ-900 fleet size to 58 aircraft. In exchange for providing flights and all other services under the agreement, we receive a fixed monthly minimum amount plus certain additional amounts based upon the number of flights flown and block hours performed during the month. America West also reimburses us for certain costs on an actual basis, including fuel costs, aircraft ownership and financing costs, landing fees, passenger liability and hull insurance, and aircraft property taxes, all as defined in the agreement. In addition, America West also provides, at no cost to Mesa, certain ground handling and customer service functions, as well as airport-related facilities and gates at America West hubs and cities where both carriers operate. We also receive a monthly payment from America West based on a percentage of revenue from flights that we operate under the code-share agreement. Under the amended code-share agreement, America West has the right to reduce the combined CRJ fleets utilized under the code-share agreement by one aircraft in any six-month period commencing in January 2007. In addition, beginning in February 2007, America West may eliminate the Dash-8 aircraft upon 180 days prior written notice. The code-share agreement terminates on June 30, 2012 unless America West elects to extend the contract for two years or exercises options to increase fleet size. The code-share agreement is subject to termination prior to that date in various circumstances including:

•  If our flight completion factor falls below a specified percentage for a specified period of time, subject to notice and cure rights;

•  If either America West or we become insolvent, file for bankruptcy or fail to pay our debts as they become due, the non-defaulting party may terminate the agreement;

•  Failure by us or America West to perform the covenants, conditions or provisions of the code-sharing agreement, subject to 15 days notice and cure rights;

•  If we or America West fails to make a payment when due, subject to ten business days notice and cure rights; or

•  If we are required by the FAA or the DOT to suspend operations and we have not resumed operations within three business days, except as a result of an emergency airworthiness directive from the FAA affecting all similarly equipped aircraft, America West may terminate the agreement.

Pro-Rate

      Pursuant to a turboprop code-share agreement with America West, we operated four Beechcraft 1900D turboprop aircraft in the Phoenix hub under a pro-rate revenue-sharing arrangement as of September 30, 2004. We control scheduling, inventory and pricing. We are allocated a portion of each passenger’s fare based on a standard industry formula and are required to pay all costs of transporting the passenger. The pro-rate agreement terminates on March 31, 2012 unless America West elects to extend the contract for successive one-year periods. The pro-rate agreement could also be terminated prior to the termination under similar circumstances as the revenue-guarantee agreement.

US Airways Code-Sharing Agreements

Revenue-Guarantee

      As of September 30, 2004, we operated 57 50-seat regional jets for US Airways under a code-sharing agreement. Under the jet code-share agreement, we provide US Airways Express service between US Airways hubs and cities designated by US Airways. In exchange for performing the flight services under the agreement, we receive from US Airways a fixed monthly minimum amount, plus certain additional amounts based upon the number of flights flown and block hours performed during the month. Additionally, certain costs incurred by Mesa in performing the flight services are “pass-through” costs, whereby US Airways agrees to reimburse

5

us for the actual amounts incurred for these items: insurance, property tax per aircraft, fuel and oil cost, catering cost and landing fees. We also receive a fixed profit margin based upon certain costs reimbursements under the agreement. In addition, US Airways also provides, at no cost to Mesa, certain ground handling and customer service functions, as well as, airport-related facilities and gates at US Airways hubs and cities. Twenty-seven of the fifty-seven jets must be in compliance with the “jets-for-jobs’ provisions in the US Airways pilot contract. “Jets-for-jobs’ is an agreement between Mesa, US Airways and their respective pilot unions in which furloughed US Airways pilots receive an agreed upon number of captain and first officer positions on certain aircraft added to the agreement. The code-share agreement for (i) the initial 32 ERJ-145s terminates on December 31, 2008, unless US Airways elects to exercise its option to extend the term for three years upon 12 months notice; and (ii) the additional 24 jets terminates in January 2013, unless US Airways elects to exercise its option to extend the term for two years upon 12 months notice. On November 19, 2003, the Company signed a Seventh Amendment to the US Airways code-share agreement in which the number of additional aircraft was increased from 24 jets to 27 jets. One of these aircraft was placed in service in the second quarter of fiscal 2004 and the remaining two were placed into revenue service in November 2004. Further, in January 2004, the Company signed an Eighth Amendment to the US Airways code-share agreement in which the additional aircraft was increased from 27 to 35 (for a total of 67). None of these additional aircraft have yet been placed in service at US Airways and the timing of such is subject to discussions between the Company and US Airways. However, US Airways has not yet assumed our code-share agreement in its bankruptcy proceeding and could choose to terminate this agreement at any time prior to its emergence from bankruptcy.

      Notwithstanding the foregoing, US Airways may terminate the code-share agreement at any time for cause upon 90 days notice and subject to our right to cure under any of the following conditions:

•  If we fail to retain or utilize the aircraft in the manner required under the jet code-share agreement.

•  If we admit liability or are found liable for serious safety infractions by the Federal Aviation Administration (“FAA”), a finding which leads to the suspension or revocation of Mesa’s operating certificate.

Pro-Rate

      Pursuant to a turboprop code-sharing agreement with US Airways, we operated 22 Beechcraft 1900D turboprop aircraft under a pro-rate revenue-sharing arrangement as of September 30, 2004. We control scheduling, inventory and pricing subject to US Airways’ concurrence that such service does not adversely affect its other operations in the region. We are allocated a portion of each passenger’s fare based on a standard industry formula and are required to pay all the costs of transporting the passenger. Additionally, we are required to pay certain franchise, marketing and reservation fees to US Airways.

      US Airways may terminate the turboprop agreement at any time for cause upon not less than five days notice under any of the following conditions:

•  If we fail to utilize the aircraft as specified in the agreements.

•  If we fail to achieve specified levels of operating performance in completion factors and on-time arrival performance.

•  If we fail to comply with the trademark license provisions of the agreement.

•  If we fail to perform the material terms, covenants or conditions of the code-sharing agreement.

•  Upon a change in our ownership or control without the written approval of US Airways.

      The turboprop code-share agreement terminates in October 2006, provided, however, most of the turboprop flying hub markets can be terminated by US Airways for any reason upon 180 days prior advance written notice.

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United Code-Sharing Agreement

      As of September 30, 2004, we operated 15 CRJ-200, 15 CRJ-700 and 10 Dash-8 aircraft for United under a code-sharing arrangement. The code-share agreement provides for the Company to increase its fleet to 30 70-seat regional aircraft (15 of which would be replacements for 15 CRJ-200s). In exchange for performing the flight services under the agreement, we receive from United a fixed monthly minimum amount, plus certain additional amounts based upon the number of flights flown and block hours performed during the month. Additionally, certain costs incurred by Mesa in performing the flight services are “pass-through” costs, whereby United agrees to reimburse us for the actual amounts incurred for these items: insurance, property tax per aircraft, fuel cost, oil cost, catering cost and landing fees. We also receive a profit margin based upon certain reimbursable costs under the agreement as well as our operational performance. The code-share agreement for (i) the ten Dash-8 aircraft terminates in July 2013 unless terminated by United Airlines by giving notice six months prior to the fifth anniversary, (ii) the 15 50-seat CRJ-200s terminates in July 2008, which can be accelerated up to two years at Mesa’s discretion, (iii) the 15 70-seat regional jets (to be delivered upon the withdrawal of the 50-seat regional jets) terminates ten years from delivery date, and (iv) the remaining 15 70-seat regional jets terminates in three tranches between December 31, 2011 and December 31, 2013. The code-share agreement is subject to termination prior to these dates in various circumstances including:

•  If certain operational performance factors fall below a specified percentage for a specified time, subject to notice and cure rights;

•  Failure by us to perform the material covenants, agreements, terms or conditions of the code-share agreement or similar agreements with United, subject to thirty (30) days notice and cure rights;

•  If either United or we become insolvent, file bankruptcy or fail to pay debts when due, the non-defaulting party may terminate the agreement.

Fleet Plans and Aircraft Manufacturer Relationships

Interim Financing of Aircraft

      Upon delivery of an aircraft from the manufacturer it is our customary business practice to enter into an interim financing arrangement with the manufacturer until such time as permanent financing as an operating lease or debt can be arranged. The interim financing period can be for up to six months after delivery of the aircraft. This practice allows us to take delivery of aircraft quicker while arranging permanent financing or structuring a sale of the aircraft through a sale-leaseback transaction with an independent third party.

      At September 30, 2004, we had $231.0 million in notes payable to an aircraft manufacturer for aircraft on interim financing. We had nine aircraft on interim financing with the manufacturer at September 30, 2004. These interim financing agreements are six months in length and provide for monthly interest only payments at LIBOR plus three percent. The current interim financing agreement with the manufacturer provides for the Company to have a maximum of 15 aircraft on interim financing at a given time. Subsequent to year end, we placed five of these aircraft on permanent financing as debt with a bank.

ERJ Program

      In June 1999, we entered into an agreement with Empresa Brasiliera de Aeronautica SA (“Embraer”) to acquire 36 Embraer ERJ-145 50-passenger regional jets. Mesa introduced the ERJ-145 aircraft into revenue service in the third quarter of fiscal 2000 as US Airways Express. As of September 30, 2004, we have taken delivery of all 36 ERJ-145s, which have been financed as operating leases with initial terms of 16.5 to 18 years. We also have options for 45 additional aircraft. In November 2004, our contract with Embraer was amended to extend the option exercise date to May 2005 for deliveries beginning in November 2006.

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CRJ Program

      In August 1996, we entered into an agreement (the “1996 BRAD Agreement”) with Bombardier Regional Aircraft Division (“BRAD”) to acquire 32 CRJ-200 50-passenger regional jet aircraft. The 32 aircraft have been delivered and are currently under permanent financing as operating leases with initial terms of 16.5 to 18.5 years.

      In May 2001, we entered into a second agreement with BRAD (the “2001 BRAD Agreement”) under which we committed to purchase a total of 15 CRJ-700s and 25 CRJ-900s. In January 2004, the Company exercised options to purchase 20 CRJ-900 aircraft (seven of which can be converted to CRJ-700 aircraft) reserved under the option provision of the 2001 BRAD Agreement. The transaction includes standard product support provisions, including training, preferred pricing on initial inventory provisioning, maintenance and technical publications. We have accepted delivery of 15 CRJ-700s under the 2001 BRAD Agreement. We are the launch customer of the CRJ-900 and as of September 30, 2004, have taken delivery of 24 CRJ-900 aircraft. In addition to the firm orders, we have an option to acquire an additional 60 CRJ-700 or CRJ-900 regional jets. In conjunction with the 2001 BRAD Agreement, we had $15.0 million on deposit with BRAD, which was included with lease and equipment deposits at September 30, 2004.

      In 2004, we leased nine used CRJ-200 and CRJ-100 aircraft in order to meet required deliveries under our code-share agreements. The aircraft are financed as operating leases.

      The following table summarizes our jet fleet status and fleet expansion plans currently under contract with aircraft manufacturers for the periods indicated:

				CRJ-700		CRJ-900							ERJ-145
		CRJ-		Firm		Firm			CRJ-700		CRJ-900		Firm		ERJ-145		Cumulative
		200/100		Orders		Orders			Options		Options		Orders		Options		Total
Delivered:
	At 9/30/2004		54		15		24			—		—		36		—		129
Scheduled deliveries:
	Fiscal 2005		—		—		14			—		7		—		—		150
	Fiscal 2006		—		—		7	*		5		—		—		2		164
	Fiscal 2007		—		—		—			8		—		—		12		184
	Fiscal 2008		—		—		—			—		—		—		12		196
	Fiscal 2009		—		—		—			—		—		—		12		208
	Fiscal 2010 and Beyond		—		—		—			20		20		—		7		255
Total			54		15		45			33		27		36		45

*  These aircraft can be converted to CRJ-700s at our option upon sufficient notice to Bombardier.

Beechcraft 1900D

      As of September 30, 2004, we owned 35 Beechcraft 1900D aircraft. Subsequent to September 30, 2004, we executed an agreement to lease four of these aircraft to Gulfstream International Airlines, Inc. for a five-year term.

Dash-8

      As of September 30, 2004, we operated 16 leased Dash-8 aircraft.

Marketing

      Our flight schedules are structured to facilitate the connection of our passengers with the flights of our code-share partners at their hub airports and to maximize local and connecting service to other carriers.

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      Under the America West, US Airways and United revenue-guarantee code-share agreements, market selection, pricing and yield management functions are performed by our respective partners. Our role is simply to operate our fleet in the safest and most reliable manner in exchange for fees paid under a generally fixed payment schedule. We intend to expand our operations performed pursuant to these revenue-guarantee agreements.

      The Company’s market selection process for its B1900 turboprop operations, outside the Essential Air Service program flights, follows an in-depth analysis on a route-by-route basis and is followed by a review and approval process in a joint effort with US Airways or America West, as the case may be, regarding the level of service and fares. We believe that this selection process enhances the likelihood of profitability in a given market.

      Under our code-share agreements, the code-share partner coordinates advertising and public relations within their respective systems. In addition, our traffic is impacted by the major airline partners’ advertising programs in regions outside those served by us, with the major partners’ customers becoming our customers as a result of through fares. Under pro-rate code-share arrangements, our passengers also benefit from through fare ticketing with the major airline partners and greater accessibility to our flights on computer reservation systems and in the Official Airline Guide.

      Our pro-rate agreements and independent flights are promoted through, and our revenues are generally believed to benefit from, listings in computer reservation systems, the Official Airline Guide and through direct contact with travel agencies and corporate travel departments. Our independent operations utilize SABRE, a computerized reservation system widely used by travel agents, corporate travel offices and other airlines. The reservation systems of our code-share partners are also utilized in each of our other operations through their respective code-share agreements. We also pay booking fees to owners of other computerized reservation systems based on the number of independent and pro-rate passengers booked by travel agents using such systems. We believe that we have good relationships with the travel agents serving our passengers.

Competition

      The airline industry is highly competitive and volatile. Airlines compete in the areas of pricing, scheduling (frequency and timing of flights), on-time performance, type of equipment, cabin configuration, amenities provided to passengers, frequent flyer plans, and the automation of travel agent reservation systems. Further, because of the Airline Deregulation Act, airlines are currently free to set prices and establish new routes without the necessity of seeking governmental approval. At the same time, deregulation has allowed airlines to abandon unprofitable routes where the affected communities may be left without air service.

      We believe that the Airline Deregulation Act facilitated our entry into scheduled air service markets and allows us to compete on the basis of service and fares, thus causing major carriers to seek out further contractual agreements with carriers like us as a way of expanding their respective networks. However, the Airline Deregulation Act makes the entry of other competitors possible, some of which may have substantial financial resources and experience, creating the potential for intense competition among regional air carriers in our markets.

      We believe our code-share agreements provide a significant competitive advantage in hub airports where our major partner has a predominant share of the market. The ability to control connecting passenger traffic by offering superior service creates difficulty for other regional airlines wishing to compete at such hubs. In addition to enhanced competitiveness offered by the code-share agreements, we compete with other airlines by offering frequent flights, flexible schedules and numerous fare levels.

Fuel

      Historically, we have not experienced problems with the availability of fuel, and believe that we will be able to obtain fuel in quantities sufficient to meet our existing and anticipated future requirements at competitive prices. Standard industry contracts generally do not provide protection against fuel price increases, nor do they ensure availability of supply. However, our revenue-guarantee code-share agreements with

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America West, United and US Airways (regional jet) allow fuel used in the performance of the agreements to be billed to the code-share partner, thereby reducing our exposure to fuel price fluctuations. In fiscal 2004, approximately 92% of the Company’s fuel purchases was associated with its America West, United and US Airways (regional jet) code-share agreements. A substantial increase in the price of jet fuel, to the extent our fuel costs are not reimbursed, or the lack of adequate fuel supplies in the future, may have a material adverse effect on the Company’s business, financial condition, results of operations and liquidity.

Maintenance of Aircraft and Training

      All mechanics and avionics specialists employed by us have the appropriate training and experience and hold the required licenses issued by the FAA. Using a combination of FAA-certified maintenance vendors and our own personnel and facilities, the Company maintains its aircraft on a scheduled and “as-needed” basis. We emphasize preventive maintenance and inspect our aircraft engines and airframes as required. We also maintain an inventory of spare parts specific to the aircraft types we fly. We provide periodic in-house and outside training for our maintenance and flight personnel and also take advantage of factory training programs that are offered when acquiring new aircraft.

Insurance

      We carry types and amounts of insurance customary in the regional airline industry, including coverage for public liability, passenger liability, property damage, product liability, aircraft loss or damage, baggage and cargo liability and workers’ compensation.

      As a result of the terrorist attacks on September 11, 2001, aviation insurers have significantly reduced the maximum amount of insurance coverage available to commercial air carriers for war-risk coverage, while at the same time, significantly increasing the premiums for this coverage as well as for aviation insurance in general. Given the significant increase in insurance costs, the federal government is currently providing insurance assistance under the Air Transportation Safety and System Stabilization Act. In addition, the federal government has issued war-risk coverage to U.S. air carriers that is generally renewable for 60-day periods. However, the availability of aviation insurance is not guaranteed and our inability to obtain such coverage at affordable rates may result in the grounding of our aircraft. Insurance costs are reimbursed under the terms of our code-share agreement with America West, United Airlines and our regional jet service agreement with US Airways.

Employees

      As of September 30, 2004, we employed approximately 5,000 employees. Approximately 2,700 of our employees are represented by various labor organizations. Our continued success is partly dependent on our ability to continue to attract and retain qualified personnel. Historically, we have had no difficulty attracting qualified personnel to meet our requirements.

      Mesa Airline’s flight attendants are represented by the Association of Flight Attendants (“AFA”). Mesa Airline’s contract with the AFA becomes amendable in June 2006. Our pilots are represented by the Air Line Pilot Association (“ALPA”). Our contract with ALPA becomes amendable in September 2007.

      Although not currently observing high turnover, pilot turnover at times is a significant issue among regional carriers when major carriers are hiring experienced commercial pilots away from regional carriers. The addition of aircraft, especially new aircraft types, can result in pilots upgrading between aircraft types and becoming unavailable for duty during the extensive training periods required. No assurances can be made that pilot turnover and unavailability will not be a significant problem in the future, particularly if major carriers expand their operations. Similarly, there can be no assurance that sufficient numbers of new pilots will be available to support any future growth.

      No other Mesa subsidiaries are parties to any other collective bargaining agreement or union contracts.

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Essential Air Service Program

      The Essential Air Service (“EAS”) program administered by the United States Department of Transportation (“DOT”) guarantees a minimum level of air service in certain communities, predicated on predetermined guidelines set forth by Congress. Based on these guidelines, the DOT subsidizes air service to communities that might not otherwise have air service. At September 30, 2004, we provided service to 30 such cities for an annualized subsidy of approximately $21.3 million. EAS rates are normally set for two-year contract periods for each city. There is no guarantee that we will continue to receive subsidies for the cities we serve. The DOT may request competitive proposals from other airlines at the end of the contract period for EAS service to a particular city. Proposals, when requested, are evaluated on, among other things, level of service provided, subsidy requested, fitness of the applicant and comments from the communities served. If the funding under this program is terminated for any of the cities served by the Company, in all likelihood we would not continue to fly in these markets, and as a result, we would be forced to find alternative uses for the Beechcraft 1900D 19-seat turboprop aircraft affected.

Regulation

      As an interstate air carrier, we are subject to the economic jurisdiction, regulation and continuing air carrier fitness requirements of the DOT. Such requirements include minimum levels of financial, managerial and regulatory fitness. The DOT is authorized to establish consumer protection regulations to prevent unfair methods of competition and deceptive practices, to prohibit certain pricing practices, to inspect a carrier’s books, properties and records, and to mandate conditions of carriage. The DOT also has the power to bring proceedings for the enforcement of air carrier economic regulations, including the assessment of civil penalties, and to seek criminal sanctions.

      We are subject to the jurisdiction of the FAA with respect to its aircraft maintenance and operations, including equipment, ground facilities, dispatch, communication, training, weather observation, flight personnel and other matters affecting air safety. To ensure compliance with its regulations, the FAA requires airlines to obtain an operating certificate, which is subject to suspension or revocation for cause, and provides for regular inspections.

      Effective March 1997, the FAA required that regional airlines with aircraft of ten or more passenger seats operating under FAR Part 135 rules to begin operating those aircraft under FAR Part 121 regulations. The Company, which at one time was one of the largest regional airlines operating under FAR Part 135 regulations, completed the transition to Part 121 within the FAA’s deadline. These requirements have resulted in a significant increase in Air Midwest’s costs, adversely affecting our ability to profitably serve certain markets. Such increased costs are primarily related to additional training, dispatch and maintenance procedures. We continue to work to minimize the cost of these new operating procedures while fully complying with FAR Part 121 operating requirements.

      We are subject to various federal and local laws and regulations pertaining to other issues of environmental protocol. We believe we are in compliance with all governmental laws and regulations regarding environmental protection.

      We are also subject to the jurisdiction of the Federal Communications Commission with respect to the use of its radio facilities and the United States Postal Service with respect to carriage of United States mail.

      Local governments in certain markets have adopted regulations governing various aspects of aircraft operations, including noise abatement and curfews.

Available Information

      We maintain a website where additional information concerning our business can be found. The address of that website is www.mesa-air.com. We make available free of charge on our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as soon as reasonably practicable after we electronically file or furnish such materials to the SEC.

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Risk Factors

      The following risk factors, in addition to the information discussed elsewhere herein, should be carefully considered in evaluating us and our business:

     Risks Related to Our Business

The negative impact of the September 11, 2001 terrorist attacks and the resulting government responses could be material to our financial condition, results of operations and prospects.

      The terrorist attacks of September 11, 2001 were highly publicized. The impacts that these events will continue to have on the airline industry in general, and on us in particular, is not known at this time, but is expected to include a substantial impact on our operations due to:

•  a reduction in the demand for travel in the near and mid-term until public confidence in the air transportation system is restored;

•  an increase in costs due to enhanced security measures and government directives in response to the terrorist attacks;

•  an increase in the cost of aviation insurance in general, and the cost and availability of coverage for acts of war, terrorism, hijacking, sabotage and similar acts of peril in particular; and

•  an increase in airport rents and landing fees.

      In addition, we expect that the general increase in hostilities relating to reprisals against terrorist organizations and the continued threat of further terrorist attacks will continue to negatively impact our revenues and costs in the near and mid-term. The extent of the impact that the terrorist attacks and their aftermath will have on our operations, and the sufficiency of our financial resources to absorb this impact, will depend on a number of factors, including:

•  the adverse impact that terrorist attacks, and the resulting government responses, will have on the travel industry and the economy in general;

•  the potential increase in fuel costs and decrease in availability of fuel if oil-producing countries are affected by the aftermath of the terrorist attacks, including the government’s responses, and our ability to manage this risk in connection with that part of our operations where our fuel costs are not reimbursed by our code-share partners under the terms of our code-share agreements;

•  our ability to reduce our operating costs and conserve financial resources, taking into account the cost increases (including significant increases in the cost of aviation insurance) expected to result from the aftermath of the terrorist attacks and the government’s responses;

•  any resulting decline in the value of the aircraft in our fleet;

•  our ability to raise additional financing, if necessary, taking into account our current leverage and the limitations imposed by the terms of our existing indebtedness;

•  the number of crew members who may be called for duty in the reserve forces of the armed services and the resulting impact on our ability to operate as planned; and

•  the scope and nature of any future terrorist attacks.

We are dependent on our agreements with our code-share partners.

      We depend on relationships created by our code-share agreements. We derive a significant portion of our consolidated passenger revenues from our revenue guarantee code-share agreements with America West, United Airlines, and US Airways. Our code-share partners have certain rights to cancel the applicable code-share agreement upon the occurrence of certain events or the giving of appropriate notice, subject to certain conditions. Although no notice has been given to date that any party intends to cancel these contracts, there can be no assurance that they will not serve notice at a later date of their intention to cancel, forcing us to stop

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selling those routes with the applicable partner’s code and potentially reducing our traffic and revenue. In addition, our code-share agreement with America West allows America West, subject to certain restrictions, to reduce the combined CRJ fleets utilized under the code-share agreement by one aircraft in any six-month period commencing in January 2007. In addition, beginning in February 2007, America West may eliminate the Dash-8 aircraft upon 180 days prior written notice. America West has used this provision to reduce the number of aircraft covered by the code-share agreement and there can be no assurance that, commencing in January 2007, they will not continue to further reduce the number of covered aircraft.

      In addition, because a majority of our operating revenues are currently generated under revenue-guarantee code-share agreements, if any one of them is terminated, our operating revenues and net income could be materially adversely affected unless we are able to enter into satisfactory substitute arrangements or, alternatively, fly under our own flight designator code, including obtaining the airport facilities and gates necessary to do so. For the year ended September 30, 2004, our America West code-share agreement accounted for 38% of our consolidated passenger revenues, our US Airways code-share agreement accounted for 40% of our consolidated passenger revenues and our United code-share agreement accounted for 20% of our consolidated passenger revenues. Any material modification to, or termination of, our code-share agreements with any of these partners could have a material adverse effect on our financial condition, the results of our operations and the price of our common stock. Should any of our revenue-guarantee code-share agreements be terminated, we cannot assure you that we would be able to enter into substitute code-share arrangements, that any such arrangements would be as favorable to us as the current code-share agreements or that we could successfully fly under our own flight designator code.

If our code-share partners or other regional carriers experience events that negatively impact their financial strength or operations, our operations also may be negatively impacted.

      We are directly affected by the financial and operating strength of our code-share partners. Any events that negatively impact the financial strength of our code-share partners or have a long-term effect on the use of our code-share partners by airline travelers would likely have a material adverse effect on our business, financial condition and results of operations. In the event of a decrease in the financial or operational strength of any of our code-share partners, such partner may seek to reduce, or be unable to make, the payments due to us under their code-share agreement. In addition, they may reduce utilization of our aircraft. Although there are certain monthly guaranteed payment amounts, there are no minimum levels of utilization specified in the code-share agreements. UAL Corp., the parent of our code-share partner United Airlines, has not emerged from reorganization under Chapter 11 of the U.S. Bankruptcy Code. Additionally, US Airways, which accounted for 40% of our consolidated passenger revenue for the fiscal year ended September 30, 2004, has filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The financial performance of US Airways and United could directly affect their ability to perform under our code-share agreements with them. Additionally, US Airways has not yet assumed our code-share agreement in its bankruptcy proceeding and could choose to terminate this agreement. If any of our other current or future code-share partners become bankrupt, our code-share agreement with such partner may not be assumed in bankruptcy and would be terminated. This and other such events could have an adverse effect on our business, financial condition and results of operations. In addition, any negative events that occur to other regional carriers and that affect public perception of such carriers generally could also have a material adverse effect on our business, financial condition and results of operations.

Our code-share partners may expand their direct operation of regional jets thus limiting the expansion of our relationships with them.

      We depend on major airlines like America West, United Airlines and US Airways electing to contract with us instead of purchasing and operating their own regional jets. However, these major airlines possess the resources to acquire and operate their own regional jets instead of entering into contracts with us or other regional carriers. We have no guarantee that in the future our code-share partners will choose to enter into contracts with us instead of purchasing their own regional jets or entering into relationships with competing regional airlines. A decision by America West, United Airlines, or US Airways to phase out our

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contract-based code-share relationships or to enter into similar agreements with competitors could have a material adverse effect on our business, financial condition or results of operations. In addition to Mesa Airlines, US Airways and United Airlines have similar code-share agreements with other competing regional airlines. Mesa Airlines is currently America West’s only code-share partner.

If we experience a lack of labor availability or strikes, it could result in a decrease of revenues due to the cancellation of flights.

      The operation of our business is significantly dependent on the availability of qualified employees, including, specifically, flight crews, mechanics and avionics specialists. Historically, regional airlines have experienced high pilot turnover from time to time as a result of air carriers operating larger aircraft hiring their commercial pilots. Further, the addition of aircraft, especially new aircraft types, can result in pilots upgrading between aircraft types and becoming unavailable for duty during the required extensive training periods. There can be no assurance that we will be able to maintain an adequate supply of qualified personnel or that labor expenses will not increase.

      At September 30, 2004, we had approximately 5,000 employees, a significant number of whom are members of labor unions, including ALPA and the AFA. Our collective bargaining agreement with ALPA becomes amendable in September 2007 and our collective bargaining agreement with the AFA becomes amendable in June 2006. The inability to negotiate acceptable contracts with existing unions as agreements expire or with new unions could result in work stoppages by the affected workers, lost revenues resulting from the cancellation of flights and increased operating costs as a result of higher wages or benefits paid to union members. We cannot predict which, if any, other employee groups may seek union representation or the outcome or the terms of any future collective bargaining agreement and therefore the effect, if any, on our financial condition and results of operations. If negotiations with unions over collective bargaining agreements prove to be unsuccessful, following specified “cooling off” periods, the unions may initiate a work action, including a strike, which could have a material adverse effect on our business, financial condition and results of operations.

Increases in our labor costs, which constitute a substantial portion of our total operating costs, will cause our earnings to decrease.

      Labor costs constitute a significant percentage of our total operating costs, and we have experienced pressure to increase wages and benefits for our employees. Under our code-share agreements, our reimbursement rates contemplate labor costs that increase on a set schedule generally tied to an increase in the consumer price index or the actual increase in the contract. We are responsible for our labor costs, and we may not be entitled to receive increased payments under our code-share agreements if our labor costs increase above the assumed costs included in the reimbursement rates. As a result, a significant increase in our labor costs above the levels assumed in our reimbursement rates could result in a material reduction in our earnings.

If new airline regulations are passed or are imposed upon our operations, we may incur increased operating costs and experience a decrease in earnings.

      Laws and regulations, such as those described below, have been proposed from time to time that could significantly increase the cost of our operations by imposing additional requirements or restrictions on our operations. We cannot predict what laws and regulations will be adopted or what changes to air transportation agreements will be effected, if any, or how they will affect us, and there can be no assurance that laws or regulations currently proposed or enacted in the future will not increase our operating expenses and therefore adversely affect our financial condition and results of operations.

      As an interstate air carrier, we are subject to the economic jurisdiction, regulation and continuing air carrier fitness requirements of the Department of Transportation, which include required levels of financial, managerial and regulatory fitness. The Department of Transportation is authorized to establish consumer protection regulations to prevent unfair methods of competition and deceptive practices, to prohibit certain pricing practices, to inspect a carrier’s books, properties and records, to mandate conditions of carriage and to

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suspend an air carrier’s fitness to operate. The DOT also has the power to bring proceedings for the enforcement of air carrier economic regulations, including the assessment of civil penalties, and to seek criminal sanctions.

      We are also subject to the jurisdiction of the FAA with respect to our aircraft maintenance and operations, including equipment, ground facilities, dispatch, communication, training, weather observation, flight personnel and other matters affecting air safety. To ensure compliance with its regulations, the FAA requires airlines to obtain an operating certificate, which is subject to suspension or revocation for cause, and provides for regular inspections.

      We incur substantial costs in maintaining our current certifications and otherwise complying with the laws, rules and regulations to which we are subject. We cannot predict whether we will be able to comply with all present and future laws, rules, regulations and certification requirements or that the cost of continued compliance will not significantly increase our costs of doing business.

      The FAA has the authority to issue mandatory orders relating to, among other things, the grounding of aircraft, inspection of aircraft, installation of new safety-related items and removal and replacement of aircraft parts that have failed or may fail in the future. A decision by the FAA to ground, or require time-consuming inspections of, or maintenance on, all or any of our turboprops or regional jets, for any reason, could negatively impact our results of operations.

      In addition to state and federal regulation, airports and municipalities enact rules and regulations that affect our operations. From time to time, various airports throughout the country have considered limiting the use of smaller aircraft, such as Embraer or Canadair regional jets, at such airports. The imposition of any limits on the use of our regional jets at any airport at which we operate could interfere with our obligations under our code-share agreements and severely interrupt our business operations.

Fluctuations in fuel costs could adversely affect our operating expenses and results.

      The price and supply of jet fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, regional production patterns and environmental concerns. Although approximately 92% of our fuel costs for the fiscal year ended September 30, 2004 was reimbursed by our code-share partners, price escalations or reductions in the supply of jet fuel will increase our operating expenses and, to the extent such fuel costs are not reimbursed by our code-share partners, could cause our operating results and net income to decline.

lf additional security and safety measures regulations are adopted, we may incur increased operating costs and experience a decrease in earnings.

      Congress recently adopted increased safety and security measures designed to increase airline passenger security and protect against terrorist acts. Such measures have resulted in additional operating costs to the airline industry. The Aviation Safety Commission’s report recommends the adoption of further measures aimed at improving the safety and security of air travel. We cannot forecast what additional security and safety requirements may be imposed on our operations in the future or the costs or revenue impact that would be associated with complying with such requirements, although such costs and revenue impact could be significant. To the extent that the costs of complying with any additional safety and security measures are not reimbursed by our code-share partners, our operating results and net income could be adversely affected.

If our operating costs increase as our aircraft fleet ages and we are unable to pass along such costs, our earnings will decrease.

      As our fleet of aircraft age, the cost of maintaining such aircraft, if not replaced, will likely increase. There can be no assurance that costs of maintenance, including costs to comply with aging aircraft requirements, will not materially increase in the future. Any material increase in such costs could have a material adverse effect on our business, financial condition and results of operations. Because many aircraft components are required to be replaced after specified numbers of flight hours or take-off and landing cycles,

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and because new aviation technology may be required to be retrofitted, the cost to maintain aging aircraft will generally exceed the cost to maintain newer aircraft. We believe that the cost to maintain our aircraft in the long-term will be consistent with industry experience for these aircraft types and ages used by comparable airlines.

      We believe that our aircraft are mechanically reliable based on the percentage of scheduled flights completed and as of September 30, 2004 the average age of our regional jet fleet is 4.0 years. However, there can be no assurance that such aircraft will continue to be sufficiently reliable over longer periods of time. Furthermore, any public perception that our aircraft are less than completely reliable could have a material adverse effect on our business, financial condition and results of operations.

Our fleet expansion program will require a significant increase in our leverage and the financing we require may not be available on favorable terms or at all.

      The airline business is very capital intensive and, as a result, many airline companies are highly leveraged. For the year ended September 30, 2004, our debt service payments totaled $41.0 million and our lease payments totaled $179.4 million. We have significant lease obligations with respect to our aircraft and ground facilities, which aggregated approximately $2.0 billion at September 30, 2004. As of September 30, 2004, our growth strategy involves the acquisition of 14 more Bombardier regional jets during fiscal 2005. As of September 30, 2004, we had permanently financed 30 of the 39 CRJ-700 and CRJ-900 aircraft delivered under the 2001 BRAD agreement; the remaining aircraft are subject to interim financing. We may utilize interim financing provided by the manufacturer and have the ability to fund up to 15 aircraft at any one time under this facility. Our ability to obtain additional interim financing is contingent upon obtaining permanent financing for the aircraft already delivered. There are no assurances that we will be able to obtain permanent financing for future aircraft deliveries.

      There can be no assurance that our operations will generate sufficient cash flow to make such payments or that we will be able to obtain financing to acquire the additional aircraft necessary for our expansion. If we default under our loan or lease agreements, the lender/lessor has available extensive remedies, including, without limitation, repossession of the respective aircraft and, in the case of large creditors, the effective ability to exert control over how we allocate a significant portion of our revenues. Even if we are able to timely service our debt, the size of our long-term debt and lease obligations could negatively affect our financial condition, results of operations and the price of our common stock in many ways, including:

•  increasing the cost, or limiting the availability of, additional financing for working capital, acquisitions or other purposes;

•  limiting the ways in which we can use our cash flow, much of which may have to be used to satisfy debt and lease obligations; and

•  adversely affecting our ability to respond to changing business or economic conditions or continue our growth strategy.

      If we need funds and cannot raise them on acceptable terms, we may be unable to realize our current plans or take advantage of unanticipated opportunities and could be required to slow our growth.

We depend on Bombardier to supply us with the aircraft we require to expand.

      As of September 30, 2004, we are obligated under our code-share agreements to place an additional 14 CRJ 900 regional jets over the next 12 months. As of September 30, 2004, we have firm orders with Bombardier for an additional 21 regional jets. We also have options to acquire an additional 20 regional jets that are exercisable through 2007 and 40 regional jets that are exercisable in 2010 and beyond.

      We are dependent on Bombardier as manufacturer of these jets and certain factors may limit or preclude our ability to obtain these regional jets, including:

•  Bombardier could refuse, or may not be financially able, to perform its obligations under the applicable purchase agreement for the delivery of the regional jets; and

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•  a fire, strike or other event could occur that affects Bombardier’s ability to completely or timely fulfill its contractual obligations.

      Any disruption or change in the delivery schedule of these regional jets would affect our overall operations and our ability to fulfill our obligations under our code-share agreements.

      Our operations could be materially adversely affected by the failure or inability of Bombardier or any key component manufacturers to provide sufficient parts or related support services on a timely basis or by an interruption of fleet service as a result of unscheduled or unanticipated maintenance requirements for our aircraft.

Reduced utilization levels of our aircraft under the revenue-guarantee agreements would adversely impact our revenues and earnings.

      Even though our revenue-guarantee agreements require a fixed amount per month to compensate us for our fixed costs, if our aircraft are underutilized (including taking into account the stage length and frequency of our scheduled flights) we will lose the opportunity to receive a margin on the variable costs of flights that would have been flown if our aircraft were more fully utilized.

If we incur problems with any of our third-party service providers, our operations could be adversely affected by a resulting decline in revenue or negative public perception about our services.

      Our reliance upon others to provide essential services on behalf of our operations may result in the relative inability to control the efficiency and timeliness of contract services. We have entered into agreements with contractors to provide various facilities and services required for our operations, including aircraft maintenance, ground facilities, baggage handling and personnel training. It is likely that similar agreements will be entered into in any new markets we decide to serve. All of these agreements are subject to termination after notice. Any material problems with the efficiency and timeliness of contract services could have a material adverse effect on our business, financial condition and results of operations.

We are at risk of losses and adverse publicity stemming from any accident involving any of our aircraft.

      If one of our aircraft were to crash or be involved in an accident, we could be exposed to significant tort liability.

      On January 8, 2003, US Airways Express Flight 5481, operated by Air Midwest, crashed shortly after takeoff from Charlotte Douglas International Airport en route to Greenville/ Spartanburg, S.C. The estates of the passengers from Flight 5481, or the passengers, or their estates, of any other future aircraft accident may seek to recover damages for death or injury. Although we believe our present insurance coverage is sufficient to cover any claims arising from the crash of Flight 5481, there can be no assurance that the insurance we carry to cover damages arising from these or any future accidents will be adequate. Accidents could also result in unforeseen mechanical and maintenance costs. In addition, any accident involving an aircraft that we operate could create a public perception that our aircraft are not safe, which could result in air travelers being reluctant to fly on our aircraft. To the extent a decrease is associated with our operations not covered by our code-share agreements, such a decrease could have a material adverse affect on our business, financial condition or results of operations.

If we become involved in any material litigation or any existing litigation is concluded in a manner adverse to us, our earnings may decline.

      We are, from time to time, subject to various legal proceedings and claims, either asserted or unasserted. Any such claims, whether with or without merit, could be time-consuming and expensive to defend and could divert management’s attention and resources. There can be no assurance regarding the outcome of current or future litigation.

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

      Our success depends to a large extent on the continued service of our executive management team. We have employment agreements with certain executive officers, but it is possible that members of executive management may leave us. Departures by our executive officers could have a negative impact on our business, as we may not be able to find suitable management personnel to replace departing executives on a timely basis. We do not maintain key-man life insurance on any of our executive officers.

We may experience difficulty finding, training and retaining employees.

      Our business is labor-intensive, we require large numbers of pilots, flight attendants, maintenance technicians and other personnel and we anticipate that our expansion plans will require us to recruit, train and retain a significant number of new employees over the next several years.

      The airline industry has from time to time experienced a shortage of qualified personnel, specifically pilots and maintenance technicians. In addition, as is common with most of our competitors, we have faced considerable turnover of our employees. Although our employee turnover has decreased significantly since September 11, 2001, our pilots, flight attendants and maintenance technicians often leave to work for larger airlines, which generally offer higher salaries and better benefit programs than regional airlines are financially able to offer. Should the turnover of employees, particularly pilots and maintenance technicians, sharply increase, the result will be significantly higher training costs than otherwise would be necessary. We cannot assure you that we will be able to recruit, train and retain the qualified employees that we need to carry out our expansion plans or replace departing employees. If we are unable to hire and retain qualified employees at a reasonable cost, we may be unable to complete our expansion plans, which could have a material adverse affect our financial condition, results of operations and the price of our common stock.

     Risks Related to Our Industry

If competition in the airline industry increases, we may experience a decline in revenue.

      Increased competition in the airline industry as well as competitive pressure on our code-share partners or in our markets could have a material adverse effect on our business, financial condition and results of operation. The airline industry is highly competitive. The earnings of many of the airlines have historically been volatile. The airline industry is susceptible to price discounting, which involves the offering of discount or promotional fares to passengers. Any such fares offered by one airline are normally matched by competing airlines, which may result in lower revenue per passenger, i.e., lower yields, without a corresponding increase in traffic levels. Also, in recent years several new carriers have entered the industry, typically with low cost structures. In some cases, new entrants have initiated or triggered price discounting. The entry of additional new major or regional carriers in any of our markets, as well as increased competition from or the introduction of new services by established carriers, could negatively impact our financial condition and results of operations.

      Our reliance on our code-share agreements with our major airline partners for the majority of our revenue means that we must rely on the ability of our code-share partners to adequately promote their respective services and to maintain their respective market share. Competitive pressures by low-fare carriers and price discounting among major airlines could have a material adverse effect on our code-share partners and therefore adversely affect our business, financial condition and results of operations.

      The results of operations in the air travel business historically fluctuate in response to general economic conditions. The airline industry is sensitive to changes in economic conditions that affect business and leisure travel and is highly susceptible to unforeseen events, such as political instability, regional hostilities, economic recession, fuel price increases, inflation, adverse weather conditions or other adverse occurrences that result in a decline in air travel. Any event that results in decreased travel or increased competition among airlines could have a material adverse effect on our business, financial condition and results of operations.

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      In addition to traditional competition among airlines, the industry faces competition from ground and sea transportation alternatives. Video teleconferencing and other methods of electronic communication may add a new dimension of competition to the industry as business travelers seek lower-cost substitutes for air travel.

The airline industry is heavily regulated.

      Airlines are subject to extensive regulatory and legal compliance requirements, both domestically and internationally, that involve significant costs. In the last several years, the FAA has issued a number of directives and other regulations relating to the maintenance and operation of aircraft that have required us to make significant expenditures. FAA requirements cover, among other things, retirement of older aircraft, security measures, collision avoidance systems, airborne wind shear avoidance systems, noise abatement, commuter aircraft safety and increased inspection and maintenance procedures to be conducted on older aircraft.

      We incur substantial costs in maintaining our current certifications and otherwise complying with the laws, rules and regulations to which we are subject. We cannot predict whether we will be able to comply with all present and future laws, rules, regulations and certification requirements or that the cost of continued compliance will not significantly increase our costs of doing business, to the extent such costs are not reimbursed by our code-share partners.

      The FAA has the authority to issue mandatory orders relating to, among other things, the grounding of aircraft, inspection of aircraft, installation of new safety-related items and removal and replacement of aircraft parts that have failed or may fail in the future. A decision by the FAA to ground, or require time consuming inspections of or maintenance on, all or any of our aircraft, for any reason, could negatively impact our results of operations.

      In addition to state and federal regulation, airports and municipalities enact rules and regulations that affect our operations. From time to time, various airports throughout the country have considered limiting the use of smaller aircraft at such airports. The imposition of any limits on the use of our aircraft at any airport at which we operate could interfere with our obligations under our code-share agreements and severely interrupt our business operations.

      Additional laws, regulations, taxes and airport rates and charges have been proposed from time to time that could significantly increase the cost of airline operations or reduce revenues. For instance, “passenger bill of rights” legislation was introduced in Congress in 2001 which would have, among other things, required the payment of compensation to passengers as a result of certain delays and limited the ability of carriers to prohibit or restrict usage of certain tickets. If adopted, these measures could have had the effect of raising ticket prices, reducing revenue and increasing costs. Restrictions on the ownership and transfer of airline routes and takeoff and landing slots have also been proposed. In addition, as a result of the terrorist attacks in New York and Washington, D.C. in September 2001, the FAA has imposed more stringent security procedures on airlines. We cannot predict what other new regulations may be imposed on airlines and we cannot assure you that laws or regulations enacted in the future will not materially adversely affect our financial condition, results of operations and the price of our common stock.

The airline industry has been subject to a number of strikes which could affect our business.

      The airline industry has been negatively impacted by a number of labor strikes. Any new collective bargaining agreement entered into by other regional carriers may result in higher industry wages and add increased pressure on us to increase the wages and benefits of our employees. Furthermore, since each of our code-share partners is a significant source of revenue, any labor disruption or labor strike by the employees of any one of our code-share partners could have a material adverse effect on our financial condition, results of operations and the price of our common stock.

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     Risks Related to Our Common Stock

Provisions in our charter documents might deter acquisition bids for us.

      Our articles of incorporation and bylaws contain provisions that, among other things:

•  authorize our board of directors to issue preferred stock ranking senior to our common stock without any action on the part of the shareholders;

•  establish advance notice procedures for shareholder proposals, including nominations of directors, to be considered at shareholders’ meetings;

•  authorize a majority of our board of directors, in certain circumstances, to fill vacancies on the board resulting from an increase in the authorized number of directors or from vacancies;

•  restrict the ability of shareholders to modify the number of authorized directors; and

•  restrict the ability of stockholders to call special meetings of shareholders.

      In addition, Section 78.438 of the Nevada general corporation law prohibits us from entering into some business combinations with interested stockholders without the approval of our board of directors. These provisions could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders.

Our stock price may continue to be volatile and could decline substantially.

      The stock market has, from time to time, experienced extreme price and volume fluctuations. Many factors may cause the market price for our common stock to decline following this Form 10-K, including:

•  our operating results failing to meet the expectations of securities analysts or investors in any quarter;

•  downward revisions in securities analysts’ estimates;

•  material announcements by us or our competitors;

•  public sales of a substantial number of shares of our common stock following this Form 10-K;

•  governmental regulatory action; or

•  adverse changes in general market conditions or economic trends.

Item 2. Properties

      Our primary property consists of the aircraft used in the operation of our flights. The following table lists the aircraft owned and leased by the Company as of September 30, 2004.

		Number of Aircraft
				Interim						Operating on		Passenger
Type of Aircraft		Owned		Financing		Leased		Total		Sept. 30, 2004		Capacity
CRJ-200/100 Regional Jet			2		—		52		54		54		50
CRJ-700 Regional Jet			5		—		10		15		15		64
CRJ-900 Regional Jet			6		9		9		24		24		86
Embraer 145 Regional Jet			—		—		36		36		36		50
Beechcraft 1900D			35		—		—		35		35		19
Dash 8-200			—		—		16		16		16		37
Embraer EMB-120			—		—		6		6		—		30
	Total		48		9		129		186		180

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      See “Business — Airline Operations” and “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — Liquidity and Capital Resources” for a discussion regarding the Company’s aircraft fleet commitments.

      In addition to aircraft, we have office and maintenance facilities to support our operations. Our facilities are summarized in the following table:

						Approximate
Type	Location		Ownership			Square Feet
Headquarters		Phoenix, AZ		Leased			27,000
Training/ Administration		Phoenix, AZ		Leased			27,000
Hangar/ Office		Phoenix, AZ		Leased			22,000
Engine Shop & Commissary		Phoenix, AZ		Leased			25,000
RAS Office/ Component Overhaul Facility		Phoenix, AZ		Leased			19,000
Customer Service Training/ Storage		Phoenix, AZ		Leased			10,000
Office (East Coast)		Charlotte, NC		Leased			5,500
Hangar		Charlotte, NC		Leased			30,000
Hangar		Columbia, SC		(1	)		20,000
Hangar		Grand Junction, CO		(1	)		25,000
Hangar/ Office		Wichita, KS		(1	)		20,000
Training/ Administration		Farmington, NM		(1	)		10,000
Hangar		Farmington, NM		(1	)		24,000
Hangar/ Office		Dubois, PA		(1	)		23,000
Hangar		Little Rock, AR		Leased			10,000
Hangar		Philadelphia, PA		Leased			10,000
Hangar		Reading, PA		(1	)		30,000
Hangar (RAS)		Reading, PA		(1	)		32,000

(1)  Building is owned, underlying land is leased.

      We lease ticket counters, check-in and boarding and other facilities in the passenger terminal areas in the majority of the airports we serve and staff those facilities with our personnel. America West, US Airways and United also provide facilities, ticket handling and ground support services for the Company at certain airports.

      Our corporate headquarters and Training/ Administrative facilities in Phoenix, Arizona are subject to long-term leases expiring on August 31, 2012 and November 1, 2012, respectively.

      We believe our facilities are suitable and adequate for our current and anticipated needs.

Item 3. Legal Proceedings

      We are involved in various legal proceedings and FAA civil action proceedings that the Company does not believe will have a material adverse effect upon the Company’s business, financial condition or results of operations, although no assurance can be given to the ultimate outcome of any such proceedings.

Item 4. Submission of Matters to a Vote of Security Holders

      None.

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Executive Officers of the Registrant

      The following table sets forth the names and ages of the executive officers of the Company and certain additional information:

Name	Age		Position
Jonathan G. Ornstein		47	Chief Executive Officer
Michael J. Lotz		44	President and Chief Operating Officer
George Murnane III		46	Executive Vice President and Chief Financial Officer
Michael Ferverda		60	Senior Vice President — West Coast Operations
Brian S. Gillman		35	Vice President, General Counsel and Secretary
F. Carter Leake		42	Senior Vice President — East Coast Operations
Edward J. Wegel		46	Senior Vice President — Corporate Planning

      Jonathan G. Ornstein was appointed President and Chief Executive Officer of Mesa Air Group, Inc. effective May 1, 1998. Mr. Ornstein relinquished his position as President of the Company in June 2000. From April 1996 to his joining the Company as Chief Executive Officer, Mr. Ornstein served as President and Chief Executive Officer and Chairman of Virgin Express S.A./ N.V., a European airline. From 1995 to April 1996, Mr. Ornstein served as Chief Executive Officer of Virgin Express Holdings, Inc. Mr. Ornstein joined Continental Express Airlines, Inc., as President and Chief Executive Officer in July 1994 and, in November 1994, was named Senior Vice President, Airport Services at Continental Airlines, Inc. Mr. Ornstein was previously employed by the Company from 1988 to 1994, as Executive Vice President and as President of the Company’s WestAir Holding, Inc. subsidiary.

      Michael J. Lotz, President and Chief Operating Officer, joined the Company in July 1998. In January 1999, Mr. Lotz became Chief Operating Officer. In August 1999, Mr. Lotz became the Company’s Chief Financial Officer and in January 2000 returned to the position of Chief Operating Officer. On June 22, 2000, Mr. Lotz was appointed President of the Company. Prior to joining the Company, Mr. Lotz served as Chief Operating Officer of Virgin Express, S.A./ N.V., a position he held from October 1996 to June 1998. Previously, Mr. Lotz was employed by Continental Airlines, Inc., most recently as Vice President of Airport Operations, Properties and Facilities at Continental Express.

      George Murnane III, Executive Vice President and Chief Financial Officer, was appointed Executive Vice President of the Company effective December 2001 and Chief Financial Officer in January 2003. Mr. Murnane served as a director of the Company from June 1999 until October 2003. Mr. Murnane has served as the President of Barlow Management, Inc. from 1998 until October 2003. From 1996 to December 2001, Mr. Murnane was a Director and Executive Vice President of International Airline Support Group, Inc., a redistributor of aftermarket commercial aircraft spare parts and lessor and trader of commercial aircraft and engines, most recently as its Chief Operating Officer. From 1995 to 1996, Mr. Murnane served as Executive Vice President and Chief Operating Officer of Atlas Air, Inc., an air cargo company. From 1986 to 1996, he was an investment banker with the New York investment banking firm of Merrill Lynch & Co., most recently as a Director in the firm’s Transportation Group.

      Michael Ferverda, Senior Vice President — West Coast Operations joined the Company in 1990. He was appointed President of Freedom Airlines in May 2002 and Senior Vice President — West Coast Operations in February 2003. Prior to the appointments, Mr. Ferverda served as the Senior Vice President of Operations for Mesa Airlines, Inc. Mr. Ferverda has served the Company in various capacities including pilot, Flight Instructor/ Check Airman, Assistant Chief Pilot, FAA Designated Examiner, FAA Director of Operations and Divisional Vice President. Mr. Ferverda was a pilot with Eastern Airlines from 1973 to 1989. Prior to joining Eastern Airlines, Mr. Ferverda served as an Aviator in the United States Navy. Mr. Ferverda is a graduate of Indiana University.

      Brian S. Gillman, Vice President, General Counsel and Secretary, joined the Company in February 2001. From July 1996 to February 2001, he served as Vice President, General Counsel and Secretary of Vanguard

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Airlines, Inc. in Kansas City, Missouri. From September 1994 to July 1996, Mr. Gillman was a corporate associate in the law firm of Stinson, Mag & Fizzell, P.C., Kansas City, Missouri. Mr. Gillman received his Juris Doctorate and B.B.A. in Accounting from the University of Iowa in 1994 and 1991, respectively.

      F. Carter Leake, Senior Vice President — East Coast Operations, joined the Company in 2001. Mr. Leake served as Executive Vice-President of CCAir, Inc., a former wholly-owned subsidiary of the Company in January 2001 and was promoted to President of CCAir in October 2001. In February 2003, Mr. Leake was appointed to Senior Vice President — East Coast Operations. Prior to joining the Company, Mr. Leake served as a Director of Sales for Bombardier Regional Aircraft from November 1996 to January 2001. Previously, Mr. Leake was an analyst with SH&E, an aviation consulting firm in New York, and a US Air Force military pilot.

      Edward J. Wegel, Senior Vice President, Corporate Planning, joined the Company in February 2004. From 1999 to February 2004, he was a consultant to the airline industry. From 1997 to 1999, he served as the President and Chief Executive Officer of Chautauqua Airlines, a US Airways Express carrier. From 1994 to 1996, he served as President and Chief Operating Officer of BWIA, the national airline of Trinidad. Mr. Wegel participated as a co-founder in the start-up of Atlantic Coast Airlines, served on the Atlantic Coast Board of Directors from 1991 to 1996 and also as Senior Vice President — Corporate Finance from 1991 to 1995. From 1987 to 1991, Mr. Wegel worked at Shearson Lehman Brothers where he specialized in aircraft finance. Prior to joining Shearson Lehman, he worked on the finance, operations and marketing staff of Eastern Airlines. Mr. Wegel graduated from the US Military Academy at West Point with a Bachelor of Science in Engineering and from the University of Northern Colorado with an MBA in Finance.

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PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Market Price of Common Stock

      The following table sets forth, for the periods indicated, the high and low price per share of Mesa common stock for the two most recent fiscal years, as reported by NASDAQ. Mesa’s common stock is traded on the NASDAQ National Market System under the symbol “MESA.”

	Fiscal 2004				Fiscal 2003
Quarter	High		Low		High		Low
First	$	13.85	$	10.17	$	7.09	$	2.71
Second		12.45		7.48		4.97		3.00
Third		9.01		6.56		7.96		4.50
Fourth		8.12		5.10		13.20		8.42

      On December 1, 2004, we had approximately 1,137 shareholders of record. We have never paid cash dividends on our common stock. The payment of future dividends is within the discretion of our board of directors and will depend upon our future earnings, if any, our capital requirements, bank financing, financial condition and other relevant factors.

Recent Sales of Unregistered Securities

      On February 7, 2002, in connection with an agreement entered into with Raytheon Aircraft Company (“Raytheon”), we granted Raytheon a warrant to purchase up to 233,068 shares of our common stock at a per share exercise price of $10. Raytheon must pay a purchase price of $1.50 per share underlying the warrant. The warrant is exercisable at any time over a three-year period following its date of issuance. Absent a default by us under the agreement with Raytheon in which case vesting is accelerated, the shares underlying the warrant vest (and are therefore purchasable by Raytheon) according to the following schedule: 13,401 shares in fiscal year 2001; 116,534 shares in fiscal year 2002; 58,267 shares in fiscal year 2003 and 44,866 shares in fiscal year 2004. As of December 1, 2004, Raytheon has exercised its option to purchase the 2001, 2002 and 2003 components of the warrant, but has not yet exercised its option to purchase the 2004 component of the warrant. In addition, Raytheon has not exercised any component of the warrant. The sale of the warrant and the shares underlying the warrant were made pursuant to an exemption from registration pursuant to Section 4(2) under the Securities Act of 1933, as amended.

      In June 2003, the Company completed the private placement of senior convertible notes due 2023, raising approximately $97.1 million net proceeds. At maturity, the principal amount of each note will be $1,000 and the aggregate amount due will be $252 million. These notes are convertible into shares of the Company’s common stock at a conversion rate of 39.727 shares per $1,000 in principal amount at maturity of the notes, which equals an initial conversion price of approximately $10.00 per share. This conversion rate is subject to adjustment in certain circumstances. Holders of these notes may convert their notes only if: (i) the sale price of our common stock exceeds 110% of the accreted conversion price for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding quarter; (ii) prior to June 16, 2018, the trading price for these notes falls below certain thresholds; (iii) these notes have been called for redemption; or (iv) specified corporate transactions occur. The Company may redeem these notes, in whole or in part, beginning on June 16, 2008, at a redemption price equal to the issue price, plus accrued original issue discount, plus any accrued and unpaid cash interest. The holders of these notes may require the Company to repurchase the notes on June 16, 2008 at a price of $397.27 per note plus accrued and unpaid cash interest, if any, on June 16, 2013 at a price of $540.41 per note plus accrued and unpaid cash interest, if any, and on June 16, 2018 at a price of $735.13 per note plus accrued and unpaid cash interest, if any.

      In February 2004, the Company completed the private placement of senior convertible notes due 2024, raising approximately $97.0 million net proceeds. At maturity, the principal amount of each note will be $1,000 and the aggregate amount due will be $171.4 million. These notes are convertible into shares of the

24

Company’s common stock at a conversion rate of 40.3737 shares per $1,000 in principal amount at maturity of the notes, which equals an initial conversion price of approximately $14.45 per share. This conversion rate is subject to adjustment in certain circumstances. Holders of these notes may convert their notes only if: (i) the sale price of our common stock exceeds 110% of the accreted conversion price for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding quarter; (ii) prior to February 10, 2019, the trading price for these notes falls below certain thresholds; (iii) these notes have been called for redemption; or (iv) specified corporate transactions occur. The Company may redeem these notes, in whole or in part, beginning on February 10, 2009, at a redemption price equal to the issue price, plus accrued original issue discount, plus any accrued and unpaid cash interest. The holders of the notes may require the Company to repurchase the notes on February 10, 2009 at a price of $583.4 per note plus accrued and unpaid cash interest, if any, on February 10, 2014 at a price of $698.20 per note plus accrued and unpaid cash interest, if any, and on February 10, 2019 at a price of $835.58 per note plus accrued and unpaid cash interest, if any.

      The following table sets forth information required regarding repurchases of common stock that we made during the three moths ended September 30, 2004:

Issuer Purchases of Equity Securities

					Total Number of
					Shares Purchased as		Maximum Number
	Total Number		Average Price		Part of Publicly		of Shares that May
	of Shares		Paid per		Announced Plan		Yet Be Purchased
Period	Purchased		Share		(1)		Under the Plan
July 2004		372,880	$	6.65		5,156,546		1,243,454
August 2004		583,214	$	6.35		5,739,760		660,240
September 2004		553,684	$	5.56		6,293,444		106,556
Total		1,509,778

(1)  Under resolutions adopted and publicly announced in December, 1999, January 2001 and October 2002, our Board of Directors has authorized the repurchase, at management’s discretion, of up to an aggregate of 6.4 million shares of our common stock.

Item 6. Selected Financial Data

Selected Financial Data and Operating Statistics

      The selected financial data as of and for each of the five years ended September 30, 2004, are derived from the Consolidated Financial Statements of the Company and its subsidiaries and should be read in conjunction with the Consolidated Financial Statements included elsewhere in this Form 10-K and the related notes thereto and “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.”

25

      In thousands of dollars except per share data and average fare amounts and as otherwise indicated.

		2004(1)			2003(2)			2002(3)			2001(4)			2000(5)
Consolidated Statement of Operations Data:
	Operating revenues	$	896,812		$	599,990		$	496,783		$	523,378		$	471,612
	Operating expenses	$	829,454		$	544,711		$	503,343		$	593,291		$	429,888
	Operating income (loss)	$	67,358		$	55,279		$	(6,560	)	$	(69,913	)	$	41,724
	Interest expense	$	25,063		$	12,664		$	7,983		$	14,419		$	15,721
	Income (loss) before income taxes	$	45,181		$	41,020		$	(16,405	)	$	(71,596	)	$	27,683
	Net income (loss)	$	26,282		$	25,305		$	(11,268	)	$	(48,225	)	$	58,636
Net income (loss) per share:
	Basic	$	0.83		$	0.80		$	(0.34	)	$	(1.50	)	$	1.77
	Diluted	$	0.70		$	0.76		$	(0.34	)	$	(1.50	)	$	1.77
Consolidated Balance Sheet Data:
	Working capital (deficit)	$	13,563		$	(57,380	)	$	27,483		$	6,399		$	63,953
	Total assets	$	1,121,537		$	716,936		$	399,161		$	496,616		$	386,707
	Long-term debt, excluding current Portion	$	550,613		$	199,023		$	110,210		$	118,492		$	136,127
	Stockholders’ equity	$	128,904		$	111,973		$	86,758		$	102,742		$	144,339
Consolidated Operating Statistics:
	Passengers carried		10,239,915			6,444,459			5,118,839			4,789,180			4,457,989
	Revenue passenger miles (000)		5,035,165			2,814,480			1,986,164			1,796,058			1,561,197
	Available seat miles (“ASM”) (000)		7,107,684			4,453,707			3,459,427			3,289,216			2,951,116
	Block hours		513,881			393,335			352,323			383,310			395,446
	Average passenger journey in miles		492			436			388			375			350
	Average stage length in miles		390			337			298			268			250
	Load factor		70.8	%		63.2	%		57.4	%		54.6	%		52.9	%
	Break-even passenger load factor		53.6	%		46.3	%		60.1	%		63.8	%		48.5	%
	Revenue per ASM in cents		12.6			13.4			14.4			15.9			16.0
	Operating cost per ASM in cents		11.7			12.3			14.6			18.0			14.6
	Average yield per revenue passenger mile in cents		17.8			21.3			25.0			28.8			30.2
	Average fare	$	84.81		$	89.44		$	93.93		$	106.18		$	103.45
	Aircraft in service		180			150			124			118			133
	Cities served		181			163			147			153			120
	Number of employees		5,000			3,600			3,100			2,820			3,480

(1)	Net income in fiscal 2004 includes the net effect of impairment and restructuring charges of $11.9 million (pretax).
(2)	Net income in fiscal 2003 includes the effect of impairment and restructuring charges of $1.1 million (pretax) and the reversal of CCAir impairment and restructuring charges of $12.0 million (pretax).
(3)	Net loss in fiscal 2002 includes the effect of impairment and restructuring charges of $26.7 million (pretax).

26

(4)	Net loss in fiscal 2001 includes the effect of impairment and restructuring charges of $80.9 million (pretax).
(5)	Net earnings in fiscal 2000 include the cumulative effect of the accounting change from the accrual method to the direct expense method for maintenance costs of $18.1 million (pretax) and the benefit of reversing a valuation allowance for deferred tax assets of $21.9 million.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

      The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company’s results of operations and financial condition. The discussion should be read in conjunction with the Consolidated Financial Statements and the related notes thereto, and the Selected Financial Data and Operating Statistics contained elsewhere herein.

Executive Overview

General

      Mesa Air Group, Inc. and its subsidiaries (collectively referred to herein as “Mesa” or the “Company”) is an independent regional airline serving 181 cities in 43 states, the District of Columbia, the Bahamas and Mexico. At September 30, 2004, Mesa operated a fleet of 180 aircraft and had approximately 1,000 daily departures.

      Mesa’s airline operations during fiscal year 2004 were primarily conducted by three regional airline subsidiaries primarily utilizing hub-and-spoke systems. Mesa Airlines, a wholly owned subsidiary of Mesa, operates as America West Express under a code-share and revenue-sharing agreement with America West Airlines, Inc., as US Airways Express under a code-sharing agreement with US Airways, Inc. and as United Express under a code-sharing agreement with United. Air Midwest, a wholly owned subsidiary of Mesa, operates under a code-sharing agreement with US Airways and flies as US Airways Express and also operates an independent division, doing business as Mesa Airlines, from Albuquerque, New Mexico and Dallas, Texas. Air Midwest flights flown as Mesa Airlines in Phoenix operate under a code-sharing agreement with America West. Air Midwest also has a code-sharing agreement with Midwest Airlines in Kansas City on flights operated as US Airways Express. In addition, Freedom Airlines, a wholly owned subsidiary of Mesa Air Group began operating as America West Express pursuant to the code-share and revenue-sharing agreement with America West in October 2002. As of November 2004, all of the CRJ aircraft previously operated by Freedom have been transitioned to Mesa Airlines. Freedom is currently pursuing certification to operate Beechcraft 1900D aircraft.

Fleet

      In fiscal 2004, the Company continued its regional jet fleet growth by growing from 96 regional jets at September 30, 2003 to 129 regional jets at September 30, 2004. The Company also continues to reduce it fleet of B1900 aircraft from 42 at September 30, 2003 to 35 at September 30, 2004.

      Aircraft in Operation at September 30,

Type of Aircraft		2004		2003		2002
CRJ-200/100 Regional Jet			54		43		34
CRJ-700 Regional Jet			15		15		2
CRJ-900 Regional Jet			24		6		—
Embraer 145 Regional Jet			36		32		32
Beechcraft 1900D			35		42		46
Dash 8-200			16		12		18
	Total		180		150		124

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Code-Share Agreements

      On September 12, 2004, US Airways, which represented approximately 40% of the Company’s fiscal 2004 passenger revenue, filed a petition for Chapter 11 bankruptcy protection. Unpaid amounts related to pre-petition obligations, net of any amounts owed by the Company to US Airways, were less than $3 million and the Company believes it is adequately reserved. The Company has been paid for all amounts due post petition in accordance with contractual terms and continues to operate its normal flight schedule. In addition, the Company has developed a number of contingency plans to address potential outcomes of US Airways’ bankruptcy.

Summary of Financial Results

      Mesa Air Group recorded consolidated net income of $26.3 million in fiscal 2004, representing diluted earnings per share of $0.70. This compares to consolidated net income of $25.3 million or $0.76 per share in fiscal 2003 and a consolidated net loss of $11.3 million in fiscal 2002.

      The fiscal 2004 results included $12.4 million in costs to terminate the leases of seven Beechcraft 1900D aircraft, one-time compensation payments of $3.4 million, merger costs of $3.4 million related to our failed attempt to merge with Atlantic Coast Airlines, the reversal of certain restructuring liabilities of $0.5 million and investment income of $0.6 million.

      The fiscal 2003 results included the reversal of $12.0 million in restructuring liabilities related to the closure of CCAir, $1.1 million in costs of returning Beechcraft 1900D aircraft to the manufacturer, a $4.1 million settlement with the DOT related to payments made to the Company under the Air Transportation Safety and System Stabilization Act, $1.0 million in TSA funds collected on the Company’s behalf by other airlines, a gain on the involuntary conversion of an aircraft of $1.3 million related to the crash of Flight 5481 and an investment loss of $0.7 million.

      The fiscal 2002 results included an impairment and restructuring charge of $26.7 million primarily comprised of costs related to the shut down of CCAir.

Results of Operations

      The following tables set forth selected operating and financial data of the Company for the years indicated below.

	Operating Data
	Years Ended September 30,
	2004			2003			2002
Passengers		10,239,915			6,444,459			5,118,839
Available seat miles (“ASM”)(000s)		7,107,684			4,453,707			3,459,427
Revenue passenger miles (000s)		5,035,165			2,814,480			1,986,164
Load factor		70.8	%		63.2	%		57.4	%
Yield per revenue passenger mile (cents)		17.8			21.3			25.0
Revenue per ASM (cents)		12.6			13.4			14.4
Operating cost per ASM (cents)		11.7			12.3			14.6
Average stage length (miles)		390			337			298
Number of operating aircraft in fleet		180			150			124
Gallons of fuel consumed		170,867,222			115,640,808			90,969,241
Block hours flown		513,881			393,335			352,323
Departures		353,083			296,921			285,680

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Operating Expense Data

Years Ended

September 30, 2004, 2003 and 2002

	2004							2003									2002
						Cost								Cost									Cost
			Percent			Per					Percent			Per						Percent			Per
	Amount		of Total			ASM		Amount			of Total			ASM			Amount			of Total			ASM
	(000s)		Revenues			(cents)		(000s)			Revenues			(cents)			(000s)			Revenues			(cents)
Flight operations	$	297,521		33.2	%		4.2	$	212,080			35.3	%		4.8		$	178,158			35.9	%		5.1
Fuel		194,510		21.7	%		2.7		113,370			18.9	%		2.5			78,200			15.7	%		2.3
Maintenance		163,463		18.2	%		2.3		118,517			19.8	%		2.6			103,300			20.8	%		3.0
Aircraft & traffic servicing		66,223		7.4	%		0.9		50,053			8.3	%		1.1			46,057			9.3	%		1.3
Promotion & sales		5,806		0.6	%		0.1		7,966			1.3	%		0.2			12,663			2.5	%		0.4
General & Administrative		62,035		6.9	%		0.9		37,982			6.3	%		0.9			44,140			8.9	%		1.3
Depreciation & amortization		28,001		3.2	%		0.4		15,700			2.6	%		0.4			14,150			2.8	%		0.4
Impairment and restructuring charge		11,895		1.3	%		0.2		(10,957	)		(1.7	)%		(0.3	)		26,675			5.4	%		0.8
Total operating expenses		829,454		92.5	%		11.7		544,711			90.8	%		12.2			503,343			101.3	%		14.5
Interest expense		25,063		2.8	%		0.4		12,664			2.1	%		0.3			7,983			1.6	%		0.2
Other income (expense)		1,723		0.0	%		0.0		(2,758	)		(0.5	)%		(0.1	)		(3,404	)		(0.7	)%		(0.1	)

      Note:     Numbers in the table above may not be recalculated due to rounding

Year Ended	Mesa/		Air
September 30, 2004 (000’s)	Freedom		Midwest			Other		Elimination			Total
Total operating revenues	$	807,736	$	81,714		$	365,858	$	(358,496	)	$	896,812
Total operating expenses		725,975		91,349			313,243		(301,113	)		829,454
Operating income (loss)		81,761		(9,635	)		52,615		(57,383	)		67,358

Year Ended	Mesa/		Air
September 30, 2003 (000’s)	Freedom		Midwest			CCAir			Other		Elimination			Total
Total operating revenues	$	507,555	$	86,142		$	1,254		$	175,956	$	(170,917	)	$	599,990
Total operating expenses		462,018		95,533			(10,556	)		131,922		(134,206	)		544,711
Operating income (loss)		45,537		(9,391	)		11,810			44,034		(36,711	)		55,279

Year Ended	Mesa/		Air
September 30, 2002 (000’s)	Freedom		Midwest		CCAir			Other		Elimination		Total
Total operating revenues	$	372,370	$	94,333	$	24,335		$	5,745	$	—	$	496,783
Total operating expenses		347,749		92,208		58,418			4,968		—		503,343
Operating income (loss)		24,621		2,125		(34,083	)		777		—		(6,560	)

      All of the Company’s Beechcraft 1900D aircraft are owned by Mesa Airlines. As such, the associated aircraft and debt are recorded on the separate company financial statements of Mesa Airlines. These aircraft are operated by Air Midwest, and as a result, Mesa charges Air Midwest rent to offset its depreciation and

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interest cost. Any impairment charges related to these aircraft are recorded on the separate company financial statements of Mesa Airlines.

Fiscal 2004 Versus Fiscal 2003

Operating Revenues

      In fiscal 2004, operating revenue increased by $296.8 million, or 49.5%, from $600.0 million to $896.8 million. The increase in revenue is primarily attributable to a $300.2 million increase in revenue associated with the operation of 39 additional regional jets flown by Mesa and Freedom compared to 2003. Offsetting this increase was a decrease in passenger revenue of approximately $7.8 million at Air Midwest. The decrease in passenger revenue at Air Midwest was primarily due to a decline in passengers carried as a result of parking seven leased aircraft in the second quarter (the leases on these aircraft were subsequently early terminated, with five aircraft returned to the lessor and two purchased and resold). However, EAS subsidies received by Air Midwest increased by $3.6 million as a result of additional markets served and higher subsidy rates on existing markets.

Operating Expenses

Flight Operations

      In fiscal 2004, flight operations expense increased $85.4 million or 40.3%, to $297.5 million from $212.1 million for fiscal 2003. On an ASM basis, flight operations expense decreased 12.5% to 4.2 cents per ASM in fiscal 2004 from 4.8 cents per ASM in fiscal 2003. The increase in expense is consistent with the increased capacity from the regional jets added to Mesa and Freedom’s fleet during this period. The decrease on an ASM basis is due to the addition of larger regional jets at Mesa and Freedom and the reduction in turboprop aircraft at Air Midwest.

Fuel

      In fiscal 2004, fuel expense increased $81.1 million or 71.6%, to $194.5 million from $113.4 million for fiscal 2003. On an ASM basis, fuel expense increased 8.0% to 2.7 cents per ASM in fiscal 2004 from 2.5 cents per ASM in fiscal 2003. Into-plane fuel cost increased 16% per gallon, resulting in a $26.2 million unfavorable price variance and consumption increased 48% resulting in a $54.1 million unfavorable volume variance (excluding fuel used in other operations). The increase in volume was due to the additional regional jets added to the fleet. In fiscal 2004 approximately 92% of our fuel costs were reimbursed by our code-share partners.

Maintenance Expense

      In fiscal 2004, maintenance expense increased $44.9 million or 37.9%, to $163.5 million from $118.5 million for fiscal 2003. On an ASM basis, maintenance expense decreased 11.5% to 2.3 cents per ASM in fiscal 2004 from 2.6 cents per ASM in fiscal 2003. Mesa and Freedom’s maintenance expense increased $40.3 million primarily as a result of increases in the number of aircraft in their fleet, repair costs on certain rotable parts, headcount and engine overhaul expenses. Maintenance expenses in the Other segment increased $6.8 million due to increases in rotable repair expenses and certain purchasing related administrative expenses at our procurement company. These increases were offset by a $1.3 million decrease in maintenance expenses at CCAIR, due to its dissolution, and a $0.9 million decrease at Air Midwest as a result of reductions in its fleet. The decrease on an ASM basis is due to the lower maintenance costs associated with adding new jets into the Company’s fleet.

Aircraft and Traffic Servicing

      In fiscal 2004, aircraft and traffic servicing expense increased by $16.2 million or 32.3%, to $66.2 million from $50.1 million for fiscal 2003. On an ASM basis, aircraft and traffic servicing expense decreased 18.2% to 0.9 cents per ASM in fiscal 2004 from 1.1 cents per ASM in fiscal 2003. The increase in expense is primarily related to a 19% increase in regional jet departures. The decrease on an ASM basis is due to the efficiencies

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attained by adding additional regional jets at Mesa and Freedom and the reduction in turboprop aircraft at Air Midwest.

Promotion and Sales

      In fiscal 2004, promotion and sales expense decreased $2.2 million or 27.1%, to $5.8 million from $8.0 million for fiscal 2003. On an ASM basis, promotion and sales expense decreased 50.0% to 0.1 cents per ASM in fiscal 2004 from 0.2 cents per ASM in fiscal 2003. The decrease in expense is due to a decline in booking and franchise fees paid by Air Midwest under the Company’s pro-rate agreements with its code-share partners, caused by a decline in passengers carried under these agreements. The Company does not pay these fees under its regional jet revenue-guarantee contracts.

General and Administrative

      In fiscal 2004, general and administrative expense increased $24.1 million or 63.3%, to $62.0 million from $38.0 million for fiscal 2003. On an ASM basis, general and administrative expense remained the same at 0.9 cents per ASM in fiscal 2004 and 2003. The increase in expense includes $3.4 million in costs associated with the failed merger with Atlantic Coast Airlines, Inc., $3.4 million in executive compensation as a result of the restructuring of employment contracts of top executives, a $6.1 million increase in bad debt expense as the Company increased its allowance for doubtful accounts by $4.3 million in fiscal 2004 (the Company reduced its allowance by $1.8 million in fiscal 2003), a $3.6 million increase in passenger liability insurance associated with increases in the Company’s fleet, a $1.2 million increase in property taxes associated with increases in the Company’s fleet, a $3.6 million increase in administrative wages and benefits and a $2.2 million increase in health insurance costs as a result of increased headcount.

Depreciation and Amortization

      In fiscal 2004, depreciation and amortization expense increased $12.3 million or 78.4%, to $28.0 million from $15.7 million for fiscal 2003. On an ASM basis, depreciation and amortization expense remained the same at 0.4 cents per ASM in fiscal 2004 and 2003. The increase in expense is primarily due to the purchase of 11 regional jets in 2004, the acquisition of two CRJ200 aircraft acquired as part of the purchase of Midway assets, depreciation of aircraft on interim financing and an increase in rotable aircraft inventory at Mesa and Freedom.

Impairment and Restructuring Charges

      In fiscal 2004, the Company recognized an impairment charge of $12.4 million related to the early termination of leases on seven B1900D aircraft. The Company negotiated the terms of the early return with the majority of the aircraft lessors and took a charge that included $2.4 million for the present value of future lease payments, $2.4 million for the negotiated settlement of return conditions, $1.2 million for the cancellation of maintenance agreements, $0.8 million to reduce maintenance deposits to net realizable value, $4.5 million to reduce the value of rotable and expendable inventory to fair value less costs to sell. The Company was forced to purchase two of the aircraft from the lessors, which were subsequently scrapped. As a result, the Company also took a $1.1 million impairment charge for the difference between the buy out of the lease and the subsequent sale of the aircraft. These charges were offset by the reversal of $0.4 million of prior year restructuring charges.

      In fiscal 2003, the Company recognized an additional impairment charge of $1.1 million related to the costs of returning Beechcraft 1900D aircraft to the manufacturer. The Company also reversed $7.4 million in restructuring charges for future aircraft leases related to CCAir aircraft that were returned to the lessor and $4.6 million in aircraft related return costs for these same aircraft.

Interest Expense

      In fiscal 2004, interest expense increased $12.4 million or 97.9%, to $25.1 million from $12.7 million for fiscal 2003. The increase in interest expense is primarily comprised of $8.6 million in interest on the senior

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convertible notes and an increase of $4.5 million in interest on interim and permanently financed aircraft debt. These increases were offset by a decrease of $1.3 million in interest expense on the Company’s B1900 debt due to aircraft returns and principal payments.

Other Income (Expense)

      In fiscal 2004, other income (expense) increased $4.5 million or 162%, to income of $1.7 million income from expense of $2.8 million for fiscal 2003. In fiscal 2004, other income is primarily comprised of investment income of $0.6 million related to the Company’s portfolio of aviation related securities.

      In fiscal 2003, other expense is primarily comprised of the settlement with the DOT of $4.1 million related to payments made to the Company under the Air Transportation Safety and System Stabilization Act and $0.7 million in net investment related losses on the Company’s portfolio of aviation related securities. These expenses were offset by the gain on an involuntary conversion of an aircraft of $1.3 million related to the crash of Flight 5481 as well as $1.0 million for TSA funds collected on the Company’s behalf by US Airways and Frontier.

Minority Interest

      Amounts included in minority interest in fiscal 2003 reflect the after-tax portion of earnings of UFLY, LLC that are applicable to the minority interest partners. UFLY was dissolved in fiscal 2003.

Fiscal 2003 Versus Fiscal 2002

Operating Revenues

      In fiscal 2003, operating revenues increased by $103.2 million (20.8%) to $600.0 million, from $496.8 million in fiscal 2002. Mesa and Freedom revenue increased $135.2 million. The primary reason for the increase was the additional revenue derived from placing 30 regional jets into service in 2003. Offsetting this increase, pro-rate revenue at Air Midwest decreased $8.2 million and pro-rate revenue at CCAir decreased $23.1 million. The decrease in pro-rate revenue was primarily due to a 31% decrease in passengers carried by Air Midwest and CCAir, the reduction of four turboprop aircraft in service (as a result of the cessation of CCAir’s operations), as well as a nine percent decrease in the average fare as a result of industry economic conditions. Under revenue-guarantee contracts, we are substantially insulated from industry passenger trends.

Operating Expenses

Flight Operations

      In fiscal 2003, flight operations expense increased 19.0% to $212.1 million (4.8 cents per ASM) from $178.2 million (5.1 cents per ASM) in fiscal 2002. Flight operations expense for Mesa and Freedom increased $54.3 million due to the additional costs associated with operating 30 additional regional jets placed in service in 2003, net of any purchase incentives received in conjunction with the additional jets. This increase was offset by a decrease of $14.2 million in flight operations expense at CCAir, due to the cessation of its operations in November of 2002. The decrease on a cost per ASM basis for the year ended September 30, 2003, is a result of the increase in both the proportion of regional jets to turboprops, as well as the addition of larger regional jets which, on a relative basis, produce more ASMs per mile. Regional jets generally have lower operating costs per ASM than turboprop aircraft.

Fuel

      In fiscal 2003, fuel expense increased 45.0% to $113.4 million (2.5 cents per ASM) from $78.2 million (2.3 cents per ASM) in fiscal 2002. Fuel expense at Mesa and Freedom increased $35.1 million due to the addition of regional jets and fuel expense at Air Midwest increased $2.6 million due to the additional flying assumed by Air Midwest after the cessation of operations at CCAir. The increase is also due to a 14% increase in the average price of fuel, or 12 cents per gallon, due to the rising costs of fuel in the past year. These

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increases were offset by a decrease in fuel expense at CCAir of $2.3 million due to the cessation of its operations. The increase on an ASM basis is due to the 14% increase in the average price of a gallon of fuel.

Maintenance Expense

      In fiscal 2003, maintenance expense increased 14.7% to $118.5 million (2.6 cents per ASM) from $103.3 million (3.0 cents per ASM) in fiscal 2002. Mesa and Freedom maintenance expenses increased $20.8 million primarily as a result of an increased number of aircraft in the fleet, increased repair costs on certain rotable parts and increased engine overhaul expenses at Mesa Airlines. Air Midwest’s maintenance expense increased $2.1 million primarily as a result of transitioning to the power-by-the-hour program for engines and an increase in heavy maintenance checks. Maintenance expenses in the Other segment increased $2.8 million due to our procurement company incurring rotable repair expenses as well as certain purchasing related administrative expenses. These increases in maintenance expense were offset by a decrease at CCAir of $10.0 million due to the cessation of its operations. The decrease on an ASM basis is due to the lower operating costs of flying regional jets versus turboprop aircraft.

Aircraft and Traffic Servicing Expense

      In fiscal 2003, aircraft and traffic servicing expense increased 8.7% to $50.1 million (1.1 cents per ASM) from $46.1 million (1.3 cents per ASM) in fiscal 2002. Mesa and Freedom aircraft and traffic serving expenses increased $9.5 million due to the additional costs associated with operating the 30 additional regional jets that were placed into service in 2003. Offsetting this increase was a $5.2 million decrease at CCAir due to the cessation of its operations. The decrease on a cost per ASM basis for the year ended September 30, 2003, is a result of an increase in the proportion of regional jet ASMs in our fleet. Regional jets generally have lower operating costs per ASM than turboprop aircraft.

Promotion and Sales

      In fiscal 2003, promotion and sales expense decreased 37.1% to $8.0 million (0.2 cents per ASM) from $12.7 million (0.4 cents per ASM) in fiscal 2002. The decrease is due to a decline in the booking and franchise fees paid by Air Midwest and CCAir under pro-rate agreements with their code-share partners caused by a decline in passenger carried under these agreements. The Company does not pay these fees under its regional jet-revenue contracts.

General and Administrative Expense

      In fiscal 2003, general and administrative expense decreased 14.0% to $38.0 million (0.9 cents per ASM) from $44.1 million (1.3 cents per ASM) in fiscal 2002. The decrease is primarily due to a reduction in bad debt expense of $7.4 million as a result of collections on certain receivables that were reserved in prior years. Legal and professional expense decreased $1.9 million in 2003 as a result of the large charge associated with the Beus Gilbert lawsuit that was recognized in 2002. These decreases were offset by an increase in property taxes of $1.9 million, primarily due to the addition of jet aircraft in 2003 and an increase in accrued compensation and benefits of $0.9 million due to headcount increases.

Depreciation and Amortization

      In fiscal 2003, depreciation and amortization expense increased 11.0% to $15.7 million (0.4 cents per ASM) from $14.2 million (0.4 cents per ASM) in fiscal 2002. The increase in depreciation expense is due to depreciation on interim financed aircraft at Mesa and Freedom.

Impairment and Restructuring Charges (Credits)

      In 2003, the Company recognized an additional impairment charge of $1.1 million related to the costs of returning Beechcraft 1900D aircraft to the manufacturer.

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      The Company also reversed $7.4 million in restructuring charges for future aircraft leases related to CCAir aircraft that were returned to the lessor and $4.6 million in aircraft related return costs for these same aircraft. The reversal of these charges was precipitated by the dissolution of CCAir and the Company’s subsequent determination, after consultation with counsel, that the Company should not be held legally responsible for the aircraft lease obligations and aircraft related return costs incurred solely by CCAir and not guaranteed by the Company.

Interest Expense

      Interest expense increased $4.7 million from $8.0 million in 2002 to $12.7 million in 2003. The majority of the increase is due to interest on interim financed aircraft at Mesa and Freedom. Also included in the increase is $1.9 million in interest expense related to the senior convertible notes that were issued in June of 2003. These increases were offset by reduced interest on the Company’s B1900D debt as three B1900D aircraft were returned under our agreement with Raytheon and the outstanding debt on another was settled as a result of the crash of flight 5481.

Other Expense

      In fiscal 2003, other expense decreased $0.6 million from $3.4 million in 2002 to $2.8 million in 2003. In fiscal year 2003, other expense is primarily comprised of the settlement with the DOT of $4.1 million related to payments made to the Company under the Air Transportation Safety and System Stabilization Act passed after the terrorist acts of September 11, 2001. Also included in other expense is $0.7 million in net investment related losses on the Company’s portfolio of aviation related securities. These expenses were offset by the gain on an involuntary conversion of an aircraft of $1.3 million related to the crash of Flight 5481 as well as other income received of $1.0 million for TSA funds collected on the Company’s behalf under the Emergency Wartime Supplemental Appropriations Act of 2003 by US Airways and Frontier.

      Included in other expense in fiscal 2002 is $3.2 million in net investment related losses from the Company’s portfolio of aviation related securities, including $1.9 million incurred by our subsidiary UFLY. The minority interest in these losses is deducted out of our net income or loss after income taxes.

Liquidity and Capital Resources

Sources and Uses of Cash

      At September 30, 2004, we had cash, cash equivalents, and marketable securities (including restricted cash and held-to-maturity securities) of $241.1 million, compared to $166.1 million at September 30, 2003. We improved our cash position by issuing convertible notes in February 2004, raising $97.0 million in capital (after expenses), and financing $15 million of our existing inventory. Our cash and cash equivalents and marketable securities are intended to be used for working capital, capital expenditures, acquisitions, and to fund our obligations with respect to regional jet deliveries.

      Uses of cash included capital expenditures of $50.3 million attributable to the expansion of our regional jet fleet and related provisioning of rotable inventory to support the additional jets, the purchase of certain assets of bankrupt Midway Airlines Corporation (“Midway”) for $9.2 million in December 2003 and the purchase of $10.9 million of the Company’s outstanding common stock.

      As of September 30, 2004, we had receivables of approximately $30.7 million (net of an allowance for doubtful accounts of $7.1 million), compared to receivables of approximately $25.5 million (net of an allowance for doubtful accounts of $4.7 million) as of September 30, 2003. The amounts due consist primarily of receivables due from our code-share partners and passenger ticket receivables due through the Airline Clearing House. The increase is primarily a result of the growth in our revenue guarantee business with each of our code-share partners. Accounts receivable from our code-share partners was 59% of total gross accounts receivable at September 30, 2004.

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Operating Leases

      We have significant long-term lease obligations primarily relating to our aircraft fleet, including six leased aircraft acquired in a transaction involving the purchase of certain assets of Midway. The leases are classified as operating leases and are therefore excluded from our consolidated balance sheets. At September 30, 2004, we leased 129 aircraft with remaining lease terms ranging from 1 to 17 years. Future minimum lease payments due under all long-term operating leases were approximately $2.0 billion at September 30, 2004.

3.625% Senior Convertible Notes due 2024

      In February 2004, we completed the private placement of senior convertible notes due 2024, which resulted in gross proceeds of $100.0 million ($97.0 million net). Cash interest is payable on the notes at the rate of 2.115% per year on the principal amount at maturity, payable semiannually in arrears on February 10 and August 10 of each year, beginning August 10, 2004, until February 10, 2009. After that date, we will not pay cash interest on the notes prior to maturity, and the notes will begin accruing original issue discount at a rate of 3.625% until maturity. On February 10, 2024, the maturity date of the notes, the principal amount of each note will be $1,000. The aggregate amount due at maturity, including interest accrued from February 10, 2009, will be $171.4 million. Each of our wholly owned domestic subsidiaries guarantees the notes on an unsecured senior basis. The notes and the note guarantees are senior unsecured obligations and rank equally with our existing and future senior unsecured indebtedness. The notes and the note guarantees are junior to the secured obligations of our wholly owned subsidiaries to the extent of the collateral pledged.

      The notes are convertible into shares of our common stock at a conversion rate of 40.3737 shares per $1,000 in principal amount at maturity of the notes. This conversion rate is subject to adjustment in certain circumstances. Holders of the notes may convert their notes only if: (i) after March 31, 2004, the sale price of our common stock exceeds 110% of the accreted conversion price for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding quarter; (ii) on or prior to February 10, 2019, the trading price for the notes falls below certain thresholds; (iii) the notes have been called for redemption; or (iv) specified corporate transactions occur. We may redeem the notes, in whole or in part, beginning on February 10, 2009, at a redemption price equal to the issue price, plus accrued original issue discount, plus any accrued and unpaid cash interest. The holders of the notes may require us to repurchase the notes on February 10, 2009 at a price of $583.40 per note plus accrued and unpaid cash interest, if any, on February 10, 2014 at a price of $698.20 per note plus accrued and unpaid cash interest, if any, and on February 10, 2019 at a price of $835.58 per note plus accrued and unpaid cash interest, if any. It is our intent to settle the notes in cash if the holders require repurchase in 2009, 2014 or 2019.

6.25% Senior Convertible Notes Due 2023

      In June 2003, we completed the private placement of senior convertible notes due 2023, which resulted in gross proceeds of $100.1 million ($96.9 million net). Cash interest is payable on the notes at the rate of 2.4829% per year on the principal amount at maturity, payable semiannually in arrears on June 16 and December 16 of each year, beginning December 16, 2003, until June 16, 2008. After that date, we will not pay cash interest on the notes prior to maturity, and the notes will begin accruing original issue discount at a rate of 6.25% until maturity. On June 16, 2023, the maturity date of the notes, the principal amount of each note will be $1,000. The aggregate amount due at maturity, including interest accrued from June 16, 2008, will be $252 million. Each of our wholly owned domestic subsidiaries guarantees the notes on an unsecured senior basis. The notes and the note guarantees are senior unsecured obligations and rank equally with our existing and future senior unsecured indebtedness. The notes and the note guarantees are junior to the secured obligations of our wholly owned subsidiaries to the extent of the collateral pledged.

      The notes are convertible into shares of our common stock at a conversion rate of 39.727 shares per $1,000 in principal amount at maturity of the notes. This conversion rate is subject to adjustment in certain circumstances. Holders of the notes may convert their notes only if: (i) the sale price of our common stock exceeds 110% of the accreted conversion price for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding quarter; (ii) prior to June 16, 2018, the trading price for the

35

notes falls below certain thresholds; (iii) the notes have been called for redemption; or (iv) specified corporate transactions occur. The Company may redeem the notes, in whole or in part, beginning on June 16, 2008, at a redemption price equal to the issue price, plus accrued original issue discount, plus any accrued and unpaid cash interest. The holders of the notes may require the Company to repurchase the notes on June 16, 2008 at a price of $397.27 per note plus accrued and unpaid cash interest, if any, on June 16, 2013 at a price of $540.41 per note plus accrued and unpaid cash interest, if any, and on June 16, 2018 at a price of $735.13 per note plus accrued and unpaid cash interest, if any. It is our intent to settle the notes in cash if the holders require repurchase in 2008, 2013 or 2018. As the sale price of our common stock exceeded 110% of the accreted conversion price for at least 20 trading days in the 30 consecutive trading day period ending September 30, 2003, the notes became convertible September 30, 2003.

Interim and Permanent Aircraft Financing Arrangements

      At September 30, 2004, we had an aggregate of $231.0 million in notes payable to an aircraft manufacturer for delivered aircraft on interim financing (relating to nine CRJ-900 aircraft). Under interim financing arrangements, the Company takes delivery and title of the aircraft prior to securing permanent financing and the acquisition of the aircraft is accounted for as a purchase with debt financing. Accordingly, we reflect the aircraft and debt under interim financing on our balance sheet during the interim financing period. After taking delivery of the aircraft, it is the Company’s intention to subsequently enter into a sale-leaseback transaction with an independent third-party lessor. Upon permanent financing, the proceeds from the sale and leaseback transaction are used to retire the notes payable to the manufacturer. Any gain recognized on the sale-leaseback transaction is deferred and amortized over the life of the lease. At September 30, 2004, we had nine aircraft on interim financing with the manufacturer. These interim financings agreements are six months in length and provide for monthly interest only payments at LIBOR plus three percent. The current interim financing agreement with the manufacturer provides for the Company to have a maximum of 15 aircraft on interim financing at any one time. Subsequent to year end, we permanently financed five of the nine aircraft with debt. Our ability to obtain additional interim financing is contingent upon obtaining permanent financing for the aircraft already delivered. There are no assurances that we will be able to obtain permanent financing for future aircraft deliveries.

Other Indebtedness and Obligations

      As of September 30, 2004, we had $9.5 million in restricted cash on deposit collateralizing various letters of credit outstanding and the ACH funding of our payroll. We have entered into a $9.5 million letter of credit facility with a financial institution, of which $4.2 million is required to be secured.

      In December 2003, we assumed $24.1 million of debt in connection with our purchase of two CRJ-200 aircraft in the Midway Chapter 7 bankruptcy proceedings. The debt, due in 2013, bears interest at the rate of 7% per annum through 2008, converting to 12.5% thereafter, with principal and interest due monthly.

      As previously disclosed, in 1999 our Board of Directors authorized us to repurchase up to 8.4 million shares of our outstanding common stock (including 2.0 million shares authorized on October 22, 2004). As of September 30, 2004, we acquired and retired approximately 6.3 million shares (approximately 20.8%) of our outstanding common stock at an aggregate cost of approximately $36.5 million, leaving approximately 2.1 million shares available for repurchase under the existing Board authorizations. The timing of repurchases and the actual number of shares repurchased will depend on market conditions, alternative uses of capital and other considerations.

      In June 2004, the Company entered into a ten-year agreement with LogisTechs, Inc., a wholly-owned subsidiary of GE Capital Aviation Services, for the management and repair of certain of the Company’s CRJ-200 aircraft rotable spare parts inventory. Under the agreement, LogisTechs financed approximately $21 million in existing spare parts inventory for $15 million in cash and a $6 million promissory note. Under the agreement, Logistechs is required to perform maintenance on the covered spare parts in exchange for a monthly fee that is based upon a rate per flight hour. The promissory note is to be repaid over three years through a reduction in the monthly maintenance fees. The value of the covered rotable spare parts inventory

36

will be amortized on a straight-line basis to its estimated fair value over the life of the agreement. The liability for amounts financed of $21 million will be reduced through monthly principal reduction payments that are included in the monthly fees. At termination, the Company may elect to purchase the covered inventory at fair value, but is not contractually obligated to do so. The agreement includes stipulations that require LogisTechs to ensure minimum levels of availability for covered parts. Mesa is required to repay amounts financed if it terminates the agreement early for convenience. LogisTechs is also committed to finance approximately $4 million of additional spare parts to support our CRJ-200 fleet. We are currently negotiating similar agreements for up to $43 million of spare parts for our current and to be delivered fleet of Bombardier CRJ-700s and 900s and current fleet of Embraer 145 aircraft, representing $31 million of our existing inventory and forgone purchases of $12 million where LogisTechs will purchase spare parts on our behalf.

Contractual Obligations

      As of September 30, 2004, we had $572.5 million of long-term debt (including current maturities). This amount consisted of $367.8 million in notes payable related to owned aircraft, $200.1 in aggregate principal amount of our senior convertible notes due 2023 and 2024 and $4.6 million in other miscellaneous debt.

      The following table sets forth our cash obligations as of September 30, 2004.

			Payment Due by Period
Obligations			2005		2006		2007		2008		2009		Thereafter		Total
			In thousands:
Long-term debt:
	Note payable related to CRJ700s and 900s(2)		$	24,474	$	24,386	$	24,295	$	24,204	$	24,101	$	221,592	$	343,052
Senior convertible debt notes — 2.4829% (assuming no conversions)				6,257		6,257		6,257		6,257		—		100,112		125,140
	Senior convertible debt notes — 2.115% (assuming no conversions)			3,625		3,625		3,625		3,625		1,813		100,000		116,313
	Notes payable related to B1900Ds			9,628		9,628		9,628		9,628		9,628		61,355		109,495
	Note payable related to CRJ200s(2)			3,325		3,000		3,000		3,000		3,000		20,952		36,277
	Note payable to manufacturer			997		941		1,823		—		—		—		3,761
	Mortgage note payable			109		109		109		109		109		1,036		1,581
	Other			68		61		25		25		25		75		279
		Total long-term debt		48,483		48,007		48,762		46,848		38,676		505,122		735,898
Short-term debt:
	Notes payable to manufacturer — interim financing(1)(2)			19,396		22,184		22,103		22,044		21,910		218,780		326,417
Payments under operating leases:
	Cash aircraft rental payments(2)			188,970		188,846		182,522		168,898		166,583		1,133,452		2,029,271
	Lease payments on equipment and operating facilities			891		844		679		703		705		2,450		6,272
		Total lease payments		189,861		189,690		183,201		169,601		167,288		1,135,902		2,035,543
	Future aircraft acquisition costs(3)			350,000		175,000		—		—		—		—		525,000
		Total	$	607,740	$	434,881	$	254,066	$	238,493	$	227,874	$	1,859,804	$	3,622,858

37

(1)	Represents the principal and interest on notes payable to the manufacturer for interim financed aircraft. These notes payable have a six-month maturity. For purposes of this schedule, the Company has assumed that aircraft on interim financing are converted to permanent financing as debt upon the expiration of the notes with future maturities included on this line.
(2)	Aircraft ownership costs, including depreciation and interest expense on owned aircraft and rental payments on operating leased aircraft, of aircraft flown pursuant to our guaranteed-revenue agreements are reimbursed by the applicable code-share partner.
(3)	Represents the estimated cost of commitments to acquire CRJ-700 and CRJ-900 aircraft in the future.

Maintenance Commitments

      In January 1997, the Company entered into a 10-year engine maintenance contract with General Electric Aircraft Engines (“GE”) for its CRJ-200 aircraft. The agreement was subsequently amended in the first quarter of fiscal 2003. The amended contract requires a monthly payment based upon the prior month’s flight hours incurred by the covered engines. The hourly rate increases over time based upon the engine overhaul costs that are expected to be incurred in that year and is subject to escalation based on changes in certain price indices. Maintenance expense is recognized based upon the product of flight hours flown and the rate in effect for the period. The contract also provides for a fixed number of engine overhauls per year. To the extent that the number of actual overhauls is less than the fixed number, GE is required to issue to Mesa a credit for the number of events less than the fixed number multiplied by an agreed upon price. To the extent that the number of actual overhauls is greater than the fixed number, Mesa is required to pay GE for the number of events greater than the fixed number multiplied by the same agreed upon price.

      In April 1997, the Company entered into a 10-year engine maintenance contract with Pratt & Whitney Canada Corp. (“PWC”) for its Dash 8-200 aircraft. The contract requires Mesa to pay PWC for the engine overhaul upon completion of the maintenance based upon a fixed dollar amount per flight hour. The rate under the contract is subject to escalation based on changes in certain price indices. Maintenance expense is recognized in the period the maintenance is performed.

      In April 2000, the Company entered into a 10-year engine maintenance contract with Rolls-Royce Allison (“Rolls-Royce”) for its ERJ aircraft. The contract requires Mesa to pay Rolls-Royce for the engine overhaul upon completion of the maintenance based upon a fixed dollar amount per flight hour. The rate per flight hour is based upon certain operational assumptions and may vary if the engines are operated differently than these assumptions. The rate is also subject to escalation based on changes in certain price indices. Maintenance expense is recognized in the period the maintenance is performed. The agreement with Rolls-Royce also contains a termination clause and look back provision to provide for any shortfall between the cost of maintenance incurred by the provider and the amount paid up to the termination date by the Company and includes a 15% penalty on such amount. The Company does not anticipate an early termination under the contract.

      In May 2002, the Company entered into a new six-year fleet management program with PWC to provide maintenance for the Company’s Beechcraft 1900D turboprop engines. The contract requires a monthly payment based upon flight hours incurred by the covered aircraft. The hourly rate is subject to annual adjustment based on changes in certain price indices and is guaranteed to increase by no less than 1.5% per year. Maintenance expense is recognized based upon the product of flight hours flown and the rate in effect for the period. Pursuant to the agreement, the Company sold certain assets of its Desert Turbine Services unit, as well as all spare PT6 engines to PWC for $6.8 million, which approximated the net book value of the assets. Pursuant to the agreement, the Company provided a working capital loan to PWC for the same amount, which is to be repaid through a reduced hourly rate being charged for maintenance. The agreement covers all of the Company’s Beechcraft 1900D turboprop aircraft and engines. The agreement also contains a termination clause and look back provision to provide for any shortfall between the cost of maintenance incurred by the provider and the amount paid up to the termination date by the Company and provides for return of a pro-rated share of the prepaid amount upon early termination. The Company does not anticipate an early termination under the contract.

38

Critical Accounting Policies and Estimates

      The discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. In connection with the preparation of these financial statements, we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, the allowance for doubtful accounts, medical claims reserve, valuation of assets held for sale and costs to return aircraft and a valuation allowance for certain deferred tax assets. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Such historical experience and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

      We have identified the accounting policies below as critical to our business operations and the understanding of our results of operations. The impact of these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. The discussion below is not intended to be a comprehensive list of our accounting policies. For a detailed discussion on the application of these and other accounting policies, see Note 1 in the Notes to the Consolidated Financial Statements, which contains accounting policies and other disclosures required by accounting principles generally accepted in the United States of America.

Revenue Recognition

      The America West, United and the US Airways regional jet code-share agreements are revenue-guarantee flying agreements. Under a revenue-guarantee arrangement, the major airline generally pays a fixed monthly minimum amount, plus certain additional amounts based upon the number of flights flown and block hours performed. The contracts also include reimbursement of certain costs incurred by Mesa in performing flight services. These costs, known as “pass-through costs,” may include aircraft ownership cost, passenger and hull insurance, aircraft property taxes as well as, fuel, landing fees and catering. The contracts also include a profit component that may be determined based on a percentage of profits on the Mesa flown flights, a profit margin on certain reimbursable costs as well as a profit margin based on certain operational benchmarks. The Company primarily recognizes revenue under its revenue-guarantee agreements when the transportation is provided. The majority of the revenue under these contracts is known at the end of the accounting period and is booked as actual. The Company performs an estimate of the profit component based upon the information available at the end of the accounting period. All revenue recognized under these contracts is presented at the gross amount billed.

      The America West, US Airways and Midwest Airlines B1900D turboprop code-share agreements are pro-rate agreements. Under a prorate agreement, the Company receives a percentage of the passenger’s fare based on a standard industry formula that allocates revenue based on the percentage of transportation provided. Revenue from our pro-rate agreements and our independent operation is recognized when transportation is provided. Tickets sold but not yet used are included in air traffic liability on the consolidated balance sheets.

      The Company also receives subsidies for providing scheduled air service to certain small or rural communities. Such revenue is recognized in the period in which the air service is provided. The amount of the subsidy payments is determined by the United States Department of Transportation on the basis of its evaluation of the amount of revenue needed to meet operating expenses and to provide a reasonable return on investment with respect to eligible routes. EAS rates are normally set for two-year contract periods for each city.

39

Allowance for Doubtful Accounts

      Amounts billed by the Company under revenue guarantee arrangements are subject to our interpretation of the applicable code-share agreement and are subject to audit by our code-share partners. Periodically our code-share partners dispute amounts billed and pay amounts less than the amount billed. Ultimate collection of the remaining amounts not only depends upon Mesa prevailing under audit, but also upon the financial well-being of the code-share partner. As such, the Company periodically reviews amounts past due and records a reserve for amounts estimated to be uncollectible. The allowance for doubtful accounts was $7.1 million and $4.7 million at September 30, 2004 and 2003, respectively. If the Company’s actual ability to collect these receivables and the actual financial viability of its partners is materially different than estimated, the Company’s estimate of the allowance could be materially understated or overstated.

Accrued Health Care Costs

      The Company is currently self-insured for health care costs and as such, a reserve for the cost of claims that have not been paid as of the balance sheet date is estimated. The Company’s estimate of this reserve is based upon historical claim experience and upon the recommendations of its health care provider. At September 30, 2004 and 2003, the Company accrued $2.2 million and $1.8 million, respectively, for the cost of future health care claims. If the ultimate development of these claims is significantly different than those that have been estimated, the reserves for future health care claims could be materially overstated or understated.

Long-lived Assets, Aircraft and Parts Held for Sale

      Property and equipment are stated at cost and depreciated over their estimated useful lives to their estimated salvage values using the straight-line method. Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may be impaired. Under the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company records an impairment loss if the undiscounted future cash flows are found to be less than the carrying amount of the asset. If an impairment loss has occurred, a charge is recorded to reduce the carrying amount of the asset to fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.

Valuation of Deferred Tax Assets

      The Company records deferred tax assets for the value of benefits expected to be realized from the utilization of alternative minimum tax credit carryforwards and state and federal net operating loss carryforwards. The Company periodically reviews these assets for realizability based upon expected taxable income in the applicable taxing jurisdictions. To the extent the Company believes some portion of the benefit may not be realizable, an estimate of the unrealized portion is made and an allowance is recorded. At September 30, 2004, the Company had no valuation allowance for deferred tax assets as it believes it will generate sufficient taxable income in the future to realize its recorded deferred tax assets. This belief is based upon the Company having had pretax income in fiscal 2004, 2003 and 2002 (excluding impairment charges) and as the Company has taken steps to minimize the financial impact of its unprofitable subsidiaries. Realization of these deferred tax assets is dependent upon generating sufficient taxable income prior to expiration of any net operating loss carryforwards. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets will be realized. If the ultimate realization of these deferred tax assets is significantly different from the Company’s expectations, the value of its deferred tax assets could be materially overstated.

Recent Accounting Pronouncements

      In September 2004, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 04-08, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share.” EITF Issue No. 04-08 requires shares of common stock issuable upon conversion of contingently convertible debt instruments to be included in the calculation of diluted earnings per share whether or not the contingent

40

conditions for conversion have been met, unless the inclusion of these shares is anti-dilutive. Previously, shares of common stock issuable upon conversion of contingently convertible debt securities were excluded from the calculation of diluted earnings per share. EITF Issue No. 04-08 is effective for reporting periods ending after December 15, 2004. If applicable, EITF Issue No. 04-08 will require the restatement of prior period diluted earnings per share amounts. Our 3.625% senior convertible notes due 2024 are contingently convertible debt securities. These debt securities are contingently convertible into 6.9 million shares of our common stock, subject to adjustment in certain circumstances. When we adopt EITF Issue No. 04-08 as of December 31, 2004, we will restate our previously reported diluted earnings per share for the second, third and fourth quarters of fiscal 2004 to include the dilutive impact of the 6.9 million shares.

Item 7A — Quantitative and Qualitative Disclosures About Market Risk

      We have exposure to market risk associated with changes in interest rates related primarily to our debt obligations and short-term marketable investment portfolio. Certain of the Company’s debt obligations are variable in rate and therefore have exposure to changes in interest rates. A 10% change in interest rates would result in an approximately $1.3 million impact on interest expense. The Company also has investments in debt securities. If short-term interest rates were to average 10% more than they did in fiscal year 2004 interest income would be impacted by approximately $0.3 million. The Company’s investments in equity securities are subject to market risk related to fluctuations in share prices for those shares held. A 10% change in the price of trading securities held at the level of investment at September 30, 2004 would impact the results of the Company by approximately $0.7 million.

      We have exposure to certain market risks associated with our aircraft fuel. Aviation fuel expense is a significant expense for any air carrier and even marginal changes in the cost of fuel greatly impact a carrier’s profitability. Standard industry contracts do not generally provide protection against fuel price increases, nor do they insure availability of supply. However, the America West, United and US Airways revenue-guarantee code-share agreements allow fuel costs to be reimbursed by the code-share partner, thereby reducing our overall exposure to fuel price fluctuations. In fiscal 2004, 92% of our fuel requirements were associated with these contracts. Each one cent change in the price of jet fuel amounts to a $0.1 million change in annual fuel costs for that portion of fuel expense that is not reimbursed by our code-share partners.

Item 8. Financial Statements and Supplementary Data

Consolidated Financial Statements

Page 42	—	Report of Independent Registered Public Accounting Firm.
Page 43	—	Consolidated Statements of Operations — Years ended September 30, 2004, 2003 and 2002.
Page 44	—	Consolidated Balance Sheets — September 30, 2004 and 2003.
Page 45	—	Consolidated Statements of Cash Flows — Years ended September 30, 2004, 2003 and 2002.
Page 47	—	Consolidated Statements of Stockholders’ Equity — Years ended September 30, 2004, 2003 and 2002.
Page 48	—	Notes to Consolidated Financial Statements.

      All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because they are not applicable, not required or the information has been furnished elsewhere.

41

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Mesa Air Group, Inc.

Phoenix, Arizona

      We have audited the accompanying consolidated balance sheets of Mesa Air Group, Inc. and subsidiaries (the “Company”) as of September 30, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements 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, such consolidated financial statements present fairly, in all material respects, the financial position of Mesa Air Group, Inc. and subsidiaries as of September 30, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2004 in conformity with accounting principles generally accepted in the United States of America.

      As discussed in Note 2, substantially all of the Company’s passenger revenue is derived from code-share agreements with America West Airlines, Inc., United Airlines, Inc. and US Airways, Inc.

DELOITTE & TOUCHE LLP

Phoenix, Arizona

December 13, 2004

42

PART 1. FINANCIAL INFORMATION

MESA AIR GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

				Years Ended September 30,
				2004			2003			2002
				(In thousands, except per share
				amounts)
Operating revenues:
	Passenger			$	868,415		$	577,582		$	480,826
	Freight and other				28,397			22,408			15,957
			Total operating revenues		896,812			599,990			496,783
Operating expenses:
	Flight operations				297,521			212,080			178,158
	Fuel				194,510			113,370			78,200
	Maintenance				163,463			118,517			103,300
	Aircraft and traffic servicing				66,223			50,053			46,057
	Promotion and sales				5,806			7,966			12,663
	General and administrative				62,035			37,982			44,140
	Depreciation and amortization				28,001			15,700			14,150
	Impairment and restructuring charges (credits)				11,895			(10,957	)		26,675
		Total operating expenses			829,454			544,711			503,343
	Operating income (loss)				67,358			55,279			(6,560	)
Other income (expense):
	Interest expense				(25,063	)		(12,664	)		(7,983	)
	Interest income				1,163			1,163			1,542
	Other income (expense)				1,723			(2,758	)		(3,404	)
		Total other expense			(22,177	)		(14,259	)		(9,845	)
Income (loss) before income taxes					45,181			41,020			(16,405	)
Income taxes (benefit)					18,899			15,710			(4,554	)
Income (loss) before minority interest					26,282			25,310			(11,851	)
Minority interest in consolidated subsidiary					—			(5	)		583
Net income (loss)				$	26,282		$	25,305		$	(11,268	)
Net income (loss) per common share — basic				$	0.83		$	0.80		$	(0.34	)
Net income (loss) per common share — diluted				$	0.70		$	0.76		$	(0.34	)

See accompanying notes to consolidated financial statements.

43

MESA AIR GROUP, INC.

CONSOLIDATED BALANCE SHEETS

			September 30,
			2004			2003
			(In thousands, except share
			data)
ASSETS
Current assets:
	Cash and cash equivalents		$	220,885		$	152,547
	Marketable securities			8,264			13,558
	Restricted cash			9,484			—
	Receivables, primarily traffic, net			30,744			25,493
	Income tax receivable			1,466			—
	Expendable parts and supplies, net			34,790			25,044
	Prepaid expenses and other current assets			43,907			28,202
	Deferred income taxes			8,855			28,436
		Total current assets		358,395			273,280
Property and equipment, net				697,425			398,192
Lease and equipment deposits				31,342			27,352
Deferred income taxes				5,342			4,484
Other assets				26,550			13,628
Investments in corporate bonds and US Treasury notes				2,483			—
		Total assets	$	1,121,537		$	716,936
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Current portion of long-term debt		$	21,850		$	8,519
	Short-term debt			230,969			241,623
	Accounts payable			46,821			39,315
	Air traffic liability			2,585			3,490
	Accrued compensation			7,284			6,581
	Income taxes payable			456			896
	Other accrued expenses			34,867			30,236
		Total current liabilities		344,832			330,660
Long-term debt, excluding current portion				550,613			199,023
Deferred credits				71,451			70,456
Other noncurrent liabilities				25,737			4,824
		Total liabilities		992,633			604,963
Commitments and contingencies (notes 2, 6, 9, 14 and 15)
Stockholders’ equity:
	Preferred stock of no par value, 2,000,000 shares authorized; no shares issued and outstanding			—			—
	Common stock of no par value and additional paid-in capital, 75,000,000 shares authorized; 30,066,777 and 31,704,625 shares issued and outstanding, respectively			108,173			114,580
	Retained earnings (accumulated deficit)			23,675			(2,607	)
	Unearned compensation on restricted stock			(2,944	)		—
		Total stockholders’ equity		128,904			111,973
		Total liabilities and stockholders’ equity	$	1,121,537		$	716,936

See accompanying notes to consolidated financial statements.

44

MESA AIR GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

			Years Ended September 30,
			2004			2003			2002
			(In thousands)
Cash Flows from Operating Activities:
Net income (loss)			$	26,282		$	25,305		$	(11,268	)
Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities:
	Depreciation and amortization			28,001			15,519			13,898
	Tax benefit on stock compensation			137			449			188
	Impairment and restructuring charges (credits)			11,895			(10,957	)		26,675
	Deferred income taxes			18,723			13,702			(5,573	)
	Gain on involuntary conversion of aircraft			—			(1,283	)		—
	Unrealized (gain) loss on investment securities			620			(255	)		5,175
	Amortization of deferred credits			(6,243	)		(5,830	)		(3,982	)
	Amortization of restricted stock awards			589			—			—
	Provision for (recovery of) doubtful accounts			4,315			(1,771	)		5,605
	Provision for obsolete expendable parts and supplies			1,269			1,639			—
	Department of Transportation settlement			—			4,154			—
	Minority interest			—			5			(583	)
	Changes in assets and liabilities:
		Restricted cash		(9,484	)		—			—
		Net purchases (sales) of investment securities		4,674			(4,786	)		(10,035	)
		Receivables		(9,566	)		3,001			(5,228	)
		Income tax receivables		(1,466	)		—			—
		Expendable parts and supplies		(11,415	)		(5,445	)		10,953
		Prepaid expenses and other current assets		(14,708	)		(2,472	)		(7,526	)
		Accounts payable		4,921			14,881			(19,692	)
		Income taxes payable		(440	)		386			510
		Cost to return aircraft held for sale		(2,392	)		(2,097	)		(6,648	)
		Other accrued liabilities		1,619			6,144			(4,098	)
		NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		47,331			50,289			(11,629	)
Cash Flows from Investing Activities:
Capital expenditures				(50,283	)		(27,370	)		(9,737	)
Acquisition of Midway				(9,160	)		—			—
Proceeds from sale of rotable and expendable inventory				2,383			2,637			8,198
Proceeds from aircraft insurance				—			3,218			—
Change in other assets				(1,181	)		935			(6,301	)
Lease and equipment deposits				(5,491	)		(12,013	)		4,860
Purchase of held-to-maturity securities				(2,483	)		—			—
		NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		(66,215	)		(32,593	)		(2,980	)

(Continued)

45

MESA AIR GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

			Years Ended September 30,
			2004			2003			2002
			(In thousands)
Cash Flows from Financing Activities:
Principal payments on long-term debt				(16,859	)		(15,733	)		(9,424	)
Proceeds from senior convertible notes				100,000			100,112			—
Net payments on line of credit				—			—			(20,000	)
Debt issuance costs				(3,009	)		(3,262	)		—
Proceeds from financing rotable inventory				15,000			—			—
Proceeds from exercise of stock options and issuance of warrants				843			1,775			742
Common stock purchased and retired				(10,921	)		(2,314	)		(5,956	)
Proceeds from receipt of deferred credits				2,168			9,375			13,927
Contribution from minority interest				—			—			5,000
Distribution to minority interest shareholders				—			(972	)		(3,000	)
		NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		87,222			88,981			(18,711	)
		NET CHANGE IN CASH AND CASH EQUIVALENTS		68,338			106,677			(33,320	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR				152,547			45,870			79,190
CASH AND CASH EQUIVALENTS AT END OF YEAR			$	220,885		$	152,547		$	45,870
SUPPLEMENTAL CASH FLOW INFORMATION:
	Cash paid for interest		$	24,105		$	11,665		$	9,731
	Cash paid for income taxes			1,906			1,130			556
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
	Aircraft and engine delivered under interim financing		$	463,936		$	402,639		$	46,018
	Aircraft and engine debt permanently financed as operating lease			(203,362	)		(207,034	)		(72,687	)
	Long-term debt assumed in Midway asset purchase			24,109
	Inventory and other credits received in conjunction with aircraft Financing			5,073			4,978			3,729
	Note receivable received in conjunction with financing of rotable inventory			6,000			—			—
	Return of aircraft for reduction of long-term debt and accrued interest			—			8,164			32,749

(Concluded)

See accompanying notes to consolidated financial statements.

46

MESA AIR GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

							Retained			Unearned
							Earnings			Compensation
Years Ended September 30,	Number of			Common			(Accumulated			on Restricted
2004, 2003, and 2002	Shares			Stock			Deficit)			Stock			Total
	(In thousands, except number of shares)
Balance at October 1, 2001		33,049,183		$	119,387		$	(16,644	)	$	—		$	102,743
Exercise of stock options		154,123			930			—			—			930
Common stock purchased and retired		(1,213,420	)		(5,956	)		—			—			(5,956	)
Tax benefit — stock compensation		—			188			—			—			188
Amortization of warrants		—			121			—			—			121
Net loss		—			—			(11,268	)		—			(11,268	)
Balance at September 30, 2002		31,989,886			114,670			(27,912	)		—			86,758
Exercise of stock options		270,088			1,465			—			—			1,465
Common stock purchased and retired		(555,349	)		(2,314	)		—			—			(2,314	)
Tax benefit — stock compensation		—			449			—			—			449
Amortization of warrants		—			134			—			—			134
Issuance of warrants		—			176			—			—			176
Net income		—			—			25,305			—			25,305
Balance at September 30, 2003		31,704,625			114,580			(2,607	)		—			111,973
Exercise of stock options		110,208			622			—			—			622
Common stock purchased and retired		(1,748,056	)		(10,921	)		—			—			(10,921	)
Restricted stock		—			3,533			—			(3,533	)		—
Amortization of restricted stock grant		—			—			—			589			589
Tax benefit — stock compensation		—			137			—			—			137
Amortization of warrants		—			135			—			—			135
Issuance of warrants		—			87			—			—			87
Net income		—			—			26,282			—			26,282
Balance at September 30, 2004		30,066,777		$	108,173		$	23,675		$	(2,944	)	$	128,904

See accompanying notes to consolidated financial statements.

47

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 30, 2004, 2003 and 2002

1. Summary of Significant Accounting Policies

Principles of Consolidation and Organization

      The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and include the accounts of Mesa Air Group, Inc. and its wholly-owned operating subsidiaries (collectively “Mesa” or the “Company”): Mesa Airlines, Inc. (“Mesa Airlines”), a Nevada corporation and certificated air carrier; Freedom Airlines, Inc. (“Freedom”), a Nevada corporation and certificated air carrier; Air Midwest, Inc. (“Air Midwest”), a Kansas corporation and certificated air carrier; CCAir, Inc. (“CCAir”), a Delaware corporation and certificated air carrier; MPD, Inc., a Nevada corporation, doing business as Mesa Pilot Development; Regional Aircraft Services, Inc. (“RAS”) a Pennsylvania company; Mesa Leasing, Inc., a Nevada corporation; Mesa Air Group — Aircraft Inventory Management, LLC (“MAG-AIM”), an Arizona Limited Liability Company; Ritz Hotel Management Corp., a Nevada Corporation; UFLY, LLC. (“UFLY”), a Delaware Limited Liability Company; and MAGI Insurance, Ltd. (“MAGI”), a Barbados, West Indies based captive insurance company. MPD, Inc. provides pilot training in coordination with a community college in Farmington, New Mexico and with Arizona State University in Tempe, Arizona. RAS performs aircraft component repair and overhaul services. UFLY was established in fiscal 2002 to make strategic investments in US Airways common stock. MAGI is a captive insurance company established for the purpose of obtaining more favorable aircraft liability insurance rates. CCAir ceased operations and was dissolved in fiscal 2003. UFLY distributed its assets and was subsequently dissolved in fiscal 2003. All significant intercompany accounts and transactions have been eliminated in consolidation.

      The Company is an independent regional airline serving 181 cities in 43 states, the District of Columbia, Canada Mexico and the Bahamas. At September 30, 2004, the Company operated a fleet of 180 aircraft and had over 1,000 daily departures. The Company’s airline operations are conducted by three regional airline subsidiaries primarily utilizing hub-and-spoke systems. Mesa Airlines operates as America West Express under a code-share agreement with America West Airlines, Inc. (“America West”), as United Express under a code-share relationship with United Airlines (“United”) and as US Airways Express under a code-share agreement with US Airways, Inc. (“US Airways”). Freedom operates as America West Express pursuant to the Company’s code-share agreement with America West. Air Midwest operates under code-share agreements with America West, US Airways and Midwest Airlines. Air Midwest also operates an independent division, doing business as Mesa Airlines, from Albuquerque, New Mexico and select Essential Air Service markets. Prior to ceasing operations, CCAir operated under a code-share agreement with US Airways as US Airways Express. Approximately 99% of the Company’s consolidated passenger revenues for 2004 were derived from operations associated with code-share agreements.

      The financial arrangement between Mesa and its code-share partners involve either a revenue-guarantee or pro-rate arrangement. Under a revenue-guarantee arrangement, the major airline generally pays a monthly guaranteed amount. The America West jet and Dash-8 code-share agreement, the United code-share agreement and the US Airways regional jet agreement are revenue-guarantee flying agreements. Under the terms of these flying agreements, the major carrier controls marketing, scheduling, ticketing, pricing and seat inventories. The Company receives a guaranteed payment based upon a fixed minimum monthly amount plus amounts related to departures and block hours flown plus direct reimbursement for expenses such as fuel, landing fees and insurance. Among other advantages, revenue-guarantee arrangements reduce the Company’s exposure to fluctuations in passenger traffic and fare levels, as well as fuel prices. The America West B1900 agreement, Midwest Airlines agreement and US Airways turboprop agreement are pro-rate agreements, for which the Company receives an allocated portion of the passengers’ fare and pays all of the costs of transporting the passenger.

48

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      In addition to carrying passengers, the Company carries freight and express packages on its passenger flights and has interline small cargo freight agreements with many other carriers. Mesa also has contracts with the U.S. Postal Service for carriage of mail to the cities it serves and occasionally operates charter flights when its aircraft are not otherwise used for scheduled service.

      Renewal of one code-share agreement with a code-share partner does not guarantee the renewal of any other code-share agreement with the same code-share partner. The agreements with America West expire in 2012; the revenue-guarantee agreements with US Airways expire in 2014 (with various aircraft expiring on dates between 2008 and 2014); the pro-rate agreement with US Airways expires in October 2006; the agreement with United expires between 2011 and 2013; and the agreement with Midwest Airlines expires in 2006. Although the provisions of the code-share agreements vary from contract to contract, generally each agreement is subject to cancellation should the Company’s subsidiaries fail to meet certain operating performance standards, and breach other contractual terms and conditions.

Cash and Cash Equivalents

      The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents.

Restricted Cash

      At September 30, 2004, the Company has $9.5 million in restricted cash on deposit with two financial institutions. In September 2004, the Company entered into an agreement with a financial institution for a $9.0 million letter of credit facility and to issue letters of credit for landing fees, workers compensation insurance and other business needs. Pursuant to the agreement, $4.2 million of outstanding letters of credit are required to be collateralized by amounts on deposit. The Company also must maintain $5.3 million on deposit with another financial bank to collateralize its direct deposit payroll.

Investments

      Marketable securities consist of shares of common stock and exchange traded options stated at market value as determined by the most recently traded price of each security at the balance sheet date. Holdings and the related gains or losses are based upon trade date, regardless of whether settlement has occurred. All marketable securities are defined as trading securities under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.”

      Investments in long-term debt securities are accounted for in accordance with SFAS 115, and based upon the Company’s intentions, it has classified these investments as held to maturity. As such, these investments are recorded at amortized cost.

Receivables and Concentration of Risk

      The majority of the Company’s receivables relate to amounts due from its revenue-guarantee code share partners. Under these agreements, the Company receives a guaranteed payment based upon a fixed minimum monthly amount, plus amounts related to departures and block hours flown and direct reimbursement for certain expenses such as fuel, landing fees and insurance.

Expendable Parts and Supplies

      Expendable parts and supplies are stated at the lower of cost using the first-in, first-out method or market, and are charged to expense as they are used. The Company provides for an allowance for obsolescence over the useful life of its aircraft after considering the useful life of each aircraft fleet, the estimated cost of

49

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

expendable parts expected to be on hand at the end of the useful life and the estimated salvage value of the parts. The Company reviews the adequacy of this allowance on a quarterly basis.

Property and Equipment

      Property and equipment are stated at cost and depreciated over their estimated useful lives to their estimated salvage values using the straight line method.

      Estimated useful lives of the various classifications of property and equipment are as follows:

Buildings	30 years
Flight equipment	7-20 years
Equipment	5-12 years
Furniture and fixtures	3-5 years
Vehicles	5 years
Rotable inventory	Life of the aircraft or term of the lease, whichever is less
Leasehold improvements	Life of asset or term of lease, whichever is less

      Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may be impaired. Under the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company records an impairment loss if the undiscounted future cash flows are found to be less than the carrying amount of the asset. If an impairment loss has occurred, a charge is recorded to reduce the carrying amount of the asset to fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.

      Interest related to deposits on aircraft purchase contracts is capitalized as part of the aircraft. The Company capitalized approximately $1.0 million, $0.8 million and $1.2 million of interest in fiscal 2004, 2003 and 2002, respectively.

Other Assets

      Other assets primarily consist of the capitalized costs associated with establishing financing for aircraft, prepaid maintenance, a note receivable received pursuant to the rotable spare parts financing and debt issuance costs associated with the senior convertible notes. The financing costs are amortized over the lives of the associated aircraft leases which are primarily 16-17 years. Prepaid maintenance is amortized over the six-year term of the related maintenance contract based upon the hours flown by the related aircraft. The debt issuance costs are amortized over the 20 year life of the senior convertible notes.

Air Traffic Liability

      Air traffic liability represents the cost of tickets sold but not yet used. The Company records the revenue associated with these tickets in the period the passenger flies.

Income Taxes

      Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in future years in which those temporary differences are expected to be recovered or settled.

50

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company and its subsidiaries file a consolidated federal income tax return.

Notes Payable for Aircraft on Interim Financing

      Aircraft under interim financing are recorded as a purchase with debt financing. As such, the Company reflects the aircraft in property and equipment and the debt financing in current portion of long-term debt on its balance sheet during the interim financing period. Upon permanent financing, the proceeds from the sale and lease back transaction are used to retire the notes payable to the manufacturer. Any gain recognized on the sale-leaseback transaction is deferred and amortized over the life of the lease.

Deferred Credits

      Deferred credits consist of aircraft purchase incentives provided by the aircraft manufacturers and deferred gains on the sale and leaseback of interim financed aircraft. The incentives include credits that may be used to purchase spare parts, pay for training expenses or reduce other aircraft operating costs. The deferred credits and gains are amortized on a straight-line basis as a reduction of lease expense over the term of the respective leases.

Revenue Recognition

      The America West, United and the US Airways regional jet code-share agreements are revenue-guarantee flying agreements. Under a revenue-guarantee arrangement, the major airline generally pays a fixed monthly minimum amount, plus certain additional amounts based upon the number of flights flown and block hours performed. The contracts also include reimbursement of certain costs incurred by Mesa in performing flight services. These costs, known as “pass-through costs,” may include aircraft ownership cost, passenger and hull insurance, aircraft property taxes as well as, fuel, landing fees and catering. In addition, the Company’s code-share partners also provide, at no cost to Mesa, certain ground handling and customer service functions, as well as airport-related facilities and gates at their hubs and other cities. The contracts also include a profit component that may be determined based on a percentage of profits on the Mesa flown flights, a profit margin on certain reimbursable costs as well as a profit margin based on certain operational benchmarks. The Company primarily recognizes revenue under its revenue-guarantee agreements when the transportation is provided. The majority of the revenue under these contracts is known at the end of the accounting period and is booked as actual. The Company performs an estimate of the profit component based upon the information available at the end of the accounting period. All revenue recognized under these contracts is presented at the gross amount billed.

      Under the Company’s revenue-guarantee agreements with America West, US Airway and United, the Company is reimbursed under a fixed rate per block-hour plus an amount per aircraft designed to reimburse the Company for certain aircraft ownership costs. In accordance with Emerging Issues Task Force Issue No. 01-08, “Determining Whether an Arrangement Contains a Lease,” the Company has concluded that a component of its revenue under the agreement discussed above is rental income, inasmuch as the agreement identifies the “right of use” of a specific type and number of aircraft over a stated period of time. The amount deemed to be rental income during fiscal 2004 was $189.0 million and has been included in passenger revenue on the Company’s statements of income.

      The America West, US Airways, and Midwest Airlines turboprop code-share agreements are pro-rate agreements. Under a pro-rate agreement, the Company receives a percentage of the passenger’s fare based on a standard industry formula that allocates revenue based on the percentage of transportation provided. Revenue from the Company’s pro-rate agreements and the Company’s independent operation is recognized

51

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

when transportation is provided. Tickets sold but not yet used are included in air traffic liability on the consolidated balance sheets.

      The Company also receives subsidies for providing scheduled air service to certain small or rural communities. Such revenue is recognized in the period in which the air service is provided. The amount of the subsidy payments is determined by the United States Department of Transportation on the basis of its evaluation of the amount of revenue needed to meet operating expenses and to provide a reasonable return on investment with respect to eligible routes. Essential Air Service (“EAS”) rates are normally set for two-year contract periods for each city.

Maintenance Expense

      The Company generally charges the cost of engine and aircraft maintenance to expense as incurred. The Company also has long-term contracts for the performance of engine maintenance on some of its aircraft. A description of each of these contracts is as follows:

      In January 1997, the Company entered into a 10-year engine maintenance contract with General Electric Aircraft Engines (“GE”) for its CRJ-200 aircraft. The agreement was subsequently amended in the first quarter of fiscal 2003. The amended contract requires a monthly payment based upon the prior month’s flight hours incurred by the covered engines. The hourly rate increases over time based upon the engine overhaul costs that are expected to be incurred in that year and is subject to escalation based on changes in certain price indices. Maintenance expense is recognized based upon the product of flight hours flown and the rate in effect for the period. The contract also provides for a fixed number of engine overhauls per year. To the extent that the number of actual overhauls is less than the fixed number, GE is required to issue to Mesa a credit for the number of events less than the fixed number multiplied by an agreed upon price. To the extent that the number of actual overhauls is greater than the fixed number, Mesa is required to pay GE for the number of events greater than the fixed number multiplied by the same agreed upon price. Any adjustments payments or credits are recognized in the period they occur.

      In April 1997, the Company entered into a 10-year engine maintenance contract with Pratt & Whitney Canada Corp. (“PWC”) for its Dash 8-200 aircraft. The contract requires Mesa to pay PWC for the engine overhaul upon completion of the maintenance based upon a fixed dollar amount per flight hour. The rate under the contract is subject to escalation based on changes in certain price indices. Maintenance expense is recognized in the period the maintenance is performed.

      In April 2000, the Company entered into a 10-year engine maintenance contract with Rolls-Royce Allison (“Rolls-Royce”) for its ERJ aircraft. The contract requires Mesa to pay Rolls-Royce for the engine overhaul upon completion of the maintenance based upon a fixed dollar amount per flight hour. The rate per flight hour is based upon certain operational assumptions and may vary if the engines are operated differently than these assumptions. The rate is also subject to escalation based on changes in certain price indices. Maintenance expense is recognized in the period the maintenance is performed. The agreement with Rolls-Royce also contains a termination clause and look back provision to provide for any shortfall between the cost of maintenance incurred by the provider and the amount paid up to the termination date by the Company and includes a 15% penalty on such amount. The Company does not anticipate an early termination under the contract

      In May 2002, the Company entered into a new six-year fleet management program with PWC to provide maintenance for the Company’s Beechcraft 1900D turboprop engines. The contract requires a monthly payment based upon flight hours incurred by the covered aircraft. The hourly rate is subject to annual adjustment based on changes in certain price indices and is guaranteed to increase by no less than 1.5% per year. Maintenance expense is recognized based upon the product of flight hours flown and the rate in effect for the period. Pursuant to the agreement, the Company sold certain assets of its Desert

52

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Turbine Services unit, as well as all spare PT6 engines to PWC for $6.8 million, which approximated the net book value of the assets. Pursuant to the agreement, the Company provided a working capital loan to PWC for the same amount, which is to be repaid through a reduced hourly rate being charged for maintenance. The agreement covers all of the Company’s Beechcraft 1900D turboprop aircraft and engines. The agreement also contains a termination clause and look back provision to provide for any shortfall between the cost of maintenance incurred by the provider and the amount paid up to the termination date by the Company and provides for return of a pro-rated share of the prepaid amount upon early termination. The Company does not anticipate an early termination under the contract.

Minority Interest

      In 2001, the Company entered into an agreement to form UFLY for the purpose of making strategic investments in US Airways, Inc. In 2002, UFLY was capitalized with $5.0 million from the Company and $5.0 million from other members, which included Jonathan Ornstein, the Company’s Chairman and Chief Executive Officer. UFLY distributed its assets and was subsequently dissolved in fiscal 2003. The Company owned greater than 50% of UFLY in 2003 and 2002 and therefore the financial results of UFLY are included in the consolidated financial results of the Company. Amounts included in the consolidated statements of operations as minority interest reflect the after-tax portion of earnings of UFLY that are applicable to the minority interest partners.

Earnings (Loss) Per Share

      The Company accounts for earnings (loss) per share in accordance with SFAS No. 128, “Earnings per Share.” Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the periods presented. Diluted net income (loss) per share reflects the potential dilution that could occur if outstanding stock options and warrants were exercised. In addition, dilutive convertible securities are included in the denominator while interest on convertible debt, net of tax, is added back to the numerator. A reconciliation of the numerator and denominator used in computing income (loss) per share is as follows:

	Years Ended September 30,
	2004		2003		2002
	(In thousands)
Share calculation:
Weighted average shares outstanding — basic		31,490		31,556		32,803
Effect of dilutive outstanding stock options and warrants		1,139		507		—
Effect of restricted stock		214		—		—
Effect of dilutive outstanding convertible debt due 2023		10,011		2,935		—
Weighted average shares outstanding — diluted		42,854		34,998		32,803
Adjustments to net income (loss):
Net income (loss)	$	26,282	$	25,305	$	(11,268	)
Interest expense on convertible debt, net of tax		3,680		1,144		—
Adjusted net income (loss)	$	29,962	$	26,449	$	(11,268	)

      The effect of options to purchase 599,000 shares of common stock in fiscal 2002 would have been antidilutive to the per share calculation. Accordingly, those options were excluded from the calculation.

      At September 30, 2004, the conversion features of the Company’s senior convertible notes due 2024 had not been met; therefore, the dilutive effect of the notes was not included in the determination of earnings per common share. Diluted income per share would have been $0.63 for fiscal 2004, if the dilutive effect of the notes was included in the computation of income per common share.

53

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock Options

      The Company accounts for its stock-based compensation arrangements in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. The Company has adopted only the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended, which permits pro-forma net earnings and pro-forma earnings per share disclosures for employee stock option grants made in fiscal 1996 and future years as if the fair value based measurement method defined in SFAS No. 123 had been applied. Warrants issued to non-employees are also accounted for under SFAS No. 123, at fair value on the measurement date.

      Had the compensation cost for the Company’s stock-based compensation plans been determined consistent with the measurement provisions of SFAS No. 123, the Company’s net income (loss) and net income (loss) per share would have been as indicated by the pro forma amounts below:

		2004			2003			2002
		(In thousands,
		except per share amounts)
Net income (loss) as reported		$	26,282		$	25,305		$	(11,268	)
Stock option compensation expense determined under fair value based method, net of related tax effects			(1,324	)		(2,082	)		(2,221	)
	Pro forma	$	24,958		$	23,223		$	(13,489	)
Income (loss) per share — basic:
	As reported	$	0.83		$	0.80		$	(0.34	)
	Pro forma	$	0.79		$	0.74		$	(0.41	)
Net income (loss) per share — diluted:
	As reported	$	0.70		$	0.76		$	(0.34	)
	Pro forma	$	0.67		$	0.70		$	(0.41	)

      The per share weighted-average fair value of stock options granted during 2004, 2003 and 2002 was $6.77, $3.29 and $4.12, respectively, on the grant date as determined by using the Black-Scholes option pricing model with the following weighted average assumptions: an expected dividend yield 0.0%, an expected life of 6 years, a risk-free interest rate of 4.1%, 4.3% and 3.0%, and volatility of 79.8%, 80.5% and 75.5% in 2004, 2003 and 2002, respectively.

Use of Estimates in the Preparation of Financial Statements

      The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

Segment Reporting

      SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” requires disclosures related to components of a company for which separate financial information is available that is evaluated regularly by a company’s chief operating decision maker in deciding the allocation of resources and assessing performance. The Company has three airline operating subsidiaries, Mesa Airlines, Freedom Airlines and Air Midwest and various other subsidiaries organized to provide support for the Company’s airline operations. The Company has aggregated these operating segments into three reportable segments; Mesa/ Freedom, Air Midwest and Other. Mesa Airlines and Freedom primarily operate the Company’s regional jets pursuant to revenue guarantee agreements. Air Midwest operates the Company’s Beech 1900D

54

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

turboprop aircraft. The Other reportable segment includes Mesa Air Group, RAS, MPD, MAG-AIM and MAGI, all of which support Mesa’s operating subsidiaries.

Recent Accounting Pronouncements

      In September 2004, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 04-08, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share.” EITF Issue No. 04-08 requires shares of common stock issuable upon conversion of contingently convertible debt instruments to be included in the calculation of diluted earnings per share whether or not the contingent conditions for conversion have been met, unless the inclusion of these shares is anti-dilutive. Previously, shares of common stock issuable upon conversion of contingently convertible debt securities were excluded from the calculation of diluted earnings per share. EITF Issue No. 04-08 is effective for reporting periods ending after December 15, 2004. If applicable, EITF Issue No. 04-08 will require the restatement of prior period diluted earnings per share amounts. Our 3.625% senior convertible notes due 2024 are contingently convertible debt securities. These debt securities are contingently convertible into 6.9 million shares of our common stock, subject to adjustment in certain circumstances. When we adopt EITF Issue No. 04-08 as of December 31, 2004, we will restate our previously reported diluted earnings per share for the second, third and fourth quarters of fiscal 2004 to include the dilutive impact of the 6.9 million shares.

Reclassifications

      Certain reclassifications were made to the 2003 and 2002 financial statements to conform to the 2004 presentation.

2. Concentrations

      The Company has code share agreements with America West, US Airways, United Airlines and Midwest Airlines. Approximately 99%, 98% and 98% of the Company’s consolidated passenger revenue for the years ended September 30, 2004, 2003 and 2002, respectively, were derived from these agreements. Accounts receivable from the Company’s code-share partners were 59% and 57% of total gross accounts receivable at September 30, 2004 and 2003, respectively.

      Passenger revenue received from America West amounted to 38%, 44% and 40% of the Company’s total passenger revenue in fiscal 2004, 2003 and 2002, respectively. A termination of the America West revenue-guarantee code-share agreements would have a material adverse effect on the Company’s business prospects, financial position, results of operations and cash flows.

      US Airways, which accounted for approximately 40%, 38% and 35% of the Company’s passenger revenue in fiscal 2004, 2003 and 2002, respectively, filed for Chapter 11 bankruptcy protection on September 12, 2004. In connection with this filing, US Airways has not yet assumed our code-share agreement in bankruptcy and could chose to terminate our agreement. A termination or rejection of our revenue-guarantee agreement or the failure of US Airways to successfully emerge from bankruptcy would have a material adverse effect on the Company.

      United Airlines, a subsidiary of UAL Corp., which accounted for approximately 20% and 1% of the Company’s passenger revenue in fiscal 2004 and 2003, respectively. A termination of the United agreement or the failure of United to successfully emerge from bankruptcy would have a material adverse effect on the Company.

55

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3. Marketable Securities

      The Company has a cash management program which provides for the investment of excess cash balances primarily in short-term money market instruments, intermediate-term debt instruments and common equity securities of companies operating in the airline industry.

      SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” requires that all applicable investments be classified as trading securities, available for sale securities or held-to-maturity securities. The Company currently has $8.3 million in marketable securities that include common equity securities of companies operating in the airline industry. These investments are classified as trading securities during the periods presented and accordingly, are carried at market value with changes in value reflected in the current period operations. The Company also has $2.5 million in investments in US treasury notes and corporate bonds that are classified as held-to-maturity securities that are included in noncurrent investments at September 30, 2004 and carried at amortized cost.

      In the past, the Company has entered into short positions on common equity securities when management believed that the Company could capitalize on downward moves in particular securities and as a hedge against its investment in common stocks of other airlines. Furthermore, by taking a short position in other airline’s common stock, the Company effectively hedged against downturns in the airline industry. Unlike traditional investing where the investor’s risk is limited to the amount of their investment, when stocks are sold short, there is no limit to the potential price appreciation of the stock thus there is no limit to the investor’s loss. The Company marks short positions to market at each reporting period with the associated gain or loss in value reflected in other income (expense) in the statement of operations. Included in marketable securities at September 30, 2003 are liabilities related to short positions on common equity securities of $13.2 million. As of September 30, 2004, the Company had no liabilities related to short positions. Unrealized losses relating to trading securities held (including short positions) at September 30, 2004 and 2003, were $1.7 million and $2.5 million, respectively.

      Investments in held-to-maturity securities were as follows at September 30, 2004 (in thousands):

				Gross
				Unrealized		Estimated
		Cost		Gains (Losses)		Fair Value
Held-to-maturity securities (carried at amortized cost):
US treasury note		$	2,008	$	50	$	2,058
Corporate bond			475		7		482
	Total	$	2,483	$	57	$	2,540

4. Property and Equipment

      Property and equipment consists of the following:

	September 30,
	2004			2003
	(In thousands)
Flight equipment, substantially pledged	$	731,859		$	416,304
Other equipment		24,775			26,476
Leasehold improvements		2,620			4,006
Furniture and fixtures		1,087			2,018
Buildings		3,968			4,418
Vehicles		1,045			1,092
		765,354			454,314
Less accumulated depreciation and amortization		(67,929	)		(56,122	)
Net property and equipment	$	697,425		$	398,192

56

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. Short-Term Debt

      At September 30, 2004 and 2003, the Company had $231.0 million and $241.6 million, respectively, in notes payable to an aircraft manufacturer for aircraft on interim financing. Under interim financing arrangements, the Company takes delivery and title to the aircraft prior to securing permanent financing and the acquisition of the aircraft is accounted for as a purchase with debt financing. Accordingly, the Company reflects the aircraft and debt under interim financing on its balance sheet during the interim financing period. After taking delivery of the aircraft, it is the Company’s intention to subsequently enter into a sale-leaseback transaction with an independent third-party lessor. Upon permanent financing, the proceeds from the sale-leaseback transaction are used to retire the notes payable to the manufacturer. Any gain recognized on the sale-leaseback transaction is deferred and amortized over the life of the lease. The Company had nine aircraft on interim financing with the manufacturer at September 30, 2004. These interim financings agreements are six months in length and provide for monthly interest only payments at LIBOR plus three percent. The current interim financing agreement with the manufacturer provides for the Company to have a maximum of 15 aircraft on interim financing at a given time. Subsequent to year end, the Company placed five of these aircraft on permanent financing as debt with a bank, thus transferring $118.0 million from short-term debt to long-term debt.

6. Other Accrued Expenses

      Other accrued expenses consist of the following:

	September 30,
	2004		2003
	(In thousands)
Accrued fuel	$	6,085	$	693
Accrued property taxes		5,236		3,183
Accrued compensation and benefits		4,810		4,398
Accrued interest		4,103		2,189
Accrued aircraft return costs		2,812		—
Accrued landing fees		2,300		1,322
Accrued medical insurance		2,218		1,282
Accrued legal and professional fees		1,078		7,980
Accrued lease expense		756		4,864
Accrued simulator time		73		89
Other		5,396		4,236
	$	34,867	$	30,236

7. Deferred Credits

      The Company accounts for aircraft purchase incentives provided by the aircraft manufacturers as deferred credits. These credits are amortized over the life of the related lease as a reduction of lease expense, which is included in flight operations in the statements of operations. Deferred credits include the value of aircraft purchase incentives, such as credits that may be used to purchase spare parts, pay for training expenses or reduce other aircraft operating costs. Deferred credits also include deferred gains on the sale and leaseback of interim financed aircraft. These deferred gains are also amortized over the life of the related leases as a reduction of lease expense, which is included in flight operations in the statements of operations.

57

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8. Financing Arrangement

      In June 2004, the Company entered into a ten-year agreement with LogisTechs, Inc., a wholly-owned subsidiary of GE Capital Aviation Services, for the management and repair of certain of the Company’s CRJ-200 aircraft rotable spare parts inventory. Under the agreement, LogisTechs financed approximately $21 million in existing spare parts inventory for $15 million in cash and a $6 million promissory note. Under the agreement, Logistechs is required to perform maintenance on the covered spare parts in exchange for a monthly fee that is based upon a rate per flight hour. The promissory note is to be repaid over three years through a reduction in the monthly maintenance fees. The value of the covered rotable spare parts inventory will be amortized on a straight-line basis to its estimated fair value over the life of the agreement. The liability for amounts financed of $21 million will be reduced through monthly principal reduction payments that are included in the monthly fees. At termination, the Company may elect to purchase the covered inventory at fair value. It the Company elects to do so, the fair value of the covered inventory will be offset by the unamortized portion of the liability. The Company is not required to repurchase the covered inventory at termination. The agreement includes stipulations that require LogisTechs to ensure minimum levels of availability for covered parts. Mesa is required to repay amounts financed if it terminates the agreement early for convenience. LogisTechs also committed to finance approximately $4 million of additional spare parts to support Mesa’s CRJ-200 fleet. The Company is currently negotiating similar agreements for up to $43 million of spare parts for its current and to be delivered fleet of Bombardier CRJ-700s and 900s and current fleet of Embraer 145 aircraft, representing $31 million of our existing inventory and forgone purchases of $12 million where LogisTechs will purchase spare parts on our behalf. The unamortized balance of the liability is included in other accrued expenses and other noncurrent liabilities on the balance sheet.

9. Long-Term Debt

      In December 2003, we assumed $24.1 million of debt in connection with our purchase of two CRJ-200 aircraft in the Midway Chapter 7 bankruptcy proceedings. The debt, due in 2013, bears interest at the rate of 7% per annum through 2008, converting to 12.5% thereafter, with principal and interest due monthly.

      In January 2004, the Company permanently financed five CRJ-700 and four CRJ-900 aircraft with $207.5 million in debt. In March, two additional CRJ-900 aircraft were also financed with $47.2 million in debt. The debt bears interest at the monthly LIBOR plus three percent and requires monthly principal and interest payments. The manufacturer has entered into an arrangement on the Company’s behalf to limit the Company’s variable interest rate exposure with respect to these aircraft. These aircraft were on interim financing.

      In February 2004, the Company completed the private placement of senior convertible notes (the “February 2004 Notes”) due 2024, which resulted in gross proceeds of $100.0 million ($97.0 million net). Cash interest is payable on these notes at the rate of 2.115% per year on the principal amount at maturity, payable semiannually in arrears on February 10 and August 10 of each year, beginning August 10, 2004, until February 10, 2009. After that date, the Company will not pay cash interest on these notes prior to maturity, and they will begin accruing original issue discount at a rate of 3.625% until maturity. On February 10, 2024, the maturity date of these notes, the principal amount of each note will be $1,000. The aggregate amount due at maturity, including interest accrued from February 10, 2009, will be $171.4 million. Each of the Company’s wholly-owned domestic subsidiaries guarantees these notes on an unsecured senior basis. The February 2004 Notes and the note guarantees are senior unsecured obligations and rank equally with the Company’s existing and future senior unsecured and unsubordinated indebtedness. These notes and the note guarantees are junior to any secured obligations of the Company and any of its wholly owned subsidiaries to the extent of the collateral pledged.

      The February 2004 Notes are convertible into shares of the Company’s common stock at a conversion rate of 40.3737 shares per $1,000 in principal amount at maturity of the notes. This conversion rate is subject

58

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

to adjustment in certain circumstances. Holders of these notes may convert their notes only if: (i) the sale price of the Company’s common stock exceeds 110% of the accreted conversion price for at least 20 trading days in the 30 consecutive days ending on the last trading day of the preceding quarter; (ii) on or prior to February 10, 2019, the trading price for these notes falls below certain thresholds; (iii) these notes have been called for redemption; or (iv) specified corporate transactions occur. The Company may redeem these notes, in whole or in part, beginning on February 10, 2009, at a redemption price equal to the sum of the issue price, plus accrued original issue discount, plus any accrued and unpaid cash interest. The holders of these notes may require the Company to repurchase the notes on February 10, 2009 at a price of $583.40 per note plus accrued and unpaid cash interest, if any, on February 10, 2014 at a price of $698.20 per note plus accrued and unpaid cash interest, if any, and on February 10, 2019 at a price of $835.58 per note plus accrued and unpaid cash interest, if any. It is the Company’s intent to settle these notes in cash if the holders require repurchase in 2009, 2014 and 2019. The Company has filed a shelf registration statement with the U.S. Securities and Exchange Commission covering the resale of the February 2004 Notes and the shares of common stock issuable upon conversion thereof. The Company plans to use the net proceeds from the sale of these notes for working capital and to fund its obligations with respect to regional jet deliveries.

      In June 2003, the Company completed the private placement of senior convertible notes (the “June 2003 Notes”) due 2023, which resulted in gross proceeds of $100.1 million to the Company. Cash interest is payable on these notes at a rate of 2.4829% per year on the principal amount at maturity, payable semiannually in arrears on June 16 and December 16 of each year, beginning December 16, 2003, until June 16, 2008. After that date, the Company will not pay cash interest on these notes prior to maturity, and the notes will begin accruing compounded interest at a rate of 6.25% until maturity. On June 16, 2023, the maturity date of these notes, the principal amount of each note will be $1,000. The aggregate amount due at maturity, including interest accrued from June 16, 2008, will be $252 million. The June 2004 Notes and the note guarantees are senior unsecured obligations and rank equally with the Company’s existing and future senior unsecured indebtedness. These notes and the note guarantees are junior to any secured obligations of the Company and any of its wholly owned subsidiaries to the extent of the collateral pledged.

      The June 2003 Notes are convertible into shares of the Company’s common stock at a conversion rate of 39.727 shares per $1,000 in principal amount at maturity of the notes. This conversion rate is subject to adjustment in certain circumstances. Holders of these notes may convert their notes only if: (i) the sale price of the Company’s common stock exceeds 110% of the accreted conversion price for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding quarter; (ii) prior to June 16, 2018, the trading price for these notes falls below certain thresholds; (iii) these notes have been called for redemption; or (iv) specified corporate transactions occur. The Company may redeem these notes, in whole or in part, beginning on June 16, 2008, at a redemption price equal to the issue price, plus accrued original issue discount, plus any accrued and unpaid cash interest. The holders of these notes may require the Company to repurchase the notes on June 16, 2008 at a price of $397.27 per note plus accrued and unpaid cash interest, if any, on June 16, 2013 at a price of $540.41 per note plus accrued and unpaid cash interest, if any, and on June 16, 2018 at a price of $735.13 per note plus accrued and unpaid cash interest, if any. As the sale price of our common stock exceeded 110% of the accreted conversion price for at least 20 trading days in the 30 consecutive trading day period ending September 30, 2003, these notes became convertible September 30, 2003.

      Repayment of the February 2004 and June 2003 Notes (collectively, the “Notes”) is jointly and severally guaranteed on an unconditional basis by the Company’s wholly owned domestic subsidiaries. Except as otherwise specified in the indentures pursuant to which the Notes were issued, there are no restrictions on the ability of such subsidiaries to transfer funds to the Company in the form of cash dividends, loans or advances. General provisions of applicable state law, however, may limit the ability of any subsidiary to pay dividends or make distributions to the Company in certain circumstances.

59

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Separate financial statements of the Company’s subsidiaries are not included herein because the aggregate assets, liabilities, earnings, and equity of the subsidiaries are substantially equivalent to the assets, liabilities, earnings, and equity of the Company on a consolidated basis; the subsidiaries are jointly and severally liable for the repayment of the Notes; and the separate financial statements and other disclosures concerning the subsidiaries are not deemed by the Company to be material to investors.

      Long-term debt consists of the following:

	September 30,
	2004			2003
	(In thousands)
Notes payable to bank, collateralized by the underlying aircraft, due 2019	$	248,135		$	—
Senior convertible notes due June 2023		100,112			100,112
Senior convertible notes due February 2024		100,000			—
Notes payable to manufacturer, principal and interest due monthly through 2011 at variable rates of interest ranging from 2.91% to 7.15% at September 30, 2004, collateralized by the underlying aircraft		93,900			100,601
Note payable to financial institution due 2013, principal and interest due monthly at 7% per annum through 2008 converting to 12.5% thereafter, collateralized by the underlying aircraft		25,758			—
Note payable to manufacturer, principal due semi-annually, interest at 7% due quarterly through 2007		3,363			4,149
Mortgage note payable to bank, principal and interest at 7 1/2% due monthly through 2009		961			996
Other		234			1,684
Total debt		572,463			207,542
Less current portion		(21,850	)		(8,519	)
Long-term debt	$	550,613		$	199,023

      Principal maturities of long-term debt for each of the next five years and thereafter are as follows:

	Years Ending
	September 30,
	(In thousands)
2005	$	21,850
2006		22,388
2007		24,258
2008		23,388
2009		24,449
Thereafter		456,130

      Subsequent to year end, the Company permanently financed five CRJ-900 aircraft with $118.0 million in debt. The debt bears interest at the monthly LIBOR plus three percent and requires monthly principal and interest payments. These aircraft were on interim financing at September 30, 2004.

10. Common Stock Purchase and Retirement

      In December 1999, the Company’s Board of Directors authorized the Company to purchase up to approximately 3.4 million shares of the outstanding common stock of the Company. In January 2001, the Board approved the purchase by the Company of up to an additional one million shares of its common stock.

60

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In October 2002, the Company’s Board authorized the purchase of an additional two million shares. As of September 30, 2004, the Company has acquired and retired approximately 6.3 million shares of its outstanding common stock at an aggregate cost of approximately $36.5 million leaving approximately 0.1 million shares available for purchase under the current Board authorizations. Purchases are made at management’s discretion based on market conditions and the Company’s financial resources. Subsequent to year end, the Board of Directors authorized the Company to purchase up to 2.0 million additional shares of the outstanding common stock of the Company.

11. Income Taxes

      Income tax expense (benefit) consists of the following:

		Years Ended September 30,
		2004		2003		2002
		(In thousands)
Current:
	Federal	$	—	$	777	$	(470	)
	State		176		1,231		1,489
			176		2,008		1,019
Deferred:
	Federal		16,765		13,278		(4,731	)
	State		1,958		424		(842	)
			18,723		13,702		(5,573	)
		$	18,899	$	15,710	$	(4,554	)

      The difference between the actual income tax expense (benefit) and the statutory tax expense (benefit) (computed by applying the U.S. federal statutory income tax rate of 35 percent to income or loss before income taxes) is as follows:

		Years Ended September 30,
		2004			2003		2002
		(In thousands)
Computed “expected” tax expense (benefit)		$	15,813		$	14,357	$	(5,742	)
Increase (reduction) in income taxes resulting from:
	State taxes, net of federal taxes (benefit)		2,134			966		598
	Nondeductible compensation		987			—		—
	Other		45			387		(106	)
	Increase (decrease) in valuation allowance		(80	)		—		696
		$	18,899		$	15,710	$	(4,554	)

61

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Elements of deferred income tax assets (liabilities) are as follows:

		September 30,
		2004			2003
		(In thousands)
Deferred tax assets:
	Net operating loss carryforwards	$	47,707		$	19,329
	Deferred credits		15,271			18,138
	Other accrued expenses		5,115			7,752
	Deferred gains		3,133			—
	Allowance for doubtful receivables		2,710			1,793
	Alternative minimum tax		1,918			1,918
	Unrealized trading (gains) losses		664			945
	Inventory		567			730
	Intangibles		474			574
	Other		237			255
	Valuation allowance		—			(80	)
Total deferred tax assets		$	77,796		$	51,354
Deferred tax liabilities:
	Property and equipment	$	(62,923	)	$	(15,070	)
	Other		(676	)		(3,364	)
Total deferred tax liabilities		$	(63,599	)	$	(18,434	)

      Deferred tax assets include benefits expected to be realized from the utilization of alternative minimum tax credit carryforwards of approximately $1.9 million that do not expire and federal net operating loss carryforwards of approximately $125.3 million that expire in years 2017 through 2024. The Company also has state net operating loss carryforwards of approximately $108.1 million that expire in years 2005 through 2019. During 2002, the Company established a valuation allowance of $0.7 million for certain state net operating loss carryforwards that expired in 2003 or are expected to expire unutilized in the future. In fiscal 2004, the Company reversed the remaining valuation allowance of $0.1 million. Realization of these deferred tax assets is dependent upon generating sufficient taxable income prior to expiration of any net operating loss carryforwards. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax asset, net of the valuation allowance provided, will be realized.

12. Stockholders’ Equity

      In March 2004, the Company, the Company issued restricted stock grants of 428,297 shares to the Company’s Chief Executive Officer and the Company’s President and Chief Operating Officer. The restricted stock shares vest in one-third increments over a three-year period beginning on March 31, 2005. The Company recorded $3.5 million in stockholders’ equity for deferred compensation. The deferred compensation is amortized on a straight-line basis over the vesting period of the grants.

      In February 2004, the Company completed the private placement of senior convertible notes due February 2024. At maturity, the principal amount of each note will be $1,000 and the aggregate amount due will be $171.4 million. These notes are convertible into shares of the Company’s common stock at a conversion rate of 40.3737 shares per $1,000 in principal amount at maturity of the notes, which equals an initial conversion price of approximately $10.00 per share. This conversion rate is subject to adjustment in certain

62

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

circumstances. Holders of these notes may convert their notes only if: (i) the sale price of the Company’s common stock exceeds 110% of the accreted conversion price for at least 20 trading days in the 30 consecutive days ending on the last trading day of the preceding quarter; (ii) on or prior to February 10, 2019, the trading price for these notes falls below certain thresholds; (iii) these notes have been called for redemption; or (iv) specified corporate transactions occur. The Company may redeem these notes, in whole or in part, beginning on February 10, 2009, at a redemption price equal to the sum of the issue price, plus accrued original issue discount, plus any accrued and unpaid cash interest. The holders of these notes may require the Company to repurchase the notes on February 10, 2009 at a price of $583.40 per note plus accrued and unpaid cash interest, if any, on February 10, 2014 at a price of $698.20 per note plus accrued and unpaid cash interest, if any, and on February 10, 2019 at a price of $835.58 per note plus accrued and unpaid cash interest, if any.

      In June 2003, the Company completed the private placement of senior convertible notes due June 2023. At maturity, the principal amount of each note will be $1,000 and the aggregate amount due will be $252 million. These notes are convertible into shares of the Company’s common stock at a conversion rate of 39.727 shares per $1,000 in principal amount at maturity of the notes which equals an initial conversion price of approximately $10.00 per share. This conversion rate is subject to adjustment in certain circumstances. Holders of these notes may convert their notes only if: (i) the sale price of our common stock exceeds 110% of the accreted conversion price for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding quarter; (ii) prior to June 16, 2018, the trading price for these notes falls below certain thresholds; (iii) these notes have been called for redemption; or (iv) specified corporate transactions occur. The Company may redeem these notes, in whole or in part, beginning on June 16, 2008, at a redemption price equal to the issue price, plus accrued original issue discount, plus any accrued and unpaid cash interest. The holders of these notes may require the Company to repurchase the notes on June 16, 2008 at a price of $397.27 per note plus accrued and unpaid cash interest, if any, on June 16, 2013 at a price of $540.41 per note plus accrued and unpaid cash interest, if any, and on June 16, 2018 at a price of $735.13 per note plus accrued and unpaid cash interest, if any.

      In February 2002, the Company entered into an agreement with Raytheon Aircraft Company (the “Raytheon Agreement”) to, among other things, reduce the operating costs of the Company’s Beechcraft 1900D fleet. In connection with the Raytheon Agreement and subject to the terms and conditions contained therein, Raytheon agreed to provide up to $5.5 million in annual operating subsidy payments to the Company contingent upon the Company remaining current on its payment obligations to Raytheon. Approximately $5.3 million, $5.3 million and $6.0 million (which included $0.7 million relating to 2001) was recorded as a reduction to flight operations during 2004, 2003 and 2002, respectively. In return, the Company granted Raytheon a warrant to purchase up to 233,068 shares of our common stock at a per share exercise price of $10. The Company recorded the issuance of the warrant at a value of $0.4 million within stockholders’ equity as a debit and credit to common stock and therefore the amounts net to zero. The contra equity value of the warrant is being amortized to expense over the vesting period of three years. Raytheon must pay a purchase price of $1.50 per common share underlying the warrant. The warrant is exercisable at any time over a three-year period following its date of purchase. Absent an event of default by the Company in which case vesting is accelerated, the option to purchase the warrant vests concurrently with Raytheon’s payment of the related annual operating subsidy for the following periods or January 15 of each year, whichever comes first. Shares of common stock underlying the warrant vest according to the following schedule: 13,401 shares for a portion of fiscal year 2001; 116,534 shares in fiscal year 2002; 58,267 shares in fiscal year 2003 and 44,866 shares in fiscal year 2004. As of December 1, 2004, Raytheon has exercised its option to purchase the 2001, 2002 and 2003 components of the warrant, but has not yet exercised its option to purchase the 2004 component of the warrant. In addition, Raytheon has not exercised any component of the warrant.

63

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      At September 30, 2004, the Company sponsored the following stock-based compensation plans:

      In March 1993, and December 1994, the Company adopted stock option plans for outside directors. These plans originally provided for the grant of options to purchase up to 450,000 shares of the Company’s common stock at fair value on the date of grant. At September 30, 2004, there were 52,000 options outstanding under this plan. There are 69,000 options available for grant under this plan.

      In July 1998, the Company adopted a new stock option plan for outside directors. This plan, as amended, provides for the grant of options to purchase up to 275,000 shares of the Company’s common stock at fair value on the date of the grant. On February 11, 2003 an additional 200,000 options were approved by the stockholders to be granted under this plan. At September 30, 2004, there were 194,515 options outstanding and 142,773 options available for future grants under this plan.

      In April 1996, the Company adopted an employee stock option plan under the new management incentive program (the ‘1996 Stock Option Plan’) that provides for the granting of options to purchase up to 2,800,000 shares of the Company’s common stock at the fair value on the date of grant. On July 24, 1998, an additional 1,500,000 options were approved by the stockholders to be granted under this plan. At September 30, 2004, there were 2,406,923 options outstanding and 231,992 options available for future grants under this plan.

      In June 1998, the Company adopted a Key Officer Stock Option Plan for compensating the Company’s Chief Executive Officer and Chief Operating Officer, which provided for the grant of options to purchase up to 1,600,000 shares of the Company’s common stock at the fair value on the date of grant. At September 30, 2004 there were 1,112,533 options outstanding and no options available for future grants under this plan.

      In June 1999, the Company adopted the 1999 Non-Qualified Stock Option Plan in connection with the CCAir merger. At September 30, 2004, there were 37,284 options outstanding and there are no options available for future grants under this plan.

      In October 2001, the Company adopted a Key Officer Stock Option Plan for compensating the Company’s Chief Executive Officer and Chief Operating Officer, which provided for the grant of options to purchase up to 2,000,000 shares of the Company’s common stock at the fair value on the date of grant. At September 30, 2004 there were 750,000 options outstanding and 1,250,000 options available for future grants under this plan.

      Generally, options granted to employees vest over a three-year period and options granted to directors vest immediately upon grant or six months following the grant.

      Transactions involving stock options under these plans are summarized as follows:

	2004					2003					2002
				Weighted					Weighted					Weighted
				Average					Average					Average
	Shares			Exercise		Shares			Exercise		Shares			Exercise
	(000)			Price		(000)			Price		(000)			Price
Outstanding at beginning of year		4,357		$	6.73		3,824		$	7.10		2,820		$	7.56
Granted		430			9.89		1,019			4.96		1,486			6.31
Exercised		(110	)		5.58		(270	)		5.42		(154	)		6.09
Canceled/ Forfeited		(124	)		6.95		(216	)		6.51		(328	)		8.11
Outstanding at end of year		4,553		$	7.20		4,357		$	6.73		3,824		$	7.10
Exercisable at end of year		3,161		$	7.13		2,485		$	7.47		2,014		$	7.59

64

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      At September 30, 2004, the range of exercise prices for the aforementioned options was $2.36 to $12.24.

      The following table summarizes information concerning options outstanding at September 30, 2004:

	Stock Options						Stock Options
	Outstanding						Exercisable
			Weighted		Weighted				Weighted
			Average		Average				Average
	Number		Remaining		Exercise		Number		Exercise
Range of Exercise Prices	Outstanding		Life		Price		Exercisable		Price
$ 2.31 - $ 3.45		31,789		3.5 Years	$	2.52		26,056	$	2.36
$ 3.46 - $ 5.17		1,350,576		6.6 Years		4.57		635,751		4.49
$ 5.18 - $ 6.90		927,318		6.1 Years		5.99		799,219		5.98
$ 6.91 - $ 8.62		1,615,568		4.2 Years		8.23		1,380,382		8.25
$ 8.63 - $10.35		113,056		7.0 Years		9.64		74,657		9.56
$10.36 - $12.07		389,980		5.8 Years		11.20		230,947		11.16
$12.08 - $13.80		124,968		5.0 Years		12.50		14,168		12.24
Options at September 30, 2004		4,553,255		5.5 Years		7.06		3,161,180		7.13

13. Benefit Plans

      The Company has a 401(k) plan covering the employees of Mesa Airlines, Air Midwest and the airline support operations (the “Mesa Plan”). Under the Mesa Plan, employees may contribute up to 15 percent of their annual compensation, as defined. Employer contributions are made at the discretion of the Board of Directors. During fiscal 2004, the Company made matching contributions of 25 percent of employee contributions up to 10 percent of annual employee compensation. Upon completing one year of service, the employee is 20 percent vested in employer contributions and the remainder of the employer contributions vest 20 percent per year thereafter. Employees become fully vested in employer contributions after completing five years of employment. The Company has the right to terminate the 401(k) plan at any time. Contributions by the Company to the Mesa Plan for the years ended September 30, 2004, 2003 and 2002 were approximately $0.8 million, $0.7 million and $0.3 million, respectively.

      CCAir also had a 401(k) plan covering the employees of CCAir. The plan was terminated and the assets were distributed to the participants on September 12, 2003. All employees became 100% vested when CCAir ceased operations in November 2002. Contributions by CCAir to this plan were approximately $0.1 million in fiscal 2002. There were no contributions by CCAir in 2003.

14. Lease Commitments

      At September 30, 2004, the Company leased 129 aircraft under non-cancelable operating leases with remaining terms of up to 17 years. The aircraft leases require the Company to pay all taxes, maintenance, insurance and other operating expenses. The Company has the option to terminate certain of the leases at various times throughout the lease. Aggregate rental expense totaled approximately $162.0 million, $130.4 million and $107.6 million for the years ended September 30, 2004, 2003 and 2002, respectively.

65

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Future minimum lease payments under non-cancelable operating leases are as follows:

	Years Ending
	September 30,
	(In thousands)
2005	$	189,861
2006		189,690
2007		183,201
2008		169,601
2009		167,288
Thereafter		1,135,902

15. Commitments and Contingencies

      In May 2001, the Company entered into an agreement with Bombardier Regional Aircraft Division (“BRAD”) under which the Company is committed to purchase a total of 15 CRJ-700s and 25 CRJ-900s. The transaction includes standard product support provisions, including training, preferred pricing on initial inventory provisioning, maintenance and technical publications. As of September 30, 2004, the Company has taken delivery of all 15 CRJ-700 aircraft and 24 CRJ-900 aircraft. The Company took delivery of the remaining CRJ-900 aircraft on November 5, 2004. In January 2004, the Company exercised its option to convert options on 20 CRJ-900 aircraft to firm orders (seven of which can be converted to CRJ-700s). In addition to the firm orders, Mesa has an option to acquire an additional 60 CRJ-700 and CRJ-900 regional jets. In conjunction with this purchase agreement, Mesa had $15.0 million on deposit with BRAD that was included in lease and equipment deposits at September 30, 2004. The remaining deposits are expected to be returned on upon completion of permanent financing on each of the last five aircraft ($3.0 million per aircraft).

      On January 8, 2003, US Airways Express Flight 5481, operated by Air Midwest, crashed shortly after takeoff from Charlotte Douglas International Airport en route to Greenville/ Spartanburg, S.C. There were no survivors among the 21 passengers and crew members aboard the Beechcraft 1900D aircraft. The Company is cooperating fully with all federal, state and local regulatory and investigatory agencies to ascertain the cause of the crash. The Company is unable to predict the amount of claims, if any, relating to the crash which may ultimately be made against it and how those claims might be resolved. The Company maintains substantial insurance coverage and, at this time, management has no reason to believe that such insurance coverage will not be sufficient to cover any claims arising from the crash. Therefore, the Company believes that the resolution of any claims will not have a material adverse effect on its financial position, results of operations or cash flows.

      The Company is also involved in various legal proceedings and FAA civil action proceedings that the Company does not believe will have a material adverse effect upon the Company’s business, financial condition or results of operations, although no assurance can be given to the ultimate outcome of any such proceedings.

16. Financial Instruments

      The carrying amount of cash and cash equivalents, receivables, accounts payable, accrued compensation and other liabilities approximates fair value due to the short maturity periods of these instruments. The fair value of the Company’s marketable securities is based on quoted marked prices. The fair value of the Company’s held-to-maturity securities approximates fair value (see note 3) based upon quoted market prices for these securities. The Company’s variable rate long-term debt had a carrying value of approximately $342.0 million at September 30, 2004, which approximates fair value because these borrowings have variable

66

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

interest rate terms that approximate market interest rates for similar debt instruments. The Company’s fixed rate long-term debt, having a carrying value of approximately $230.5 million at September 30, 2004, had a fair value of approximately $196.4 million. The Company uses a financial model to calculate the fair value of its senior convertible debt.

17. Valuation and Qualifying Accounts

			Additions/
			Subtractions
	Balance at		Charged to
	Beginning		Costs and						Balance at
	of Year		Expenses			Deductions			End of Year
	(In thousands)
Allowance for Obsolescence Deducted from Expendable Parts and Supplies
September 30, 2004	$	1,906	$	1,269		$	(1,694	)	$	1,481
September 30, 2003		267		1,639			—			1,906
September 30, 2002		2,496		—			(2,229	)		267
Allowance for Doubtful Accounts Deducted from Accounts Receivable
September 30, 2004	$	4,681	$	4,315		$	(1,919	)	$	7,077
September 30, 2003		12,799		(1,771	)		(6,347	)		4,681
September 30, 2002		14,695		5,605			(7,501	)		12,799

18. Selected Quarterly Financial Data (Unaudited)

      The following table presents selected unaudited quarterly financial data (in thousands):

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
2004(1)(3)
Operating revenues	$	187,553	$	209,664	$	239,586	$	260,009
Operating Income (loss)		11,597		6,708		22,785		26,268
Net income (loss)		4,134		1,769		9,658		10,721
Net income (loss) per share — basic	$	0.13	$	0.06	$	0.31	$	0.35
Net income (loss) per share — diluted	$	0.12	$	0.05	$	0.25	$	0.28

	First			Second		Third		Fourth
	Quarter			Quarter		Quarter		Quarter
2003(2)(3)
Operating revenues	$	133,093		$	137,312	$	154,075	$	175,510
Operating Income (loss)		486			19,969		14,612		20,212
Net income (loss)		(955	)		11,040		5,367		9,853
Net income (loss) per share — basic	$	(0.03	)	$	0.35	$	0.17	$	0.31
Net income (loss) per share — diluted	$	(0.03	)	$	0.35	$	0.17	$	0.25

(1)  Second quarter amounts include restructuring charges of $11.3 million (pretax), third quarter amounts include restructuring charges of $1.1 million, and fourth quarter amounts include the reversal of certain CCAir restructuring charges of $0.4 million (pretax).

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MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(2)	Second quarter amounts include impairment and restructuring charges of $1.1 million (pretax) and the reversal of CCAir impairment and restructuring charges of $12.0 million (pretax).
(3)	The sum of quarterly earnings per share may not equal annual earnings per share due to rounding.

19. Impairment and Restructuring Charges (Credits)

Beechcraft 1900D Impairment and Restructuring Charges

      In fiscal 2001, the Company entered into an agreement to return 15 B1900D aircraft to Raytheon. As a result of the agreement, the Company took an impairment charge to write the net book value of 15 B1900D aircraft down to the contractual selling price, less the cost of preparing the aircraft for return. The Company also took an impairment charge to reduce the carry value of its remaining fleet of B1900D aircraft.

      In fiscal 2002, the Company returned 12 of the 15 B1900D aircraft permitted under its agreement with Raytheon, and as a result of unanticipated increases in the cost of meeting return conditions, the Company recorded an additional restructuring charge of $3.3 million. In fiscal 2003, the Company returned the three remaining B1900D aircraft permitted under its agreement with Raytheon, and as a result of additional costs required of meeting the return conditions of these and previous aircraft, the Company recorded an additional impairment charge of $1.1 million.

      In the fiscal 2004, the Company recognized an impairment and restructuring charge of $12.4 million related to the planned early return of seven leased B1900D aircraft with lease expirations between December 2004 and September 2005. The Company negotiated the terms of the early return with the aircraft lessors and took a charge that included $2.4 million for the present value of future lease payments, $2.4 million for the negotiated settlement of return conditions, $1.2 million for the cancellation of maintenance agreements, $1.1 million for the difference between the buyout option of two aircraft and the proceeds from the subsequent sale of the aircraft, $0.8 million to reduce maintenance deposits to net realizable value and $4.5 million to reduce the value of rotable and expendable inventory to fair value less costs to sell.

CCAir Impairment and Restructuring

      In fiscal 2002, as a result of the inability of CCAir to reduce its operating costs and its continued history of operating losses, as well as receiving a notification by US Airways of their intent to cancel CCAir’s pro-rate contract effective November 3, 2002, management at CCAir elected to cease operations on the effective date of US Airway’s cancellation. As a result, the Company took an impairment and restructuring charge of $19.8 million in fiscal 2002, including $7.8 million for future aircraft lease payments, $4.6 million in aircraft related return costs, $4.1 million to reduce the value of rotable and expendable inventory to fair value less costs to sell, $1.7 million to reduce maintenance deposits held by a lessor to net realizable value, $0.9 million to write off the value of equipment and leasehold improvements and $0.7 million of severance and other employee related liabilities. Once operations ceased, CCAir stopped making lease payments on its fleet of Dash 8–100 aircraft. CCAir subsequently returned the aircraft to the lessors. At the time of the shutdown, it was the Company’s intention to maintain the legal entity of CCAir as well as its operating certificate with the possibility of either restructuring the airline and operating it under amended labor agreements in the future or affecting a sale of CCAir.

      In fiscal 2003, CCAir surrendered its operating certificate to the FAA and filed articles of dissolution with the State of Delaware. As a result of these events and CCAir’s lack of liquidity, it became clear that CCAir would be unable to pay any of its obligations. In fiscal 2003, in light of CCAir’s inability to pay its obligations and the resulting dissolution, the Company reversed the restructuring charges recorded in fiscal 2002 by approximately $12 million. The reversal of these charges was precipitated by the dissolution of CCAir and the Company’s subsequent determination, after consultation with counsel, that the Company should not be held legally responsible for the obligations incurred solely by CCAir and not guaranteed by the Company.

68

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Including these charges and reversals, CCAir had after tax net income of $8.3 million and an after tax net loss of ($21.2) million for the years ended September 30, 2003 and 2002, respectively.

      In fiscal 2004, the Company reversed certain restructuring charges recorded in fiscal 2002 by approximately $0.4 million as the recorded liabilities were no longer needed.

Shorts 360 Impairment

      Also in fiscal 2002, the Company’s sublease of two Shorts 360 aircraft the Company had been subleasing to an operator in Europe expired and the Company did not anticipate the lease to be renewed. As a result, the Company took a charge for $3.6 million to accrue for the remaining lease payments and the future costs of returning these aircraft to the lessor. The remaining restructuring reserves are primarily related to the remaining lease payments and the future costs of returning these two aircraft.

      The changes in the impairment and restructuring charges for the three fiscal years ended September 30, 2004 are as follows:

	Reserve								Non-		Reserve						Reversal				Non-		Reserve
	Oct. 30,						Cash		Cash		Sept. 30,						of		Cash		Cash		Sept. 30,
Description of Charge	2001			Provision			Utilized		Utilized		2002			Provision			Charges		Utilized		Utilized		2003
Restructuring:
Severance and other	$	—		$	(658	)	$	—	$	—	$	(658	)	$	—		$	—	$	110	$	—	$	(548	)
Costs to return aircraft		(4,715	)		(10,040	)		6,648		—		(8,107	)		(1,050	)		4,593		2,097		250		(2,217	)
Aircraft lease payments		(3,610	)		(9,238	)		3,610		—		(9,238	)		—			7,414		120		516		(1,188	)
Cancellation of maintenance agreement		(1,200	)		—			1,200		—		—			—			—		—		—		—
Impairment:
Impairment of surplus inventory		—			(4,143	)		—		4,143		—			—			—		—		—		—
Impairment of maintenance deposits		—			(1,682	)		—		1,682		—			—			—		—		—		—
Impairment of aircraft and other property		—			(914	)		—		914		—			—			—		—		—		—
Total	$	(9,525	)	$	(26,675	)	$	11,458	$	6,739	$	(18,003	)	$	(1,050	)	$	12,007	$	2,327	$	766	$	(3,953	)

[Continued from above, first column repeated]

	Reserve								Non-		Reserve
	Sept. 30,			(Provision)			Cash		Cash		Sept. 30,
Description of Charge	2003			Reversal			Utilized		Utilized		2004
Restructuring:
Severance and other	$	(548	)	$	482		$	66	$	—	$	—
Costs to return aircraft		(2,217	)		(2,400	)		2,400		—		(2,217	)
Aircraft lease payments		(1,188	)		(2,398	)		2,542		594		(450	)
Cancellation of maintenance agreement		—			(1,179	)		1,179		—		—
Impairment:
Impairment of surplus inventory		—			(4,517	)		—		4,517		—
Impairment of maintenance deposits		—			(823	)		—		823		—
Impairment of aircraft		—			(1,060	)		—		1,060		—
Total	$	(3,953	)	$	(11,895	)	$	6,187	$	6,994	$	(2,667	)

69

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The reserve balance of $2.7 million above is included in other accrued expenses on the accompanying consolidated balance sheets.

20. Related Party Transactions

      In February 1999, the Company entered into an agreement with Barlow Capital, LLC (“Barlow”), whereby Barlow would provide financial advisory services related to aircraft leases, mergers and acquisitions, and certain other financing arrangements. The Company paid fees totaling $2.5 million, $1.3 million and $0.9 million to Barlow in fiscal 2004, 2003 and 2002, respectively, for arranging for leasing companies to participate in the Company’s various aircraft financings under this agreement. At September 30, 2004, Jonathan Ornstein, the Company’s Chairman of the Board and Chief Executive Officer, and George Murnane III, the Company’s Executive Vice President and Chief Financial Officer were each members of Barlow holding a 25% membership interest therein. Messrs. Ornstein and Murnane intend to dispose of their membership interest at the end of the first quarter of fiscal 2005. Distributions to the members of Barlow are determined by the members on a year-to-year basis. Substantially all of Barlow’s revenues are derived from its agreement with the Company.

      On September 9, 1998, the Company entered into an agreement with International Airline Support Group (“IASG”) whereby the Company would consign certain surplus airplane parts to IASG to sell on the open market. IASG in turn would submit proceeds from such sales to the Company less a market-based fee. At September 30, 2003, the Company had $2.5 million in inventory on consignment with IASG. The Company had accounts receivable from IASG for the proceeds from inventory sales of $0.2 million as of September 30, 2003. During fiscal 2003 and 2002, the Company paid IASG approximately $0.4 million and $0.3 million, respectively, in commissions on sales of surplus aircraft parts. During 2003, IASG provided consultation on determining the fair value of the Company’s surplus inventory. Mr. Ronald Fogleman, a member of the Company’s Board of Directors, and Mr. Murnane were members of the board of directors of IASG during fiscal 2003 and Mr. Murnane was an executive officer of IASG before joining the Company. Messrs. Fogleman and Murnane resigned from the Board of Directors of IASG in mid 2003. In September 2003, IASG ceased operations and any inventory remaining at IASG was moved to another consignment firm.

      The Company provides reservation services to Europe-By-Air, Inc. The Company billed Europe-By-Air approximately $57,000, $61,000 and $70,000 for these services during fiscal 2004, 2003 and 2002, respectively. At September 30, 2004 and 2003, the Company had receivables from Europe-By-Air of $24,000 and $35,000, respectively. Mr. Ornstein is a major shareholder of Europe-By-Air.

      The Company uses the services of the law firm of Piper Rudnick for labor related legal services. The Company paid Piper Rudnick $0.2 million, $0.3 million and $0.6 million for legal-related services in 2004, 2003 and 2002, respectively. Mr. Joseph Manson, a member of the Company’s Board of Directors, is a partner with Piper Rudnick.

      During fiscal 2001, the Company established Regional Airline Partners (“RAP”), a political interest group formed to pursue the interests of regional airlines, communities served by regional airlines and manufactures of regional airline equipment. Mr. Maurice Parker, a member of the Company’s Board of Directors, is the Executive Director of RAP. During 2004, 2003 and 2002, the Company paid RAP’s operating costs totaling approximately $241,000, $200,000 and $165,000, respectively. Included in these amounts are the wages and expense of Mr. Parker, which amounted to $93,000, $114,000 and $99,000 in fiscal 2004, 2003 and 2002, respectively. Since inception, the Company has financed 100% of RAP’s operations.

      In September 2001, the Company entered into an agreement to form UFLY, LLC (“UFLY”), for the purpose of making strategic investments in US Airways, Inc. In fiscal 2002, the Company contributed $5.0 million in investments and the other members contributed $5.0 million in cash to form UFLY. Also during 2002, UFLY made capital distributions of $2.5 million back to the Company and $3.0 million to the

70

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

other members. UFLY had investment gains of $28,000 and investment losses of $1.9 million during fiscal 2003 and 2002, respectively. Mr. Ornstein is a shareholder/owner and managing member of UFLY. Mr. Ornstein received no additional compensation from the Company or UFLY for his role as managing member of UFLY. UFLY’s assets were distributed and UFLY was dissolved in fiscal 2003.

      In fiscal 2003, Durango Pro-Focus used the services of the Company for pilot training. The Company billed Durango Pro-Focus $25,000 and $45,000 in fiscal year 2004 and 2003, respectively, for pilot training services. In 2004, Durango Pro-Focus was dissolved. Amounts due from Durango Pro-Focus of $70,000 were written off in fiscal 2004. Mr. Fogleman was the President and Chief Executive Officer of Durango Pro-Focus.

      The Company will enter into future business arrangements with related parties only where such arrangements are approved by a majority of disinterested directors and are on terms at least as favorable as available from unaffiliated third parties.

21. Segment Reporting

      SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” requires disclosures related to components of a company for which separate financial information is available that is evaluated regularly by a company’s chief operating decision maker in deciding the allocation of resources and assessing performance. The Company has three airline operating subsidiaries, Mesa Airlines, Freedom Airlines and Air Midwest and various other subsidiaries organized to provide support for the Company’s airline operations. CCAir ceased operations and was dissolved in fiscal 2003. The Company has aggregated these operating segments into three reportable segments in fiscal 2004. Mesa Airlines and Freedom primarily operate the Company’s regional jets. Air Midwest operates the Company’s Beech 1900 turboprop aircraft. CCAir, prior to ceasing operations, operated a mixed fleet of turboprop aircraft. The Other reportable segment includes Mesa Air Group, RAS, MPD, MAG-AIM, MAGI and UFLY, all of which support Mesa’s operating subsidiaries. MAG-AIM was established to purchase, distribute and manage the operating companies’ inventory. Operating revenues in the Other segment are primarily sales of rotable and expendable parts to the Company’s operating subsidiaries.

      Mesa Airlines and Freedom provide passenger service with regional jets under revenue-guarantee contracts with America West, United, US Airways and Frontier Airlines. Mesa Airlines also provides passenger service with Dash-8 aircraft under a revenue-guarantee contract with America West and under a pro-rate contract with US Airways. As of September 30, 2004, Mesa Airlines and Freedom operated a fleet of 145 aircraft — 93 CRJs, 36 ERJs and 16 Dash-8’s.

      Air Midwest provides passenger service with Beechcraft 1900D aircraft under the revenue-guarantee contract with America West and under pro-rate contracts with US Airways and Midwest Airlines. As of September 30, 2004, Air Midwest operated a fleet of 35 Beechcraft 1900D turboprop aircraft.

      CCAir provided passenger service with Dash-8 and Jetstream 31 turboprop aircraft under pro-rate revenue contracts with US Airways. As of September 30, 2002, CCAir operated a fleet of 14 aircraft — 9 Jetstreams and 5 Dash-8s. CCAir ceased operations on November 3, 2002.

      The Other category consists of Mesa Air Group (holding company), MPD, RAS, MAGI, UFLY and MAG-AIM. Mesa Air Group performs all administrative functions not directly attributable to any specific operating company. These administrative costs are allocated to the operating companies based upon specific criteria including headcount, ASM’s and other operating statistics. MPD operates pilot training programs in conjunction with San Juan College in Farmington, New Mexico and Arizona State University in Tempe, Arizona. Graduates of these training programs are eligible to be hired by the Company’s operating subsidiaries. RAS primarily provides repair services to the Company’s operating subsidiaries. MAGI is a captive insurance company located in Barbados. MAG-AIM is the Company’s inventory procurement

71

MESA AIR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

company. UFLY was established for the purpose of making strategic investments in other airline’s common stock.

Year Ended	Mesa/			Air
September 30, 2004 (000’s)	Freedom			Midwest			Other			Eliminations			Total
Total operating revenues	$	807,736		$	81,714		$	365,858		$	(358,496	)	$	896,812
Depreciation and amortization		24,749			432			2,820			—			28,001
Operating income (loss)		81,761			(9,635	)		52,615			(57,383	)		67,358
Interest expense		(16,564	)		(139	)		(8,645	)		285			(25,063	)
Interest income		851			6			591			(285	)		1,163
Income (loss) before income tax and minority interest		67,311			(9,830	)		45,082			(57,382	)		45,181
Income tax (benefit)		28,156			(4,112	)		(5,145	)		—			18,899
Total assets		1,054,028			17,196			403,238			(352,923	)		1,121,537
Capital expenditures (including non-cash)		474,449			243			39,527			—			514,219

Year Ended	Mesa/			Air
September 30, 2003 (000’s)	Freedom			Midwest			CCAir			Other			Eliminations			Total
Total operating revenues	$	507,555		$	86,142		$	1,254		$	175,956		$	(170,917	)	$	599,990
Depreciation and amortization		12,453			709			—			2,538			—			15,700
Operating income (loss)		45,537			(9,391	)		11,810			44,034			(36,711	)		55,279
Interest expense		(10,997	)		—			(173	)		(1,720	)		226			(12,664	)
Interest income		837			4			4			593			(275	)		1,163
Income (loss) before income tax and minority interest		28,855			(6,817	)		13,486			42,253			(36,757	)		41,020
Income tax (benefit)		10,794			(2,353	)		5,165			16,182			(14,078	)		15,710
Total assets		610,228			19,073			441			310,095			(222,901	)		716,936
Capital expenditures (including non-cash)		408,467			121			—			21,421			—			430,009

Year Ended	Mesa/			Air
September 30, 2002 (000’s)	Freedom			Midwest			CCAir			Other			Eliminations			Total
Total operating revenues	$	372,370		$	94,333		$	24,335		$	5,745		$	—		$	496,783
Depreciation and amortization		8,534			3,492			485			1,639			—			14,150
Operating income (loss)		24,621			2,125			(34,083	)		777			—			(6,560	)
Interest expense		(1,385	)		(5,364	)		(1,375	)		141			—			(7,983	)
Interest income		125			2			35			1,380			—			1,542
Income (loss) before income tax and minority interest		23,105			(3,475	)		(35,431	)		(604	)		—			(16,405	)
Income tax (benefit)		6,053			(933	)		(9,515	)		(159	)		—			(4,554	)
Total assets		271,865			22,488			6,710			359,557			(261,459	)		399,161
Capital expenditures (including non-cash)		49,867			2,001			987			2,900			—			55,755

72

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      There were no disagreements with accountants on accounting and financial disclosure.

Item 9A. Controls and Procedures

      As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures. Disclosure controls and procedures are designed to ensure that information required to be disclosed in the periodic reports filed or submitted under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the annual period covered by this report but also noted certain weaknesses in the control environment. These result from recent turnover/advancement of accounting, inventory/purchasing and internal audit personnel and the domination of management by a small group. We are dedicating resources to correct these issues and are in the process of implementing the necessary corrections. Certain weaknesses were noted in our previous filing related to expendable and rotable parts and the accounting for interim financing arrangements which have been corrected. The Company has also implemented a contract review process to ensure that provisions of our contractual obligations are appropriately reflected in our consolidated financial statements. Other than the above issues, there were no changes in the Company’s internal control over financial reporting known to the Chief Executive Officer or the Chief Financial Officer that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

Item 9B. Other Information

      None.

73

PART III

      All items in Part III are incorporated herein by reference as indicated below to our definitive proxy statement for our 2005 annual meeting of stockholders anticipated to be held February 8, 2005, which will be filed with the SEC, except for information relating to executive officers under the heading “Executive Officers of the Registrant,” which can be found in Part I following Item 4.

Item 10. Directors and Executive Officers of the Registrant

      The information required by Item 10 is incorporated herein by reference to the information contained under the headings “Election of Directors” and “Executive Officers” as set forth in our definitive proxy statement for our 2005 annual meeting of stockholders.

Item 11. Executive Compensation

      The information required by Item 11 relating to our directors is incorporated herein by reference to the information under the heading “Compensation of Directors” and the information relating to our executive officers is incorporated herein by reference to the information under the heading “Executive Compensation” as set forth in our definitive proxy statement for our 2005 annual meeting of stockholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

      The information required by Item 12 is incorporated herein by reference to the information under the headings “Election of Directors” and “Security Ownership of Certain Beneficial Owners and Management” as set forth in our definitive proxy statement for our 2005 annual meeting of stockholders.

Item 13. Certain Relationships and Related Transactions

      The information required by Item 13 is incorporated herein by reference to the information under the heading “Certain Relationships and Related Transactions” as set forth in our definitive proxy statement for our 2005 annual meeting of stockholders.

Item 14. Principal Accountants Fees and Services

      Information regarding principal accounting fees and services is incorporated herein by reference to the information under the heading “Disclosure Of Audit And Non-Audit Fees” contained in the Proxy Statement for our 2005 annual meeting of stockholders.

PART IV

Item 15. Exhibits and Financial Statement, Schedules

      (A) Documents filed as part of this report:

      1. Reference is made to Item 8 hereof.

      2. Exhibits

74

      The following exhibits are either filed as part of this report or are incorporated herein by reference from documents previously filed with the Securities and Exchange Commission:

Exhibit
Number			Description	Reference
	3	.1	Articles of Incorporation of Registrant dated May 28, 1996	Filed as Exhibit 3.1 to Registrant’s Form 10-K for the fiscal year ended September 30, 1996, incorporated herein by Reference
	3	.2	Bylaws of Registrant as amended	Filed as Exhibit 3.2 to Registrant’s Form 10-K for the fiscal year ended September 30, 1996, incorporated herein by Reference
	4	.1	Form of Common Stock certificate	Filed as Exhibit 4.5 to Amendment No. 1 to Registrant’s Form S-18, Registration No. 33-11765 filed March 6, 1987, incorporated herein by reference
	4	.2	Form of Common Stock certificate (issued after November 12, 1990)	Filed as Exhibit 4.8 to Form S-1, Registration No. 33-35556 effective December 6, 1990, incorporated herein by Reference
	4	.3	Indenture dated as of June 16, 2003 between the Registrant, the guarantors executing a signature page thereto and U.S. Bank National Association, as Trustee, relating to Senior Convertibles Notes due 2023	Filed as Exhibit 4.1 to Form 10-Q for the quarterly period ended June 30, 2003, incorporated herein by reference
	4	.4	Registration Rights Agreement dated as of June 16, 2003 between the Registrant, the subsidiaries of the Registrant listed on The signature pages thereto, and Merrill Lynch & Co., a representatives of the Initial Purchasers of Senior Convertibles Notes due 2023	Filed as Exhibit 4.2 to Form 10-Q for the quarterly period ended June 30, 2003, incorporated herein by reference
	4	.5	Form of Guarantee (Exhibit A-2 to Indenture filed as Exhibit 4.3 above)	Filed as Exhibit 4.3 to Form 10-Q for the quarterly period ended June 30, 2003, incorporated herein by reference
	4	.6	Form of Senior Convertible Note due 2023 (Exhibit A-1 to Indenture filed as Exhibit 4.3 above)	Filed as Exhibit 4.4 to Form 10-Q for the quarterly period ended June 30, 2003, incorporated herein by reference
	4	.7	Indenture, dated as of February 10, 2004 between Mesa Air Group, Inc., the guarantors named therein and U.S. Bank National Association, as Trustee, relating to Senior Convertible Notes due 2024	Filed as Exhibit 4.1 to Form S-3 filed on May 7, 2004, incorporated herein by reference
	4	.8	Registration Rights Agreement dated as of February 10, 2004 between Mesa Air Group, Inc., the subsidiaries of Mesa Air Group, Inc. Listed on the signature pages thereto, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, As Initial Purchaser of the Senior Convertible Notes due 2024	Filed as Exhibit 4.2 to Form S-3 filed on May 7, 2004, incorporated herein by reference

75

Exhibit
Number			Description	Reference
	4	.9	Form of Guarantee (included in Exhibit 4.7).	Filed as Exhibit 4.1 to Form S-3 filed on May 7, 2004, incorporated herein by reference
	4	.10	Form of Senior Convertible Notes due 2024 (included in Exhibit 4.7).	Filed as Exhibit 4.1 to Form S-3 filed on May 7, 2004, incorporated herein by reference
	5	.1	1998 Key Officer Stock Option Plan	Filed as Appendix A to Registrant’s Definitive Proxy Statement, dated June 19, 1998
	5	.2	2001 Key Officer Stock Option Plan, as amended	Filed as Exhibit 5.2 to Form 10-Q for fiscal year ended September 30, 2003
	5	.3	Outside Directors’ Stock Option Plan, as amended	Filed as Exhibit 5.3 to Form 10-K for fiscal year ended September 30, 2003 and incorporated herein by reference
	5	.4	Employee Stock Option Plan, as amended	Filed as Exhibit 5.4 to Form 10-K for fiscal year ended September 30, 2003 and Incorporated herein by reference
	5	.5	Deferred Compensation Plan	Filed as Exhibit 5.4 to Form 10-K for fiscal year ended September 30, 2003 and incorporated herein by reference
	10	.1	Form of Directors’ and Officers’ Indemnification Agreement	Filed as Exhibit 10.1 to Form 10-K for fiscal year ended September 30, 2002 and incorporated herein by reference
	10	.2	Code-share and Revenue Sharing Agreement, dated as of February 1, 2001, by and between Mesa Airlines, Inc. and America West, Inc. (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.1 to Form 10-Q for the period ended March 31, 2001, incorporated herein by reference
	10	.3	First Amendment to Code-share and Revenue Sharing Agreement dated as of April 27, 2001, by and between Mesa Airlines, Inc. and America West, Inc.	Filed as Exhibit 10.10 to Form 10-K for Fiscal year ended September 30, 2002 and incorporated herein by reference
	10	.4	Second Amendment to Code-share and Revenue Sharing Agreement dated as of October 24, 2002, by and between Mesa Airlines, Inc. and America West, Inc. (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.4(1) to Form 10-K for fiscal year ended September 30, 2003 and incorporated herein by reference
	10	.5	Third Amendment to Code-share and Revenue Sharing Agreement dated as of December 2, 2002, by and between Mesa Airlines, Inc., Freedom Airlines, Inc. and America West, Inc. (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.5(1) to Form 10-K for fiscal year ended September 30, 2003 and incorporated herein by reference
	10	.6	Fourth Amendment to Code-share and Revenue Sharing Agreement dated as of September 5, 2003, by and between Mesa Airlines, Inc., Freedom Airlines, Inc., Air Midwest, Inc. and America West, Inc. (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.6(1) to Form 10-K for fiscal year ended September 30, 2003 and incorporated herein by reference

76

Exhibit
Number			Description	Reference
	10	.7	Service Agreement dated as of November 11, 1997 between Mesa Airlines, Inc. and US Airways, Inc.	Filed as Exhibit 10.86 to Form 10-Q for the quarter ended December 31, 1997
	10	.8	First Amendment to Service Agreement dated as of November 24, 1999, by and between Mesa Airlines, Inc. and US Airways, Inc. (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.15 to Form 10-K for fiscal year ended September 30, 2002 and incorporated herein by reference
	10	.9	Second Amendment to Service Agreement dated as of October 6, 2000, by and between Mesa Airlines, Inc. and US Airways, Inc. (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.16 to Form 10-K for fiscal year ended September 30, 2002 and incorporated herein by reference
	10	.10	Third Amendment to Service Agreement dated as of October 17, 2002, by and between Mesa Airlines, Inc. and US Airways (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.17 to Form 10-K for fiscal year ended September 30, 2002 and incorporated herein by reference
	10	.11	Fourth Amendment to Service Agreement dated as of October 17, 2002, by and between Mesa Airlines, Inc. and US Airways (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.18 to Form 10-K for fiscal year ended September 30, 2002 and incorporated herein by reference
	10	.12	Fifth Amendment to Service Agreement dated as of October 17, 2002, by and between Mesa Airlines, Inc., and US Airways (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.19 to Form 10-K for fiscal year ended September 30, 2002 and incorporated herein by reference
	10	.13	Sixth Amendment to Service Agreement dated as of August 14, 2003, by and between Mesa Airlines, Inc., and US Airways (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.13(1) to the Form 10-K for fiscal year ended September 30, 2002 and incorporated herein by reference
	10	.14	Seventh Amendment to Service Agreement dated as of November 24, 2003, by and between Mesa Airlines, Inc., and US Airways (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.3(1) to the Form 10-Q for the quarter ended March 31, 2004
	10	.15	Eighth Amendment to Service Agreement dated as of January 30, 2004, by and between Mesa Airlines, Inc. and US Airways (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.4(1) to the Form 10-Q for the quarter ended March 31, 2004
	10	.16	Service Agreement between US Airways, Inc. and Air Midwest, Inc. dated as of May 14, 2003 (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.16(1) to the Form 10-K for Fiscal year ended September 30, 2004 and incorporated herein by reference
	10	.17(1)(2)	Amended and Restated United Express Agreement between United Airlines, Inc. and Mesa Air Group, Inc.	Previously filed as Exhibit 10.1 to the Form 10-Q for the quarter ended June 30, 2004 and refiled herewith

77

Exhibit
Number			Description	Reference
	10	.18	Master Purchase Agreement between Bombardier, Inc. and the Registrant Dated May 18, 2001 (Certain portions deleted Pursuant to confidential treatment)	Filed as exhibit 10.1 to the Form 10-Q for the quarter ended June 30, 2001
	10	.19	Agreement between the Registrant and Barlow Capital, LLC, as amended	Filed as Exhibit 10.23 to Registrant’s Form 10-K for the year ended September 30, 2001
	10	.20	Employment Agreement dated as of March 31, 2004, between the Registrant and Jonathan G. Ornstein	Filed as Exhibit 10.1 to the Form 10-Q for the quarter ended March 31, 2004
	10	.21	Employee Agreement, dated as of March 31, 2004, between the Registrant and Michael J. Lotz	Filed as Exhibit 10.2 to Form 10-Q for the quarter ended March 31, 2004
	10	.22	Employment Agreement, dated as of December 6, 2001 between the Registrant and George Murnane III, as amended	Filed as Exhibit 10.27 to Form 10-K for fiscal year ended September 30, 2002 and incorporated herein by reference
	10	.23	Form of Employment Agreement entered into by and between the Registrant and Carter Leake and Brian Gillman	Filed as Exhibit 10.26 to Registrant’s Form 10-K for the year ended September 30, 2001
	10	.24	Three Gateway Office Lease between Registrant and DMB Property Ventures Limited Partnership, dated October 16, 1998, as amended	Filed as Exhibit 10.22 to Registrant’s Form 10-K for the year ended September 30, 2002
	18	.1	Letter regarding change in accounting principle	Filed as exhibit 18.1 to Registrant’s form 10-K for the year ended September 30, 2001
	21	.1	Subsidiaries of the Registrant	Filed herewith
	23	.1	Consent of Independent Registered Public Accounting Firm	Filed herewith
	31	.1	Certification Pursuant to Rule 13a-14(a)/ 15d-14(a) of the Securities Exchange Act of 1934, as amended	Filed herewith
	31	.2	Certification Pursuant to Rule 13a-14(a)/ 15d-14(a) of the Securities Exchange Act of 1934, as amended	Filed herewith
	32	.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
	32	.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith

(1)The Company has sought confidential treatment of portions of the referenced exhibits.

(2) The Company is refiling this Exhibit to include previously redacted language regarding the termination date of the agreement.

78

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.

MESA AIR GROUP, INC.

BY:  /s/ JONATHAN G. ORNSTEIN

Jonathan G. Ornstein

Chairman and Chief Executive Officer

(Principal Executive Officer)

By:  /s/ GEORGE MURNANE III

George Murnane III

Chief Financial Officer

(Principal Financial and Accounting Officer)

Dated: December 13, 2004

POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints JONATHAN G. ORNSTEIN, BRIAN S. GILLMAN and GEORGE MURNANE III, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him in his name, place and stead, in any and all capacities, to sign any and all amendments to this Form 10-K Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith with the Securities and Exchange Commission, granting onto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully and to all intent and purposes as he might or could do in person hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

      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/ JONATHAN G. ORNSTEIN Jonathan G. Ornstein	Chairman of the Board, Chief Executive Officer and Director	December 13, 2004
/s/ DANIEL J. ALTOBELLO Daniel J. Altobello	Director	December 13, 2004
/s/ RONALD R. FOGLEMAN Ronald R. Fogleman	Director	December 13, 2004
/s/ MAURICE A. PARKER Maurice A. Parker	Director	December 13, 2004

79

/s/ JULIE SILCOCK Julie Silcock	Director	December 13, 2004
/s/ JOSEPH L. MANSON Joseph L. Manson	Director	December 13, 2004

80

EXHIBIT INDEX

Exhibit
Number			Description	Reference
	3	.1	Articles of Incorporation of Registrant dated May 28, 1996	Filed as Exhibit 3.1 to Registrant’s Form 10-K for the fiscal year ended September 30, 1996, incorporated herein by Reference
	3	.2	Bylaws of Registrant as amended	Filed as Exhibit 3.2 to Registrant’s Form 10-K for the fiscal year ended September 30, 1996, incorporated herein by Reference
	4	.1	Form of Common Stock certificate	Filed as Exhibit 4.5 to Amendment No. 1 to Registrant’s Form S-18, Registration No. 33-11765 filed March 6, 1987, incorporated herein by reference
	4	.2	Form of Common Stock certificate (issued after November 12, 1990)	Filed as Exhibit 4.8 to Form S-1, Registration No. 33-35556 effective December 6, 1990, incorporated herein by Reference
	4	.3	Indenture dated as of June 16, 2003 between the Registrant, the guarantors executing a signature page thereto and U.S. Bank National Association, as Trustee, relating to Senior Convertibles Notes due 2023	Filed as Exhibit 4.1 to Form 10-Q for the quarterly period ended June 30, 2003, incorporated herein by reference
	4	.4	Registration Rights Agreement dated as of June 16, 2003 between the Registrant, the subsidiaries of the Registrant listed on The signature pages thereto, and Merrill Lynch & Co., a representative of the Initial Purchasers of Senior Convertibles Notes due 2023	Filed as Exhibit 4.2 to Form 10-Q for the quarterly period ended June 30, 2003, incorporated herein by reference
	4	.5	Form of Guarantee (Exhibit A-2 to Indenture filed as Exhibit 4.3 above)	Filed as Exhibit 4.3 to Form 10-Q for the quarterly period ended June 30, 2003, incorporated herein by reference
	4	.6	Form of Senior Convertible Note due 2023 (Exhibit A-1 to Indenture filed as Exhibit 4.3 above)	Filed as Exhibit 4.4 to Form 10-Q for the quarterly period ended June 30, 2003, incorporated herein by reference
	4	.7	Indenture, dated as of February 10, 2004 between Mesa Air Group, Inc., the guarantors named therein and U.S. Bank National Association, as Trustee, relating to Senior Convertible Notes due 2024.	Filed as Exhibit 4.1 to Form S-3 filed on May 7, 2004, incorporated herein by reference
	4	.8	Registration Rights Agreement dated as of February 10, 2004 between Mesa Air Group, Inc., the subsidiaries of Mesa Air Group, Inc. listed on the signature pages thereto, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Initial Purchaser of the Senior Convertible Notes due 2024.	Filed as Exhibit 4.2 to Form S-3 filed on May 7, 2004, incorporated herein by reference
	4	.9	Form of Guarantee (included in Exhibit 4.7).	Filed as Exhibit 4.1 to Form S-3 filed on May 7, 2004, incorporated herein by reference
	4	.10	Form of Senior Convertible Notes due 2024 (included in Exhibit 4.7).	Filed as Exhibit 4.1 to Form S-3 filed on May 7, 2004, incorporated herein by reference

81

Exhibit
Number			Description	Reference
	5	.1	1998 Key Officer Stock Option Plan	Filed as Appendix A to Registrant’s Definitive Proxy Statement, dated June 19, 1998
	5	.2	2001 Key Officer Stock Option Plan, as amended	Filed as Exhibit 5.2 to Form 10-Q for fiscal year ended September 30, 2003
	5	.3	Outside Directors’ Stock Option Plan, as amended	Filed as Exhibit 5.3 to Form 10-K for fiscal year ended September 30, 2003 and incorporated herein by reference
	5	.4	Employee Stock Option Plan, as amended	Filed as Exhibit 5.4 to Form 10-K for fiscal year ended September 30, 2003 and Incorporated herein by reference
	5	.5	Deferred Compensation Plan	Filed as Exhibit 5.4 to Form 10-K for fiscal year ended September 30, 2003 and incorporated herein by reference
	10	.1	Form of Directors’ and Officers’ Indemnification Agreement	Filed as Exhibit 10.1 to Form 10-K for fiscal year ended September 30, 2002 and incorporated herein by reference
	10	.2	Code-share and Revenue Sharing Agreement, dated as of February 1, 2001, by and between Mesa Airlines, Inc. and America West, Inc. (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.1 to Form 10-Q for the period ended March 31, 2001, incorporated herein by reference
	10	.3	First Amendment to Code-share and Revenue Sharing Agreement dated as of April 27, 2001, by and between Mesa Airlines, Inc. and America West, Inc.	Filed as Exhibit 10.10 to Form 10-K for Fiscal year ended September 30, 2002 and incorporated herein by reference
	10	.4	Second Amendment to Code-share and Revenue Sharing Agreement dated as of October 24, 2002, by and between Mesa Airlines, Inc. and America West, Inc. (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.4(1) to Form 10-K for fiscal year ended September 30, 2003 and incorporated herein by reference
	10	.5	Third Amendment to Code-share and Revenue Sharing Agreement dated as of December 2, 2002, by and between Mesa Airlines, Inc., Freedom Airlines, Inc. and America West, Inc. (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.5(1) to Form 10-K for fiscal year ended September 30, 2003 and incorporated herein by reference
	10	.6	Fourth Amendment to Code-share and Revenue Sharing Agreement dated as of September 5, 2003, by and between Mesa Airlines, Inc., Freedom Airlines, Inc., Air Midwest, Inc. and America West, Inc. (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.6(1) to Form 10-K for fiscal year ended September 30, 2003 and incorporated herein by reference
	10	.7	Service Agreement dated as of November 11, 1997 between Mesa Airlines, Inc. and US Airways, Inc.	Filed as Exhibit 10.86 to Form 10-Q for the quarter ended December 31, 1997
	10	.8	First Amendment to Service Agreement dated as of November 24, 1999, by and between Mesa Airlines, Inc. and US Airways, Inc. (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.15 to Form 10-K for fiscal year ended September 30, 2002 and incorporated herein by reference

82

Exhibit
Number			Description	Reference
	10	.9	Second Amendment to Service Agreement dated as of October 6, 2000, by and between Mesa Airlines, Inc. and US Airways, Inc. (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.16 to Form 10-K for fiscal year ended September 30, 2002 and incorporated herein by reference
	10	.10	Third Amendment to Service Agreement dated as of October 17, 2002, by and between Mesa Airlines, Inc. and US Airways (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.17 to Form 10-K for fiscal year ended September 30, 2002 and incorporated herein by reference
	10	.11	Fourth Amendment to Service Agreement dated as of October 17, 2002, by and between Mesa Airlines, Inc. and US Airways (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.18 to Form 10-K for fiscal year ended September 30, 2002 and incorporated herein by reference
	10	.12	Fifth Amendment to Service Agreement dated as of October 17, 2002, by and between Mesa Airlines, Inc., and US Airways (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.19 to Form 10-K for fiscal year ended September 30, 2002 and incorporated herein by reference
	10	.13	Sixth Amendment to Service Agreement dated as of August 14, 2003, by and between Mesa Airlines, Inc., and US Airways (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.13(1) to the Form 10-K for fiscal year ended September 30, 2002 and incorporated herein by reference
	10	.14	Seventh Amendment to Service Agreement dated as of November 24, 2003, by and between Mesa Airlines, Inc., and US Airways (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.3(1) to the Form 10-Q for the quarter ended March 31, 2004
	10	.15	Eighth Amendment to Service Agreement dated as of January 30, 2004, by and between Mesa Airlines, Inc. and US Airways (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.4(1) to the Form 10-Q for the quarter ended March 31, 2004
	10	.16	Service Agreement between US Airways, Inc. and Air Midwest, Inc. dated as of May 14, 2003 (Certain portions deleted pursuant to confidential treatment.)	Filed as Exhibit 10.16(1) to the Form 10-K for Fiscal year ended September 30, 2004 and incorporated herein by reference
	10	.17(1)(2)	Amended and Restated United Express Agreement between United Airlines, Inc. and Mesa Air Group, Inc.	Previously filed as Exhibit 10.1 to the Form 10-Q for the quarter ended June 30, 2004 and refiled herewith
	10	.18	Master Purchase Agreement between Bombardier, Inc. and the Registrant Dated May 18, 2001 (Certain portions deleted Pursuant to confidential treatment)	Filed as exhibit 10.1 to the Form 10-Q for the quarter ended June 30, 2001
	10	.19	Agreement between the Registrant and Barlow Capital, LLC, as amended	Filed as Exhibit 10.23 to Registrant’s Form 10-K for the year ended September 30, 2001
	10	.20	Employment Agreement dated as of March 31, 2004, between the Registrant and Jonathan G. Ornstein	Filed as Exhibit 10.1 to the Form 10-Q for the quarter ended March 31, 2004

83

Exhibit
Number			Description	Reference
	10	.21	Employee Agreement, dated as of March 31, 2004, between the Registrant and Michael J. Lotz	Filed as Exhibit 10.2 to Form 10-Q for the quarter ended March 31, 2004
	10	.22	Employment Agreement, dated as of December 6, 2001 between the Registrant and George Murnane III, as amended	Filed as Exhibit 10.27 to Form 10-K for fiscal year ended September 30, 2002 and incorporated herein by reference
	10	.23	Form of Employment Agreement entered into by and between the Registrant and Carter Leake and Brian Gillman	Filed as Exhibit 10.26 to Registrant’s Form 10-K for the year ended September 30, 2001
	10	.24	Three Gateway Office Lease between Registrant and DMB Property Ventures Limited Partnership, dated October 16, 1998, as amended	Filed as Exhibit 10.22 to Registrant’s Form 10-K for the year ended September 30, 2002
	18	.1	Letter regarding change in accounting principle	Filed as exhibit 18.1 to Registrant’s form 10-K for the year ended September 30, 2001
	21	.1	Subsidiaries of the Registrant	Filed herewith
	23	.1	Consent of Independent Registered Public Accounting Firm	Filed herewith
	31	.1	Certification Pursuant to Rule 13a-14(a)/ 15d-14(a) of the Securities Exchange Act of 1934, as amended	Filed herewith
	31	.2	Certification Pursuant to Rule 13a-14(a)/ 15d-14(a) of the Securities Exchange Act of 1934, as amended	Filed herewith
	32	.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
	32	.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith

(1)  The Company has sought confidential treatment of portions of the referenced exhibits.

(2)  The Company is refiling this Exhibit to include previously redacted language regarding the termination date of the agreement.

84 EX-10.17 2 p69986exv10w17.txt EX-10.17 EXHIBIT 10.17 * TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTION 200.80(B)(4), 200.83 AND 240.24b-2 United Contract No. 163872 AMENDED AND RESTATED UNITED EXPRESS(R) AGREEMENT BETWEEN UNITED AIR LINES, INC. AND MESA AIR GROUP, INC. TABLE OF CONTENTS

ARTICLE TITLE PAGE - ------- ----- ---- I. DEFINITIONS................................................. 1 II. SCOPE, TERM, AND CONDITIONS................................. 4 A. SCOPE .................................................. 4 B. TERM ................................................... 5 C. CONDITIONS.............................................. 7 III. SUPPORT SERVICES AND FACILITIES............................. 7 A. GENERAL................................................. 7 B. SPECIAL SUPPORT SERVICES................................ 7 C. COMMUNICATIONS.......................................... 10 D. RESERVATIONS............................................ 10 E. OPERATIONS.............................................. 11 F. STATION SUPPORT SERVICES................................ 14 G. TARIFFS AND SCHEDULE PUBLICATION........................ 14 H. SALES SETTLEMENT........................................ 15 I. ADVERTISING AND PROMOTIONS.............................. 17 J. AUTOMATION.............................................. 17 K. OTHER SUPPLIES.......................................... 20 L. CONTRACTOR ASSISTANCE................................... 21 IV. AIR SERVICES TO BE PROVIDED BY CONTRACTOR................... 21 A. SCHEDULES AND CHARTERS TO BE OPERATED BY CONTRACTOR..... 21 B. AIRCRAFT TO BE USED..................................... 23 C. INVENTORY............................................... 26 D. FLIGHT CREWS TO BE USED................................. 26 E. INFLIGHT SALES.......................................... 27

i V. OPERATING RESTRICTIONS...................................... 27 A. UNITED EXPRESS OPERATIONS ONLY.......................... 27 B. NO OPERATION OUTSIDE AGREEMENT.......................... 27 C. BREACH OF OPERATING RESTRICTIONS........................ 28 VI. LICENSE..................................................... 28 A. GRANT OF LICENSE........................................ 28 B. TERMS AND CONDITIONS GOVERNING LICENSE.................. 28 C. INFRINGEMENT............................................ 30 VII. ADDITIONAL UNDERTAKINGS..................................... 30 A. BULK PURCHASES.......................................... 31 B. FUEL ................................................... 31 C. PURCHASE BY UNITED OF PASS THROUGH COST ITEMS........... 31 D. UNIFORMS................................................ 31 E. PASSES AND REDUCED RATE TRAVEL.......................... 31 F. SIGNAGE................................................. 32 G. ENVIRONMENTAL........................................... 32 H. START-UP COSTS.......................................... 32 I. AIRCRAFT SUBSTITUTIONS.................................. 33 VIII. RATES PAYABLE TO CONTRACTOR................................. 33 A. RATES .................................................. 33 B. OPERATING GOALS......................................... 36 C. MARKUP ................................................. 37 D. WIRE TRANSFER AND RECONCILIATION........................ 37 IX. FEES PAYABLE TO UNITED...................................... 38 A. GOVERNMENT ASSISTANCE................................... 38 X. MAINTENANCE AND FUELING..................................... 39 ii XI. U.S. MAIL................................................... 39 XII. INSURANCE................................................... 39 A. INSURANCE TYPES......................................... 39 B. 30-DAY NOTICE........................................... 40 C. FAILURE TO MAINTAIN INSURANCE........................... 40 XIII. LIABILITY AND INDEMNIFICATION............................... 40 A. EMPLOYER'S LIABILITY AND WORKERS' COMPENSATION.......... 40 B. INDEMNIFICATION BY CONTRACTOR........................... 40 C. INDEMNIFICATION BY UNITED............................... 41 D. CONTRACTOR'S SUPPLIES LIABILITY......................... 41 E. UNITED DEFINITIONS...................................... 43 XIV. REPORTS..................................................... 43 A. CLOSE-OUT ENTRIES....................................... 43 B. BOARDING INFORMATION.................................... 44 C. OPERATING PERFORMANCE................................... 44 D. INSPECTION.............................................. 44 E. FINANCIAL STATEMENTS.................................... 44 F. GOVERNMENT FILINGS...................................... 44 G. COPY OF GOVERNMENT REPORTS.............................. 45 XV. INDEPENDENT CONTRACTORS AND UNAUTHORIZED OBLIGATIONS........ 45 A. INDEPENDENT CONTRACTORS................................. 45 B. UNAUTHORIZED OBLIGATIONS................................ 46 C. CONTRACTOR OPERATED FLIGHTS............................. 46 XVI. DEFAULT AND TERMINATION..................................... 46 A. OPERATIONS DEFAULT...................................... 46 B. COVENANT DEFAULT........................................ 47 iii C. DEFAULT BY CONTRACTOR................................... 47 D. SIMILAR AGREEMENTS...................................... 48 E. NON-COMPLIANCE WITH STANDARDS........................... 48 F. CONSEQUENCES OF TERMINATION............................. 49 G. UNITED'S LIQUIDATED DAMAGES............................. 49 H. RESTRICTED ACTIONS...................................... 50 XVII. ASSIGNMENT, MERGER AND ACQUISITION.......................... 50 A. ASSIGNMENT.............................................. 50 B. MERGER AND ACQUISITION.................................. 51 XVIII. CHANGE OF LAW............................................... 51 XIX. TAXES, PERMITS AND LICENSES................................. 51 A. TRANSACTION TAXES....................................... 51 B. PAYROLL TAXES........................................... 52 C. PERMITS AND LICENSES.................................... 52 XX. REVIEW...................................................... 52 XXI. JURISDICTION................................................ 53 XXII. NOTICES..................................................... 53 XXIII. APPROVALS AND WAIVERS....................................... 54 XXIV. GOVERNING LAW............................................... 54 XXV. CUMULATIVE REMEDIES......................................... 54 XXVI. FORCE MAJEURE............................................... 55 XXVII. SEVERABILITY AND CONSTRUCTION............................... 55 XXVIII. ACKNOWLEDGMENT.............................................. 55 XXIX. CONFIDENTIALITY............................................. 55 XXX. RELATED AND THIRD PARTY AGREEMENTS.......................... 56 XXXI. ENTIRE AGREEMENT............................................ 56 iv XXXII. REFERENCES TO TIME PERIODS................................... 56 APPENDIX A ............................................................. 58 APPENDIX B ............................................................. 59 APPENDIX C ............................................................. 60 APPENDIX D ............................................................. 61 APPENDIX E ............................................................. 63 APPENDIX F ............................................................. 64 APPENDIX G ............................................................. 66 APPENDIX H ............................................................. 68 APPENDIX I ............................................................. 77 APPENDIX J ............................................................. 78 Appendix K ............................................................. 79 v * TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTION 200.80(B)(4), 200.83 AND 240.24b-2 UNITED EXPRESS(R) AGREEMENT This Agreement, dated as of January 28, 2004, is between UNITED AIR LINES, INC., a Delaware corporation, with its worldwide headquarters located at 1200 E. Algonquin Road, Elk Grove Township, IL 60007 ("UNITED"), and Mesa Air Group, Inc., a Nevada corporation, having its principal mailing address at 410 N 44th St., Suite 700 Phoenix, AZ 85008 ("CONTRACTOR"). WITNESSETH: WHEREAS, United holds a certificate of public convenience and necessity issued pursuant to the Federal Aviation Act of 1958 authorizing United to engage in air transportation of persons, property and mail, and is a major airline providing scheduled air service in both national and international markets; WHEREAS, Contractor is the parent company of a group of air carriers holding a certificate of public convenience and necessity issued pursuant to the Federal Aviation Act of 1958 authorizing them to engage in air transportation of persons and property; WHEREAS, Contractor is willing to cause one or more of its wholly-owned subsidiaries to perform service on behalf of United; WHEREAS, United owns various trademarks, service marks, trade names, logos, emblems, uniform designs and distinctive exterior and interior color decor and patterns for its aircraft, including, but not limited to, the service mark United Express (hereinafter referred to individually and collectively as "UNITED MARKS" or "MARKS"); WHEREAS, United has entered into agreements with several regional carriers to provide air transportation services under the United Express mark for city pairs where it is generally uneconomic for United to operate such services; WHEREAS, United will provide Contractor, pursuant to the terms of this Agreement, a non-exclusive license to use one or more of the United Marks in connection with Contractor's United Express Services. NOW, THEREFORE, in consideration of the foregoing premises, mutual covenants and obligations hereinafter contained, the parties agree as follows: I DEFINITIONS A. "Apollo Services" means the computerized Apollo Reservations and Ticketing Service (or any similar or substitute service offered by or on behalf of United), which 1 performs flight, hotel, rental car and other travel related services, reservations and ticket issuance functions. B. "Contractor Location" means any airport terminal facility where Contractor provides Contractor's United Express Services pursuant to this Agreement and Contractor, but not United, has employees stationed (including any terminal facility where Contractor provides Contractor's United Express Services pursuant to this Agreement that is different from the terminal facility from which United operates in the same airport). C. "Contractor's United Express Services" means the services or operations provided and maintained by Contractor or its affiliates in connection with providing scheduled air transportation service as a United Express Carrier and related ground and other services to United and its affiliates pursuant to the terms of this Agreement (including, without limitation, the services required under ARTICLE IV). D. "United Express Service Standards" or "Service Standards" means the procedures prescribed by United that describe United's approved standards, policies, requirements and procedures for various activities relating to the provision of air transportation services. These Service Standards are provided in APPENDIX H. E. "Default" means, individually or collectively, a SECTION A DEFAULT, a SECTION B DEFAULT, a SECTION C DEFAULT, a SECTION D DEFAULT, or a SECTION E DEFAULT, each as defined in ARTICLE XVI. F. "Designated Personnel" means all of Contractor's employees who provide Contractor's United Express Services in job classifications requiring direct public contact. Furthermore, this covers all customer service, ramp service, pilots, and flight attendants. G. "Effective Date" shall have the meaning set forth in ARTICLE II.B. H. "Environmental Laws" means all federal, state, local and foreign laws and regulations, and airport rules, regulations and policies relating to pollution or the environment, including, without limitation, laws and regulations relating to emissions to the air, discharges to surface and subsurface waters, safe drinking water, the storage, release, disposal, transport or 2 handling of chemicals, pollutants, contaminants, wastes, hazardous substances, petroleum and petroleum products, and aircraft noise, vibration, exhaust and overflight. I. "Ground Handling Duties" means the provision of one or more of the following: (1) lavatory service, (2) overnight cabin cleaning, (3) loading and unloading of baggage, mail and freight, (4) receipt and dispatch, (5) baggage delivery, and (6) provisioning personnel and storage space. J. "Ground Handling Provider" means, for each city in which Contractor operates flights in Contractor's United Express Services, either United or another entity selected by United (which, in some cities, will be Contractor) to provide ground handling services to Contractor in that city. K. "Joint Location" means any airport terminal where Contractor provides Contractor's United Express Services pursuant to this Agreement and both United and Contractor have employees stationed. L. "Marks" or "United Marks" shall have the meaning set forth in the recitals of this Agreement. M. "Rates" shall have the meaning set forth in ARTICLE VIII N. "Related Agreements" shall have the meaning set forth in ARTICLE XXX. O. "Revenue Passenger" means each passenger traveling on Contractor in connection with Contractor's United Express Services who holds a ticket (electronic or otherwise), flight coupon, voucher or other form of document that (i) entitles that passenger to board an aircraft and (ii) is issued pursuant to or in connection with a published or unpublished fare. Passengers traveling on a purchased ticket (including ID50 airline industry reduced rate tickets), wholesaler voucher, or voucher issued as denied boarding compensation, shall be considered to be Revenue Passengers. In addition, passengers traveling on a free ticket as (or as part of) a Mileage Plus(R) award or a free ticket issued in conjunction with a two-for-one fare or other similar fare established by United, shall be considered to be Revenue Passengers. A passenger traveling on any other type of free or service charge-based ticket, including, but not limited to, a site inspection ticket, or wholesaler compensation ticket, any travel agent or wholesaler traveling on a positive space or space available ticket, and any employee of United, Contractor or any other carrier traveling on 3 either a positive space or space available ticket, shall not be considered a Revenue Passenger. All Revenue Passengers shall be considered when calculating any Monthly Incentive Payment. P. "Support Services" means those activities set forth in ARTICLE III which are related to the operation of airline services except during flight. Q. "Termination Date" shall have the meaning set forth in ARTICLE II.B. R. "United Express Carrier" means an air carrier which has been contractually given a non-exclusive license to use the mark United Express and one or more other United Marks in connection with providing air transportation service to United pursuant to an agreement between United and such air carrier. S. "United Location" means any airport terminal facility where Contractor and United both have operations and United, but not Contractor, has employees stationed. T. "United's Actual Cost" means any and all costs or expenses actually incurred by United, not including any markup by United, any allocation of administrative or overhead expenses, or any administrative service charge imposed by United. U. "Aircraft Used in United Express Service" means any type and amount of aircraft set forth in APPENDIX A. II. SCOPE, TERM, AND CONDITIONS A. SCOPE The scope of this Agreement pertains to type and amount of Contractor's aircraft set forth in APPENDIX A, and as it may be amended in accordance herewith from time to time. 4 B. TERM 1. TURBOPROP: This Agreement becomes effective on July 6, 2003 at 1:01 a.m., Chicago, Illinois time, on (the "EFFECTIVE DATE") and shall terminate 10 years from the effective date (the "TERMINATION DATE"), unless it is terminated at an earlier date by United giving written notice * months prior to the * anniversary of the Effective Date, or as otherwise set forth under the provisions of this Agreement. Notwithstanding the preceding sentence, those provisions of this Agreement that specifically require actions prior to the Effective Date shall be effective upon execution of this Agreement. * months prior to the Termination Date, United and Contractor shall engage in discussions regarding the potential extension of the Agreement or ramp down schedule for Contractor's United Express operations; provided, however, that the decision to extend or ramp down the Agreement shall be at United's sole discretion. The terms of any extension of the Agreement will be mutually agreed upon by Contractor and United. (i) DELIVERY OF TURBOPROPS: Turboprops must be delivered and ready to enter the United Express schedule on the dates described in Appendix A. (ii) CONSEQUENCES FOR LATE DELIVERY OF TURBOPROPS: If any Turboprop is delivered later than * after the dates set out in Appendix A other than for reasons set forth below *. If, upon inspection, an aircraft is determined by Contractor to have any damage that must be repaired, or if the aircraft is damaged after takeoff en route to Contractor for delivery, Contractor will have the choice either to repair or replace the aircraft. If Contractor chooses to repair the aircraft, the * deadline will be extended by no longer than the time spent repairing the aircraft after the original * deadline. If Contractor chooses to replace the aircraft, the * deadline will be extended by no longer than the time it would have taken to repair the aircraft. The inspection mentioned above must take place on or before *, regardless of the date of this contract, and if Contractor determines from such inspection that repairs will be necessary, Contractor must advise United of this delay by no later than * or this extension of the delivery deadline will be waived. For no other reason will the * deadline be extended. In such a case where repairs are required, Contractor will use commercially reasonable efforts to expedite the repairs to the aircraft. 2. REGIONAL JET: This Agreement as it relates to the RJ-50 and RJ-70 (collectively, "RJ") fleet becomes effective on August 1, 2003 at 1:01 a.m., Chicago, Illinois time (the "RJ START DATE"). a. INITIAL RJ-70: The first * 70-seat or 64-seat Regional Jet ("RJ") aircraft, as the case may be, will be divided into three tranches of *, * and * aircraft, respectively ("RJ Tranches"). The term of this Agreement for (a) the first RJ Tranche, which shall consist of the * RJ aircraft having the earliest lease expiration dates, will expire December 31, 2011, (b) the second RJ Tranche of * RJ aircraft will expire on December 31, 2012, and (c) the third RJ Tranche, which shall consist of the * RJ aircraft having the latest lease expiration dates, will expire on December 31, 2013. Upon expiration of this Agreement for each RJ Tranche, and if United - ----------------------------- *Confidential Treatment Requested 5 and Contractor do not thereupon extend the term of this Agreement for such RJ Tranche, then ramp down of the aircraft for such RJ Tranche out of the terms and conditions of this Agreement will take place gradually over * following termination at a rate of no more than * aircraft per month, to be mutually agreed upon by United and Contractor. (i) DELIVERY OF INITIAL RJ-70s: RJ-70s must be delivered and ready to enter the United Express schedule on the dates described in Appendix A. (ii) CONSEQUENCES FOR LATE DELIVERY OF RJ-70S: If any RJ-70 is delivered later than * after the dates set out in Appendix A, *. In the case where any of the RJ-70s cannot be delivered because of a delay by Bombardier of RJ-900s to Contractor for reasons wholly related to Bombardier manufacturing (including Bombardier employee strikes), and in the case that Bombardier can produce verifiable proof that the delivery of the RJ-900s was a) delayed (and the period of delay) and b) delayed for reasons wholly related to Bombardier manufacturing (including Bombardier employee strikes), then *. b. RJ-50: For * 50-seat Regional Jet ("RJ-50") aircraft, the term of this Agreement will expire no later than December 31, 2008 and will correspond to the introduction of the * Replacement RJ 70s as outlined in ARTICLE FII.B.2.c. (i) DELIVERY OF FIRST FIVE RJ-50S: First * RJ-50s must be delivered and ready to enter the United Express schedule on the dates described in Appendix A. (ii) CONSEQUENCES FOR LATE DELIVERY OF FIRST FIVE RJ-50S: If any RJ-50 is delivered later than * after the dates set out in Appendix A *. (iii) DELIVERY OF LAST TEN RJ-50S: Contractor must provide delivery dates for each of the Last * RJ-50s at any time at its discretion before *. Once Contractor has submitted to United the delivery dates for the Last * RJ-50s, at United's sole discretion United will be entitled to accept or decline authorization of these aircraft on an aircraft by aircraft basis. If accepted, Contractor must deliver the RJ50 on the date set out in the Last * RJ-50 Schedule. If declined, Contractor will no longer be authorized to add the declined aircraft to United Express' Fleet and no payments or penalties will be owed by United on such declined aircraft.. (iv) CONSEQUENCES FOR LATE DELIVERY OF LAST TEN RJ-50S: If any RJ-50 is delivered later than * after the dates set out in Last * RJ-50 Schedule, *. c. 15 REPLACEMENT RJ 70S: The delivery of * RJ70s will occur no sooner than the withdrawal of the * short term RJ50s on a one for one basis. * All Replacement RJ-70 deliveries (and the corresponding RJ-50 retirements) must be completed by no later than *. The term for the * replacement RJ 70s shall expire * from the delivery of each individual RJ70, but in any case no later than December 31, 2018. - ----------------------------- *Confidential Treatment Requested 6 (i) DELIVERY OF REPLACEMENT RJ-70S: Contractor must advise United of the delivery date of each Replacement RJ-70 no later than * before the delivery date of each RJ-70. Contractor must advise United of the delivery dates of all RJ-70s no later than *. Replacement RJ-70s must be delivered and ready to enter the United Express schedule on these dates. (ii) CONSEQUENCES FOR LATE DELIVERY OF REPLACEMENT RJ-70S: *. C. CONDITIONS 1. RENEWAL OPTION. Upon expiration of this Agreement, for each RJ-70 Tranche and for the RJ-50 fleet, United may renew the term hereof for each RJ Tranche aircraft and for each RJ-50 aircraft for an additional term of *, on the then existing terms and conditions, upon at least * written notice prior to the end of such term. PILOT CONSIDERATION for 70-seat Regional Jet Employment for Furloughed United Pilots. Contractor acknowledges that United has been required to furlough some of its pilots over the past several years. As additional consideration, with the exception of Paragraph 11 of the Letter 03-22, Contractor has agreed to provisions outlined in Letter 03-22, Letter 03-23 and Letter 03-24, "Job Opportunities for Furloughed United Pilots" between United and the Air Line Pilot Association dated August 21, 2003, August 21, 2003 and September 5, 2003, which is incorporated herein by reference. United retains the right to recall furloughed pilots hired by Contractor. Should United decide to recall aforementioned pilots within * months of any pilot's Contractor hire date, United will reimburse the aforementioned pilots for Contractor's pilot prorated training costs of $* per CRJ pilot, $* per Dash-8 pilot and $* per B1900 pilot, prorated by the number of months remaining until that pilot's * anniversary as compared to the full cost over *. III. SUPPORT SERVICES AND FACILITIES A. GENERAL 1. SUPPORT SERVICES. United and Contractor will provide Support Services and facilities to the extent and in the manner set forth in the subsequent provisions of this ARTICLE III. All such Support Services and facilities set forth in this ARTICLE III will be furnished only with respect to Contractor's United Express Services. 2. APPROVAL OF SUPPORT SERVICES. United reserves the right to approve or disapprove the implementation of any Support Services or facilities offered to Contractor for Contractor's United Express Services by any third party at any location. Such approval shall not be unreasonably withheld. B. SPECIAL SUPPORT SERVICES - ----------------------------- *Confidential Treatment Requested 7 In addition to other services to be made available to or provided to Contractor pursuant to this Agreement, and as summarized in and in accordance with APPENDIX B (City Pairs and Ground Handling) and APPENDIX C (Contractor Support Services), United agrees that it or its designees will provide and Contractor agrees to use the following services and facilities for Contractor's United Express Services, be they provided by United or its designee: 1. USE OF THE UNITED DESIGNATOR CODE All scheduled air transportation provided by Contractor as a part of Contractor's United Express Services will be displayed by United in Apollo Services, the Official Airline Guide ("OAG") and all other computerized reservations systems, using the appropriate United designator code, "UA" or "UA*," and a flight number within a range of flight numbers assigned by United. 2. USE OF APOLLO SERVICES In selling and providing Contractor's United Express Services, Contractor will only use Apollo Services, including United's automated check-in, United's ticketing (including United's electronic ticketing service, E-Ticket(SM)) and boarding passes, advance seat reservation system and United's automated baggage tag printing and baggage tracing systems. 3. PARTICIPATING IN UNITED'S MILEAGE PLUS(R) PROGRAM At United's discretion, all passengers with paid tickets traveling on a flight segment included in Contractor's United Express Services, whether or not in conjunction with a United flight segment, will be awarded mileage credits for United's Mileage Plus Program or any other frequent flyer program as specifically approved by United. Contractor shall not participate in the frequent traveler program of any other carrier in connection with Contractor's United Express Services, unless otherwise mutually agreed between United and Contractor in writing. United has sole discretion concerning decisions relating to accrual or redemption of award travel on Contractor's United Express flights. In addition, United will bear the cost of providing redemption travel and receive all revenue and benefits from the sale of frequent flyer credits (e.g. miles) related to Contractor's United Express service. 4. USE OF UNITED TICKET STOCK, BAGGAGE TAGS AND TICKET WALLETS In selling air transportation of passengers and property, both on-line and off-line, Contractor will use only United passenger ticket stock, ticket wallets and baggage tags in connection with Contractor's United Express Services. Unless otherwise agreed, United will provide to Contractor all United passenger ticket stock, United airway bills, United cargo bills and other shipping documentation for all Contractor's United Express Services, and United will provide to Contractor ticket wallets and baggage tags for Joint Locations and United Locations only; provided that such quantities do not exceed reasonable levels. Contractor shall reimburse United, at United's Actual Cost, for all 8 documentation requested by Contractor. Ticket wallets, baggage tags and other passenger processing documents approved by United will be acquired by Contractor for all Contractor Locations through a supplier designated by United. Contractor shall be required to convert to the use of different ticket wallets, baggage tags and other passenger processing documents upon * prior written notice to Contractor by United. 5. CREDIT CARD SALES AND REJECTS; BAD CHECKS Contractor will use only credit-industry or airline-industry standard credit card vouchers and receipts in connection with credit card sales for tickets, cargo, excess baggage or other services on Contractor's United Express Services. * Contractor will reimburse United for the expenses of such discount fees and credit card rejects. Contractor will absorb the risk of bad checks used as payment for tickets and vouchers written by Contractor for passage or freight in connection with Contractor's United Express Services. 6. DENIED BOARDING a. In the event of voluntary or involuntary denied boardings, Contractor shall make a good faith effort to rebook United Express customers on the next available flight operated by one of United's code share partners, such as US Airways, or a Star Alliance partner, provided that the routing is logical and does not seriously inconvenience the customer. b. Contractor is required to provide to United, upon specific written request from United, specific station information regarding the weight restrictions and aircraft limitations which could results in Denied Boardings. Such requests shall be made by United's Revenue Management Department (WHQIM) and responses from Contractor shall be provided within * weeks of such request. c. United will pay Contractor the Unit Rates per completed passenger for interrupted trip expense (RJ-50 and RJ-70 only) as set forth in Appendix D. Contractor and United agree to review the interrupted trip expense six months after execution of this agreement. If Contractor's actual uncontrollable costs are below $* per passenger, Contractor will reduce this rate to the actual cost for the remainder of this agreement. 7. TICKET AND BAGGAGE HANDLING FEES All ticket handling, baggage handling and other service charges and fees assessed by carriers other than United relating to Contractor's services (including, but not limited to, Contractor's United Express Services) will be absorbed directly by United. 8. CUSTOMER SERVICE TRAINING On a schedule, at a place, to an extent, for a number of persons, and in a manner determined by United, United will provide training for Contractor's instructors - ----------------------------- *Confidential Treatment Requested 9 that United deems sufficient to permit Contractor's instructors to be able to provide and train others to provide customer services for Contractor's United Express Services. Contractor will have no obligation to pay United for such training. However, Contractor agrees to adhere to the United Express Standards of Service as outlined in APPENDIX H for all Customer Service of their United Express flights. C. COMMUNICATIONS 1. TELEPHONE AND DATA LINES United, at its expense, will provide and maintain or arrange for the provision of reservations telephone lines connecting the cities served by Contractor in connection with Contractor's United Express Services with United's Reservations Centers. United, at its expense, will establish, operate and maintain or arrange for the provision of the data circuits from Contractor's airport ticket offices and other selected locations linking the United-approved data processing equipment at those locations with Apollo Services. United, at its expense, will also provide and arrange for Contractor's SOC Communication with Apollo Services. United will determine, at its sole discretion, the necessity and feasibility of installing all such communications equipment. All other telephone expenses, such as Contractor's long distance expenses shall be borne by Contractor as a station operating expense. 2. PROTECTION OF CIRCUITS Contractor will take all necessary precautions to protect the data circuits provided for Contractor's use pursuant to this Agreement by United or its designee. D. RESERVATIONS 1. RESERVATIONS FUNCTIONS United agrees to provide, at its expense, the following reservations functions for Contractor's United Express Services: a. Answering reservations telephones, providing information regarding schedules and fares, making bookings and providing other services normally associated with airline reservations services in accordance with United's established procedures. b. Providing personnel so that telephone calls are answered at a service level determined by United. c. Answering all calls terminating on specified telephone lines as United or United Express, at United's option. d. To the extent practicable, re-accommodating and notifying passengers of confirmation on United, Contractor and other airlines and clearance from wait-list. e. Reviewing and processing inbound prepaid ticket advices. 10 f. Providing reservations services to the hearing impaired via a special telephone number during normal business hours. 2. APOLLO SERVICES ACTIVITIES Contractor agrees to use Apollo Services for the following activities for Contractor's United Express Services, which are to be provided by United: a. Establishment, maintenance, display and change of passenger name records (PNRs). b. Confirmation of passengers against seat inventory on Contractor's United Express Services and United's scheduled flights and on other airlines where flight availability is maintained in Apollo Services. c. Maintenance of seat availability for Contractor's United Express Services scheduled flights. d. Transmission of availability status messages (AVS) for Contractor's United Express Services scheduled flights to other airlines with which United has an agreement in accordance with Standard Industry Passenger Procedures (SIPP). e. Process inbound reservations messages received from ARINC addressed to Contractor. f. Routing of all inbound messages received from ARINC, other than as stated in ARTICLE III.A.1.d above, to a computer message queue. 3. CRS FEES Computer Reservations System ("CRS FEES") charged to Contractor as a result of passengers booked on Contractor's United Express will be passed through to United without markup and subject to invoice audit by United. As soon as possible, United shall pay such CRS fees on behalf of Contractor. E. OPERATIONS 1. SCHEDULED SERVICE UPDATE Contractor will provide accurate updates of its flights' planned and actual departure and arrival times (including updates of irregularities) in Apollo Services as soon as the planned flight schedule is changed and the flight departs and arrives or suffers an irregularity. Specifically, this includes updating the out, off, on and in times for the aircraft within * minutes of the occurrence of each event. In the event of flight delays, cancellations or other schedule irregularities affecting Contractor's United Express Service flights, and as soon as information concerning such irregularities is available, - ----------------------------- *Confidential Treatment Requested 11 Contractor shall update Apollo Services to reflect such information and, when requested by United, notify the designated United organization. For delayed flights, Contractor shall provide updates to Customers and Apollo in no less than * minute intervals. For purposes of this Agreement, such scheduled and actual departure and arrival and irregularity information shall be known as "FLIFO." United will notify Contractor in writing as soon as practicable after United determines that Contractor has failed to update FLIFO in a timely and accurate manner. If Contractor fails * times in any consecutive * period (the "FLIFO THRESHOLD") to update FLIFO in a timely and accurate manner as soon as it becomes evident to Contractor that a schedule deviation shall take place, then upon notification by United to Contractor, Contractor shall pay United damages of * for each occurrence over and above the first * occurrences during such *. United agrees to bill Contractor any amount owed under this Section within * after the end of each calendar * period during which Contractor has exceeded the FLIFO Threshold. Such damages shall be United's exclusive remedy for Contractor's non-compliance with this paragraph and may be collected by setoffs against other amounts owed by United to Contractor hereunder. 2. NO FLIGHT DISPATCH DUTY Contractor will be solely responsible for, and United will have no obligations or duties with respect to, the dispatch of Contractor's flights. For the purposes of this ARTICLE 2, the term "dispatch" will include, but will not be limited to, all planning of aircraft itineraries and routings, fueling and flight release. 3. COMPLIANCE WITH STATUTES Contractor hereby represents, warrants and covenants that all air transportation services performed by it pursuant to this Agreement or otherwise will be conducted in full compliance with all applicable statutes, orders, rules and regulations, whether now in effect or hereafter promulgated, of all governmental agencies having jurisdiction over Contractor's operations, including, but not limited to, the Federal Aviation Administration ("FAA") and the Department of Transportation ("DOT"). Contractor's compliance with such governmental statutes, orders, rules and regulations will be the sole and exclusive obligation of Contractor and United will have no obligation, responsibility or liability, whether direct or indirect, with respect to such matters except as otherwise expressly provided herein. Additionally, Contractor will comply during the term of this Agreement with the United/United Express Safety Standards, as described on APPENDIX G. 4. WEATHER INFORMATION SERVICE From time to time and upon the request of Contractor or its flight crews, United may furnish Contractor's flight crews with such U.S. Weather Bureau information or data as may be available to United; provided that (i) in furnishing any such weather information or data to Contractor, neither United nor its employees or agents will be - ----------------------------- *Confidential Treatment Requested 12 responsible or liable for the accuracy thereof and, (ii) any and all costs or expenses associated with such weather information or data are carrier controlled costs and will be paid by Contractor. 5. FLIGHT INTERRUPTION MANIFESTS Contractor shall use United FIMS to rebook customers who are denied boarding on any United Express flight. Contractor's Customer Service employees shall rebook the customer based on the ticketed class of service. If Contractor's employees upgrade the customer inappropriately, United will bill Contractor for the incremental cost of the upgrade. Contractor shall use reasonable best efforts to rebook customers on United code share (e.g. US Airways) or Star Alliance partner flights provided it does not seriously inconvenience the passenger. 6. DIVERSIONS United will pay Contractor under the terms of this Agreement for all Contractor United Express diverted flights that are completed within * hours of the scheduled arrival time. The cost of busing will be borne by the Contractor at all times and is not reimbursable by United. Contractor will use its best efforts to assure that no bus segment exceeds * as defined in the Apollo mileage database. In the event a diverted flight is not completed within the * hour time frame, United will pay Contractor for the originally scheduled departure provided that both of the following conditions apply (i) the diversion is outside of the control of Contractor and (ii) the destination airport was open for FAR Part 121 flights at the time of departure and forecasted to be open at the time of arrival. Contractor will pay for any repositioning costs, which costs shall not be reimbursable by United. Upon request by United, Contractor and United agree to meet to discuss opportunities to reduce the number of Contractor diversions and costs associated with such diversions. 7. GROUND DELAY PROGRAM Contractor will participate in United's ground delay program, which stipulates that United may request Contractor to cancel, and Contractor shall cancel, flights to free ATC slots at a hub when the FAA or United's Station Control Center has initiated a Ground Delay Program ("GDP"). For cancellations requested by United as part of the GDP, and in accordance with ARTICLE VIII, United shall pay Contractor only a portion of the amounts normally due had the flights not been cancelled. For flights cancelled under the GDP program, United will pay Contractor only the *. No payments will be made with respect to the * that correspond to * in these categories. The Ground Delay Program will not affect payments in the following three categories unless specifically included above: *. 8. STATION OPERATIONS CENTER (SOC) - HUB LOCATIONS - ----------------------------- *Confidential Treatment Requested 13 At United's request, Contractor shall provide adequate staffing in the United Airlines SOC of each designated hub city at United's request. If the number of departures in any single hub exceeds * per day, Contractor will provide, at Contractor's expense, a full-time representative at United's request. Such staffing will be provided during all normal hours of operation. If the number of daily departures does not exceed * per day, then Contractor will provide a point of contact and make a representative available on a limited basis as requested by United. F. STATION SUPPORT SERVICES United will provide or cause to be provided, at its expense, to Contractor certain support services as set forth on APPENDIX C, at the United Locations and Joint Locations set forth in APPENDIX B; provided that United shall have the right to add, delete or otherwise modify the services described on APPENDIX B if United provides Contractor with * prior written notice of such modification; provided, however, United shall use commercially reasonable efforts to notify Contractor with * prior written notice. United agrees to reimburse Contractor only for * incurred by Contractor as a result of a United requested location change within a current station under this Section. *. At Contractor Locations, Contractor will provide or cause to be provided at least those services and facilities set forth in APPENDIX C. All such station support services will be provided as of the Effective Date unless otherwise stated. G. TARIFFS AND SCHEDULE PUBLICATION 1. GENERAL United shall have the sole right and power to establish and modify, from time to time, the fare/rate classes and fare/rate levels (including through fares) and fare/rate descriptions for all Contractor's United Express Services in the city pairs operated by Contractor under this Agreement, in a manner consistent with pricing (including joint fares) established by United. United shall comply with applicable governmental regulations pertaining to public disclosure of fares, rates and rules tariffs and shall pay for any fines or civil penalties incurred by Contractor as a result of violations by United thereof, and for the cost of defense of such claims of violations including the cost of defending or negotiating the terms of a consent order or decree. 2. PASSENGER FARE TARIFFS a. All passenger fare tariffs published for Contractor's United Express Services shall be included as part of United's tariffs. b. Contractor shall notify the Airline Tariff Publishing Company or any successor company performing the same or equivalent services ("ATPCO") that United is authorized to supply, modify or withdraw such rates with ATPCO. United may file changes to such fares from time to time with ATPCO as UA fares. - ----------------------------- *Confidential Treatment Requested 14 3. AIR FREIGHT AND MAIL RATES For all markets operated by Contractor under this Agreement, United shall have the sole right and power to establish and modify from time to time all air freight and cargo rates and mail rates covering mail, general commodity, small package delivery (SPD) and priority air freight shipments and all other air transportation services (other than mail delivery) for Contractor's United Express Services in these markets. All such airfreight rates for Contractor's United Express Services shall be included as part of United's airfreight and cargo rates tariffs. Contractor shall notify ATPCO that United is authorized to supply, modify or withdraw such rates with ATPCO. 4. TIMETABLES United will reflect Contractor's United Express Services in computerized reservations systems, United's internal reservations system and Contractor's United Express Services flight connections to United will be listed as UA connections. United will provide information such that references in computerized reservations systems, United's internal reservations system and joint city timetables to Contractor's United Express Services will also contain notations indicating that such services are performed by Contractor as an independent contractor under the appropriate United Marks. A similar notation will be made in the OAG or any successor publication commonly used by the airline industry for the dissemination of schedule information. Such notations shall comply with all applicable regulations of DOT. H. SALES SETTLEMENT 1. PAYMENTS TO UNITED Contractor will wire transfer to United an amount equal to Contractor's Total Net Sales Receipts collected at all Contractor Locations. "TOTAL NET SALES RECEIPTS" equals total gross sales receipts for all passenger tickets, airway bills, cargo bills, mail fees, reimbursement for operational denied boarding and other tickets issued by Contractor for Contractor's United Express Services (less refunds thereon paid out by Contractor), collected by Contractor during the applicable period. The frequency of the wire transfer will be *, for all Total Net Sales Receipts collected during the preceding *. Contractor's wire transfer will be made by 11:00 a.m. local time to the following bank account: Bank One 1 Bank One Plaza Chicago, IL 60670 * Contractor will also require its employees and agents to forward to United, on a daily basis, all auditors ticket coupons, airway bills, cargo bills, lift documentation, reports, exchange orders and refund detail issued by Contractor in connection with Contractor's - ----------------------------- *Confidential Treatment Requested 15 United Express Services during the previous day in accordance with the sales and reporting procedures specified by United. 2. SET OFF AMOUNTS In addition to the terms of ARTICLE VIII and the other provisions hereof, but subject to the terms of ARTICLE XIII, the payment for transportation furnished by Contractor may be reduced in order to set off: a. amounts owed by Contractor to United for: (i) actual loss of revenue resulting from a failure on the part of Contractor to properly effect a sale pursuant to United's Customer Service Policies and Procedures applicable to the sale of tickets; and (ii) fraudulent, grossly negligent or erroneous acts of employees of Contractor which cause United to suffer a loss; b. such other adjustments as may be mutually agreed to by the parties from time to time; and c. any other undisputed amounts owed by Contractor to United under this Agreement. United will provide Contractor with supporting documentation for such intended adjustments. Contractor shall have the right to object to any such adjustment by providing United with written notice of its objection, together with supporting documentation, within * after its receipt of Contractor's objection. United agrees to negotiate in good faith with Contractor in order to resolve all such disputes within * after its receipt of Contractor's supporting documentation. 3. MODIFIED PROCEDURES United and Contractor by mutual written agreement may establish alternative or modified passenger sales procedures in order to accommodate tickets and exchange orders issued by air carriers which are not participants in the Airline Clearing House, Inc. ("ACH"). 4. AUDITS During the course of this Agreement, United, or an outside 3rd party contracted by United, may conduct one (1) on-site audit of all records (including, but not limited to, work papers of accountants) pertaining only to Contractor's United Express operations. This will include, but is not limited to, (i) tickets, air way bills, cargo bills, exchange orders, refunds and other records relating to sales and refund activity pertaining to Contractor's United Express Services and (ii) all financial records related only to - ----------------------------- *Confidential Treatment Requested 16 Contractor's United Express Services pertaining to the actual costs for services provided by Contractor to United as well as the calculation of the rates and margin payable to Contractor related to Contractor's United Express Services. Notwithstanding the foregoing, at any time, United, or an outside 3rd party contracted by United, may conduct on-site audits of all records (including, but not limited to, work papers of accountants) relating to Pass Through Costs pertaining to Contractor's United Express Services. I. ADVERTISING AND PROMOTIONS 1. TRAVEL CERTIFICATE PROGRAM United will allow Contractor to accept, and Contractor agrees to accept, United/United Express Amenities, Promotional Discount(s) and/or Free Travel Certificates on Contractor's flight segments, whether or not in conjunction with a United flight segment. 2. RIGHT TO ADVERTISE USING MARKS To the extent Contractor is licensed to use the Marks, Contractor may in its capacity as a United Express Carrier and at its sole expense, with no reimbursement from United, use the marks to advertise Contractor's United Express Services. However, any and all such advertisements using one or more of the United Marks will identify United as the owner of those United Marks (including in any state company name registrations required of Contractor), and to the extent that any Mark is registered, will so specify. Notwithstanding the above, no advertisement, solicitation, document or other material using any United Mark will be published or otherwise promulgated without United's prior inspection and approval. No advertising that relates in any way to United, United Express or Contractor's United Express Services will be placed by Contractor with an outside advertising agency unless United has given its prior consent regarding copy, layout and the specific media plan. In addition, where United has agreed to share the costs of any such advertising, Contractor will obtain the prior consent of United regarding the funds to be expended for such advertising. 3. PRIOR APPROVAL OF UNITED Contractor agrees that it will not use (or attempt to register) any United trade name or service mark, including, but not limited to, the names "UNITED AIR LINES, INC.," "UNITED AIRLINES," or "UNITED," or United's logo in any advertising, or other document or material without first obtaining United's prior approval of each such use. J. AUTOMATION 1. USE AND PROTECTION Contractor will use internal United Apollo Services automation. Contractor agrees to comply with and abide by all terms and restrictions imposed by United on the use of Apollo Services and associated Automation Equipment, as defined below. 17 Contractor agrees that all instructions, procedures and manuals provided by United in connection with Contractor's use of Apollo Services and Automation Equipment ("AUTOMATION INFORMATION") are and will remain the property of United. Contractor acknowledges that Apollo Services contains software that is confidential and proprietary information of United or its affiliates (such as Galileo International) or any successor thereto. Contractor further agrees that it will not (or cause any third party to) duplicate, copy or otherwise reproduce any such software or Automation Information or furnish or disclose any such software or Automation Information to any other party or to Contractor's employees other than such employees who have a need to know and who are aware of and understand the confidential and proprietary nature of the software and Automation Information. 2. INSTALLATION AND TRAINING United shall install or cause to be installed a minimum of one terminal plus associated equipment for printing messages, data, air tickets, boarding passes and baggage tags ("AUTOMATION EQUIPMENT") at Contractor's airport locations and selected administrative locations. United will determine, in the exercise of its sole discretion and judgment, the necessity and feasibility of installing and upgrading Automation Equipment, so long as the quantity and quality of Automation Equipment installed at Contractor's airport locations are sufficient to permit Contractor to satisfy the standards for Contractor's United Express Services under this Agreement. Any and all modifications, enhancements, improvements or developments pertaining to the Automation Equipment, or other new related technology, may be made available to Contractor by United, in its sole discretion, under terms and conditions to be determined by United on a case-by-case basis. United will train Contractor's instructors, as applicable, in the proper use of Apollo Services and Automation Equipment as described in the Customer Service/Reservations Handbook or any other related United guidelines. Contractor agrees to establish a training program with internal instructors. Only qualified personnel who have satisfactorily completed a United prescribed training program will be permitted to operate any Automation Equipment (hereinafter "DESIGNATED USERS"). United may, at its discretion, monitor or test the proficiency level of Designated Users. If United determines that their proficiency levels are insufficient for the proper use of the Automated Equipment or Apollo Services, then Contractor must arrange for its Designated Users to undertake any further training which United determines necessary to bring such Designated Users to the desired proficiency level. 3. STANDARDS OF USE a. To maintain an effective interconnection between Apollo Services and the Automation Equipment and to prevent misuse thereof, Contractor agrees that Apollo Services and the Automation Equipment will be used and operated (a) in strict accordance with operating instructions provided by United or its affiliates in the Customer Services Policies and Procedures, United's Computer Security Regulations (Series 5-18), and any other related United or affiliate guidelines, and (b) solely for the performance of the specific business functions designated by United. Any undesignated business use and all non-business uses are strictly prohibited. Prohibited uses include, 18 but are not limited to, personal messages, servicing subscribers, travel agencies, or any other third party, training any other party or any other use designated as prohibited in the Apollo Services Manual. Contractor will maintain a list of all employees and agents who have access to Apollo Services and their assigned file numbers and passwords. United may at any time deny access to Apollo Services to any employee of Contractor if such employee is found by United to have abused Apollo Services or the Automation Equipment. Contractor will take all precautions necessary to prevent unauthorized operation or use of Apollo Services and the Automation Equipment. b. Contractor will not alter or change the Apollo Services display as provided by United or its affiliate without the written consent of United. Contractor may not provide Apollo Services or its database to any other person or entity without the written consent of United. c. Except as expressly permitted in this Agreement or other written agreement with United, Contractor will not cause any Apollo Services (including, but not limited to, its software, data bases, intellectual property, and customer information) to be used (as a basis for any software development or otherwise), commercially exploited, copied, redistributed, retransmitted, published, sold, rented, leased, marketed, sublicensed, pledged, assigned, disposed of, encumbered, transferred, or otherwise altered, modified or enhanced, without the express written permission of United. d. Contractor will not engage in any speculative booking or reservation of space for any airline, hotel, rental car company, or any other vendor's service or product available through Apollo Services. 4. MAINTENANCE, REPAIR AND MODIFICATION a. United will provide or cause to be provided to Contractor repair and maintenance services required for the Automation Equipment at United's expense. To maintain an effective interconnection between the Automation Equipment and Apollo Services and to preserve the functional integrity of the Automation Equipment, neither Contractor nor any third party, other than a third party designated by United, will perform or attempt to perform maintenance, repair work, alterations or modifications, of any nature whatsoever, to the Automation Equipment. Contractor will provide free positive space travel on Contractor's flights for United's Computer Terminal Technicians or replacements when such travel is for the purpose of repairing Apollo Services or any Automation Equipment. b. Contractor will reimburse United for the costs of any such repairs or maintenance attributable to Contractor's willful misconduct, gross negligence, or persistent, negligent acts or omissions. c. United or its designee will have the right to enter upon any Contractor location during Contractor's business hours for the purpose of monitoring Contractor's operation of the Automation Equipment and Apollo Services, inspecting the Automation Equipment, performing such repairs or maintenance as may be necessary or removing the 19 Automation Equipment; provided, however, that United will not during the course of such monitoring, inspection, repair, or removal unreasonably interfere with Contractor's business. 5. DOWNTIME United will notify Contractor of any scheduled or pre-announced downtimes of Apollo Services. 6. NO WARRANTY; RELEASE a. UNITED MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE AUTOMATION EQUIPMENT OR APOLLO SERVICES. b. CONTRACTOR HEREBY WAIVES AND RELEASES UNITED AND ITS AFFILIATES, AND THEIR SUCCESSORS FROM ANY AND ALL OTHER OBLIGATIONS AND LIABILITIES AND ALL RIGHTS, CLAIMS AND REMEDIES OF CONTRACTOR AGAINST UNITED OR ITS AFFILIATES, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, DUE TO ANY DEFECTS, ERRORS (INCLUDING, WITHOUT LIMITATION, ANY ERRORS IN RESERVATIONS AVAILABILITY RECORDS), MALFUNCTIONS OR INTERRUPTIONS OF SERVICE TO APOLLO SERVICES OR THE AUTOMATION EQUIPMENT, INCLUDING ANY LIABILITY, OBLIGATION, RIGHT, CLAIM OR REMEDY IN TORT, AND INCLUDING ANY LIABILITY, OBLIGATION, RIGHT, CLAIM OR REMEDY FOR LOSS OF REVENUE OR PROFIT OR ANY OTHER DIRECT, INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES. 7. OWNERSHIP AND LIENS It is understood and agreed that: (i) all Automation Equipment will remain the sole property of United; (ii) Contractor will not remove any identifying marks from any Automation Equipment; (iii) Contractor will not subject the Automation Equipment to any lien or encumbrance; and (iv) Contractor will return the Automation Equipment to United immediately upon the termination of this Agreement. K. OTHER SUPPLIES 1. Contractor will pay United, for United's * for all forms, documents, papers and supplies which are required in the normal course of Contractor's United Express Services under this Agreement and which are furnished by United or its designated vendors including; a. Baggage tags and ticket wallets at Joint Locations and United Locations, and - ----------------------------- *Confidential Treatment Requested 20 b. Passenger ticket stock, city timetables, United airway bills, United cargo bills and other shipping documentation at Contractor Locations, United Locations and Joint Locations. 2. Contractor will provide and only use United's flight interruption manifests, unless directed to do otherwise, for the rerouting of passengers resulting from denied boarding or the delay or cancellation of Contractor's United Express flights. 3. United shall issue an invoice to Contractor for all supplies purchased from United, however such expenses shall be paid through the ACH and the invoice to Contractor will be net of cash received by United via ACH. L. CONTRACTOR ASSISTANCE Contractor will furnish United with all information in Contractor's possession or that can be reasonably produced by Contractor that United may require to carry out the services and functions contemplated by this ARTICLE III. IV. AIR SERVICES TO BE PROVIDED BY CONTRACTOR A. SCHEDULES AND CHARTERS TO BE OPERATED BY CONTRACTOR 1. UNITED EXPRESS SCHEDULE a. Commencing on the Effective Date of this Agreement, Contractor will provide Contractor's United Express Services in the markets determined by United. At least * prior to the start of operations, United will provide an initial list of city pairs and flight schedules. Contractor and United will determine a mutually viable ramp-up plan for implementation of service. United acknowledges that other contractual restrictions limit Contractor's ability to provide United Express service in Phoenix, Arizona. b. Subsequently, United will provide at least * notice of any planned schedule changes. United may under extraordinary circumstances provide less than * notice on city pairs to be served, which Contractor shall use reasonable efforts to accommodate. c. United agrees that all flight schedules for Contractor's United Express Services will provide sufficient aircraft routings to ensure Contractor's ability to rotate aircraft in and out of its current or future maintenance bases for required line maintenance at no additional cost to United. United acknowledges Contractor may require additional maintenance facilities to accommodate its maintenance requirements. These facilities, if constructed, will result in no additional expense to United. 2. CODE SHARE LIMITATION - ----------------------------- *Confidential Treatment Requested 21 As of the date of this Agreement, but subject to Contractor's existing contractual code-share agreements, Contractor represents that it does not plan, nor will it, operate pursuant to a marketing or code share relationship in a hub operation with any party other than United at the following airports: * for the term any binding Agreement. Contractor may, however, fly to aforementioned airports under codeshare or marketing relationships from another carrier's hub (other than from aforementioned airports) as a `spoke service'. In the event that Contractor acquires another entity during the course of this agreement with marketing or codeshare operations at any of the aforementioned airports, United agrees to allow Contractor to continue operations at such airports at levels of operations consistent with the acquirees right of operation at the time of acquisition. In addition, Mesa will use commercially reasonable efforts to amend its existing contractual commitments to provide for the above Codeshare Limitations. 3. UNITED SCHEDULE CONSENT REQUIRED United hereby gives its consent for Contractor to operate its scheduled air service as a United Express carrier only between the cities mutually agreed upon by Contractor and United. Such city pairs may be changed or withdrawn by United from time to time subject to (i) a minimum of * prior written notice to Contractor, and (ii) compliance with any regulatory requirements with respect to service to affected airports. Contractor will ensure that any of its requests for changes in the use by Contractor of the "UA" or "UA*" code on future routes or in the flight frequencies or city pairs, or any of them, as operated or served by Contractor (whether necessitated by altered connections, operating experience or other reason) must be submitted to United at least * prior to the effective date of such change. All such changes must be approved in advance by United. The requests for such changes, and the approvals thereof, must be made in writing, by mail, facsimile, telegram, telecopy or other electronic message transmittal. If upon review of Contractor's request, the parties mutually agree to make a Contractor requested change, and the automation equipment needed to implement the change is available, then such change will be made as soon as reasonably practicable within the aforementioned * period. Within the operating capability of the aircraft used by Contractor, as described in ARTICLE IV.B, and subject to the provisions with respect to changes in city pairs as provided above, Contractor will comply with all requests by United to increase, decrease or in any other way adjust or terminate the flight frequencies or city pairs, or both, as operated and served by Contractor pursuant to this Agreement. 4. CHARTER Contractor shall be prohibited from providing charter flights in any aircraft used in Contractor's United Express Services, without the prior written consent of United, which consent shall not be unreasonably withheld. Contractor shall be permitted to retain all revenues from such approved charters. However, Contractor agrees to pay United a fee of $* per block hour for use of any chartered RJ-50 aircraft, $* per block hour for use of any chartered RJ-70 aircraft, and $* per block hour for use of any chartered TurboProp aircraft covered under this Agreement (both United liveried and - ----------------------------- *Confidential Treatment Requested 22 spare aircraft). However, in the event that the charter is for a legally registered, 501-(C)(3) (not for profit) charity, Contractor agrees to provide in writing to United the name of the charity and United agrees to waive the entire per block hour fee for up * annual round trips, in the aggregate of charities. In the case of each such charter, Contractor hereby agrees that it will not (and it will not permit others to) operate, promote or otherwise market the charter under the United Express name, the UA or UA* designator code or any other United Marks or identification (excepting only the unavoidable use of United Express liveried aircraft and permanent airport signage). Contractor shall provide written notice to United of any charter flight using aircraft used in Contractor's United Express Services prior to the later of (i) the * prior to the date of such charter flight or (ii) * business days after Contractor's receipt of the request for such charter flight. Contractor agrees not to provide any charter flight using aircraft used in Contractor's United Express Services if United provides written notice to Contractor stating that United elects to require that Contractor not provide such charter flight, so long as Contractor receives United's notice prior to the * business day after United's receipt of Contractor's notice. 5. CHANGES INPUT TO RESERVATIONS SYSTEMS Changes to Contractor's schedules as set forth in this ARTICLE IV and which otherwise are in accordance with the terms and conditions of this Agreement will be submitted by Contractor for input into United's internal reservations system and computerized reservations systems. At no time may Contractor make any changes to flights operated by United or any other carrier. 6. OPERATING COMMITMENT Contractor agrees to operate Contractor's United Express Services in order to provide air transportation services scheduled pursuant to this ARTICLE IV. (as modified from time to time) throughout the term of this Agreement. B. AIRCRAFT TO BE USED 1. AIRCRAFT TYPES. Unless otherwise agreed by United, Contractor will provide Contractor's United Express Services with the type and amount of aircraft set forth in APPENDIX A and under the terms and conditions of ARTICLE II.B.2. The aircraft will be scheduled, taking into account heavy scheduled maintenance requirements and the spare ratio indicated in ARTICLE IV.B.2 below unless otherwise outlined in APPENDIX A. 1. In accordance with the terms and conditions of this Agreement, Contractor is authorized to fly the following aircraft under Contractor's United Express Services: - ----------------------------- *Confidential Treatment Requested 23 a. * BOMBARDIER DASH-8-200 aircraft, which Contractor shall cause to be delivered in a consistent with APPENDIX A and under the terms and conditions of ARTICLE II.B.2; b. INITIAL * CRJ-700 aircraft, which Contractor shall cause to be delivered in a timeline consistent with APPENDIX A and under the terms and conditions of ARTICLE II.B.2; c. * CRJ-200 aircraft, which Contractor shall cause to be delivered in a timeline consistent with APPENDIX A and under the terms and conditions of ARTICLE II.B.2; d. * REPLACEMENT CRJ-70S aircraft, which Contractor shall cause to be delivered in a timeline consistent with APPENDIX A and under the terms and conditions of ARTICLE II.B.2; e. Options on another * RJ-50s and/or RJ-70s to be delivered pursuant to a mix and delivery schedule to be agreed upon by Contractor and United. 2. TECHNICAL SPECIFICATIONS a. The aircraft and any replacement aircraft utilized by Contractor pursuant to this ARTICLE IV.B will bear those United Marks which are expressly designated by United, whether included on APPENDIX A or otherwise established by United. United acknowledges for operational reasons Contractor may operate one Contractor TurboProp white tail aircraft under this Agreement. Any white tail aircraft covered in this Agreement shall be used solely for United Express service unless another aircraft of equal or greater capability and capacity is substituted for the white tail. If the substitution is expected to exceed * days, Contractor shall provide written notice thereof to United. Technical specifications covering aircraft colors, schemes, United Marks and other elements of exterior and interior aircraft decor will be provided to Contractor by United. Except as provided herein, Contractor will have all aircraft used to provide Contractor's United Express Services painted and decorated with the exterior and interior color decors and patterns specified by United at Contractor's sole expense. In accordance with the technical specifications referenced in this ARTICLE IV.B.1, Contractor will be responsible for maintaining all of its aircraft. b. In addition to the use of the United Marks on its aircraft, Contractor will use and display a suitable sign or insignia on the exterior of its aircraft that identifies Contractor as the operator of the services being provided pursuant to this Agreement. The use and display of such sign or insignia will be subject to the prior written approval of United as to its nature, size and location on Contractor's aircraft. 3. AIRCRAFT COMMUNICATIONS ADDRESSING AND REPORTING SYSTEM -ACARS. i. TURBOPROPS: Contractor is required to use an ACARS system on all United Express regional jet flights for the purpose of providing timely and accurate Flight - ----------------------------- *Confidential Treatment Requested 24 Information (FLIFO). All aircraft delivered on or after * must be delivered with ACARS already installed. *. ii. REGIONAL JETS: Contractor is required to use an ACARS system on all United Express regional jet flights for the purpose of providing timely and accurate Flight Information (FLIFO). *. For each month and each aircraft that Contractor fails to install ACARs in accordance to the timeline described in this ARTICLE IV.B.3, Contractor shall pay to United a sum of $* per aircraft per month. Such payment shall be made as an offset to the monthly reconciliation process. 4. SPARE AIRCRAFT. TURBOPROPS: Pursuant to this Agreement, a spare or substitute turboprop aircraft shall be allocated from the aircraft fleet referenced in Article IV.B.1 such that the ratio of "aircraft in schedule" divided by "aircraft in fleet" shall not exceed *, unless otherwise indicated in Appendix A. This is equivalent to a * spare for every * turboprop aircraft. Such spare aircraft can be used as a last resort to accommodate passengers and may not be branded in the interior or exterior with the United Express decor or patterns at the discretion of Contractor. REGIONAL JETS: Pursuant to this Agreement, a spare regional jet aircraft shall be allocated from the aircraft fleet referenced in Article IV.B.1 such that the ratio of "aircraft in schedule" divided by "aircraft in fleet" shall not exceed * for all jets (RJ50s and RJ70s combined). This is equivalent to * spare for every * regional jet aircraft (RJ50s and RJ70s combined). For the purpose of determining when the operational spare shall enter into service, Contractor shall have at least * of the * aircraft required for each spare in service, unless otherwise determined by United. In other words, the first and second spare can not enter service before the * or * aircraft, respectively. All Regional Jets, including spares, must be branded in the interior and exterior with United Marks and decor. MAINTENANCE SPARES: From time to time, Contractor may require an additional aircraft removed from schedule for heavy maintenance. Contractor agrees to use commercially reasonable heavy maintenance schedules and agrees to advise United at least * prior to heavy maintenance commencing for each aircraft. 5. SUBSTITUTE AIRCRAFT: In addition to the aircraft authorized by Article IV.B.1 above, if requested by United, Contractor will use reasonable efforts to arrange for and make available for its use such substitute aircraft as are required to effectively maintain Contractor's United Express Services. If Contractor is unable to operate any flights in its schedule for Contractor's United Express Services with aircraft bearing United Marks, Contractor will notify United of such event and the circumstances of Contractor's inability to so operate and Contractor will be permitted to operate an aircraft - ----------------------------- *Confidential Treatment Requested 25 bearing different elements of aircraft decor than those specified above. If such operations extend beyond a continuous * period, Contractor must seek and obtain United's approval for such aircraft substitutions; provided that if Contractor purchases or leases a used aircraft that does not contain appropriate United Marks, Contractor will notify United and Contractor may, with the approval of United, operate such aircraft, so long as such aircraft does not display the brand name or trademark of any other air carrier (other than Contractor). 6. MARK CHANGE: United may from time to time change the Marks to be used for United Express Carriers. At any time during the term of this Agreement, and in the sole discretion of United, Contractor may be required to use such new or different Marks, external or internal color decors and patterns on its aircraft and uniform design as United may determine and to discontinue use of old marks, external and internal color decors and patterns, and uniform designs. Upon written notice from United, which will include the specifications for any such changes in Marks or exterior or interior aircraft decor and patterns or uniform designs, Contractor will effect such changes in accordance with the schedule mutually agreed to by the parties. United will pay all costs incurred in complying with the requirements established in this paragraph. C. INVENTORY United will have the sole right to use, set and control availability, levels and use of all seat inventory for the aircraft used by Contractor in Contractor's United Express Services. United will take all revenue and inventory risk and will maintain inventory and pricing responsibility. Contractor is prohibited from providing positive space leisure travel, or any other confirmed leisure travel that requires removal of a seat from inventory, to any person other than the positions outlined in APPENDIX J, on Contractor's United Express flights without the prior written consent of United. All positive space and leisure travel must be ticketed on United approved ticket stock with Contractor's full IATA serial and ticketing numbers. Positive space travel is permitted for Contractor's and United's employees for actual business purposes, including deadheading flight crews, and for Contractor's employees and Eligibles in emergency situations only. Contractor may not issue positive space business travel to anyone other than Contractor's own employees. If in any way whatsoever Contractor issues tickets in violation of this provision in any form, within * years of each such violation, Contractor may be billed via the ACH, and Contractor will pay United, the full unrestricted fare for the class of service provided on such route for any such inappropriate ticketing. D. FLIGHT CREWS TO BE USED 1. FLIGHT CREW - ----------------------------- *Confidential Treatment Requested 26 All of Contractor's United Express Services will be operated with crews consisting of a captain or pilot, and a first officer or co-pilot. All such crew members will at all times meet all currently applicable governmental requirements, as such requirements may be amended from time to time during the life of this Agreement, and will be fully licensed and qualified for the services to be performed hereunder. In addition, each of Contractor's captains will hold a current Airline Transport Pilot Certificate and all Flight Crews to be used in United Express service must be qualified to fly between all city pairs on the Effective Date of this Agreement. Crewmembers will also meet all requirements imposed by the insurance policies that are to be maintained pursuant to ARTICLE XII. 2. FLIGHT ATTENDANTS. Contractor's flight attendants will at all times possess all necessary training and meet all currently applicable governmental requirements, as such requirements may be amended from time to time during the life of this Agreement. E. INFLIGHT SALES Contractor may, at United's request, be required to sell beer, liquor and other goods on flights included in Contractor's United Express Service. Any additional goods or services Contractor would like to sell are subject to United's approval. Contractor agrees that such in-flight sales shall be conducted in a manner consistent with in-flight sales provided on United's flights. For beer and liquor sales only, Contractor will be solely responsible for the direct costs associated with such in-flight sales and shall be entitled to all revenues generated from such in-flight sales. For all other products, services or food put on the aircraft at United's request, United shall be responsible for the incremental costs of such products, services or food and shall be entitled to all of the revenue associated with such products, services or food. United shall use its commercially reasonable efforts to assist Contractor in securing an economical price for the in-flight items. V. OPERATING RESTRICTIONS A. UNITED EXPRESS OPERATIONS ONLY Other than pursuant to this Agreement and except as set forth in APPENDIX I, Contractor shall not, and it shall ensure that its subsidiaries do not directly engage, on its or their own behalf or on behalf of a third party, in the business of providing air transportation between any of the city pairs set forth in APPENDIX B. B. NO OPERATION OUTSIDE AGREEMENT Without the prior written consent of United, Contractor will not use any of the services or facilities (excluding maintenance service or facilities) afforded to Contractor by United to provide air transportation or related services to other carriers or affiliates of Contractor without the consent of United. Contractor will not, without United's prior written consent, permit any third party, whether under a lease arrangement or otherwise, 27 to operate any aircraft bearing the United Marks. Furthermore, Contractor shall comply with the Code Share Limitations in ARTICLE IV. C. BREACH OF OPERATING RESTRICTIONS Contractor acknowledges that United has no adequate remedy at law and would be irreparably harmed were Contractor to breach or threaten to breach the provisions of this ARTICLE V.C and, therefore agrees that United shall be entitled to injunctive relief to prevent any breach or threatened breach of this ARTICLE V.C, and to specific performance of its terms, in addition to any other legal or equitable remedy it may have; provided, further, that Contractor shall not raise the defense that United has an adequate remedy at law in any equity proceeding involving it relating to this ARTICLE V.C. VI. LICENSE A. GRANT OF LICENSE Contractor will conduct all operations described in ARTICLE IV.A above, and any additional operations undertaken by subsequent amendment hereto, under the Marks set forth in APPENDIX A or other marks designated by United pursuant to this ARTICLE IV.A and subject to ARTICLE IV.B.5. In consideration for the services to be provided by Contractor under this Agreement, United hereby grants to Contractor, upon the terms and conditions herein contained, a nonexclusive, nontransferable right and license to use the United Marks, and Contractor hereby undertakes the obligation to use the licensed United Marks in connection with the services to be rendered by Contractor under this Agreement; provided, however, that at any time during the term of this Agreement, United may alter, amend or revoke the license hereby granted and require Contractor's use of any new or different Marks in conjunction with the air transportation services provided hereunder as United may determine in the exercise of its sole discretion and judgment. B. TERMS AND CONDITIONS GOVERNING LICENSE 1. UNITED MARKS. Contractor hereby acknowledges United's ownership of the United Marks, further acknowledges the validity of the United Marks and agrees that it will not do anything in any way to infringe or abridge United's rights in its marks or directly or indirectly to challenge the validity of the United Marks. 2. SERVICE STANDARDS. Contractor agrees that, in providing services under this Agreement in conjunction with one or more of the United Marks, it will comply with all service quality standards prescribed by United ("UNITED EXPRESS SERVICE STANDARDS" OR "SERVICE STANDARDS"). United Express Service Standards include, but are not limited to, United standards for (a) aircraft types, as referenced in ARTICLE IV, (b) customer service, as set forth in United's Customer Service Policies and Procedures, (c) minimum customer 28 service training requirements consistent with United's customer service practices and procedures, (d) in-flight amenities and service, (e) aircraft appearance, (f) Ground Handling Duties, in accordance with ARTICLE III.A.3, (g) United/United Express safety programs (and Contractor will enter into any agreements relating to such programs that are similar to those offered to other United Express Carriers), (h) any other quality control measures designated by United, as such standards may be prescribed by United from time to time and (i) customer problem resolution or ("CPR"). As necessary, United will provide training to Contractor's designated instructors in the requirements of United's Customer Service Policies and Procedures; provided that United will at its expense provide a trainer and materials, and United agrees that the Service Standards prescribed by it will not be unreasonable in light of the facilities and aircraft available to Contractor. United will have the right, from time to time, to inspect Contractor's United Express Services to determine if they conform to the United Express Service Standards. In the event United determines that Contractor is not in compliance with the Service Standards United will notify Contractor and Contractor will promptly rectify any such noncompliance. Failure on the part of United to conduct such inspections will not relieve Contractor of its obligations to conform to the Service Standards. If Contractor fails to comply with any part of the Service Standards and such failure is not corrected as soon as practicable (and, in any event, within *) after Contractor's receipt of written notice of such failure from United, then United may, at its discretion, restrict or eliminate Contractor's pleasure travel privileges, or suspend Contractor's authority to serve city pair markets, or impose any other nonexclusive remedy, including breach of contract, or other remedies available to United. Other non-exclusive remedy would include, requiring Contractor to bear costs in excess of normal guidelines. The United Express Service Standards are outlined in APPENDIX H, and may be changed by United upon notice given from time to time. 3. AIRCRAFT GROUND HANDLING PROCEDURES. In addition, Contractor agrees that in providing Contractor's United Express Services, it will conform to all of its Aircraft Ground Handling Procedures. As used herein, Aircraft Ground Handling Procedures include, but are not limited to, procedures for (a) deicing, (b) handling and (c) other aircraft servicing measures, as such procedures may be prescribed by Contractor from time to time. Contractor agrees that all Aircraft Ground Handling Procedures prescribed by it will be established in compliance with all applicable federal, state, local and industry regulations as well as any additional procedures which United may prescribe from time to time. Contractor will obtain any and all necessary federal, state, local and regulatory approvals of such Aircraft Ground Handling Procedures. Once all necessary approvals are obtained, Contractor will provide a copy of its Aircraft Ground Handling Procedures to United. At each Joint Location and United Location, as necessary, Contractor will train United employees in the requirements of Contractor's Aircraft Ground Handling Procedures; provided that Contractor will provide a trainer and materials and United will pay all other expenses incurred by its employees in connection with such training. However, Contractor agrees - ----------------------------- *Confidential Treatment Requested 29 to adhere to the United Express Service Standards outlined in APPENDIX H for all Ground Handing of their United Express flights. 4. LIABILITY FOR OPERATIONS. Nothing in this ARTICLE VI.B is intended to nor will be construed so as to relieve Contractor of any liability or to impose any liability on United for Contractor's United Express Services by virtue of any of United's rights under ARTICLE VI.B.2 or ARTICLE III.A.3, whether exercised or not. 5. NON-EXCLUSIVITY. Nothing in this Agreement is intended nor will be construed to give Contractor the exclusive right to use the United Marks, or to abridge United's right to use or to license the Marks, and United hereby reserves the right to continue use of the United Marks and to license such other uses of such Marks as United may desire. 6. REVERSION OF MARKS. Upon termination of this Agreement for any reason, the right to use herein granted for the United Marks will immediately revert back to United, and Contractor will have no right to use such Marks in any way. Further, Contractor will, at its sole cost and expense immediately upon termination of this Agreement, remove all United Marks from its aircraft, its other vehicles, the uniforms of its personnel, its facilities and from any and all other places or things controlled or formerly controlled by Contractor. C. INFRINGEMENT United will, at its expense, defend, indemnify, release, protect, save and hold Contractor, its officers, directors, agents and employees harmless from and against any and all liabilities, damages, expenses, losses, claims, demands, suits, fines or judgments, including but not limited to attorneys' and witnesses' fees, costs and expenses incident thereto, which may be suffered by, accrue against, be charged to or be recovered from Contractor as a result of any third-party claim that the use by Contractor of any United Mark in accordance with the terms of this Agreement infringes a registered trademark or service mark of any third party in the United States, and will pay all costs, damages and attorneys' fees that a court finally awards as a result of such claim. To qualify for such defense and payment, Contractor must (i) give United prompt written notice of any such claim and (ii) allow United to control the defense of the claim and all related settlement negotiations and fully cooperate with United in its defense of the claim and the conduct of any settlement negotiations. United's obligation hereunder is conditioned on Contractor's agreement that if any Mark becomes, or in United's opinion is likely to become, the subject of such a claim, Contractor will not dispute that United, at its option, may either procure the right for Contractor to continue using such Mark or to replace or modify such Mark so that it becomes non-infringing. This ARTICLE VI.C states United's entire obligation to Contractor regarding infringement or the like. VII. ADDITIONAL UNDERTAKINGS 30 A. BULK PURCHASES Each party may assist the other in obtaining goods and services useful to the other party, including, without limitation, fuel, uniforms, supplies and ground equipment, in a more economical manner. If United identifies opportunities for cost savings as a result of bulk purchasing on behalf of Contractor, unless it provides a reasonable reason for not participating Contractor is obligated to participate in the new cost saving initiative. Prior to implementing such initiative, Contractor and United shall agree on a case-by-case basis how to share the benefits of any cost savings initiatives; provided, however, that absent such agreement in a timely manner and so as to preclude unnecessary delay in implementation of such initiatives, United and Contractor shall equally share any monetary savings. B. FUEL United, by or through it's subsidiaries, agents or affiliates, shall have the option to procure fuel and fuel services for or on behalf of Contractor. Contractor agrees to assist United, its subsidiaries, agents or affiliates in identifying fuel or fuel service procurement opportunities, to provide data or analysis pursuant thereto, and to enter into agreements for the provision of said fuel or fuel services, including any provisions therein, at the direction of United. United shall use its best efforts to accommodate any operational or other requirements of Contractor related to fuel or fuel services procured for or on behalf of Contractor. C. PURCHASE BY UNITED OF PASS THROUGH COST ITEMS Pass Through Purchase Rights. United reserves the right to assume the responsibility for purchasing products and services to be used as Pass Through Cost items under this Agreement by Contractor. D. UNIFORMS Contractor, at its own expense, shall pay for and require all of its Designated Personnel to wear uniforms which are in the United Express colors and styles, as approved by United, while performing Contractor's United Express Services as outlined in APPENDIX H. Contractor agrees that all such Designated Personnel employed by Contractor shall wear the above-described uniforms. Any other employees of Contractor who are visible to the public, other than Designated Personnel, will wear uniforms reviewed and approved by United, which approval shall not be unreasonably withheld. If United develops or designs new uniforms for United Express operations, United will cover Contractor's incremental costs of such new uniforms program. E. PASSES AND REDUCED RATE TRAVEL Each party will comply with the terms of a separate agreement between them under which are granted to the employees of the other party certain passes and reduced rate pleasure travel privileges. However, United has the right to retain all revenue 31 generated from reduced rate travel, including companion passes, both on United and United Express operated flights. F. SIGNAGE As of the Effective Date, Contractor will display signage advertising its operations as a United Express Carrier at all Contractor Locations and at those Joint Locations specified by United. All signage must be approved by United prior to its use by Contractor, and Contractor shall be responsible for the acquisition, installation and maintenance of all such signage. The cost of such signage shall be considered a one-time start up cost for each new station and shall be considered a Pass Through Cost to be reimbursed by United. Should United decide to rebrand or change signage requirements beyond the standards that existed on the Effective Date of this Agreement, United agrees to pay the incremental costs associated with signage changes as a Pass Through Costs not subject to Markup. G. ENVIRONMENTAL 1. With respect to all matters that relate to or may affect the environment, Contractor agrees to conduct its operations in a prudent manner, taking reasonable preventive measures to avoid environmental liabilities, including, without limitations, measures to prevent unpermitted releases to the environment. 2. Contractor agrees, at its own expense, to conduct its operations in compliance with all Environmental Laws, including all environmental rules, regulations, and policies dictated by the applicable airport authority, including ensuring its employees are trained in the procedures required to meet all Environmental Laws. United acknowledges that any Environmental Impact Studies may make it cost prohibitive for Contractor to operate to certain airports. If flying to certain airports is cost prohibitive due to Environmental Impact Studies, Contractor may refuse to fly to that specific airport. To the extent associated with Contractor's activities (including those of its agents), Contractor shall be responsible, and will indemnify United, for any and all environmental liabilities, including, without limitation, any penalties or costs associated with any enforcement action, airport authority action, or private claim, any remediation or restoration costs, any investigation costs, legal or environmental consultant costs, or any property damage costs. a. * H. START-UP COSTS With regard to Regional Jet aircraft under this Agreement, which are currently in operation with another airline today, United will pay for those interior reconfigurations or - ----------------------------- *Confidential Treatment Requested 32 decor changes requested by United. Contractor will pay for the cost of all exterior changes. I. AIRCRAFT SUBSTITUTIONS In the event that a scheduled aircraft is down-gauged to a smaller aircraft, United will pay the rates hereunder applicable to the smaller aircraft (i.e. fewer seats) that actually flies the departure. In the event that a scheduled aircraft is up-gauged to a larger aircraft, United will pay the rates hereunder applicable to the type of aircraft originally scheduled for departure for both the originating and any applicable return flight. If United requests in writing hereunder that a larger aircraft be substituted for a smaller scheduled aircraft, United will pay the applicable rates for all additional downstream substitutions that are indirectly a result of the original United requested substitution. Should such original United Express aircraft substitution result in indirect substitution downline and United is unwilling to pay for such indirect substitutions, Contractor has the right to refuse United's original request for aircraft substitution. Contractor will provide to United copies of United's requests to substitute aircraft with the normal reconciliation support materials required from Contractor under the terms of this Agreement. VIII. RATES PAYABLE TO CONTRACTOR A. RATES AS AGREED BY UNITED AND CONTRACTOR: 1. CONSIDERATION For and in consideration of the transportation services, facilities and other services to be provided by Contractor hereunder, the right of United to (i) control all aspects of inventory as described in ARTICLE IV.C, (ii) receive and retain all air fares, cargo rates and mail charges received by Contractor and United, and (iii) receive and retain all other revenue received by Contractor and United as provided in this Agreement, and other valuable consideration provided under this Agreement, United shall pay Contractor specified "*" (*) and specified "*" for the * as detailed in APPENDIX D for each aircraft type. 2. * Contractor and United agree that the * consists of the cost defined in Appendix D. All other types of expenses, not defined in APPENDIX D as * Costs, are considered and defined as *. 3. * - ----------------------------- *Confidential Treatment Requested 33 The * and * are grouped by "*" for each aircraft type in APPENDIX D. Within each *, are specific kinds or types of expenses as outlined in APPENDIX D. 4. * Each *, whether the costs are * or *, is expressed in terms of a "*." The * express the basic measurement and constitute the driver of costs for each *. Each * has a specific * as set forth in APPENDIX D. 5. * As of the Effective Date, for each aircraft type, the parties have established and agreed to a * which is the *. Hereafter, such rates shall be set in accordance with the procedures set forth herein. Except as expressly provided in this Agreement, the parties do not want to perform, and have not provided for, any additional rate changes, rate negotiations or rate setting process. 6. ANNUAL ADJUSTMENT FACTORS Effective as of each *, Contractor and United agree to increase or decrease all * within the * for the ensuing contract year by *. Contractor and United agree to review the interrupted trip expense * after execution of this agreement. If Contractor's actual uncontrollable costs are below $* per passenger, Contractor will reduce this rate to the actual cost for the remainder of this agreement. 7. CONSUMER PRICE INDEX "CONSUMER PRICE INDEX" OR "CPI" shall mean the percentage growth in the Consumer Price Index, U.S. City Average, Urban Wage Earners and Clerical Workers, All Items (base index year 1982-1984=100) as published by the United States Department of Labor, Bureau of Labor Statistics. If the manner in which the Consumer Price Index as determined by the Bureau of Labor Statistics shall be substantially revised, including, without limitation, a change in the base index year, an adjustment shall be made by the parties in such revised index which would produce results equivalent, as nearly as possible, to those which would have been obtained if such Consumer Price Index had not been so revised. If the Consumer Price Index shall become unavailable to the public because publication is not readily available to enable the parties to make the adjustment referred to in this Section, then the parties shall mutually agree to substitute therefore a comparable index based upon changes in the cost of living or purchasing power of the consumer dollar published by any other governmental agency or, if no such index shall be available, then a comparable index published by a major bank or other financial institution or by a university or a recognized financial publication. 8. EXAMPLE * - ----------------------------- *Confidential Treatment Requested 34 9. AIRCRAFT OWNERSHIP COSTS a) RJ-70S. Aircraft ownership costs on the * RJ-70s will be paid in accordance with the contract rate table in Appendix D with a Markup of *% and will not be subject to either annual escalations or adjustment based on Contractor's performance against Operating Goals. b) RJ-50S. Aircraft ownership costs for the * RJ-50s will be paid in accordance with the contract rate table in Appendix D with a Markup of *% and will not be subject to either annual escalations or adjustment based on Contractor's performance against *. c) TURBOPROPS. Aircraft ownership costs for all turboprops will be paid in accordance with the contract rate table in Appendix D with a Markup subject to adjustment based on Contractor's performance against * as a *. d) CAP. Under no circumstances will United's total ownership costs on any aircraft (actual costs) exceed $* per month for an RJ-50 or $* per month for an RJ-70. United also reserves the right to finance any aircraft allocated for United Express service. 10. CARRIER CONTROLLED COST STABILITY. Except to the extent that any Markup Points (as established in APPENDIX E) may apply and the * review of station costs after startup (not to exceed one-time per station), no other increases or additions to the * element will be made over the life of this Agreement unless provided for in APPENDIX K, except for annual CPI adjustments which shall take place on the anniversary of the Effective Date. 11. COMMERCIALLY REASONABLE EFFORTS Contractor agrees to use commercially reasonable efforts to control its * and *. Failure to use commercially reasonable efforts to control * shall be deemed as negligence on the part of the Contractor and may subject such costs to rejection of payment by United, in which event Contractor waives its rights to reimbursement of the applicable * items. The parties agree to discuss any failure by Contractor to use reasonable efforts to control * and *. 12. NON PAYMENT a. In the event of a Force Majeure or other disruption resulting in at least a * suspension of greater than *% of Contractor's United Express scheduled flights, *. In the event a permanent schedule reduction results from a disruption, *. b. In the event that Contractor operates a flight departing more than * late from the scheduled departure time with a load factor of less than *% on board, - ----------------------------- *Confidential Treatment Requested 35 Contractor shall not be reimbursed for such flight unless specifically requested to fly such segment by United. B. OPERATING GOALS United and Contractor have developed a * ("*") program ("*") that, with respect to Contractor's United Express operations, is based upon *. Contractor's performance is evaluated with respect to *. Contractor's * will be used to determine the amount of * applicable to the * pursuant to the procedures set forth herein. 1. OPERATING GOALS METHODOLOGY For * are set forth on APPENDIX E. For *, the Operating Goals shall be developed using the predetermined methodology set forth below. * for the calendar year will be established to be effective on each *. Contractor's * are determined using the following methodology based on United's * for the same periods: a. *. b. *. c. *. b. *. 2. GROUND OPERATIONS. In stations, where Contractor does not provide ground handling services for itself, performance goals as noted in Article VIII.B will be adjusted such that mishandled bag goals will not apply to those departures. Subject to United Ground Operations approval, United agrees to develop by no later than * a reasonable methodology and associated processes and procedures to identify, quantify, track and report specific incidents where non-performance of Controllable Completions and On-Time Zero departures is primarily due to the fault of the Ground Handling Provider. The aforementioned report will be shared with Contractor. To the extent that Contractor's performance in stations, where Contractor is not the Ground Handling Provider for itself, results in a one or more performance level category (categories being defined as * levels as outlined in APPENDIX E) reduction in Contractor's applicable * level for all performance metrics for more than * consecutive months and such Contractor's performance reduction is caused by the Ground Handling Provider as outlined in the aforementioned report, United agrees to provide for an equitable resolution process going forward. United agrees that after *, Contractor's performance criteria used for the purposes of any SECTION C DEFAULT will be adjusted to exclude incidents of non-performance of * and * departures primarily due to the fault of the Ground Handling Provider (as outlined in the aforementioned report). 3. * - ----------------------------- *Confidential Treatment Requested 36 Contractor's *, as defined above in Paragraph 1a-1.d and adjusted for seasonality using the * in the table in Paragraph 5 below, define the minimum performance necessary to achieve at least *. 4. PERFORMANCE GRADE WIDTHS The operating performance values for determining * Performance Levels will automatically change each year based on Contractor's *. "*" (*) remain constant and will not be changed over the duration of this Agreement. These Grade Widths are set forth in the table below, where * are the Contractor's *: * 5. EXAMPLE * 6. SEASONALITY ADJUSTMENT At the beginning of each year beginning with 2004 goals, after Contractor's * for the year have been calculated by the methodology outlined above but before Contractor's * are finalized, Contractor may create the final * goals by *. C. MARKUP For each * and for Contractor's entire United Express operations, except as specified herein, Contractor's * shall be measured with respect to each of the *. For purposes of determining Contractor's actual *, Contractor shall only be held accountable (*) *. To establish the * to be applied hereunder, add together *. United agrees to meet and work with Contractor in an attempt to find solutions to remedy any failure by Contractor to meet * under this Agreement for the other * to the extent it is caused by non-Contractor Ground Handling Providers who provide Contractor's ground handling services at Contractor Locations. D. WIRE TRANSFER AND RECONCILIATION 1. On a monthly basis, Contractor will provide an estimate of its *, assuming C Performance Level and assuming a *, plus its * which never have a *. This estimate will be based upon the schedule to be operated during the upcoming month and shall be provided no later than * prior to the start of the month in which the wire transfers shall be made. These total costs will be divided by the number of * in the month and wire transferred by United to Contractor each *. - ----------------------------- *Confidential Treatment Requested 37 2. Complete Reconciliation of * (and associated *) according to * paid under Paragraph 1 above as established in accordance with the terms of this Agreement, shall be completed by United on a *, but no later than * days after month's end: a. * Reconciliation - *. On or before the * day after the last day of each *, Contractor shall submit to United a report detailing actual operational statistics pertaining to the payment of *, with a content determined by United, in a format mutually agreeable to United and Contractor. United shall review Contractor's submission of operating statistics and compare to United's internal flight information records. United and Contractor agree to discuss any discrepancies in the operating data and to make reasonable efforts to resolve all data discrepancies. Failing an amicable resolution, however, payment shall be based on the lower level of operating statistics, recorded by Contractor or United. b. * Reconciliation - *. On or before the * day after the last day of each *, Contractor will use reasonable efforts to submit to United documentation sufficient to support its actual expenses for * items, including copies of invoices. Upon submission of the information, Contractor must notify United in writing if any 3rd party information is missing from the submission information, and provide an explanation for the delay. Under no circumstances will United pay * more than * months after the expense was incurred. c. Regional Reconciliation of On Time Performance: At the end of * or another mutually agreeable timeframe, United and Contractor agree to readjust the annual operating goals for that previous * based on the actual amount of flying in each region. If this reconciliation results in any amount due to Contractor or to United, payment will be made accordingly or offset against current amounts owing. However, the same seasonality adjustment used at the beginning of the * shall be applied to the revised regional goals. IX. FEES PAYABLE TO UNITED A. GOVERNMENT ASSISTANCE Any direct or indirect assistance received by Contractor as a result of government assistance or bail-out plans that cover costs not incurred by the Contractor or revenues that are generated by passengers carried by Contractor and pertaining to Contractor's United Express operations will be forwarded directly to United. That amount pertaining to Contractor's United Express operations will be remitted to United pursuant to proration among all of Contractor's code-sharing partners based upon available seat miles ("ASM's") or whatever unit is used by the Government to disburse such aid. If the aforementioned direct or indirect assistance to Contractor is not associated with or related to operations or services provided to, or in behalf of, United in any way, then the aforementioned direct and indirect assistance shall not be forwarded to United. Should United receive any direct or indirect assistance related in whole, or in part, to specific - ----------------------------- *Confidential Treatment Requested 38 costs incurred by Contractor related to its United Express operations or services, but not reimbursed by United under this Agreement, United agrees to forward such monetary assistance to Contractor. Such amount forwarded to Contractor by United will be based upon Contractor's United Express operations and prorated between Contractor and United based upon ASM's or whatever unit is used by the Government to disburse such aid. X. MAINTENANCE AND FUELING United will have no responsibility under this Agreement for maintenance or fueling of Contractor's aircraft. XI. U.S. MAIL United and Contractor agree to cooperate in making bids for mail carriage. XII. INSURANCE A. INSURANCE TYPES During the term of this Agreement, Contractor agrees to procure and maintain in full force and effect, at its own expense, policies of insurance with insurers of recognized reputation and responsibility, which provide, unless otherwise provided in the Aircraft Leases, at a minimum the following insurance: 1 Comprehensive Airline Liability Insurance, including but not limited to Aircraft Liability, Passenger Liability, Comprehensive General Liability Insurance, War Risk and Allied perils, including both passengers and other third parties, Cargo Liability and Baggage Liability Insurance, with combined single limits for each and every loss and each aircraft of not less than (i) U.S. $*, or (ii) U.S. $* per available seat or (iii) the limits that Contractor has in place, whichever is greatest. Any policies of insurance carried in accordance with this ARTICLE XI will also contain or be endorsed to contain those provisions set forth in the attached APPENDIX F. 2 Aircraft Hull All Risks Insurance, including ground and flight coverage on Contractor's aircraft, including its engines and all its parts when installed or temporarily detached from Contractor's aircraft on a repair-or-replace basis with a deductible United has reasonably deemed appropriate. 3 Contractor agrees to maintain Workers' compensation in statutory amounts required by each state in which any work is performed, in whole or in part; Employers' Liability, with policy limits not less than $* combined single limit, for all of Contractor's United Express employees. United shall in no way be liable for any workers' compensation claims paid by Contractor related to any of Contractor's operations. The Contractor's insurer agrees to waive rights of subrogation against United with respect to worker's compensation claims. - ----------------------------- *Confidential Treatment Requested 39 4 Contractor agrees to maintain Commercial Automobile Liability Insurance covering all owned, non-owned leased, and hired automobiles, trucks and trailers, with policy limits of not less than $* combined single limit per occurrence to cover Contractor's entire United Express operation. 5 Contractor will be responsible for the first $* of loss or damage to all automation equipment provided by United to Contractor. Contractor will evidence property insurance and name United as loss payee. B. 30-DAY NOTICE On or before the Effective Date of this Agreement, and not less than * days and * days notice with respect to war risk, before the expiration or termination date of any insurance required to be maintained by Contractor under ARTICLE III.A above, Contractor will furnish United with certificates of insurance, substantially in the form of the attached APPENDIX F, evidencing compliance with the foregoing requirements, unless otherwise provided in writing between the parties. C. FAILURE TO MAINTAIN INSURANCE In the event that Contractor fails to acquire or maintain insurance as herein provided, United may at its option secure such insurance on Contractor's behalf at Contractor's expense. XIII. LIABILITY AND INDEMNIFICATION A. EMPLOYER'S LIABILITY AND WORKERS' COMPENSATION Each party hereto assumes full responsibility for its employer's liability and workers' compensation liability to its own officers, directors, employees or agents on account of injury or death resulting from or sustained in the performance of their respective service under this Agreement. Each party, with respect to its own employees, accepts full and exclusive liability for the payment of workers' compensation and employer's liability insurance premiums with respect to such employees, and for the payment of all taxes, contributions or other payments for unemployment compensation or old age benefits, pensions or annuities now or hereafter imposed upon employers by the government of the United States or by any state or local governmental body with respect to such employees measured by the wages, salaries, compensation or other remuneration paid to such employees, or otherwise, and each party further agrees to make such payments and to make and file all reports and returns, and to do everything to comply with the laws imposing such taxes, contributions or other payments. B. INDEMNIFICATION BY CONTRACTOR Contractor hereby assumes liability for and agrees to indemnify, release, defend, protect, save and hold United and its officers, directors, agents and employees harmless - ----------------------------- *Confidential Treatment Requested 40 from and against any and all liabilities, damages, expenses, losses, claims, demands, suits, fines or judgments, including but not limited to, attorneys' and witnesses' fees, costs and expenses incident thereto, which may be suffered by, accrue against, be charged to or be recovered from United or its officers, directors, employees or agents, by reason of any injuries to or deaths of persons, except for injury or death of United employees, or the loss of, damage to or destruction of property, including the loss of use thereof, arising out of, in connection with or in any way related to any act, error, omission, operation, performance or failure of performance of Contractor or its officers, directors, employees and agents, or of any Ground Handling Provider, regardless of any contributory negligence either active, passive or otherwise on the part of United or its officers, directors, employees or agents (but excluding the reckless and willful misconduct or gross negligence of United or its officers, directors, employees or agents), which is in any way related to the services of Contractor contemplated by or provided pursuant to this Agreement, or otherwise. United will give Contractor prompt and timely notice of any claim made or suit instituted against United which in any way results in indemnification hereunder, and Contractor will have the right to compromise or participate in the defense of same to the extent of its own interest. C. INDEMNIFICATION BY UNITED * D. INDEMNIFICATION RELATED TO GROUND HANDLING SERVICES Contractor hereby assumes liability for and agrees to indemnify, release, defend, protect, save and hold each Ground Handling Provider, and its officers, directors, agents and employees, harmless from and against any and all liabilities, damages, expenses, losses, claims, demands, suits or judgments, including but not limited to, attorneys' and witnesses' fees, costs and expenses incident thereto, which may be suffered by, accrue against, be charged to or be recovered from such Ground Handling Provider, or its officers, directors, employees or agents, by reason of any injuries to or deaths of persons (except employees of Ground Handling Provider or employees of any agent hired by Ground Handling Provider), or the loss of, damage to or destruction of property, including the loss of use thereof, arising out of, in connection with or in any way related to any act, error, omission, operation, performance or failure of performance of Contractor or its officers, directors, employees and agents, regardless of any negligence either active, passive or otherwise on the part of such Ground Handling Provider, or its officers, directors, employees or agents (but excluding the reckless and willful misconduct or gross negligence of such Ground Handling Provider or its officers, directors, employees or agents and excluding such Ground Handling Provider's negligent operation of ground support equipment to the extent solely of such Ground Handling Provider's indemnification obligation therefore under the following paragraph), which is in any way related to the Ground Handling Services. To be eligible for this indemnity, each Ground Handling Provider will give Contractor prompt and timely notice of any - ----------------------------- *Confidential Treatment Requested 41 claim made or suit instituted against it which in any way results in indemnification hereunder, and Contractor will have the right to compromise or participate in the defense of same to the extent of its own interest. Contractor acknowledges and agrees that the Ground Handling Providers are third party beneficiaries of the indemnities provided herein by Contractor, and may bring legal actions and proceedings (whether administrative, judicial, or otherwise) in their own names directly against Contractor. United will cause each Ground Handling Provider to agree to indemnify Contractor against any physical loss or damage to any of Contractor's aircraft caused by such Ground Handling Provider's negligent operation of ground support equipment, provided that such Ground Handling Provider's liability under this sentence shall be limited to any loss or damage not exceeding $* in respect of any incident and shall not extend to any loss or damage below $* in respect of any incident. In the event that Contractor believes the loss or damage to its aircraft is excessive, United, Ground Handling Provider and Contractor agree to meet in order to mitigate such loss or damage. Notwithstanding the foregoing, United shall require all Ground Handling Providers procure and maintain, at their sole cost and expense, Commercial Aviation General Liability Insurance including, but not limited to, bodily injury liability, property damage liability, public liability, premises liability, products completed operations liability, hangerkeepers liability and contractual liability in an amount not less than Combined Single Limit (for any Part 121 Certificated Air Carrier or affiliate of such carrier providing such Ground Handling Services) any one occurrence of not less than USD $*. Said insurance shall (i) name Contractor as Additional Insured as its interests may appear, (ii) Be primary without right of contribution from any insurance carried by or available to Contractor, (iii) contain severability of interests, cross liability and breach of warranty clauses in favor of Contractor, (iv) shall provide for 30 days prior written notice of any cancellation or material change adverse to the interests of Contractor, (v) contain a waiver of insurers' rights of subrogation against Contractor. Upon request, all Ground Handling Providers shall provide Contractor with a Certificate of Insurance evidencing same. E. CONTRACTOR'S SUPPLIES LIABILITY Contractor hereby assumes liability for and agrees to indemnify, release, defend, protect, save and hold United and its officers, directors, agents and employees from and against any and all liabilities, damages, losses, claims, demands, suits, fines or judgments, including but not limited to attorneys' and witnesses' fees, costs and expenses incident thereto, which may be suffered by, accrue against, be charged to or be recovered from United or its officers, directors, employees, or agents by reason of any losses or damages incurred on account of the loss, misapplication, theft or forgery of passenger tickets, exchange orders or other supplies furnished by or on behalf of United to Contractor, or the proceeds thereof, whether or not such proceeds have been deposited in - ----------------------------- *Confidential Treatment Requested 42 a bank and whether or not such loss is occasioned by the insolvency or bankruptcy of a bank in which Contractor may have deposited such proceeds, other than a loss caused by a bank to which funds have been transmitted at the express direction of United. Contractor's responsibility hereunder for passenger tickets, exchange orders and other supplies will commence immediately upon the delivery of said passenger tickets, exchange orders, and other supplies into the possession of Contractor or any duly authorized officer, agent or employee of Contractor. United will furnish Contractor prompt and timely notice of any claims made or suits instituted against United which in any way may result in the indemnification hereunder, and Contractor will have the right to compromise or participate in the defense of same to the extent of its own interest. F. UNITED DEFINITIONS As used in this ARTICLE XIII for purposes of identifying an indemnified party, all references to United include United's parent company, and any subsidiary or affiliate of United or its parent company, and their respective employees, officers, directors and agents. For purposes of this ARTICLE XIII any passenger who connects in any city from a flight on United or Contractor (the "CARRYING PARTY") within four (4) hours after the end of such flight to a flight of the other party (the "CONNECTING PARTY") become passengers of the Connecting Party when such passenger enters the hold room or waiting area to which they were deplaned in such city from the Carrying Party's flight to such on-line city. A passenger of the Carrying Party who does not have a connecting flight with the other party hereto and prior to entering the hold room or waiting area after deplaning from the Carrying Party's flight in the Connection City is a passenger of the Carrying Party. For purposes of this ARTICLE XIII, neither loading bridges, hallways, stairways, nor ramp areas will be considered part of the hold room or waiting area. XIV. REPORTS A. CLOSE-OUT ENTRIES Upon departure of each Contractor flight from Contractor Locations and Joint Locations, close-out entries shall be made by Contractor in Apollo Services as required by United and as specified in the Standards of Service. United will use good faith efforts to notify Contractor in writing as soon as practicable after United determines that Contractor has failed to perform flight close-out, as outlined above. If Contractor fails * times in any consecutive * period to perform flight close-out, as outlined above, where such occurrence is caused by or arises out of an act or omission of Contractor, then upon notification by United to Contractor, Contractor shall pay United damages of * for each occurrence over and above the first * occurrences in such * period. Contractor is accountable for only the flights which are handled at the ticket counter and gate by Contractor. Such damages shall be United's exclusive remedy for Contractor's non-compliance with this paragraph. If United fails to notify Contractor of its intent to seek damages pursuant to this paragraph within four months after the end of the * period, - ----------------------------- *Confidential Treatment Requested 43 United shall be deemed to have waived its right to seek such damages for Contractor's non-compliance with this paragraph during such * period. B. BOARDING INFORMATION Information reports containing data covering boarding, and other information agreed to by the parties for Contractor's operations hereunder will be produced from the close-out entries and provided by United to Contractor on a monthly basis * after the month end. C. OPERATING PERFORMANCE Contractor will furnish to United within * after the end of each month a detailed report of its operating performance, which report will include information on Contractor's performance during the preceding month for each of the items designated by United, including, but not limited to, Operating Performance Standards and aircraft appearance. D. INSPECTION United may inspect Contractor's corporate records and accounts solely related to Contractor's United Express Services, from time to time, upon reasonable notice during the life of this Agreement; provided that such inspections do not unreasonably interfere with Contractor's business. E. FINANCIAL STATEMENTS Contractor will furnish to United, (i) within the time frame determined by the Securities Exchange Commission (SEC) for financial reporting after the end of the each calendar quarter, unaudited financial statements, including Contractor's then current corporate balance sheet and profit and loss statement, and (ii) within * after the end of the Contractor's fiscal year, Contractor's then current, audited financial statements including, either separately or on a consolidated basis, the balance sheet and the profit and loss statement, together with associated footnotes, and a copy of the independent auditor's report. F. GOVERNMENT FILINGS Contractor will be responsible for filing all reports relating to its operations with the DOT, FAA and other applicable government agencies (other than any such reports for which United has assumed the responsibility to file them on Contractor's behalf), and Contractor will promptly furnish United with copies of all such reports and such other available traffic and operating reports as United may request from time to time during the life of this Agreement. To the extent only United is in possession of relevant statistics used in such reports, United will provide such available statistics to Contractor as necessary for Contractor to complete these filings. If United fails to provide such - ----------------------------- *Confidential Treatment Requested 44 statistics to Contractor sufficiently in advance of the applicable deadline for such filings, and Contractor is unable to submit such filings by the deadline because of such delay, United will reimburse Contractor for any fines or penalties incurred by Contractor as a result of its failure to submit such filings by the deadline. G. COPY OF GOVERNMENT REPORTS Contractor will promptly furnish United with a copy of every final report that Contractor prepares, whether or not such report is filed with the FAA, NTSB or any other governmental agency, relating to any accident or incident involving an aircraft used by Contractor pursuant to this Agreement, when such accident or incident is claimed to have resulted in the death or injury to any person or the loss of, major damage to or destruction of any property. H. BENCHMARKING No greater that once per calendar year, Contractor agrees to participate in a detailed benchmarking process to be determined by United similar to the one completed in 2003. United agrees that any aforementioned information, as well as the one-time audit in ARTICLE III.H.4 will be used for informational purposes only and not in any manner to become the basis of, or provide justification for, any rate adjustment not associated with adjustments noted in other parts of this Agreement. XV. INDEPENDENT CONTRACTORS AND UNAUTHORIZED OBLIGATIONS A. INDEPENDENT CONTRACTORS 1. The employees, agents and independent contractors of each party hereto (the "Employer") engaged in performing any of the services the Employer is to perform pursuant to this Agreement are employees, agents, and independent contractors of the Employer for all purposes and under no circumstances will be deemed to be employees or agents or independent contractors of the other Party (the "non-Employer"). The Non-Employer will have no supervision or control over any such Employer's employees, agents and independent contractors and any complaint or requested change in procedure made by the Non-Employer will be transmitted by it to the Employer's designated representatives. In its performance under this Agreement, each party will act for all purposes, as an independent contractor and not as an agent for the other party. 2. Notwithstanding the fact that Contractor has agreed to follow certain procedures, instructions and United Express Service Standards pursuant to this Agreement, United will have no supervisory power or control over any employees, agents or independent contractors engaged by Contractor in connection with its performance hereunder, and all complaints or requested changes in procedures made by United will, in all events, be transmitted by United to Contractor's designated representatives. Nothing contained in this Agreement is intended to limit or condition Contractor's control over its operations or the conduct of its business as an air carrier, and Contractor and its principals assume all risks of financial losses which may result from the operation of the air services to be provided by Contractor hereunder. 45 B. UNAUTHORIZED OBLIGATIONS 1. Nothing in this Agreement authorizes United to make any contract, agreement, warranty or representation on Contractor's behalf, or to incur any debt or obligation in Contractor's name ("CONTRACTOR UNAUTHORIZED OBLIGATION"); and United hereby agrees to defend, indemnify, save, release and hold Contractor and its officers, directors, employees and agents harmless from any and all liabilities, claims, judgments and obligations which arise as a result of or in connection with or by reason of any such Contractor Unauthorized Obligation made by United or its officers, directors, employees, agents or independent contractors (other than Contractor) in the conduct of United's operations. 2. Nothing in this Agreement authorizes Contractor to make any contract, agreement, warranty or representation on United's behalf, or to incur any debt or obligation in United's name ("UNITED UNAUTHORIZED OBLIGATION"); and Contractor hereby agrees to defend, indemnify, save, release and hold United and its officers, directors, employees and agents harmless from any and all liabilities, claims, judgments and obligations which arises as a result of or in connection with or by reason of any such United Unauthorized Obligation made by Contractor or its officers, directors, employees, agents or independent contractors (other than United) in the conduct of Contractor's operations. C. CONTRACTOR OPERATED FLIGHTS The fact that Contractor's operations are conducted under the United Marks and listed under the UA designator code will not affect their status as flights operated by Contractor, and Contractor and United agree to advise all third parties, including passengers, of this fact. XVI. DEFAULT AND TERMINATION A. OPERATIONS DEFAULT 1. If either party becomes insolvent; if the other party is not regularly paying its bills when due without just cause; if either party takes any step leading to its cessation as a going concern; makes an assignment of substantially all of its assets for the benefit of creditors or a similar disposition of the assets of the business; or if either party either ceases or suspends operations for reasons other than an ARTICLE XXVI Force Majeure condition (a "SECTION A DEFAULT"), then the other party (the "INSECURE PARTY") may terminate this Agreement on not less than * written notice (the "Notice Period") to such party (the "SECTION A DEFAULTING PARTY") unless the Section A Defaulting Party immediately gives adequate assurance of the future performance of this Agreement within the Notice Period by establishing an irrevocable letter of credit -- issued by a U.S. bank acceptable to the Insecure Party, on terms and conditions acceptable to the Insecure Party, and in an amount sufficient to cover all amounts potentially due from the Section - ----------------------------- *Confidential Treatment Requested 46 A Defaulting Party under this Agreement -- that may be drawn upon by the Insecure Party if the Section A Defaulting Party does not fulfill its obligations under this Agreement in a timely manner. 2. If bankruptcy proceedings are commenced with respect to the Section A Defaulting Party and if this Agreement has not otherwise terminated, then to the extent permitted by the Bankruptcy Court, the Insecure Party may upon * prior written notice suspend all further performance of this Agreement until the Section A Defaulting Party assumes or rejects this Agreement pursuant to Section 365 of the Bankruptcy Code or any similar or successor provision. Any such suspension of further performance by the Insecure Party pending the Section A Defaulting Party's assumption or rejection will not be a breach of this Agreement and will not affect the Insecure Party's right to pursue or enforce any of its rights under this Agreement or otherwise. B. COVENANT DEFAULT If either party (the "SECTION B DEFAULTING PARTY") shall refuse, neglect or fail to perform, observe, or keep any material covenants, agreements, terms or conditions contained herein on its part to be performed, observed, and kept (other than any such covenant or agreement for which this Agreement provides an exclusive remedy and other than the covenants described in ARTICLE XV.E), and such refusal, neglect or failure (individually and collectively, a "BREACH") shall continue for a period of * after written notice to cure such Breach to the Section B Defaulting Party thereof or such longer period as may be demonstrably necessary to complete the cure of such failure (but such longer period may not exceed * after the receipt of the notice to cure) (a "SECTION B DEFAULT") then the other party may upon * notice to the Section B Defaulting Party terminate this Agreement. If a notice of Breach is delivered and a notice of termination is not delivered within * after the end of the * cure period, as applicable, the other party shall be deemed to have waived its right hereunder to terminate for the particular occurrence of Breach for which the Section B Defaulting Party received notice. Notwithstanding the foregoing, if United shall permanently cease operations as a certificated air carrier, Contractor may give written notice and terminate the Agreement effective immediately after such cessation of operations. C. DEFAULT BY CONTRACTOR If Contractor shall refuse, neglect or fail to cure or perform any one of the following conditions, United may give Contractor written notice to correct such condition or cure such breach, and if any such condition or breach shall continue for *, or, in the case of ARTICLE XV.C.1 below, * after notice to Contractor thereof (a "SECTION C DEFAULT"), then United may terminate this Agreement upon * written notice to Contractor if: 1. Contractor's operations fall below any of the following three levels for * (in other words, Contractor will not have failed to comply with the condition in this - ----------------------------- *Confidential Treatment Requested 47 paragraph if it does not fall below any one or more of the following three levels at any time during a period of *): a. less than *% Controllable Flight Completion (excluding cancellations resulting from weather, Air Traffic Control, labor actions, or from causes solely attributable to United or the station designated ground service provider); b. greater than * Mishandled Bags per * passengers (excluding stations where Contractor does not handle the ramp operations); and c. less than *% of flight departures are On-Time zero; or 2. Contractor knowingly maintains falsified books or records or submits false reports of a material nature If notice of breach is delivered under this Section and a notice of termination is not delivered within * thereafter, then United shall be deemed to have waived its right to terminate under this Section for only the particular occurrence for which Contractor received notice. D. SIMILAR AGREEMENTS United may terminate this Agreement with * prior notice (i) if Contractor or any of its affiliates is in breach of the terms of ARTICLE 0 (Operating Restrictions) or (ii) if Contractor or any of its affiliates is in breach of the terms of ARTICLE IV.A.2 (Code Share Limitations) (a "SECTION D DEFAULT"), and Contractor has failed to cure such breach within * after it occurs. If notice of breach is not provided within * after United becomes aware of such breach, United shall be deemed to have waived its right to terminate under this Section for the particular occurrence of breach for which Contractor received notice. E. NON-COMPLIANCE WITH STANDARDS 1. If Contractor shall refuse, neglect, or fail to perform or observe the provisions of the United Express Service Standards or Aircraft Ground Handling Procedures to be performed, observed, and kept with regard to one or more city pairs under this Agreement, and such refusal, neglect or failure shall continue for a period of * after United delivers written notice to cure such default to Contractor thereof (a "SECTION E DEFAULT") then United may upon * notice to Contractor terminate this Agreement with regard to the city pairs involved or as to the entire Agreement at United's discretion. United acknowledges that except as set forth in Appendix B, United will contract with the Ground Handling Provider and United shall ensure such Ground Handling Provider complies with the standards set forth by United. 2. Contractor warrants that it shall maintain compliance with the requirements of APPENDIX G for the term of this Agreement. Any failure to maintain such compliance shall immediately be brought to United's attention together with - ----------------------------- *Confidential Treatment Requested 48 corrective actions taken by Contractor or a correction action plan. In the event that United or any governmental agency with jurisdiction over the safety requirements referenced in APPENDIX G provides written notice to Contractor that it is not in compliance with such requirements (including any new requirements published by the government from time to time) or any corrective action plan related thereto (a "SECTION E SAFETY DEFAULT"), and in the absence of any immediate threat to the safety of persons or property (a "CRITICAL SAFETY EVENT"), Contractor shall have * (or such shorter period directed by the relevant governmental agency) within which to cure such default. Should Contractor fail to cure the Section E Safety Default within the cure period, or if there exists a Critical Safety Event, United may, in whole or part, suspend or terminate this Agreement or any terms or conditions impacted by such failure or Event, without further liability; but, with reservation of all other rights and remedies available to United. F. CONSEQUENCES OF TERMINATION Any termination pursuant to one or more of the provisions of this Agreement will be without additional liability to the party initiating such termination and will not be construed so as to relieve either party hereto of any debts or obligations, monetary or otherwise, to the other party that accrued hereunder prior to the effective date of such termination. Each party will be entitled to any and all damages recoverable and remedies under law or in equity against the other for any breach by the other party of this Agreement, regardless of whether the non-breaching party elects to terminate this Agreement; G. UNITED'S LIQUIDATED DAMAGES 1. If United terminates this Agreement pursuant to the terms of this ARTICLE XVI, including for Contractor's breach, then Contractor will pay to United as liquidated damages, and not as a penalty, the *, for each *; provided, however, that if United secures another carrier to replace Contractor in the city pairs served by Contractor under this Agreement as a United Express Carrier at any of the affected stations, or if United determines that United could replace Contractor without increasing its damages in these city pairs, then the liquidated damages will be adjusted as follows: a. * b. * c. * 2. For purposes of this Article XV.G, a. "*" means the *. b. "*" shall equal *. - ----------------------------- *Confidential Treatment Requested 49 c. The amount of the "*" shall equal the sum *. d. "*" means the *. e. "*" means the *. 3. If this Agreement is terminated in a manner such that United shall have the right to damages under this Article XV.G, United shall, in good faith and in a commercially reasonable manner, secure another carrier to replace Contractor and take such other reasonable actions so as to mitigate the damages owed to United hereunder. 4. The inclusion of this Article XV.G, is not intended to modify, waive or restrict Contractor's rights to exercise any and all remedies available at law or in equity for United's breach of this Agreement. 5. The provisions of this Article XV.G, shall not be applicable to a termination of this Agreement by United pursuant to Article III.C as a result of Contractor's failure to meet the conditions referenced in Article XV.C.1; provided, that the exclusion of the applicability of this Article XV.G to Article XV.C.1 shall not be deemed to be a waiver of any right which United may have for remedies at law or in equity. Not withstanding the above, total liquidated damages shall in no case exceed $* aggregate. H. RESTRICTED ACTIONS Contractor shall not take, nor agree to take, any of the following actions without United's prior written consent: (a) dispose of any of United's assets, or (b) enter into any agreements with third parties which create liens, claims or encumbrances on any of United's assets. To the extent that Contractor engages in, invests in or otherwise is responsible (financially or otherwise) for any business, activity or operation other than Contractor's United Express Services, and unless otherwise expressly agreed in writing with United, Contractor will ensure that the costs and expenses associated with or allocable to such other businesses, activities or operations are not charged to or recovered from United in any way. XVII. ASSIGNMENT, MERGER AND ACQUISITION A. ASSIGNMENT This Agreement may be terminated by either United or Contractor (the "FIRST PARTY") if the other party assigns this Agreement or any of its rights, duties or obligations under this Agreement (except an assignment of the right to money to be received hereunder and except to any affiliate of Contractor) without the prior written consent of the First Party. In the event that this Agreement is assigned in violation of this ARTICLE - ----------------------------- *Confidential Treatment Requested 50 XVI, without such consent having been given in writing, the First Party will have the right to terminate this Agreement immediately by telegraphic or written notice to the other party; provided, however, that a corporate reorganization that does not result in a material change in the ultimate ownership of Contractor from the ownership that existed prior to such transaction will not be considered an assignment as long as all of the entities succeeding to any of the assets or liabilities of Contractor prior to such corporate reorganization agree to be bound by this Agreement. B. MERGER AND ACQUISITION In the event Contractor merges with, or if control of Contractor is acquired by, another air carrier, or a corporation directly or indirectly owning or controlling or directly or indirectly owned or controlled by another air carrier (a "HOLDING COMPANY"), or a corporation directly or indirectly owned or controlled by any such Holding Company, United will have the option to terminate this Agreement without liability to Contractor. Should United elect not to terminate the Agreement, the Holding Company shall be obligated to comply and perform under the full terms of this Agreement. XVIII. CHANGE OF LAW Notwithstanding anything herein to the contrary, in the event there is any change in the statutes governing the economic regulation of air transportation, or in the applicable rules, regulations or orders or interpretation of any such rule, regulation or order of the DOT or other department of the government having jurisdiction over air transportation, which change or changes materially affect the rights or obligations of either party hereto under the terms of this Agreement, then the parties hereto will consult, no later than * after any of the occurrences described herein, in order to determine what, if any, changes to this Agreement are necessary or appropriate, including but not limited to the early termination of this Agreement. If the parties hereto are unable to agree whether any change or changes to this Agreement are necessary and proper, or as to the terms of such changes, or whether this Agreement should be terminated in light of the occurrences described above, and such failure to reach agreement continues for a period of * following the commencement of the consultations provided for by this ARTICLE XVIII, then this Agreement may be terminated by either party immediately upon providing the other party * prior written notice of such termination. Any such termination will be without additional obligation or liability to both parties except that such termination will not relieve either party of any debt or obligation, monetary or otherwise, accruing hereunder prior to the effective date of termination. XIX. TAXES, PERMITS AND LICENSES A. TRANSACTION TAXES Contractor agrees to indemnify and hold United harmless from any and all penalties or interest arising out of any real and personal property, sales and use, - ----------------------------- *Confidential Treatment Requested 51 occupational, gross receipts, value added, income, franchise and any other taxes, customs, duties, excise taxes, fees, charges or assessments, of any nature whatsoever imposed by any federal, state, local or foreign government or taxing authority upon Contractor or United with respect to Contractor's performance of this Agreement, or to Contractor's operations, or the equipment contained therein or services provided thereby, or the revenues derived there from (except for penalties or interests arising out of any tax upon or measured by United's revenues, net income or any franchise tax). If a claim is made against United for any penalties or interest referred to above, United will promptly notify Contractor and request payment of such claim. If requested by Contractor in writing, United will upon receipt of indemnity and evidence that Contractor has made adequate provision for the payment of such penalties or interest, reasonably satisfactory to United, contest the validity, applicability or amount of such penalties or interest, taxes and other charges at Contractor's expense. Contractor shall pay United upon demand for all expenses incurred (including, without limitation, all costs, expenses, losses, legal and accountants' fees, penalties and interest) in making payment, in protesting or seeking refund of such penalties or interest. B. PAYROLL TAXES Contractor acknowledges that it is responsible for and will pay to the appropriate authority, and will indemnify and hold United harmless from, any and all federal or state payroll taxes, FICA, unemployment tax, state unemployment compensation contribution, disability benefit payments, insurance costs and any other assessments or charges which relate directly or indirectly to the employment by Contractor of Contractor's employees. United acknowledges that it is responsible for and will pay to the appropriate authority, and will indemnify and hold Contractor harmless from, any and all federal or state payroll taxes, FICA, unemployment tax, state unemployment compensation contribution, disability benefit payments, insurance costs and any other assessments or charges which relate directly or indirectly to the employment by United of United's employees. C. PERMITS AND LICENSES Contractor will comply with all federal, state and local laws, rules and regulations, will timely obtain and maintain any and all permits, certificates or licenses necessary for the full and proper conduct of its operations, and will pay all fees assessed for airport use including but not limited to landing fees, user airport fees and prorated airport facility fees. Upon sufficient notice by United, Contractor further agrees to comply with all mandatory resolutions issued by the Air Transport Association of America ("ATA") and all non-binding recommended resolutions of the ATA which are adopted by United. XX. REVIEW During the term of this Agreement United may, at any time at its discretion, require a joint review of Contractor's aircraft and facilities to determine whether Contractor's United Express Services are meeting the requirements of this Agreement. Such review can include an obligation for Contractor to respond to reasonable 52 information requests and to provide relevant documents. This review is not intended nor shall it be construed to relieve Contractor of its responsibility to provide a quality and airworthy aircraft that satisfies all FAA regulations. In addition, upon request by United, within * after each calendar quarter United and Contractor will meet to review Contractor's United Express Services during the preceding calendar quarter. XXI. JURISDICTION With respect to any lawsuit, action, proceeding or claim relating to this Agreement or any other agreement between United and Contractor (hereinafter, any such lawsuit, action, proceeding or claim is referred to as a "LAWSUIT"), each of the parties hereto irrevocably (i) submits to the exclusive jurisdiction of the courts of the State of Illinois and the United States District Court located in the City of Chicago, Illinois, and (ii) waives any objection which it may have at any time to the laying of venue of any Lawsuit brought in any court, waives any claim that any Lawsuit has been brought in any inconvenient forum, and further waives the right to object, with respect to any Lawsuit, that such court does not have jurisdiction over such party. Nothing in this Agreement precludes either party hereto from bringing Lawsuits in any other jurisdiction in order to enforce any judgment obtained in any Lawsuit referred to in the preceding sentence, nor will the bringing of such enforcement Lawsuit in any one or more jurisdictions preclude the bringing of any enforcement Lawsuit in any other jurisdiction. XXII. NOTICES Any and all notices, approvals or demands required to be given in writing by the parties hereto will be sufficient if sent by certified mail, postage prepaid, overnight delivery by a nationally recognized delivery company or hand delivery, to United, addressed to: United Air Lines, Inc. 1200 E. Algonquin Road Elk Grove Township, Illinois 60007 Attn: - Director, United Express Fax: 847-364-6728 and to Contractor, addressed to: Mesa Air Group, Inc. 410 N. 44th Street, Suite 700 Phoenix, Arizona 85008 Attn: Chief Financial Officer Fax: 602-685-4352 With a copy to: Mesa Air Group, Inc. 410 N. 44th Street, Suite 700 - ----------------------------- *Confidential Treatment Requested 53 Phoenix, Arizona 85008 Attn: Vice President & General Counsel Fax: 602-685-4352 or to such other addresses in the continental United States as the parties may specify in writing. XXIII. APPROVALS AND WAIVERS A. Whenever this Agreement requires the prior approval or consent of United, Contractor will make a timely request to United therefore and the consent will be obtained in writing. United will also consider, in its sole discretion, other reasonable requests individually submitted in writing by Contractor for United's consent to a waiver of any obligation imposed by this Agreement. B. United assumes no liability or obligations to Contractor by providing any waiver, approval, consent or suggestion to Contractor in connection with this Agreement, or by reason of any neglect, delay or denial of any request therefor. C. Except as otherwise provided for in this Agreement, no failure by either party to execute any power reserved to it by this Agreement, or to insist upon strict compliance by the other party with any obligation or condition hereunder, and no custom or practice of the parties at variance with the terms hereof will constitute a waiver of such party's right to demand exact compliance with any of the terms herein. Waiver by such party of any particular default by the other party will not affect or impair such party's rights with respect to any subsequent default of the same, similar or different nature, nor will any delay, forbearance or omission of such party to exercise any power or right arising out of any breach or default by the other party of any of the terms or provisions hereof will affect or impair such party's right to exercise the same or constitute a waiver by such party of any right hereunder or the right to declare any subsequent breach or default and to terminate this Agreement prior to the expiration of its term. Subsequent acceptance by such party of any payments due to it hereunder will not be deemed to be a waiver by such party of any preceding breach by the other party of any terms, covenants or conditions of this Agreement. XXIV. GOVERNING LAW This Agreement and any dispute arising hereunder, including any action in tort, will be governed by and construed and enforced in accordance with the internal laws of the State of Illinois. XXV. CUMULATIVE REMEDIES Unless and to the extent as may be otherwise expressly stated in this Agreement, no right or remedy conferred upon or reserved to Contractor or United by this Agreement is intended to be, nor shall be deemed, exclusive of any other right or remedy herein or by law or equity provided or permitted, but each will be cumulative of every other right or remedy. 54 XXVI. FORCE MAJEURE Neither party shall be liable for delays or failure in performance hereunder caused by acts of God, acts of terrorism or hostilities, war, strike, labor dispute, work stoppage, fire, act of government, court order or any other cause, whether similar or dissimilar, individually or collectively, "Force Majeure" events beyond the control of Contractor or United. At any time following a Force Majeure event, United retains the right to reduce *. After * from the date of the qualifying Force Majeure event, margins shall return to the originally scheduled amount. Should such a Force Majeure event occur and Mesa's margins be reduced, United will agree to extend the term of the Agreement by * from the date of original termination for *. XXVII. SEVERABILITY AND CONSTRUCTION A. Each term or provision of this Agreement will be considered severable, and if, for any reason, any such term or provision herein is determined to be invalid and contrary to, or in conflict with, any existing or future law or regulation by a court or agency having valid jurisdiction, such will not impair the operation of, or have any other effect upon, other terms or provisions of this Agreement as may remain otherwise enforceable, and the latter will continue to be given full force and effect and bind the parties hereto, and said invalid terms or provisions will be deemed not to be a part of this Agreement. B. The captions appearing in this Agreement have been inserted for convenience only and will not control, define, limit, enlarge or affect the meaning of this Agreement or any of its provisions. XXVIII. ACKNOWLEDGMENT A. Each party expressly disclaims the making of, and acknowledges that it has not received, any warranty or guarantee, express or implied, as to the potential volume, profits or success of the business venture contemplated by this Agreement. B. Each party acknowledges that it has received, read and understood this Agreement and the Appendices hereto. XXIX. CONFIDENTIALITY A. Except as required by law (including federal or state securities laws or regulations) or by the rules and regulations of any stock exchange or association on which securities of either party or any of its affiliates are traded, or in any proceeding to enforce the provisions of this Agreement, United and Contractor hereby agree not to publicize or disclose to any third party the terms or conditions of this Agreement or any of the Related Agreements without the prior written consent of the other parties thereto. B. Except as required by law (including federal or state securities laws or regulations) or by the rules and regulations of any stock exchange or association on - ----------------------------- *Confidential Treatment Requested 55 which securities of either party or any of its affiliates are traded, or in any proceeding to enforce the provisions of this Agreement, United and Contractor hereby agree not to disclose to any third party any confidential information or data, both oral and written, received from the other and designated as such by the other without the prior written consent of the party providing such confidential information or data. C. If either party is served with a subpoena or other process requiring the production or disclosure of any of the agreements, information or data described in ARTICLE XXVIII.A or ARTICLE XXVIII.B, then the party receiving such subpoena or other process, before complying with such subpoena or other process, shall immediately notify the other party of same and permit said other party a reasonable period of time to intervene and contest disclosure or production. D. Upon termination of this Agreement, each party must return to the other any confidential information or data received from the other and designated as such by the party providing such confidential information or data which is still in the recipient's possession or control. XXX. RELATED AND THIRD PARTY AGREEMENTS United and Contractor shall enter into agreements listed below in this ARTICLE XXX (the "RELATED AGREEMENTS"). All such Related Agreements will automatically terminate contemporaneously with the termination of this Agreement unless termination shall otherwise be effected in accordance with the terms of such Related Agreements. a. Interline/Space Available Employee and Eligible Travel Agreement (United Contract No. 163648). b. Emergency Response Services Agreement. (United Contract No. 163649) c. United Express/Positive Space Employee Travel Agreement (United Contract No. 163467) XXXI. ENTIRE AGREEMENT This Agreement, together with the Related Agreements, including any Appendices, Attachments and Exhibits attached hereto and thereto, contains the complete, final and exclusive agreement between the parties hereto with respect to the subject matter hereof, and supersedes all previous agreements and understandings, oral and written, with respect to such specific matter and said Agreement will not be modified, amended or terminated by mutual agreement or in any manner except by an instrument in writing, executed by the parties hereto. XXXII. REFERENCES TO TIME PERIODS All references to the term "YEAR" in this Agreement shall mean contract year unless specifically stated otherwise. All references to the term "MONTH" in this 56 Agreement shall mean a full calendar month; provided that if the Effective Date shall be other than the first day of a calendar month, then the first "MONTH" of this Agreement shall commence on the Effective Date and end on the last day of the month in which the Effective Date occurs. All references to the term "QUARTER" in this Agreement shall mean a calendar quarter; provided that the first "QUARTER" of this Agreement shall commence on the Effective Date and terminate on the last day of the calendar quarter in which the Effective Date occurs. Calendar quarters shall be January 1 through March 31, April 1 through June 30, July 1 through September 30, and October 1 through December 31. IN WITNESS WHEREOF, the parties hereto have by their duly authorized officers caused this Agreement to be entered into and signed as of the day and year first above written. MESA AIR GROUP, INC. UNITED AIR LINES, INC. By: By: --------------------------- ---------------------- Name: Name: Greg T. Taylor ------------------------ Title: Title: Sr. Vice President ------------------------ Planning -------------------- Date: Date: ---------------------- ------------------- 57 k APPENDIX A UNITED MARKS & AIRCRAFT USED IN UNITED EXPRESS SERVICE UNITED MARKS UNITED EXPRESS Stylized UNITED EXPRESS lettering UNITED EXPRESS colors Stylized letters UA Uniform Design Aircraft exterior and interior color decor Other United Marks approved by United for use by Contractor ********* - ---------- * Confidential Treatment Requested 58 APPENDIX B CITY PAIRS AND GROUND HANDLING GROUND HANDLING***

CUSTOMER SERVICE/TICKET CUSTOMER GROUND COUNTER* SERVICE/GATES** HANDLING/RAMP RECEIPT/DISPATCH -------- --------------- ------------- ---------------- ASE Air Wisconsin Air Wisconsin Air Wisconsin Air Wisconsin COS United United United United CPR SkyWest SkyWest SkyWest SkyWest DEN United Contractor Contractor Contractor DRO Contractor Contractor Contractor Contractor EGE Contractor Contractor Contractor Contractor GJT SkyWest SkyWest Contractor Contractor GUC Contractor Contractor Contractor Contractor HDN Contractor Contractor Contractor Contractor JAC Contractor Contractor Contractor Contractor RAP SkyWest SkyWest SkyWest SkyWest SAF Contractor Contractor Contractor Contractor

* Includes Small Package Dispatch (SPD)(TM) service. ** Any unique ground equipment which is needed to service Contractor's aircraft will be provided by Contractor. *** For purposes of the table above, Contractor, United, or a designated third party as applicable, shall provide or cause to be provided the designated services as shown in the table. 59 APPENDIX C CONTRACTOR SUPPORT SERVICES At all locations not set forth on APPENDIX B where Contractor operates scheduled air transportation as a United Express Carrier (i.e., Contractor Locations), Contractor will provide the following minimum services: (a) Contractor's employees shall be fully qualified personnel to handle Contractor's operations. (b) Posting of signage and decor appointment as specified by United. (c) Adequate check-in areas including passenger waiting room facilities. (d) Security facilities, personnel and passenger screening procedures as are required by applicable orders, rules and regulations of the FAA or other government agencies and those standards specified by United. (e) Capability of operating Automation Equipment (Apollo Services) for the purpose of providing passenger processing and operations in the configuration and under the procedures specified by United. (f) Baggage handling, delivery and tracing in accordance with procedures issued by United. 60 APPENDIX D REIMBURSEMENT CATEGORIES & RATES PAYABLE TO CONTRACTOR * ****** PASS-THROUGH UNIT RATES ******** - ---------- * Confidential Treatment Requested 61 DEFINITIONS FLYING COST DESCRIPTIONS DESCRIPTIONS OF CARRIER CONTROLLED COSTS * ****** DESCRIPTIONS OF PASS-THROUGH COSTS ****** GROUND HANDLING COST DESCRIPTIONS DESCRIPTIONS OF CARRIER CONTROLLED COSTS ****** CATEGORIES OF PASS-THROUGH COSTS ****** - ---------- * Confidential Treatment Requested 62 APPENDIX E INCENTIVE PROGRAM & 2003 OPERATING GOALS * ***** - ---------- * Confidential Treatment Requested 63 APPENDIX F LIABILITY INSURANCE Issued by: Date of Issue: THIS IS TO CERTIFY TO: UNITED AIR LINES, INC. that Insurers are providing 100% of the following Aircraft Hull & Liability Insurances: NAME INSURED: PERIOD OF INSURANCE: INSURERS: POLICY NUMBER: GEOGRAPHICAL LIMITS: Worldwide Hull War limited to Western Hemisphere with commercial insurance; territorial limitations not defined in FAA policy. AIRCRAFT INSURED: All aircraft owned or operated by the Named Insured. DESCRIPTION OF COVERAGE: Comprehensive Airline Liability Insurance, Contractual Liability, including Aircraft Liability, Passenger , Liability War Risk should the FAA stop carrying it, including both Passengers and Other Third Parties, Cargo Liability and Comprehensive General Liability, including Hangarkeepers, Excess Automobile,Host Liquor Liability, Personal Injury, and Products Liability/Completed Operations coverage. All Risk Physical Damage Hull Coverage LIMIT OF LIABILITY Combined Single Limits to be specified consistent with ARTICLE III.1. Aircraft Hull All Risk per the Agreed Value,or up to $* per added aircraft. SPECIAL PROVISIONS: The insurers agree that coverage under this policy, by formal endorsement or otherwise, is extended to insure all relevant terms and conditions of the United Express Agreement, subject to the policy terms, conditions, limitations and exclusions, between Contractor and United concerning Contractor's Aircraft, (hereinafter referred to as "Agreement"), including, inter alia: - ---------- * Confidential Treatment Requested 64 1. The Insurers accept and insure the Indemnity and Hold Harmless provisions of the Agreement, subject to the policy terms, conditions, limitations and exclusions. 2. United, its affiliates, and their respective directors, officers, employees, agents and indemnitees are named as additional insureds to the extent of the liability assumed by Contractor under the Agreement, subject to the policy terms, conditions, limitations and exclusions. 3. The Insurers agree that United shall not be liable for, nor have any obligation to pay any premium due hereunder, and Insurers further agree that they shall not offset or counter-claim any unpaid premium against the interest of United. 4. The Insurers agree that all provisions of this insurance, except for the limits of liability, shall operate in the same manner as if there were a separate policy issued to each Insured. 5. The Insurers agree that this insurance shall be primary insurance without any right of contribution from any other insurance which is carried by United. 6. The Insurers agree to waive their rights of subrogation against United, its officers, directors, employees and indemnitees, to the extent the Contractor has waived and released its rights under the Agreement. 7. The Insurers agree that as respects the interest of United, its directors, officers, employees and indemnitees, this insurance shall not be invalidated by any action or inaction of the Contractor, its officers, directors or employees, and shall insure United, its directors, officers, employees and indemnitees regardless of any breach or violation of any warranties, declarations, conditions or exclusions contained in the policy by the Contractor, its officers, directors or employees. 8. In the event of cancellation for any reason whatever or if any change of a restrictive nature is made affecting the insurance certified hereunder, or if this insurance is allowed to lapse due to non-payment of premium, such cancellation, change or lapse shall not be effective as to United, its directors, officers, employees and indemnitees for at least * (* in the case of non-payment of premiums, * notice of cancellation with respect to war risk) after written notice by registered mail of such cancellation, change or lapse shall have been mailed to United. 9. With respect to claims or causes of action in favor of United or its directors, officers, agents or employees, they shall not be considered as additional insured thereunder. DATED: ---------------------- - ---------- * Confidential Treatment Requested 65 AUTHORIZED REPRESENTATIVE: -------------------------- APPENDIX G SAFETY STANDARDS FOR UNITED AIRLINES AND UNITED EXPRESS CARRIERS We have developed common safety standards to evaluate and effectively manage safety. We will commit to: Contractor represents and warrants that it is in compliance with the U.S. Department of Defense (DoD) Quality and Safety Requirements (and any other applicable governmental quality or safety requirement) and continues to comply with all applicable Federal Aviation Regulations (F.A.R.). Contractor further warrants that it shall maintain compliance with these requirements for the term of this Agreement. Additional safety reviews and audits may be required at United's discretion and Contractor shall cooperate with all such reviews and audits. In addition, Contractor agrees to the following: - - Mutual support of one another in implementing these standards by sharing safety data, information and expertise. - - Quality maintenance and operations training programs - - A carrier internal evaluation program to monitor key safety issues, including maintenance practices, required inspection items, technical document control, dangerous goods handling, training records and qualifications for all personnel. - - Quality programs to manage outsourcing of services. - - A formalized maintenance quality assurance program. - - Implementation of a program to rectify FAA inspection findings. - - Presence of a voluntary disclosure program. - - Formal process to routinely bring safety and compliance issues to the attention of carrier's senior management. - - Anonymous safety hazard reporting system. - - A Senior Management policy statement supporting open safety reporting by employees. - - Director of Safety, reporting to the highest levels of management, overseeing the carrier's safety programs. - - Process for managing required corrective actions from FAA and internal audit program as well as employee disclosure. - - Ongoing flight safety education/feedback program. - - Ground safety program in airport operating areas. - - Incident investigation process that includes accountability, recommendations and actions taken. - - Establishment and maintenance of emergency response procedures and manual. 66 - Participation in UAL/industry safety information exchange forum. 67 APPENDIX H UNITED EXPRESS SERVICE STANDARDS These Service Standards are meant to provide an overview for United Express carriers of the service expectations established by United Airlines for the day-to-day delivery of United's product. This document is not intended to be an all inclusive manual of regulations, but to instead serve as a simple, helpful source of information. The Service Standards outlined herein may change from time to time, subject to the needs of the operation and our product delivery. Any changes to these standards are at the sole discretion of United Airlines and are not subject to contractual negotiations. Provided, however, the parties have agreed to specific performance goals in this Agreement and nothing shall be altered or changed that otherwise affects the economics of the Agreement. It is the responsibility of each United Express carrier to maintain an adequate number of employees at each location and support group or department and to operate in a safe and reliable manner, which serves the customer at the levels of service outlined by these Service Standards. I. CUSTOMER SERVICE Uniforms: United Express employees are required to wear the United designated uniform for Customer Service personnel. There is to be no deviation from this uniform and it is to be worn at all times while on duty. Employees in uniform, on or off duty are not allowed to drink intoxicating beverages, give the appearance of being intoxicated or visit any establishment whose primary purpose is to dispense liquor (e.g. bars, saloons, cocktail lounges, liquor stores). "Uniform" refers to any uniform apparel bearing the United brand or insignia, or which can be in any way identified with United Airlines or United Express. Because the actions and appearance of employees influence, to a considerable extent, the public's opinion of the United brand, uniformed employees must be mindful of this and conduct themselves accordingly. For complete information on the uniform and accessory items, review the Customer Service Uniform Appearance Guidelines. Training: Each United Express carrier is responsible to train all Customer Service Representative (CSR) employees, including employees of another carrier who may be contracted to perform these duties, using the same training modules and computer assisted training provided by United Airlines. This training will include, but is not limited to, all functional aspects for customer handling at the ticket counter, gate, or baggage service. - United Airlines will provide the necessary "Train the Trainer" support, but it is the responsibility of each United Express carrier to maintain trainer proficiency, knowledge and skill level. - Each new hire CSR, or newly assigned CSR, must receive formal United Express customer service training as soon as possible, but not later than 30 days after the 68 date of employment or date of assignment. In either case, training must be specific to the employee's job function and task assignment. An employee may not work in an area in which he or she has not been properly trained. - Each CSR must maintain proficiency in product knowledge, delivery and skill level. - Each United Express carrier may add to the United training curriculum to meet its individual carrier needs, but it may not delete any portion of the United designated curriculum without written approval by United Airlines. - All CSRs must complete TL17/17 lessons each week within 7 days of issuance. Service Delivery: In the most basic interaction with the customer, United's service standards encompass the foundation of service, which is: 1) Greet the customer. 2) Use the customer's name. 3) Listen to the customers and respond to their needs. 4) Give direction to the next step. 5) Acknowledge the customer's importance to United and thank them for flying United Express. Goals: - Lobby line wait time: 10 minutes - Jet bridge delivery time: 1 minute - Meet the inbound aircraft (non-jet bridge locations) and open aircraft passenger door within 2 minutes of block time. Service Tools: Customer Problem Resolution, or CPR, was created as a means to provide customer service employees with the ability to resolve customer problems on the spot, as they occur. CPR may include certificates for a free drink, a credit of Mileage Plus miles to a customer's Mileage Plus account, or a Travel Certificate to be used towards the purchase of future airline tickets. Other tools may also include accommodation vouchers for hotels, cab/bus, or meals. It is the responsibility of the United Express carrier to use and manage these tools within United Airlines guidelines. The United Express carrier is accountable for the safeguarding and appropriate use of these very important customer tools. The United Express carriers are responsible for cost associated with any accommodation vouchers written as a result of Contractor's failure to complete a flight within 3 hours of scheduled completion time as a result of mechanical issues or crew delays. Flight Close Out: All flights must be closed out in Apollo/ACI immediately after departure. This includes making the appropriate PB, PFS and PD entries. All passenger counts, including revenue and non-revenue passengers, denied boardings, as well as an accounting of any bags held off due to weight/space restrictions, should be noted in the open comments field of the flight close out message. Flight close out must be completed within 10 minutes of flight departure. 69 Flight Information (FLIFO): All flights must be updated with OUT/OFF/ON/IN times within ten (10) minutes of actual occurrence to ensure accurate information to customers and to employees making operational decisions. ETAs and ETDs must also be entered within ten (10) minutes of the scheduled departure/arrival, and at every 10 minute interval thereafter for ongoing or rolling delayed flights. Customer Service Supplies: Each carrier must maintain an adequate amount of Customer Service supplies to conduct its day-to-day business operation. Each United Exprss carrier will use United Airlines designated supplies and vendors and is responsible for the purchase of those supplies, except where United handles that carrier. II. RAMP SERVICE Uniforms: United Express employees are required to wear the United designated uniform for Ramp Service personnel. There is to be no deviation from this uniform and it is to be worn at all times while on duty. Employees in uniform, on or off duty are not allowed to drink intoxicating beverages, give the appearance of being intoxicated or visit any establishment whose primary purpose is to dispense liquor (e.g. bars, saloons, cocktail lounges, liquor stores). "Uniform" refers to any uniform apparel bearing the United brand or insignia, or which can be in any way identified with United Airlines or United Express. Because the actions and appearance of employees influence, to a considerable extent, the public's opinion of the United brand, uniformed employees must be mindful of this and conduct themselves accordingly. - In a line station, employees may combine pieces of the customer service uniform with pieces of the ramp uniform as long as the shirt or blouse is either the customer service shirt or blouse, or the ramp knit shirt. - In a hub station, ramp personal must wear combinations of the United ramp uniform only. For a review of the Ramp Service uniform, review the Ramp Service Uniform Guide. Training: It is the responsibility of each United Express carrier to train its Ramp Service employees, including employees of another carrier who may be contracted to perform these duties. This training will include, but is not limited to, load planning, baggage handling, ramp safety and security, ramp driving, aircraft familiarization, aircraft servicing, receipt and dispatch of aircraft, baggage make-up, baggage transfer, claim area delivery, baggage scanning, live animal handling, dangerous goods, aircraft de-icing, Small Package Delivery ("SPD") and mail handling. - Each new hire, or newly assigned Ramp Service employee, must receive formalized training as soon as possible, but not later than 30 days after his or her date of employment or date of assignment. 70 - Each Ramp Service employee must maintain product and delivery proficiency, knowledge and skill level. Baggage Transfer: In a Hub or connecting station, each United Express carrier is responsible for the transfer of all baggage/mail/cargo to United and other airlines. Transferred bags are delivered as follows: - Carry-on (security checked) bags placed in the pit/hold, are to be removed and delivered to the customers immediately at planeside. - `City Bags' are to be delivered directly to the baggage claim area. - `Hot Bags', whose window of time is determined on a local level by United Airlines, are to be delivered to the connecting flight at the gate. The gate drop point is to be determined locally by United. - `Cold Bags', bags outside the Hot Bag window, are to be delivered to the designated sorter belt or transfer point. - `Interline Bags' are to be delivered to the designated interline drop point. Goals: - Claim Area Baggage Delivery: Priority Bags delivered First; Last City bag delivered within 20 minutes of flight Block time - Scanning: [97%] scanning rate uploaded within 10 minutes of departure of each flight - MBTA (Mishandled Baggage Trend Analysis or the ratio of passengers mishandled per 1000 boarded.): Rates are determined in conjunction with United's corporate goal on an annual basis - Message or meter to downline station with the transfer bag loading placements referred to as XBUE (Express Baggage loading message): Sent within 10 minutes of the departure of each flight - Baggage Loading Audits:[ 95%] compliance Ground Handling: United Express carriers are responsible for obtaining all applicable federal, state, and local regulatory approvals for conducting business at each location from which they operate. In addition, carriers will ensure their ground handling procedures will satisfy all federal, state, and local regulations. Each carrier will provide United with a copy of its station and ground handling procedures. From time to time, it may become necessary for United to ground handle United Express, or on very limited occasions for United Express carriers to ground handle United. It is the responsibility of the operating carrier to train the ground handling carrier in all aspects of the required work to be performed. Such work may include, but is not limited to: 71 - Receipt and dispatch of aircraft, ramp safety, ramp driving, aircraft differences, aircraft servicing (potable water and lavatory), aircraft cleaning, towing, baggage handling, baggage loading and transferring, live animal handling, deicing, weight and balance, and dangerous goods. Required training may be done one-on-one, group, or train-the-trainer. In the case of train-the-trainer, it is then the responsibility of the ground-handling carrier to train other additional personnel. The ground handling carrier will ensure that proper training records are initiated, retained and current. The ground-handling carrier will ensure that all required licenses and logs are maintained and retained as necessary. Each carrier is responsible for acquiring its required licenses. The ground handling carrier will cooperate with any required governmental or corporate inspection or audit, and will promptly correct any deficiencies found. The operating carrier is responsible for managing all performance related criteria. However, the ground handling carrier will make every "best faith" effort to ensure that all performance requirements are met. The ground handling carrier agrees to keep the operating carrier informed of any deficiencies, irregularities and breach of procedures or problems of any type that may negatively impact the operating carrier or its operating certificate. The ground handling carrier will immediately advise the operating carrier of any material change in space, parking location, manpower, or any other shortcoming that may impact either carrier's operation or costs. The ground handling carrier will use its own ground equipment wherever possible. III. IN FLIGHT Uniforms: United Express Flight Attendants are required to wear the United designated uniform. There is to be no deviation from this uniform and it is to be worn at all times while on duty. Employees in uniform, on or off duty are not allowed to drink intoxicating beverages, give the appearance of being intoxicated or visit any establishment whose primary purpose is to dispense liquor (e.g. bars, saloons, cocktail lounges, liquor stores). "Uniform" refers to any uniform apparel bearing the United brand or insignia, or which can be in any way identified with United Airlines or United Express. Because the actions and appearance of employees influence, to a considerable extent, the public's opinion of the United brand, uniformed employees must be mindful of this and conduct themselves accordingly. For complete information on the uniform and accessory items, review the Customer Service Uniform Appearance Guidelines. 72 Training: It is the responsibility of each United Express carrier to train its own Flight Attendants in accordance with its FAA-certified program. In Flight Service: - Wherever possible, snack and beverage items should be consistent with the products served by United Airlines. United acknowledges that Contractor has priced its rates for inflight service on soda and pretzel-like snacks. Any changes to this level will require an adjustment to the catering cost category. - All in-flight service items, including but not limited to napkins, cups, and food items, if branded, shall be branded as United Express. Contractor may, with the prominent use of the United Express logo, also indicate that the flight is operated by Contractor. - Each United Express aircraft will be supplied by United with an adequate supply of Hemispheres and SkyMall Magazines. United Express carrier must place these two magazines in the designated seat pocket of each seat. Hemisphere and SkyMall magazines are the only magazines authorized in the seat pockets. Exceptions must be approved in writing by United. - In all on board announcements, it is appropriate to announce the United Express carrier's name, but the name "United Express" must be included. For example, "On behalf of Mesa Airlines, we would like to thank you for flying United Express today." - While a contracted carrier provides basic announcements, United may request that the United Express carrier make promotional announcements on behalf of United from time to time. Such requests will be honored and executed by the United Express carrier. IV. OPERATIONAL GOALS There are four (4) primary operational Goals that each United Express carrier is expected to achieve: On-time-zero; Completion (less Weather/ATC/UA Requested Cancellations); MBTA, and Repurchase Intent. These goals are set at the beginning of each calendar year and may be adjusted year over year. In addition, other target goals may be added to help improve the operation, such as: STAR, Arrival: 14, Block Time, etc. It is expected that each carrier will use commercially reasonable, but diligent, efforts to achieve these goals, whether contractual or otherwise. Such goals may be changed or added to by United, as operational needs demand. - Controllable Completion: The Controllable flight completion goal shall be defined as to exclude all cancellations due to weather, ATC restrictions, acts or omissions caused by United or its employees or agents, cancellations resulting from emergency airworthiness directives, and requests made by United to cancel flights to free up ATC slots. Actual Controllable Completion is the actual number of completed departures / (divided by) (Total scheduled departures - (less) 73 cancels due to weather ATC, air worthiness directives, acts of omissions of United and United Requested Cancels ) - On Time Zero: The On Time Zero goal is the carriers system wide On Time Performance. Actual On Time Zero is the number of On Time Departures divided by the Total Scheduled Departures. - Mishandled Baggage-MBTA: (See above definition) Repurchase Intent (RPI) - Marketrak: United Airlines receives feedback from our customers through the "Marketrak" survey program on their satisfaction in flying United Express flights. Each United Express carrier must participate fully in this program. Ratings for RPI are not compared between carriers. Each carrier's individual rating is compared to its own historical performance. Repurchase Intent (RPI): RPI is based upon customer response to their intent to repurchase or use again United Express services as reflected in the Marketrak survey. Actual RPI shall be determined by the percentage of customer who responded on customer surveys that they would "Definitely" or "Most Likely" buy another ticket on United or United Express. V. MISCELLANEOUS ACARS: Each United Express carrier is to use an ACARS system on all United Express flights for the purpose of providing timely and accurate Flight Information (FLIFO). Signage: It is the responsibility of each United Express carrier to provide appropriate and adequate brand signage, which is designated and approved by United Airlines. Brand name(s) to be used on signage is as follows: - United Handled City: All signage will reflect the United Airlines brand. United Express signs may be used at the departure gate for United Express flights at the discretion of United. - Shared United/United Express Handled City: All signage at the ticket counter will reflect the United Airlines brand. Signage at the United Express handled gate(s) will reflect the United Express brand. Signage on the approach to the airport and on the curb to the airport terminal will primarily reflect United Airlines, but may, if appropriate, reflect United Express as well. - United Express Handled City: All signage will reflect the United Express brand. It is the responsibility of the United Express carrier to ensure that all federally mandated signage is in place in accordance with regulations. 74 Small Package Dispatch (SPD): United Express carriers will participate in United's SPD program, accepting SPD shipments at the ticket counter up to 1 hour prior to the departure of each flight and returning SPD shipments to the designated delivery point within 30 minutes of the arrival of each flight. Carrier will accomplish all necessary input of data into United AFIS system, within required input standards of the following: BSPD Build Air Waybill - SPD Within 1 hour of acceptance RAFT Shipment on hand - SPD Within 30 minutes of flight arrival U.S. Mail: United Express carriers will participate with United in the transportation of U.S. Mail in accordance with applicable guidelines. Each United Express carrier will work with United in obtaining USPS Air System Contracts for United designated market. Effective 9/28/2003 carriers participating in the CAIR 2003 contract will be required to scan individual pieces of mail at the following touch points: possession, load, transfer (if applicable) and delivery. The scanning will be required for payment and will be the basis for measuring performance. Performance is by class of mail: First Class Mail 92% Priority Mail 95% Express Mail 98% Station Operations Center (SOC) - Hub Locations: Each United Express carrier will provide adequate staffing in the United Airlines SOC of each designated hub city. Such Staffing will be provided during all normal hours of operation. 75 REMAIN-OVERNIGHT ("RON") CLEANING STANDARDS WORK TASKS AND STANDARDS MATRIX

AREA - OVERNIGHT CLEAN TASK - OVERNIGHT CLEAN APPEARANCE - ------------------------------------- ------------------------------------------------------- -------------------------------- FLIGHT DECK - Remove and replace trash bag - Windshield and glare - Vacuum the floor and seats shield are clear - Damp mop non-carpeted floor - Floors, seats, - Damp wipe inside and outside of dashboard and center console windshield and glare shield with water free of dust and debris - Remove debris - New trash bag - Spot clean ceiling/cockpit door - Clean cup holders,ceilings,doors GALLEY - Floor - vacuum and/or mop - Free of dirt and debris - Remove and dispose of all trash and - Hard surface floors and leftover service items from storage drains are dry areas. - Wash all hard surfaces in galleys: WATER ALL-PURPOSE CLEANER DISINFECTANT Coffee Makers Floors, walls, counters Mist Storage areas Counters & Floors, trash Drawers receptacles & compartments SEATS/JUMPSEATS - Brush crumbs and debris from seat area and floor - Seat area is free of (Includes all seat parts, i.e., seat - Remove dirt and debris from personal property areas dirt and debris pocket, tray tables, etc.) - Damp wipe phones - Clean personal property - Wipe arm and shroud of video screen areas - Cross seat belts - Seat belts are crossed - Wash tables with cleaner, dry & disinfect - Tables and hard - Cross seat belts surfaces are free of dirt and - Seat back pocket: CORRECT SAFETY CARD placed residue first in seat back pocket. Replace missing or - Materials are orderly damaged seat back pocket materials. and in like new condition - Straighten contents with CORRECT SAFETY CARD in front LAVATORY - Wash all hard surfaces with cleaners - Free of dirt, dust and and mist with disinfectant debris floor to ceiling - Scrub and clean toilet bowl with - Mirror is clean and brush and cleaner and reset splash pan streak free - Wipe all mirrors with glass cleaner - New odor end (if nec.) - Empty trash, wash container & compartment - Trash compartment and with cleaner, mist with disinfectant and chute free of debris and door latch door is latched - Replace odor end if necessary (fragrance missing) - Mop floor OVERHEAD BINS - Remove all debris - Free of debris - Damp wipe exterior surfaces - Clean exterior surfaces WALLS, CEILINGS, AIRCRAFT DOOR, - Damp wipe/dry with all-purpose cleaner - Clean, visible surfaces CONSOLES, WINDOWS BLANKETS AND PILLOWCASES - Clean in plastic or neatly folded - Clean

76 APPENDIX I Intentionally left blank. 77 APPENDIX J OFFICER POSITION'S ENTITLED TO POSITIVE SPACE LEISURE TRAVEL ON CONTRACTOR'S UNITED EXPRESS FLIGHTS * **** - ---------- * Confidential Treatment Requested 78 APPENDIX K REIMBURSEMENT FOR MANDATED CHANGES GOVERNMENTAL REQUIREMENTS. If any governmental rule, order, regulation, or requirement affecting: (i) all aircraft similarly equipped as the Aircraft referenced in Appendix B; or (ii) all airlines flying similar equipment as the Aircraft referenced in Appendix B (a "MANDATED CHANGE" or "MC"), results in an incremental increase in any of the Carrier Controlled Costs, per Aircraft, then United shall bear a part (the "UNITED MC COST") of the per Aircraft cost of implementing the MC (the "MC COST"), where the MC is issued after the Effective Date and performed during the Term of this Agreement, but only to the extent as computed as follows, and where: 1. If MC Cost is equal to or less than $*, Contractor pays *% of MC Cost, and the formula below is inapplicable. 2. If MC Cost is equal to or greater than $*, the United MC Cost shall be determined by applying the formula below, where C shall be equal to the MC Cost * $*. 3. If MC Cost is more than $*, but less than $*, the United MC Cost shall be determined by (a) first applying the formula below, where C shall be equal to the MC Cost minus $*, then (b) multiplying this formula-derived * by the unadjusted MC Cost (stated in $*) and dividing by *, to yield the final United MC Cost ***** * is (*) of the total number of (*); * is the number of (*) (a) starting from either (i) for Mandated Changes which are to be complied during or prior to the * month anniversary of this Agreement, of the Term of the Agreement or (ii) for Mandated Changes which are to be complied with after the * month anniversary of this Agreement, *, and (b) ending in the month in which the Mandated Change is complied with; * is the considered life of the MC in months; * is the cost of the MC (i.e., the MC Cost), as adjusted in subparagraphs 2 and 3 above; * is United's MC Cost. - ---------- * Confidential Treatment Requested 79 If a Mandated Change, as issued, has a specific limited life less than *, then the number of months limiting the life of the Mandated Change shall be substituted for * in the formula set out above. If the life of the Mandated Change is related to flight hours and aircraft cycles then a flight-time related life shall be computed for such Mandated Change as issued based on the average utilization of the Aircraft. Contractor shall advise United of each single Mandated Change compliance requirement, the incremental cost of which is expected to exceed $* per Mandated Change. United and Contractor agree that the cost of complying with any Mandated Change shall be based on Contractor's direct (out of pocket) cost therefore and that United and Contractor shall exercise their best joint efforts to minimize the cost of such compliance and, if any Mandated Change is proving to be financially burdensome to either party, to find a mutually agreeable solution to such financial burden. - -------- * Confidential Treatment Requested 80 EX-21.1 3 p69986exv21w1.htm EX-21.1

EXHIBIT 21.1

LIST OF SUBSIDIARIES OF

MESA AIR GROUP, INC.

1.	Mesa Airlines, Inc.
2.	Air Midwest, Inc.
3.	Freedom Airlines, Inc.
4.	MPD, Inc.
5.	Regional Aircraft Services, Inc.
6.	MAGI Insurance, Inc.
7.	Ritz Hotel Management Corp.
8.	Mesa Air Group Airline Inventory Management, L.L.C.

EX-23.1 4 p69986exv23w1.htm EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-02791, 333-09395, 333-83799, 333-83801, 333-83803, 333-83805, 333-58646 and 333-107404 of Mesa Air Group, Inc. on Form S-8 and Registration Statement Nos. 333-108490 and 333-115312 on Form S-3 of our report dated December 13, 2004, (which expresses an unqualified opinion and includes an explanatory paragraph relating to the Company’s significant code-sharing agreements), appearing in this Annual Report on Form 10-K of Mesa Air Group, Inc. for the year ended September 30, 2004.

DELOITTE & TOUCHE LLP

Phoenix, Arizona
December 13, 2004

73

EX-10.17

                                                                   EXHIBIT 10.17

                                             * TEXT OMITTED AND FILED SEPARATELY
                                                CONFIDENTIAL TREATMENT REQUESTED
                                           UNDER 17 C.F.R. SECTION 200.80(B)(4),
                                                            200.83 AND 240.24b-2

                                                      United Contract No. 163872

                              AMENDED AND RESTATED

                           UNITED EXPRESS(R) AGREEMENT

                                     BETWEEN

                             UNITED AIR LINES, INC.

                                       AND

                              MESA AIR GROUP, INC.



                                TABLE OF CONTENTS



ARTICLE                              TITLE                                PAGE
- -------                              -----                                ----
                                                                       
I.         DEFINITIONS.................................................     1

II.        SCOPE, TERM, AND CONDITIONS.................................     4

           A.  SCOPE ..................................................     4

           B.  TERM ...................................................     5

           C.  CONDITIONS..............................................     7

III.       SUPPORT SERVICES AND FACILITIES.............................     7

           A.  GENERAL.................................................     7

           B.  SPECIAL SUPPORT SERVICES................................     7

           C.  COMMUNICATIONS..........................................    10

           D.  RESERVATIONS............................................    10

           E.  OPERATIONS..............................................    11

           F.  STATION SUPPORT SERVICES................................    14

           G.  TARIFFS AND SCHEDULE PUBLICATION........................    14

           H.  SALES SETTLEMENT........................................    15

           I.  ADVERTISING AND PROMOTIONS..............................    17

           J.  AUTOMATION..............................................    17

           K.  OTHER SUPPLIES..........................................    20

           L.  CONTRACTOR ASSISTANCE...................................    21

IV.        AIR SERVICES TO BE PROVIDED BY CONTRACTOR...................    21

           A.  SCHEDULES AND CHARTERS TO BE OPERATED BY CONTRACTOR.....    21

           B.  AIRCRAFT TO BE USED.....................................    23

           C.  INVENTORY...............................................    26

           D.  FLIGHT CREWS TO BE USED.................................    26

           E.  INFLIGHT SALES..........................................    27


                                                                               i


                                                                        
V.         OPERATING RESTRICTIONS......................................    27

           A.  UNITED EXPRESS OPERATIONS ONLY..........................    27

           B.  NO OPERATION OUTSIDE AGREEMENT..........................    27

           C.  BREACH OF OPERATING RESTRICTIONS........................    28

VI.        LICENSE.....................................................    28

           A.  GRANT OF LICENSE........................................    28

           B.  TERMS AND CONDITIONS GOVERNING LICENSE..................    28

           C.  INFRINGEMENT............................................    30

VII.       ADDITIONAL UNDERTAKINGS.....................................    30

           A.  BULK PURCHASES..........................................    31

           B.  FUEL ...................................................    31

           C.  PURCHASE BY UNITED OF PASS THROUGH COST ITEMS...........    31

           D.  UNIFORMS................................................    31

           E.  PASSES AND REDUCED RATE TRAVEL..........................    31

           F.  SIGNAGE.................................................    32

           G.  ENVIRONMENTAL...........................................    32

           H.  START-UP COSTS..........................................    32

           I.  AIRCRAFT SUBSTITUTIONS..................................    33

VIII.      RATES PAYABLE TO CONTRACTOR.................................    33

           A.  RATES ..................................................    33

           B.  OPERATING GOALS.........................................    36

           C.  MARKUP .................................................    37

           D.  WIRE TRANSFER AND RECONCILIATION........................    37

IX.        FEES PAYABLE TO UNITED......................................    38

           A.  GOVERNMENT ASSISTANCE...................................    38

X.         MAINTENANCE AND FUELING.....................................    39



                                                                              ii


                                                                        
XI.        U.S. MAIL...................................................    39

XII.       INSURANCE...................................................    39

           A.  INSURANCE TYPES.........................................    39

           B.  30-DAY NOTICE...........................................    40

           C.  FAILURE TO MAINTAIN INSURANCE...........................    40

XIII.      LIABILITY AND INDEMNIFICATION...............................    40

           A.  EMPLOYER'S LIABILITY AND WORKERS' COMPENSATION..........    40

           B.  INDEMNIFICATION BY CONTRACTOR...........................    40

           C.  INDEMNIFICATION BY UNITED...............................    41

           D.  CONTRACTOR'S SUPPLIES LIABILITY.........................    41

           E.  UNITED DEFINITIONS......................................    43

XIV.       REPORTS.....................................................    43

           A.  CLOSE-OUT ENTRIES.......................................    43

           B.  BOARDING INFORMATION....................................    44

           C.  OPERATING PERFORMANCE...................................    44

           D.  INSPECTION..............................................    44

           E.  FINANCIAL STATEMENTS....................................    44

           F.  GOVERNMENT FILINGS......................................    44

           G.  COPY OF GOVERNMENT REPORTS..............................    45

XV.        INDEPENDENT CONTRACTORS AND UNAUTHORIZED OBLIGATIONS........    45

           A.  INDEPENDENT CONTRACTORS.................................    45

           B.  UNAUTHORIZED OBLIGATIONS................................    46

           C.  CONTRACTOR OPERATED FLIGHTS.............................    46

XVI.       DEFAULT AND TERMINATION.....................................    46

           A.  OPERATIONS DEFAULT......................................    46

           B.  COVENANT DEFAULT........................................    47



                                                                             iii


                                                                        
           C.  DEFAULT BY CONTRACTOR...................................    47

           D.  SIMILAR AGREEMENTS......................................    48

           E.  NON-COMPLIANCE WITH STANDARDS...........................    48

           F.  CONSEQUENCES OF TERMINATION.............................    49

           G.  UNITED'S LIQUIDATED DAMAGES.............................    49

           H.  RESTRICTED ACTIONS......................................    50

XVII.      ASSIGNMENT, MERGER AND ACQUISITION..........................    50

           A.  ASSIGNMENT..............................................    50

           B.  MERGER AND ACQUISITION..................................    51

XVIII.     CHANGE OF LAW...............................................    51

XIX.       TAXES, PERMITS AND LICENSES.................................    51

           A.  TRANSACTION TAXES.......................................    51

           B.  PAYROLL TAXES...........................................    52

           C.  PERMITS AND LICENSES....................................    52

XX.        REVIEW......................................................    52

XXI.       JURISDICTION................................................    53

XXII.      NOTICES.....................................................    53

XXIII.     APPROVALS AND WAIVERS.......................................    54

XXIV.      GOVERNING LAW...............................................    54

XXV.       CUMULATIVE REMEDIES.........................................    54

XXVI.      FORCE MAJEURE...............................................    55

XXVII.     SEVERABILITY AND CONSTRUCTION...............................    55

XXVIII.    ACKNOWLEDGMENT..............................................    55

XXIX.      CONFIDENTIALITY.............................................    55

XXX.       RELATED AND THIRD PARTY AGREEMENTS..........................    56

XXXI.      ENTIRE AGREEMENT............................................    56



                                                                              iv


                                                                          
  XXXII.     REFERENCES TO TIME PERIODS...................................   56

APPENDIX A   .............................................................   58

APPENDIX B   .............................................................   59

APPENDIX C   .............................................................   60

APPENDIX D   .............................................................   61

APPENDIX E   .............................................................   63

APPENDIX F   .............................................................   64

APPENDIX G   .............................................................   66

APPENDIX H   .............................................................   68

APPENDIX I   .............................................................   77

APPENDIX J   .............................................................   78

Appendix K   .............................................................   79



                                                                               v


                                             * TEXT OMITTED AND FILED SEPARATELY
                                                CONFIDENTIAL TREATMENT REQUESTED
                                           UNDER 17 C.F.R. SECTION 200.80(B)(4),
                                                            200.83 AND 240.24b-2

                           UNITED EXPRESS(R) AGREEMENT

      This Agreement, dated as of January 28, 2004, is between UNITED AIR LINES,
INC., a Delaware corporation, with its worldwide headquarters located at 1200 E.
Algonquin Road, Elk Grove Township, IL 60007 ("UNITED"), and Mesa Air Group,
Inc., a Nevada corporation, having its principal mailing address at 410 N 44th
St., Suite 700 Phoenix, AZ 85008 ("CONTRACTOR").

                                   WITNESSETH:

      WHEREAS, United holds a certificate of public convenience and necessity
issued pursuant to the Federal Aviation Act of 1958 authorizing United to engage
in air transportation of persons, property and mail, and is a major airline
providing scheduled air service in both national and international markets;

      WHEREAS, Contractor is the parent company of a group of air carriers
holding a certificate of public convenience and necessity issued pursuant to the
Federal Aviation Act of 1958 authorizing them to engage in air transportation of
persons and property;

      WHEREAS, Contractor is willing to cause one or more of its wholly-owned
subsidiaries to perform service on behalf of United;

      WHEREAS, United owns various trademarks, service marks, trade names,
logos, emblems, uniform designs and distinctive exterior and interior color
decor and patterns for its aircraft, including, but not limited to, the service
mark United Express (hereinafter referred to individually and collectively as
"UNITED MARKS" or "MARKS");

      WHEREAS, United has entered into agreements with several regional carriers
to provide air transportation services under the United Express mark for city
pairs where it is generally uneconomic for United to operate such services;

      WHEREAS, United will provide Contractor, pursuant to the terms of this
Agreement, a non-exclusive license to use one or more of the United Marks in
connection with Contractor's United Express Services.

      NOW, THEREFORE, in consideration of the foregoing premises, mutual
covenants and obligations hereinafter contained, the parties agree as follows:

I     DEFINITIONS

      A. "Apollo Services" means the computerized Apollo Reservations and
Ticketing Service (or any similar or substitute service offered by or on behalf
of United),  which

                                                                               1


performs flight, hotel, rental car and other travel related services,
reservations and ticket issuance functions.

      B. "Contractor Location"

      means any airport terminal facility where Contractor provides Contractor's
United Express Services pursuant to this Agreement and Contractor, but not
United, has employees stationed (including any terminal facility where
Contractor provides Contractor's United Express Services pursuant to this
Agreement that is different from the terminal facility from which United
operates in the same airport).

      C. "Contractor's United Express Services"

      means the services or operations provided and maintained by Contractor or
its affiliates in connection with providing scheduled air transportation service
as a United Express Carrier and related ground and other services to United and
its affiliates pursuant to the terms of this Agreement (including, without
limitation, the services required under ARTICLE IV).

      D. "United Express Service Standards" or "Service Standards"

      means the procedures prescribed by United that describe United's approved
standards, policies, requirements and procedures for various activities relating
to the provision of air transportation services. These Service Standards are
provided in APPENDIX H.

      E. "Default"

      means, individually or collectively, a SECTION A DEFAULT, a SECTION B
DEFAULT, a SECTION C DEFAULT, a SECTION D DEFAULT, or a SECTION E DEFAULT, each
as defined in ARTICLE XVI.

      F. "Designated Personnel"

      means all of Contractor's employees who provide Contractor's United
Express Services in job classifications requiring direct public contact.
Furthermore, this covers all customer service, ramp service, pilots, and flight
attendants.

      G. "Effective Date"

      shall have the meaning set forth in ARTICLE II.B.

      H. "Environmental Laws"

      means all federal, state, local and foreign laws and regulations, and
airport rules, regulations and policies relating to pollution or the
environment, including, without limitation, laws and regulations relating to
emissions to the air, discharges to surface and subsurface waters, safe drinking
water, the storage, release, disposal, transport or

                                                                               2


handling of chemicals, pollutants, contaminants, wastes, hazardous substances,
petroleum and petroleum products, and aircraft noise, vibration, exhaust and
overflight.

      I. "Ground Handling Duties"

      means the provision of one or more of the following: (1) lavatory service,
(2) overnight cabin cleaning, (3) loading and unloading of baggage, mail and
freight, (4) receipt and dispatch, (5) baggage delivery, and (6) provisioning
personnel and storage space.

      J. "Ground Handling Provider" means, for each city in which Contractor
operates flights in Contractor's United Express Services, either United or
another entity selected by United (which, in some cities, will be Contractor) to
provide ground handling services to Contractor in that city.

      K. "Joint Location"

      means any airport terminal where Contractor provides Contractor's United
Express Services pursuant to this Agreement and both United and Contractor have
employees stationed.

      L. "Marks" or "United Marks"

      shall have the meaning set forth in the recitals of this Agreement.

      M. "Rates"

      shall have the meaning set forth in ARTICLE VIII

      N. "Related Agreements"

      shall have the meaning set forth in ARTICLE XXX.

      O. "Revenue Passenger"

      means each passenger traveling on Contractor in connection with
Contractor's United Express Services who holds a ticket (electronic or
otherwise), flight coupon, voucher or other form of document that (i) entitles
that passenger to board an aircraft and (ii) is issued pursuant to or in
connection with a published or unpublished fare. Passengers traveling on a
purchased ticket (including ID50 airline industry reduced rate tickets),
wholesaler voucher, or voucher issued as denied boarding compensation, shall be
considered to be Revenue Passengers. In addition, passengers traveling on a free
ticket as (or as part of) a Mileage Plus(R) award or a free ticket issued in
conjunction with a two-for-one fare or other similar fare established by United,
shall be considered to be Revenue Passengers. A passenger traveling on any other
type of free or service charge-based ticket, including, but not limited to, a
site inspection ticket, or wholesaler compensation ticket, any travel agent or
wholesaler traveling on a positive space or space available ticket, and any
employee of United, Contractor or any other carrier traveling on

                                                                               3


either a positive space or space available ticket, shall not be considered a
Revenue Passenger. All Revenue Passengers shall be considered when calculating
any Monthly Incentive Payment.

      P. "Support Services"

      means those activities set forth in ARTICLE III which are related to the
operation of airline services except during flight.

      Q. "Termination Date"

      shall have the meaning set forth in ARTICLE II.B.

      R. "United Express Carrier"

      means an air carrier which has been contractually given a non-exclusive
license to use the mark United Express and one or more other United Marks in
connection with providing air transportation service to United pursuant to an
agreement between United and such air carrier.

      S. "United Location"

      means any airport terminal facility where Contractor and United both have
operations and United, but not Contractor, has employees stationed.

      T. "United's Actual Cost"

      means any and all costs or expenses actually incurred by United, not
including any markup by United, any allocation of administrative or overhead
expenses, or any administrative service charge imposed by United.

      U. "Aircraft Used in United Express Service"

      means any type and amount of aircraft set forth in APPENDIX A.

II.   SCOPE, TERM, AND CONDITIONS

      A. SCOPE

      The scope of this Agreement pertains to type and amount of Contractor's
aircraft set forth in APPENDIX A, and as it may be amended in accordance
herewith from time to time.

                                                                               4


      B. TERM

      1. TURBOPROP: This Agreement becomes effective on July 6, 2003 at 1:01
a.m., Chicago, Illinois time, on (the "EFFECTIVE DATE") and shall terminate 10
years from the effective date (the "TERMINATION DATE"), unless it is terminated
at an earlier date by United giving written notice * months prior to the *
anniversary of the Effective Date, or as otherwise set forth under the
provisions of this Agreement. Notwithstanding the preceding sentence, those
provisions of this Agreement that specifically require actions prior to the
Effective Date shall be effective upon execution of this Agreement. * months
prior to the Termination Date, United and Contractor shall engage in discussions
regarding the potential extension of the Agreement or ramp down schedule for
Contractor's United Express operations; provided, however, that the decision to
extend or ramp down the Agreement shall be at United's sole discretion. The
terms of any extension of the Agreement will be mutually agreed upon by
Contractor and United.

            (i)   DELIVERY OF TURBOPROPS: Turboprops must be delivered and ready
to enter the United Express schedule on the dates described in Appendix A.

            (ii)  CONSEQUENCES FOR LATE DELIVERY OF TURBOPROPS: If any Turboprop
is delivered later than * after the dates set out in Appendix A other than for
reasons set forth below *. If, upon inspection, an aircraft is determined by
Contractor to have any damage that must be repaired, or if the aircraft is
damaged after takeoff en route to Contractor for delivery, Contractor will have
the choice either to repair or replace the aircraft. If Contractor chooses to
repair the aircraft, the * deadline will be extended by no longer than the time
spent repairing the aircraft after the original * deadline. If Contractor
chooses to replace the aircraft, the * deadline will be extended by no longer
than the time it would have taken to repair the aircraft. The inspection
mentioned above must take place on or before *, regardless of the date of this
contract, and if Contractor determines from such inspection that repairs will be
necessary, Contractor must advise United of this delay by no later than * or
this extension of the delivery deadline will be waived. For no other reason will
the * deadline be extended. In such a case where repairs are required,
Contractor will use commercially reasonable efforts to expedite the repairs to
the aircraft.

      2. REGIONAL JET: This Agreement as it relates to the RJ-50 and RJ-70
(collectively, "RJ") fleet becomes effective on August 1, 2003 at 1:01 a.m.,
Chicago, Illinois time (the "RJ START DATE").

            a.    INITIAL RJ-70: The first * 70-seat or 64-seat Regional Jet
("RJ") aircraft, as the case may be, will be divided into three tranches of *, *
and * aircraft, respectively ("RJ Tranches"). The term of this Agreement for (a)
the first RJ Tranche, which shall consist of the * RJ aircraft having the
earliest lease expiration dates, will expire December 31, 2011, (b) the second
RJ Tranche of * RJ aircraft will expire on December 31, 2012, and (c) the third
RJ Tranche, which shall consist of the * RJ aircraft having the latest lease
expiration dates, will expire on December 31, 2013. Upon expiration of this
Agreement for each RJ Tranche, and if United

- -----------------------------
*Confidential Treatment Requested

                                                                               5


and Contractor do not thereupon extend the term of this Agreement for such RJ
Tranche, then ramp down of the aircraft for such RJ Tranche out of the terms and
conditions of this Agreement will take place gradually over * following
termination at a rate of no more than * aircraft per month, to be mutually
agreed upon by United and Contractor.

                  (i)   DELIVERY OF INITIAL RJ-70s: RJ-70s must be delivered and
ready to enter the United Express schedule on the dates described in Appendix A.

                  (ii)  CONSEQUENCES FOR LATE DELIVERY OF RJ-70S: If any RJ-70
is delivered later than * after the dates set out in Appendix A, *. In the case
where any of the RJ-70s cannot be delivered because of a delay by Bombardier of
RJ-900s to Contractor for reasons wholly related to Bombardier manufacturing
(including Bombardier employee strikes), and in the case that Bombardier can
produce verifiable proof that the delivery of the RJ-900s was a) delayed (and
the period of delay) and b) delayed for reasons wholly related to Bombardier
manufacturing (including Bombardier employee strikes), then *.

            b.    RJ-50: For * 50-seat Regional Jet ("RJ-50") aircraft, the term
of this Agreement will expire no later than December 31, 2008 and will
correspond to the introduction of the * Replacement RJ 70s as outlined in
ARTICLE FII.B.2.c.

                  (i)   DELIVERY OF FIRST FIVE RJ-50S: First * RJ-50s must be
delivered and ready to enter the United Express schedule on the dates described
in Appendix A.

                  (ii)  CONSEQUENCES FOR LATE DELIVERY OF FIRST FIVE RJ-50S: If
any RJ-50 is delivered later than * after the dates set out in Appendix A *.

                  (iii) DELIVERY OF LAST TEN RJ-50S: Contractor must provide
delivery dates for each of the Last * RJ-50s at any time at its discretion
before *. Once Contractor has submitted to United the delivery dates for the
Last * RJ-50s, at United's sole discretion United will be entitled to accept or
decline authorization of these aircraft on an aircraft by aircraft basis. If
accepted, Contractor must deliver the RJ50 on the date set out in the Last *
RJ-50 Schedule. If declined, Contractor will no longer be authorized to add the
declined aircraft to United Express' Fleet and no payments or penalties will be
owed by United on such declined aircraft..

                  (iv)  CONSEQUENCES FOR LATE DELIVERY OF LAST TEN RJ-50S: If
any RJ-50 is delivered later than * after the dates set out in Last * RJ-50
Schedule, *.

            c.    15 REPLACEMENT RJ 70S: The delivery of * RJ70s will occur no
sooner than the withdrawal of the * short term RJ50s on a one for one basis. *
All Replacement RJ-70 deliveries (and the corresponding RJ-50 retirements) must
be completed by no later than *. The term for the * replacement RJ 70s shall
expire * from the delivery of each individual RJ70, but in any case no later
than December 31, 2018.

- -----------------------------
*Confidential Treatment Requested

                                                                               6


                  (i)   DELIVERY OF REPLACEMENT RJ-70S: Contractor must advise
United of the delivery date of each Replacement RJ-70 no later than * before the
delivery date of each RJ-70. Contractor must advise United of the delivery dates
of all RJ-70s no later than *. Replacement RJ-70s must be delivered and ready to
enter the United Express schedule on these dates.

                  (ii)  CONSEQUENCES FOR LATE DELIVERY OF REPLACEMENT RJ-70S: *.

      C.    CONDITIONS

            1. RENEWAL OPTION. Upon expiration of this Agreement, for each RJ-70
Tranche and for the RJ-50 fleet, United may renew the term hereof for each RJ
Tranche aircraft and for each RJ-50 aircraft for an additional term of *, on the
then existing terms and conditions, upon at least * written notice prior to the
end of such term.

PILOT CONSIDERATION for 70-seat Regional Jet Employment for Furloughed United
Pilots. Contractor acknowledges that United has been required to furlough some
of its pilots over the past several years. As additional consideration, with the
exception of Paragraph 11 of the Letter 03-22, Contractor has agreed to
provisions outlined in Letter 03-22, Letter 03-23 and Letter 03-24, "Job
Opportunities for Furloughed United Pilots" between United and the Air Line
Pilot Association dated August 21, 2003, August 21, 2003 and September 5, 2003,
which is incorporated herein by reference. United retains the right to recall
furloughed pilots hired by Contractor. Should United decide to recall
aforementioned pilots within * months of any pilot's Contractor hire date,
United will reimburse the aforementioned pilots for Contractor's pilot prorated
training costs of $* per CRJ pilot, $* per Dash-8 pilot and $* per B1900 pilot,
prorated by the number of months remaining until that pilot's * anniversary as
compared to the full cost over *.

III.  SUPPORT SERVICES AND FACILITIES

      A. GENERAL

            1. SUPPORT SERVICES. United and Contractor will provide Support
Services and facilities to the extent and in the manner set forth in the
subsequent provisions of this ARTICLE III. All such Support Services and
facilities set forth in this ARTICLE III will be furnished only with respect to
Contractor's United Express Services.

            2. APPROVAL OF SUPPORT SERVICES. United reserves the right to
approve or disapprove the implementation of any Support Services or facilities
offered to Contractor for Contractor's United Express Services by any third
party at any location. Such approval shall not be unreasonably withheld.

      B. SPECIAL SUPPORT SERVICES

- -----------------------------
*Confidential Treatment Requested

                                                                               7


            In addition to other services to be made available to or provided to
Contractor pursuant to this Agreement, and as summarized in and in accordance
with APPENDIX B (City Pairs and Ground Handling) and APPENDIX C (Contractor
Support Services), United agrees that it or its designees will provide and
Contractor agrees to use the following services and facilities for Contractor's
United Express Services, be they provided by United or its designee:

            1. USE OF THE UNITED DESIGNATOR CODE

            All scheduled air transportation provided by Contractor as a part of
Contractor's United Express Services will be displayed by United in Apollo
Services, the Official Airline Guide ("OAG") and all other computerized
reservations systems, using the appropriate United designator code, "UA" or
"UA*," and a flight number within a range of flight numbers assigned by United.

            2. USE OF APOLLO SERVICES

            In selling and providing Contractor's United Express Services,
Contractor will only use Apollo Services, including United's automated check-in,
United's ticketing (including United's electronic ticketing service,
E-Ticket(SM)) and boarding passes, advance seat reservation system and United's
automated baggage tag printing and baggage tracing systems.

            3. PARTICIPATING IN UNITED'S MILEAGE PLUS(R) PROGRAM

            At United's discretion, all passengers with paid tickets traveling
on a flight segment included in Contractor's United Express Services, whether or
not in conjunction with a United flight segment, will be awarded mileage credits
for United's Mileage Plus Program or any other frequent flyer program as
specifically approved by United. Contractor shall not participate in the
frequent traveler program of any other carrier in connection with Contractor's
United Express Services, unless otherwise mutually agreed between United and
Contractor in writing. United has sole discretion concerning decisions relating
to accrual or redemption of award travel on Contractor's United Express flights.
In addition, United will bear the cost of providing redemption travel and
receive all revenue and benefits from the sale of frequent flyer credits (e.g.
miles) related to Contractor's United Express service.

            4. USE OF UNITED TICKET STOCK, BAGGAGE TAGS AND TICKET WALLETS

            In selling air transportation of passengers and property, both
on-line and off-line, Contractor will use only United passenger ticket stock,
ticket wallets and baggage tags in connection with Contractor's United Express
Services. Unless otherwise agreed, United will provide to Contractor all United
passenger ticket stock, United airway bills, United cargo bills and other
shipping documentation for all Contractor's United Express Services, and United
will provide to Contractor ticket wallets and baggage tags for Joint Locations
and United Locations only; provided that such quantities do not exceed
reasonable levels. Contractor shall reimburse United, at United's Actual Cost,
for all

                                                                               8


documentation requested by Contractor. Ticket wallets, baggage tags and other
passenger processing documents approved by United will be acquired by Contractor
for all Contractor Locations through a supplier designated by United. Contractor
shall be required to convert to the use of different ticket wallets, baggage
tags and other passenger processing documents upon * prior written notice to
Contractor by United.

            5. CREDIT CARD SALES AND REJECTS; BAD CHECKS

            Contractor will use only credit-industry or airline-industry
standard credit card vouchers and receipts in connection with credit card sales
for tickets, cargo, excess baggage or other services on Contractor's United
Express Services. * Contractor will reimburse United for the expenses of such
discount fees and credit card rejects. Contractor will absorb the risk of bad
checks used as payment for tickets and vouchers written by Contractor for
passage or freight in connection with Contractor's United Express Services.

            6. DENIED BOARDING

                  a.    In the event of voluntary or involuntary denied
boardings, Contractor shall make a good faith effort to rebook United Express
customers on the next available flight operated by one of United's code share
partners, such as US Airways, or a Star Alliance partner, provided that the
routing is logical and does not seriously inconvenience the customer.

                  b.    Contractor is required to provide to United, upon
specific written request from United, specific station information regarding the
weight restrictions and aircraft limitations which could results in Denied
Boardings. Such requests shall be made by United's Revenue Management Department
(WHQIM) and responses from Contractor shall be provided within * weeks of such
request.

                  c.    United will pay Contractor the Unit Rates per completed
passenger for interrupted trip expense (RJ-50 and RJ-70 only) as set forth in
Appendix D. Contractor and United agree to review the interrupted trip expense
six months after execution of this agreement. If Contractor's actual
uncontrollable costs are below $* per passenger, Contractor will reduce this
rate to the actual cost for the remainder of this agreement.

            7. TICKET AND BAGGAGE HANDLING FEES

            All ticket handling, baggage handling and other service charges and
fees assessed by carriers other than United relating to Contractor's services
(including, but not limited to, Contractor's United Express Services) will be
absorbed directly by United.

            8. CUSTOMER SERVICE TRAINING

            On a schedule, at a place, to an extent, for a number of persons,
and in a manner determined by United, United will provide training for
Contractor's instructors

- -----------------------------
*Confidential Treatment Requested

                                                                               9


that United deems sufficient to permit Contractor's instructors to be able to
provide and train others to provide customer services for Contractor's United
Express Services. Contractor will have no obligation to pay United for such
training. However, Contractor agrees to adhere to the United Express Standards
of Service as outlined in APPENDIX H for all Customer Service of their United
Express flights.

      C. COMMUNICATIONS

            1. TELEPHONE AND DATA LINES

            United, at its expense, will provide and maintain or arrange for the
provision of reservations telephone lines connecting the cities served by
Contractor in connection with Contractor's United Express Services with United's
Reservations Centers. United, at its expense, will establish, operate and
maintain or arrange for the provision of the data circuits from Contractor's
airport ticket offices and other selected locations linking the United-approved
data processing equipment at those locations with Apollo Services. United, at
its expense, will also provide and arrange for Contractor's SOC Communication
with Apollo Services. United will determine, at its sole discretion, the
necessity and feasibility of installing all such communications equipment. All
other telephone expenses, such as Contractor's long distance expenses shall be
borne by Contractor as a station operating expense.

            2. PROTECTION OF CIRCUITS

            Contractor will take all necessary precautions to protect the data
circuits provided for Contractor's use pursuant to this Agreement by United or
its designee.

      D. RESERVATIONS

            1. RESERVATIONS FUNCTIONS

            United agrees to provide, at its expense, the following reservations
functions for Contractor's United Express Services:

                  a.    Answering reservations telephones, providing information
regarding schedules and fares, making bookings and providing other services
normally associated with airline reservations services in accordance with
United's established procedures.

                  b.    Providing personnel so that telephone calls are answered
at a service level determined by United.

                  c.    Answering all calls terminating on specified telephone
lines as United or United Express, at United's option.

                  d.    To the extent practicable, re-accommodating and
notifying passengers of confirmation on United, Contractor and other airlines
and clearance from wait-list.

                  e.    Reviewing and processing inbound prepaid ticket advices.

                                                                              10


                  f.    Providing reservations services to the hearing impaired
via a special telephone number during normal business hours.

            2. APOLLO SERVICES ACTIVITIES

            Contractor agrees to use Apollo Services for the following
activities for Contractor's United Express Services, which are to be provided by
United:

                  a.    Establishment, maintenance, display and change of
passenger name records (PNRs).

                  b.    Confirmation of passengers against seat inventory on
Contractor's United Express Services and United's scheduled flights and on other
airlines where flight availability is maintained in Apollo Services.

                  c.    Maintenance of seat availability for Contractor's United
Express Services scheduled flights.

                  d.    Transmission of availability status messages (AVS) for
Contractor's United Express Services scheduled flights to other airlines with
which United has an agreement in accordance with Standard Industry Passenger
Procedures (SIPP).

                  e.    Process inbound reservations messages received from
ARINC addressed to Contractor.

                  f.    Routing of all inbound messages received from ARINC,
other than as stated in ARTICLE III.A.1.d above, to a computer message queue.

            3. CRS FEES

            Computer Reservations System ("CRS FEES") charged to Contractor as a
result of passengers booked on Contractor's United Express will be passed
through to United without markup and subject to invoice audit by United. As soon
as possible, United shall pay such CRS fees on behalf of Contractor.

      E. OPERATIONS

            1. SCHEDULED SERVICE UPDATE

            Contractor will provide accurate updates of its flights' planned and
actual departure and arrival times (including updates of irregularities) in
Apollo Services as soon as the planned flight schedule is changed and the flight
departs and arrives or suffers an irregularity. Specifically, this includes
updating the out, off, on and in times for the aircraft within * minutes of the
occurrence of each event. In the event of flight delays, cancellations or other
schedule irregularities affecting Contractor's United Express Service flights,
and as soon as information concerning such irregularities is available,

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Contractor shall update Apollo Services to reflect such information and, when
requested by United, notify the designated United organization. For delayed
flights, Contractor shall provide updates to Customers and Apollo in no less
than * minute intervals. For purposes of this Agreement, such scheduled and
actual departure and arrival and irregularity information shall be known as
"FLIFO." United will notify Contractor in writing as soon as practicable after
United determines that Contractor has failed to update FLIFO in a timely and
accurate manner. If Contractor fails * times in any consecutive * period (the
"FLIFO THRESHOLD") to update FLIFO in a timely and accurate manner as soon as it
becomes evident to Contractor that a schedule deviation shall take place, then
upon notification by United to Contractor, Contractor shall pay United damages
of * for each occurrence over and above the first * occurrences during such *.
United agrees to bill Contractor any amount owed under this Section within *
after the end of each calendar * period during which Contractor has exceeded the
FLIFO Threshold. Such damages shall be United's exclusive remedy for
Contractor's non-compliance with this paragraph and may be collected by setoffs
against other amounts owed by United to Contractor hereunder.

            2. NO FLIGHT DISPATCH DUTY

            Contractor will be solely responsible for, and United will have no
obligations or duties with respect to, the dispatch of Contractor's flights. For
the purposes of this ARTICLE 2, the term "dispatch" will include, but will not
be limited to, all planning of aircraft itineraries and routings, fueling and
flight release.

            3. COMPLIANCE WITH STATUTES

            Contractor hereby represents, warrants and covenants that all air
transportation services performed by it pursuant to this Agreement or otherwise
will be conducted in full compliance with all applicable statutes, orders, rules
and regulations, whether now in effect or hereafter promulgated, of all
governmental agencies having jurisdiction over Contractor's operations,
including, but not limited to, the Federal Aviation Administration ("FAA") and
the Department of Transportation ("DOT"). Contractor's compliance with such
governmental statutes, orders, rules and regulations will be the sole and
exclusive obligation of Contractor and United will have no obligation,
responsibility or liability, whether direct or indirect, with respect to such
matters except as otherwise expressly provided herein. Additionally, Contractor
will comply during the term of this Agreement with the United/United Express
Safety Standards, as described on APPENDIX G.

            4. WEATHER INFORMATION SERVICE

            From time to time and upon the request of Contractor or its flight
crews, United may furnish Contractor's flight crews with such U.S. Weather
Bureau information or data as may be available to United; provided that (i) in
furnishing any such weather information or data to Contractor, neither United
nor its employees or agents will be

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responsible or liable for the accuracy thereof and, (ii) any and all costs or
expenses associated with such weather information or data are carrier controlled
costs and will be paid by Contractor.

            5. FLIGHT INTERRUPTION MANIFESTS

            Contractor shall use United FIMS to rebook customers who are denied
boarding on any United Express flight. Contractor's Customer Service employees
shall rebook the customer based on the ticketed class of service. If
Contractor's employees upgrade the customer inappropriately, United will bill
Contractor for the incremental cost of the upgrade. Contractor shall use
reasonable best efforts to rebook customers on United code share (e.g. US
Airways) or Star Alliance partner flights provided it does not seriously
inconvenience the passenger.

            6. DIVERSIONS

            United will pay Contractor under the terms of this Agreement for all
Contractor United Express diverted flights that are completed within * hours of
the scheduled arrival time. The cost of busing will be borne by the Contractor
at all times and is not reimbursable by United. Contractor will use its best
efforts to assure that no bus segment exceeds * as defined in the Apollo mileage
database. In the event a diverted flight is not completed within the * hour time
frame, United will pay Contractor for the originally scheduled departure
provided that both of the following conditions apply (i) the diversion is
outside of the control of Contractor and (ii) the destination airport was open
for FAR Part 121 flights at the time of departure and forecasted to be open at
the time of arrival. Contractor will pay for any repositioning costs, which
costs shall not be reimbursable by United. Upon request by United, Contractor
and United agree to meet to discuss opportunities to reduce the number of
Contractor diversions and costs associated with such diversions.

            7. GROUND DELAY PROGRAM

            Contractor will participate in United's ground delay program, which
stipulates that United may request Contractor to cancel, and Contractor shall
cancel, flights to free ATC slots at a hub when the FAA or United's Station
Control Center has initiated a Ground Delay Program ("GDP"). For cancellations
requested by United as part of the GDP, and in accordance with ARTICLE VIII,
United shall pay Contractor only a portion of the amounts normally due had the
flights not been cancelled.

            For flights cancelled under the GDP program, United will pay
Contractor only the *. No payments will be made with respect to the * that
correspond to * in these categories. The Ground Delay Program will not affect
payments in the following three categories unless specifically included above:
*.

            8. STATION OPERATIONS CENTER (SOC) - HUB LOCATIONS

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            At United's request, Contractor shall provide adequate staffing in
the United Airlines SOC of each designated hub city at United's request. If the
number of departures in any single hub exceeds * per day, Contractor will
provide, at Contractor's expense, a full-time representative at United's
request. Such staffing will be provided during all normal hours of operation. If
the number of daily departures does not exceed * per day, then Contractor will
provide a point of contact and make a representative available on a limited
basis as requested by United.

      F. STATION SUPPORT SERVICES

      United will provide or cause to be provided, at its expense, to Contractor
certain support services as set forth on APPENDIX C, at the United Locations and
Joint Locations set forth in APPENDIX B; provided that United shall have the
right to add, delete or otherwise modify the services described on APPENDIX B if
United provides Contractor with * prior written notice of such modification;
provided, however, United shall use commercially reasonable efforts to notify
Contractor with * prior written notice. United agrees to reimburse Contractor
only for * incurred by Contractor as a result of a United requested location
change within a current station under this Section. *. At Contractor Locations,
Contractor will provide or cause to be provided at least those services and
facilities set forth in APPENDIX C. All such station support services will be
provided as of the Effective Date unless otherwise stated.

      G. TARIFFS AND SCHEDULE PUBLICATION

            1.    GENERAL

            United shall have the sole right and power to establish and modify,
from time to time, the fare/rate classes and fare/rate levels (including through
fares) and fare/rate descriptions for all Contractor's United Express Services
in the city pairs operated by Contractor under this Agreement, in a manner
consistent with pricing (including joint fares) established by United. United
shall comply with applicable governmental regulations pertaining to public
disclosure of fares, rates and rules tariffs and shall pay for any fines or
civil penalties incurred by Contractor as a result of violations by United
thereof, and for the cost of defense of such claims of violations including the
cost of defending or negotiating the terms of a consent order or decree.

            2.    PASSENGER FARE TARIFFS

                  a.    All passenger fare tariffs published for Contractor's
United Express Services shall be included as part of United's tariffs.

                  b.    Contractor shall notify the Airline Tariff Publishing
Company or any successor company performing the same or equivalent services
("ATPCO") that United is authorized to supply, modify or withdraw such rates
with ATPCO. United may file changes to such fares from time to time with ATPCO
as UA fares.

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            3.    AIR FREIGHT AND MAIL RATES

            For all markets operated by Contractor under this Agreement, United
shall have the sole right and power to establish and modify from time to time
all air freight and cargo rates and mail rates covering mail, general commodity,
small package delivery (SPD) and priority air freight shipments and all other
air transportation services (other than mail delivery) for Contractor's United
Express Services in these markets. All such airfreight rates for Contractor's
United Express Services shall be included as part of United's airfreight and
cargo rates tariffs. Contractor shall notify ATPCO that United is authorized to
supply, modify or withdraw such rates with ATPCO.

            4.    TIMETABLES

            United will reflect Contractor's United Express Services in
computerized reservations systems, United's internal reservations system and
Contractor's United Express Services flight connections to United will be listed
as UA connections. United will provide information such that references in
computerized reservations systems, United's internal reservations system and
joint city timetables to Contractor's United Express Services will also contain
notations indicating that such services are performed by Contractor as an
independent contractor under the appropriate United Marks. A similar notation
will be made in the OAG or any successor publication commonly used by the
airline industry for the dissemination of schedule information. Such notations
shall comply with all applicable regulations of DOT.

      H. SALES SETTLEMENT

            1.    PAYMENTS TO UNITED

            Contractor will wire transfer to United an amount equal to
Contractor's Total Net Sales Receipts collected at all Contractor Locations.
"TOTAL NET SALES RECEIPTS" equals total gross sales receipts for all passenger
tickets, airway bills, cargo bills, mail fees, reimbursement for operational
denied boarding and other tickets issued by Contractor for Contractor's United
Express Services (less refunds thereon paid out by Contractor), collected by
Contractor during the applicable period. The frequency of the wire transfer will
be *, for all Total Net Sales Receipts collected during the preceding *.
Contractor's wire transfer will be made by 11:00 a.m. local time to the
following bank account:

            Bank One
            1 Bank One Plaza
            Chicago, IL  60670
            *

Contractor will also require its employees and agents to forward to United, on a
daily basis, all auditors ticket coupons, airway bills, cargo bills, lift
documentation, reports, exchange orders and refund detail issued by Contractor
in connection with Contractor's


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United Express Services during the previous day in accordance with the sales and
reporting procedures specified by United.

            2.    SET OFF AMOUNTS

            In addition to the terms of ARTICLE VIII and the other provisions
hereof, but subject to the terms of ARTICLE XIII, the payment for transportation
furnished by Contractor may be reduced in order to set off:

                  a.    amounts owed by Contractor to United for:

                        (i)   actual loss of revenue resulting from a failure on
the part of Contractor to properly effect a sale pursuant to United's Customer
Service Policies and Procedures applicable to the sale of tickets; and

                        (ii)  fraudulent, grossly negligent or erroneous acts of
employees of Contractor which cause United to suffer a loss;

                  b.    such other adjustments as may be mutually agreed to by
the parties from time to time; and

                  c.    any other undisputed amounts owed by Contractor to
United under this Agreement.

            United will provide Contractor with supporting documentation for
such intended adjustments. Contractor shall have the right to object to any such
adjustment by providing United with written notice of its objection, together
with supporting documentation, within * after its receipt of Contractor's
objection. United agrees to negotiate in good faith with Contractor in order to
resolve all such disputes within * after its receipt of Contractor's supporting
documentation.

            3.    MODIFIED PROCEDURES

            United and Contractor by mutual written agreement may establish
alternative or modified passenger sales procedures in order to accommodate
tickets and exchange orders issued by air carriers which are not participants in
the Airline Clearing House, Inc. ("ACH").

            4.    AUDITS

            During the course of this Agreement, United, or an outside 3rd party
contracted by United, may conduct one (1) on-site audit of all records
(including, but not limited to, work papers of accountants) pertaining only to
Contractor's United Express operations. This will include, but is not limited
to, (i) tickets, air way bills, cargo bills, exchange orders, refunds and other
records relating to sales and refund activity pertaining to Contractor's United
Express Services and (ii) all financial records related only to

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Contractor's United Express Services pertaining to the actual costs for services
provided by Contractor to United as well as the calculation of the rates and
margin payable to Contractor related to Contractor's United Express Services.
Notwithstanding the foregoing, at any time, United, or an outside 3rd party
contracted by United, may conduct on-site audits of all records (including, but
not limited to, work papers of accountants) relating to Pass Through Costs
pertaining to Contractor's United Express Services.

      I.    ADVERTISING AND PROMOTIONS

            1.    TRAVEL CERTIFICATE PROGRAM

            United will allow Contractor to accept, and Contractor agrees to
accept, United/United Express Amenities, Promotional Discount(s) and/or Free
Travel Certificates on Contractor's flight segments, whether or not in
conjunction with a United flight segment.

            2.    RIGHT TO ADVERTISE USING MARKS

            To the extent Contractor is licensed to use the Marks, Contractor
may in its capacity as a United Express Carrier and at its sole expense, with no
reimbursement from United, use the marks to advertise Contractor's United
Express Services. However, any and all such advertisements using one or more of
the United Marks will identify United as the owner of those United Marks
(including in any state company name registrations required of Contractor), and
to the extent that any Mark is registered, will so specify. Notwithstanding the
above, no advertisement, solicitation, document or other material using any
United Mark will be published or otherwise promulgated without United's prior
inspection and approval. No advertising that relates in any way to United,
United Express or Contractor's United Express Services will be placed by
Contractor with an outside advertising agency unless United has given its prior
consent regarding copy, layout and the specific media plan. In addition, where
United has agreed to share the costs of any such advertising, Contractor will
obtain the prior consent of United regarding the funds to be expended for such
advertising.

            3.    PRIOR APPROVAL OF UNITED

            Contractor agrees that it will not use (or attempt to register) any
United trade name or service mark, including, but not limited to, the names
"UNITED AIR LINES, INC.," "UNITED AIRLINES," or "UNITED," or United's logo in
any advertising, or other document or material without first obtaining United's
prior approval of each such use.

      J.    AUTOMATION

            1.    USE AND PROTECTION

            Contractor will use internal United Apollo Services automation.
Contractor agrees to comply with and abide by all terms and restrictions imposed
by United on the use of Apollo Services and associated Automation Equipment, as
defined below.

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Contractor agrees that all instructions, procedures and manuals provided by
United in connection with Contractor's use of Apollo Services and Automation
Equipment ("AUTOMATION INFORMATION") are and will remain the property of United.
Contractor acknowledges that Apollo Services contains software that is
confidential and proprietary information of United or its affiliates (such as
Galileo International) or any successor thereto. Contractor further agrees that
it will not (or cause any third party to) duplicate, copy or otherwise reproduce
any such software or Automation Information or furnish or disclose any such
software or Automation Information to any other party or to Contractor's
employees other than such employees who have a need to know and who are aware of
and understand the confidential and proprietary nature of the software and
Automation Information.

            2.    INSTALLATION AND TRAINING

            United shall install or cause to be installed a minimum of one
terminal plus associated equipment for printing messages, data, air tickets,
boarding passes and baggage tags ("AUTOMATION EQUIPMENT") at Contractor's
airport locations and selected administrative locations. United will determine,
in the exercise of its sole discretion and judgment, the necessity and
feasibility of installing and upgrading Automation Equipment, so long as the
quantity and quality of Automation Equipment installed at Contractor's airport
locations are sufficient to permit Contractor to satisfy the standards for
Contractor's United Express Services under this Agreement. Any and all
modifications, enhancements, improvements or developments pertaining to the
Automation Equipment, or other new related technology, may be made available to
Contractor by United, in its sole discretion, under terms and conditions to be
determined by United on a case-by-case basis. United will train Contractor's
instructors, as applicable, in the proper use of Apollo Services and Automation
Equipment as described in the Customer Service/Reservations Handbook or any
other related United guidelines. Contractor agrees to establish a training
program with internal instructors. Only qualified personnel who have
satisfactorily completed a United prescribed training program will be permitted
to operate any Automation Equipment (hereinafter "DESIGNATED USERS"). United
may, at its discretion, monitor or test the proficiency level of Designated
Users. If United determines that their proficiency levels are insufficient for
the proper use of the Automated Equipment or Apollo Services, then Contractor
must arrange for its Designated Users to undertake any further training which
United determines necessary to bring such Designated Users to the desired
proficiency level.

            3.    STANDARDS OF USE

                  a.    To maintain an effective interconnection between Apollo
Services and the Automation Equipment and to prevent misuse thereof, Contractor
agrees that Apollo Services and the Automation Equipment will be used and
operated (a) in strict accordance with operating instructions provided by United
or its affiliates in the Customer Services Policies and Procedures, United's
Computer Security Regulations (Series 5-18), and any other related United or
affiliate guidelines, and (b) solely for the performance of the specific
business functions designated by United. Any undesignated business use and all
non-business uses are strictly prohibited. Prohibited uses include,

                                                                              18


but are not limited to, personal messages, servicing subscribers, travel
agencies, or any other third party, training any other party or any other use
designated as prohibited in the Apollo Services Manual. Contractor will maintain
a list of all employees and agents who have access to Apollo Services and their
assigned file numbers and passwords. United may at any time deny access to
Apollo Services to any employee of Contractor if such employee is found by
United to have abused Apollo Services or the Automation Equipment. Contractor
will take all precautions necessary to prevent unauthorized operation or use of
Apollo Services and the Automation Equipment.

                  b.    Contractor will not alter or change the Apollo Services
display as provided by United or its affiliate without the written consent of
United. Contractor may not provide Apollo Services or its database to any other
person or entity without the written consent of United.

                  c.    Except as expressly permitted in this Agreement or other
written agreement with United, Contractor will not cause any Apollo Services
(including, but not limited to, its software, data bases, intellectual property,
and customer information) to be used (as a basis for any software development or
otherwise), commercially exploited, copied, redistributed, retransmitted,
published, sold, rented, leased, marketed, sublicensed, pledged, assigned,
disposed of, encumbered, transferred, or otherwise altered, modified or
enhanced, without the express written permission of United.

                  d.    Contractor will not engage in any speculative booking or
reservation of space for any airline, hotel, rental car company, or any other
vendor's service or product available through Apollo Services.

            4.    MAINTENANCE, REPAIR AND MODIFICATION

                  a.    United will provide or cause to be provided to
Contractor repair and maintenance services required for the Automation Equipment
at United's expense. To maintain an effective interconnection between the
Automation Equipment and Apollo Services and to preserve the functional
integrity of the Automation Equipment, neither Contractor nor any third party,
other than a third party designated by United, will perform or attempt to
perform maintenance, repair work, alterations or modifications, of any nature
whatsoever, to the Automation Equipment. Contractor will provide free positive
space travel on Contractor's flights for United's Computer Terminal Technicians
or replacements when such travel is for the purpose of repairing Apollo Services
or any Automation Equipment.

                  b.    Contractor will reimburse United for the costs of any
such repairs or maintenance attributable to Contractor's willful misconduct,
gross negligence, or persistent, negligent acts or omissions.

                  c.    United or its designee will have the right to enter upon
any Contractor location during Contractor's business hours for the purpose of
monitoring Contractor's operation of the Automation Equipment and Apollo
Services, inspecting the Automation Equipment, performing such repairs or
maintenance as may be necessary or removing the

                                                                              19


Automation Equipment; provided, however, that United will not during the course
of such monitoring, inspection, repair, or removal unreasonably interfere with
Contractor's business.

            5.    DOWNTIME

            United will notify Contractor of any scheduled or pre-announced
downtimes of Apollo Services.

            6.    NO WARRANTY; RELEASE

                  a.    UNITED MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO THE AUTOMATION EQUIPMENT OR APOLLO SERVICES.

                  b.    CONTRACTOR HEREBY WAIVES AND RELEASES UNITED AND ITS
AFFILIATES, AND THEIR SUCCESSORS FROM ANY AND ALL OTHER OBLIGATIONS AND
LIABILITIES AND ALL RIGHTS, CLAIMS AND REMEDIES OF CONTRACTOR AGAINST UNITED OR
ITS AFFILIATES, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, DUE TO ANY
DEFECTS, ERRORS (INCLUDING, WITHOUT LIMITATION, ANY ERRORS IN RESERVATIONS
AVAILABILITY RECORDS), MALFUNCTIONS OR INTERRUPTIONS OF SERVICE TO APOLLO
SERVICES OR THE AUTOMATION EQUIPMENT, INCLUDING ANY LIABILITY, OBLIGATION,
RIGHT, CLAIM OR REMEDY IN TORT, AND INCLUDING ANY LIABILITY, OBLIGATION, RIGHT,
CLAIM OR REMEDY FOR LOSS OF REVENUE OR PROFIT OR ANY OTHER DIRECT, INDIRECT,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES.

            7.    OWNERSHIP AND LIENS

            It is understood and agreed that: (i) all Automation Equipment will
remain the sole property of United; (ii) Contractor will not remove any
identifying marks from any Automation Equipment; (iii) Contractor will not
subject the Automation Equipment to any lien or encumbrance; and (iv) Contractor
will return the Automation Equipment to United immediately upon the termination
of this Agreement.

      K. OTHER SUPPLIES

            1.    Contractor will pay United, for United's * for all forms,
documents, papers and supplies which are required in the normal course of
Contractor's United Express Services under this Agreement and which are
furnished by United or its designated vendors including;

                  a.    Baggage tags and ticket wallets at Joint Locations and
United Locations, and

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                  b.    Passenger ticket stock, city timetables, United airway
bills, United cargo bills and other shipping documentation at Contractor
Locations, United Locations and Joint Locations.

            2.    Contractor will provide and only use United's flight
interruption manifests, unless directed to do otherwise, for the rerouting of
passengers resulting from denied boarding or the delay or cancellation of
Contractor's United Express flights.

            3.    United shall issue an invoice to Contractor for all supplies
purchased from United, however such expenses shall be paid through the ACH and
the invoice to Contractor will be net of cash received by United via ACH.

      L. CONTRACTOR ASSISTANCE

      Contractor will furnish United with all information in Contractor's
possession or that can be reasonably produced by Contractor that United may
require to carry out the services and functions contemplated by this ARTICLE
III.

IV.   AIR SERVICES TO BE PROVIDED BY CONTRACTOR

      A.    SCHEDULES AND CHARTERS TO BE OPERATED BY CONTRACTOR

            1.    UNITED EXPRESS SCHEDULE

                  a.    Commencing on the Effective Date of this Agreement,
Contractor will provide Contractor's United Express Services in the markets
determined by United. At least * prior to the start of operations, United will
provide an initial list of city pairs and flight schedules. Contractor and
United will determine a mutually viable ramp-up plan for implementation of
service. United acknowledges that other contractual restrictions limit
Contractor's ability to provide United Express service in Phoenix, Arizona.

                  b.    Subsequently, United will provide at least * notice of
any planned schedule changes. United may under extraordinary circumstances
provide less than * notice on city pairs to be served, which Contractor shall
use reasonable efforts to accommodate.

                  c.    United agrees that all flight schedules for Contractor's
United Express Services will provide sufficient aircraft routings to ensure
Contractor's ability to rotate aircraft in and out of its current or future
maintenance bases for required line maintenance at no additional cost to United.
United acknowledges Contractor may require additional maintenance facilities to
accommodate its maintenance requirements. These facilities, if constructed, will
result in no additional expense to United.

            2.    CODE SHARE LIMITATION

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            As of the date of this Agreement, but subject to Contractor's
existing contractual code-share agreements, Contractor represents that it does
not plan, nor will it, operate pursuant to a marketing or code share
relationship in a hub operation with any party other than United at the
following airports: * for the term any binding Agreement. Contractor may,
however, fly to aforementioned airports under codeshare or marketing
relationships from another carrier's hub (other than from aforementioned
airports) as a `spoke service'. In the event that Contractor acquires another
entity during the course of this agreement with marketing or codeshare
operations at any of the aforementioned airports, United agrees to allow
Contractor to continue operations at such airports at levels of operations
consistent with the acquirees right of operation at the time of acquisition. In
addition, Mesa will use commercially reasonable efforts to amend its existing
contractual commitments to provide for the above Codeshare Limitations.

            3.    UNITED SCHEDULE CONSENT REQUIRED

            United hereby gives its consent for Contractor to operate its
scheduled air service as a United Express carrier only between the cities
mutually agreed upon by Contractor and United. Such city pairs may be changed or
withdrawn by United from time to time subject to (i) a minimum of * prior
written notice to Contractor, and (ii) compliance with any regulatory
requirements with respect to service to affected airports. Contractor will
ensure that any of its requests for changes in the use by Contractor of the "UA"
or "UA*" code on future routes or in the flight frequencies or city pairs, or
any of them, as operated or served by Contractor (whether necessitated by
altered connections, operating experience or other reason) must be submitted to
United at least * prior to the effective date of such change. All such changes
must be approved in advance by United. The requests for such changes, and the
approvals thereof, must be made in writing, by mail, facsimile, telegram,
telecopy or other electronic message transmittal. If upon review of Contractor's
request, the parties mutually agree to make a Contractor requested change, and
the automation equipment needed to implement the change is available, then such
change will be made as soon as reasonably practicable within the aforementioned
* period. Within the operating capability of the aircraft used by Contractor, as
described in ARTICLE IV.B, and subject to the provisions with respect to changes
in city pairs as provided above, Contractor will comply with all requests by
United to increase, decrease or in any other way adjust or terminate the flight
frequencies or city pairs, or both, as operated and served by Contractor
pursuant to this Agreement.

            4.    CHARTER

            Contractor shall be prohibited from providing charter flights in any
aircraft used in Contractor's United Express Services, without the prior written
consent of United, which consent shall not be unreasonably withheld. Contractor
shall be permitted to retain all revenues from such approved charters. However,
Contractor agrees to pay United a fee of $* per block hour for use of any
chartered RJ-50 aircraft, $* per block hour for use of any chartered RJ-70
aircraft, and $* per block hour for use of any chartered TurboProp aircraft
covered under this Agreement (both United liveried and

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spare aircraft). However, in the event that the charter is for a legally
registered, 501-(C)(3) (not for profit) charity, Contractor agrees to provide in
writing to United the name of the charity and United agrees to waive the entire
per block hour fee for up * annual round trips, in the aggregate of charities.
In the case of each such charter, Contractor hereby agrees that it will not (and
it will not permit others to) operate, promote or otherwise market the charter
under the United Express name, the UA or UA* designator code or any other United
Marks or identification (excepting only the unavoidable use of United Express
liveried aircraft and permanent airport signage). Contractor shall provide
written notice to United of any charter flight using aircraft used in
Contractor's United Express Services prior to the later of (i) the * prior to
the date of such charter flight or (ii) * business days after Contractor's
receipt of the request for such charter flight. Contractor agrees not to provide
any charter flight using aircraft used in Contractor's United Express Services
if United provides written notice to Contractor stating that United elects to
require that Contractor not provide such charter flight, so long as Contractor
receives United's notice prior to the * business day after United's receipt of
Contractor's notice.

            5.    CHANGES INPUT TO RESERVATIONS SYSTEMS

            Changes to Contractor's schedules as set forth in this ARTICLE IV
and which otherwise are in accordance with the terms and conditions of this
Agreement will be submitted by Contractor for input into United's internal
reservations system and computerized reservations systems. At no time may
Contractor make any changes to flights operated by United or any other carrier.

            6.    OPERATING COMMITMENT

            Contractor agrees to operate Contractor's United Express Services in
order to provide air transportation services scheduled pursuant to this ARTICLE
IV. (as modified from time to time) throughout the term of this Agreement.

      B. AIRCRAFT TO BE USED

            1.    AIRCRAFT TYPES.

            Unless otherwise agreed by United, Contractor will provide
Contractor's United Express Services with the type and amount of aircraft set
forth in APPENDIX A and under the terms and conditions of ARTICLE II.B.2. The
aircraft will be scheduled, taking into account heavy scheduled maintenance
requirements and the spare ratio indicated in ARTICLE IV.B.2 below unless
otherwise outlined in APPENDIX A.

                  1.    In accordance with the terms and conditions of this
Agreement, Contractor is authorized to fly the following aircraft under
Contractor's United Express Services:

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                        a.    * BOMBARDIER DASH-8-200 aircraft, which Contractor
shall cause to be delivered in a consistent with APPENDIX A and under
the terms and conditions of ARTICLE II.B.2;

                        b.    INITIAL * CRJ-700 aircraft, which Contractor shall
cause to be delivered in a timeline consistent with APPENDIX A and under the
terms and conditions of ARTICLE II.B.2;

                        c.    * CRJ-200 aircraft, which Contractor shall cause
to be delivered in a timeline consistent with APPENDIX A and under the terms and
conditions of ARTICLE II.B.2;

                        d.    * REPLACEMENT CRJ-70S aircraft, which Contractor
shall cause to be delivered in a timeline consistent with APPENDIX A and under
the terms and conditions of ARTICLE II.B.2;

                        e.    Options on another * RJ-50s and/or RJ-70s to be
delivered pursuant to a mix and delivery schedule to be agreed upon by
Contractor and United.

            2.    TECHNICAL SPECIFICATIONS

                  a.    The aircraft and any replacement aircraft utilized by
Contractor pursuant to this ARTICLE IV.B will bear those United Marks which are
expressly designated by United, whether included on APPENDIX A or otherwise
established by United. United acknowledges for operational reasons Contractor
may operate one Contractor TurboProp white tail aircraft under this Agreement.
Any white tail aircraft covered in this Agreement shall be used solely for
United Express service unless another aircraft of equal or greater capability
and capacity is substituted for the white tail. If the substitution is expected
to exceed * days, Contractor shall provide written notice thereof to United.
Technical specifications covering aircraft colors, schemes, United Marks and
other elements of exterior and interior aircraft decor will be provided to
Contractor by United. Except as provided herein, Contractor will have all
aircraft used to provide Contractor's United Express Services painted and
decorated with the exterior and interior color decors and patterns specified by
United at Contractor's sole expense. In accordance with the technical
specifications referenced in this ARTICLE IV.B.1, Contractor will be responsible
for maintaining all of its aircraft.

                  b.    In addition to the use of the United Marks on its
aircraft, Contractor will use and display a suitable sign or insignia on the
exterior of its aircraft that identifies Contractor as the operator of the
services being provided pursuant to this Agreement. The use and display of such
sign or insignia will be subject to the prior written approval of United as to
its nature, size and location on Contractor's aircraft.

      3.    AIRCRAFT COMMUNICATIONS ADDRESSING AND REPORTING SYSTEM -ACARS.

            i.    TURBOPROPS: Contractor is required to use an ACARS system on
all United Express regional jet flights for the purpose of providing timely and
accurate Flight

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Information (FLIFO). All aircraft delivered on or after * must be delivered with
ACARS already installed. *.

            ii.   REGIONAL JETS: Contractor is required to use an ACARS system
on all United Express regional jet flights for the purpose of providing timely
and accurate Flight Information (FLIFO). *.

For each month and each aircraft that Contractor fails to install ACARs in
accordance to the timeline described in this ARTICLE IV.B.3, Contractor shall
pay to United a sum of $* per aircraft per month. Such payment shall be made as
an offset to the monthly reconciliation process.

            4.    SPARE AIRCRAFT.

            TURBOPROPS: Pursuant to this Agreement, a spare or substitute
turboprop aircraft shall be allocated from the aircraft fleet referenced in
Article IV.B.1 such that the ratio of "aircraft in schedule" divided by
"aircraft in fleet" shall not exceed *, unless otherwise indicated in Appendix
A. This is equivalent to a * spare for every * turboprop aircraft. Such spare
aircraft can be used as a last resort to accommodate passengers and may not be
branded in the interior or exterior with the United Express decor or patterns at
the discretion of Contractor.

            REGIONAL JETS: Pursuant to this Agreement, a spare regional jet
aircraft shall be allocated from the aircraft fleet referenced in Article IV.B.1
such that the ratio of "aircraft in schedule" divided by "aircraft in fleet"
shall not exceed * for all jets (RJ50s and RJ70s combined). This is equivalent
to * spare for every * regional jet aircraft (RJ50s and RJ70s combined). For the
purpose of determining when the operational spare shall enter into service,
Contractor shall have at least * of the * aircraft required for each spare in
service, unless otherwise determined by United. In other words, the first and
second spare can not enter service before the * or * aircraft, respectively. All
Regional Jets, including spares, must be branded in the interior and exterior
with United Marks and decor.

            MAINTENANCE SPARES: From time to time, Contractor may require an
additional aircraft removed from schedule for heavy maintenance. Contractor
agrees to use commercially reasonable heavy maintenance schedules and agrees to
advise United at least * prior to heavy maintenance commencing for each
aircraft.

            5.    SUBSTITUTE AIRCRAFT: In addition to the aircraft authorized by
Article IV.B.1 above, if requested by United, Contractor will use reasonable
efforts to arrange for and make available for its use such substitute aircraft
as are required to effectively maintain Contractor's United Express Services. If
Contractor is unable to operate any flights in its schedule for Contractor's
United Express Services with aircraft bearing United Marks, Contractor will
notify United of such event and the circumstances of Contractor's inability to
so operate and Contractor will be permitted to operate an aircraft

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bearing different elements of aircraft decor than those specified above. If such
operations extend beyond a continuous * period, Contractor must seek and obtain
United's approval for such aircraft substitutions; provided that if Contractor
purchases or leases a used aircraft that does not contain appropriate United
Marks, Contractor will notify United and Contractor may, with the approval of
United, operate such aircraft, so long as such aircraft does not display the
brand name or trademark of any other air carrier (other than Contractor).

            6.    MARK CHANGE:

            United may from time to time change the Marks to be used for United
Express Carriers. At any time during the term of this Agreement, and in the sole
discretion of United, Contractor may be required to use such new or different
Marks, external or internal color decors and patterns on its aircraft and
uniform design as United may determine and to discontinue use of old marks,
external and internal color decors and patterns, and uniform designs. Upon
written notice from United, which will include the specifications for any such
changes in Marks or exterior or interior aircraft decor and patterns or uniform
designs, Contractor will effect such changes in accordance with the schedule
mutually agreed to by the parties. United will pay all costs incurred in
complying with the requirements established in this paragraph.

      C. INVENTORY

      United will have the sole right to use, set and control availability,
levels and use of all seat inventory for the aircraft used by Contractor in
Contractor's United Express Services. United will take all revenue and inventory
risk and will maintain inventory and pricing responsibility. Contractor is
prohibited from providing positive space leisure travel, or any other confirmed
leisure travel that requires removal of a seat from inventory, to any person
other than the positions outlined in APPENDIX J, on Contractor's United Express
flights without the prior written consent of United. All positive space and
leisure travel must be ticketed on United approved ticket stock with
Contractor's full IATA serial and ticketing numbers. Positive space travel is
permitted for Contractor's and United's employees for actual business purposes,
including deadheading flight crews, and for Contractor's employees and Eligibles
in emergency situations only. Contractor may not issue positive space business
travel to anyone other than Contractor's own employees. If in any way whatsoever
Contractor issues tickets in violation of this provision in any form, within *
years of each such violation, Contractor may be billed via the ACH, and
Contractor will pay United, the full unrestricted fare for the class of service
provided on such route for any such inappropriate ticketing.

      D. FLIGHT CREWS TO BE USED

            1.    FLIGHT CREW

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            All of Contractor's United Express Services will be operated with
crews consisting of a captain or pilot, and a first officer or co-pilot. All
such crew members will at all times meet all currently applicable governmental
requirements, as such requirements may be amended from time to time during the
life of this Agreement, and will be fully licensed and qualified for the
services to be performed hereunder. In addition, each of Contractor's captains
will hold a current Airline Transport Pilot Certificate and all Flight Crews to
be used in United Express service must be qualified to fly between all city
pairs on the Effective Date of this Agreement. Crewmembers will also meet all
requirements imposed by the insurance policies that are to be maintained
pursuant to ARTICLE XII.

            2.    FLIGHT ATTENDANTS.

            Contractor's flight attendants will at all times possess all
necessary training and meet all currently applicable governmental requirements,
as such requirements may be amended from time to time during the life of this
Agreement.

      E. INFLIGHT SALES

      Contractor may, at United's request, be required to sell beer, liquor and
other goods on flights included in Contractor's United Express Service. Any
additional goods or services Contractor would like to sell are subject to
United's approval. Contractor agrees that such in-flight sales shall be
conducted in a manner consistent with in-flight sales provided on United's
flights. For beer and liquor sales only, Contractor will be solely responsible
for the direct costs associated with such in-flight sales and shall be entitled
to all revenues generated from such in-flight sales. For all other products,
services or food put on the aircraft at United's request, United shall be
responsible for the incremental costs of such products, services or food and
shall be entitled to all of the revenue associated with such products, services
or food. United shall use its commercially reasonable efforts to assist
Contractor in securing an economical price for the in-flight items.

V.    OPERATING RESTRICTIONS

      A.    UNITED EXPRESS OPERATIONS ONLY

      Other than pursuant to this Agreement and except as set forth in APPENDIX
I, Contractor shall not, and it shall ensure that its subsidiaries do not
directly engage, on its or their own behalf or on behalf of a third party, in
the business of providing air transportation between any of the city pairs set
forth in APPENDIX B.

      B.    NO OPERATION OUTSIDE AGREEMENT

      Without the prior written consent of United, Contractor will not use any
of the services or facilities (excluding maintenance service or facilities)
afforded to Contractor by United to provide air transportation or related
services to other carriers or affiliates of Contractor without the consent of
United. Contractor will not, without United's prior written consent, permit any
third party, whether under a lease arrangement or otherwise,

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to operate any aircraft bearing the United Marks. Furthermore, Contractor shall
comply with the Code Share Limitations in ARTICLE IV.

      C. BREACH OF OPERATING RESTRICTIONS

      Contractor acknowledges that United has no adequate remedy at law and
would be irreparably harmed were Contractor to breach or threaten to breach the
provisions of this ARTICLE V.C and, therefore agrees that United shall be
entitled to injunctive relief to prevent any breach or threatened breach of this
ARTICLE V.C, and to specific performance of its terms, in addition to any other
legal or equitable remedy it may have; provided, further, that Contractor shall
not raise the defense that United has an adequate remedy at law in any equity
proceeding involving it relating to this ARTICLE V.C.

VI.   LICENSE

      A.    GRANT OF LICENSE

      Contractor will conduct all operations described in ARTICLE IV.A above,
and any additional operations undertaken by subsequent amendment hereto, under
the Marks set forth in APPENDIX A or other marks designated by United pursuant
to this ARTICLE IV.A and subject to ARTICLE IV.B.5. In consideration for the
services to be provided by Contractor under this Agreement, United hereby grants
to Contractor, upon the terms and conditions herein contained, a nonexclusive,
nontransferable right and license to use the United Marks, and Contractor hereby
undertakes the obligation to use the licensed United Marks in connection with
the services to be rendered by Contractor under this Agreement; provided,
however, that at any time during the term of this Agreement, United may alter,
amend or revoke the license hereby granted and require Contractor's use of any
new or different Marks in conjunction with the air transportation services
provided hereunder as United may determine in the exercise of its sole
discretion and judgment.

      B.    TERMS AND CONDITIONS GOVERNING LICENSE

            1.    UNITED MARKS.

            Contractor hereby acknowledges United's ownership of the United
Marks, further acknowledges the validity of the United Marks and agrees that it
will not do anything in any way to infringe or abridge United's rights in its
marks or directly or indirectly to challenge the validity of the United Marks.

            2.    SERVICE STANDARDS.

            Contractor agrees that, in providing services under this Agreement
in conjunction with one or more of the United Marks, it will comply with all
service quality standards prescribed by United ("UNITED EXPRESS SERVICE
STANDARDS" OR "SERVICE STANDARDS"). United Express Service Standards include,
but are not limited to, United standards for (a) aircraft types, as referenced
in ARTICLE IV, (b) customer service, as set forth in United's Customer Service
Policies and Procedures, (c) minimum customer

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service training requirements consistent with United's customer service
practices and procedures, (d) in-flight amenities and service, (e) aircraft
appearance, (f) Ground Handling Duties, in accordance with ARTICLE III.A.3, (g)
United/United Express safety programs (and Contractor will enter into any
agreements relating to such programs that are similar to those offered to other
United Express Carriers), (h) any other quality control measures designated by
United, as such standards may be prescribed by United from time to time and (i)
customer problem resolution or ("CPR"). As necessary, United will provide
training to Contractor's designated instructors in the requirements of United's
Customer Service Policies and Procedures; provided that United will at its
expense provide a trainer and materials, and United agrees that the Service
Standards prescribed by it will not be unreasonable in light of the facilities
and aircraft available to Contractor. United will have the right, from time to
time, to inspect Contractor's United Express Services to determine if they
conform to the United Express Service Standards. In the event United determines
that Contractor is not in compliance with the Service Standards United will
notify Contractor and Contractor will promptly rectify any such noncompliance.
Failure on the part of United to conduct such inspections will not relieve
Contractor of its obligations to conform to the Service Standards. If Contractor
fails to comply with any part of the Service Standards and such failure is not
corrected as soon as practicable (and, in any event, within *) after
Contractor's receipt of written notice of such failure from United, then United
may, at its discretion, restrict or eliminate Contractor's pleasure travel
privileges, or suspend Contractor's authority to serve city pair markets, or
impose any other nonexclusive remedy, including breach of contract, or other
remedies available to United. Other non-exclusive remedy would include,
requiring Contractor to bear costs in excess of normal guidelines. The United
Express Service Standards are outlined in APPENDIX H, and may be changed by
United upon notice given from time to time.

            3.    AIRCRAFT GROUND HANDLING PROCEDURES.

            In addition, Contractor agrees that in providing Contractor's United
Express Services, it will conform to all of its Aircraft Ground Handling
Procedures. As used herein, Aircraft Ground Handling Procedures include, but are
not limited to, procedures for (a) deicing, (b) handling and (c) other aircraft
servicing measures, as such procedures may be prescribed by Contractor from time
to time. Contractor agrees that all Aircraft Ground Handling Procedures
prescribed by it will be established in compliance with all applicable federal,
state, local and industry regulations as well as any additional procedures which
United may prescribe from time to time. Contractor will obtain any and all
necessary federal, state, local and regulatory approvals of such Aircraft Ground
Handling Procedures. Once all necessary approvals are obtained, Contractor will
provide a copy of its Aircraft Ground Handling Procedures to United. At each
Joint Location and United Location, as necessary, Contractor will train United
employees in the requirements of Contractor's Aircraft Ground Handling
Procedures; provided that Contractor will provide a trainer and materials and
United will pay all other expenses incurred by its employees in connection with
such training. However, Contractor agrees

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to adhere to the United Express Service Standards outlined in APPENDIX H for all
Ground Handing of their United Express flights.

            4.    LIABILITY FOR OPERATIONS.

            Nothing in this ARTICLE VI.B is intended to nor will be construed so
as to relieve Contractor of any liability or to impose any liability on United
for Contractor's United Express Services by virtue of any of United's rights
under ARTICLE VI.B.2 or ARTICLE III.A.3, whether exercised or not.

            5.    NON-EXCLUSIVITY.

            Nothing in this Agreement is intended nor will be construed to give
Contractor the exclusive right to use the United Marks, or to abridge United's
right to use or to license the Marks, and United hereby reserves the right to
continue use of the United Marks and to license such other uses of such Marks as
United may desire.

            6.    REVERSION OF MARKS.

            Upon termination of this Agreement for any reason, the right to use
herein granted for the United Marks will immediately revert back to United, and
Contractor will have no right to use such Marks in any way. Further, Contractor
will, at its sole cost and expense immediately upon termination of this
Agreement, remove all United Marks from its aircraft, its other vehicles, the
uniforms of its personnel, its facilities and from any and all other places or
things controlled or formerly controlled by Contractor.

      C. INFRINGEMENT

      United will, at its expense, defend, indemnify, release, protect, save and
hold Contractor, its officers, directors, agents and employees harmless from and
against any and all liabilities, damages, expenses, losses, claims, demands,
suits, fines or judgments, including but not limited to attorneys' and
witnesses' fees, costs and expenses incident thereto, which may be suffered by,
accrue against, be charged to or be recovered from Contractor as a result of any
third-party claim that the use by Contractor of any United Mark in accordance
with the terms of this Agreement infringes a registered trademark or service
mark of any third party in the United States, and will pay all costs, damages
and attorneys' fees that a court finally awards as a result of such claim. To
qualify for such defense and payment, Contractor must (i) give United prompt
written notice of any such claim and (ii) allow United to control the defense of
the claim and all related settlement negotiations and fully cooperate with
United in its defense of the claim and the conduct of any settlement
negotiations. United's obligation hereunder is conditioned on Contractor's
agreement that if any Mark becomes, or in United's opinion is likely to become,
the subject of such a claim, Contractor will not dispute that United, at its
option, may either procure the right for Contractor to continue using such Mark
or to replace or modify such Mark so that it becomes non-infringing. This
ARTICLE VI.C states United's entire obligation to Contractor regarding
infringement or the like.

VII.  ADDITIONAL UNDERTAKINGS

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      A.    BULK PURCHASES

      Each party may assist the other in obtaining goods and services useful to
the other party, including, without limitation, fuel, uniforms, supplies and
ground equipment, in a more economical manner. If United identifies
opportunities for cost savings as a result of bulk purchasing on behalf of
Contractor, unless it provides a reasonable reason for not participating
Contractor is obligated to participate in the new cost saving initiative. Prior
to implementing such initiative, Contractor and United shall agree on a
case-by-case basis how to share the benefits of any cost savings initiatives;
provided, however, that absent such agreement in a timely manner and so as to
preclude unnecessary delay in implementation of such initiatives, United and
Contractor shall equally share any monetary savings.

      B.    FUEL

      United, by or through it's subsidiaries, agents or affiliates, shall have
the option to procure fuel and fuel services for or on behalf of Contractor.
Contractor agrees to assist United, its subsidiaries, agents or affiliates in
identifying fuel or fuel service procurement opportunities, to provide data or
analysis pursuant thereto, and to enter into agreements for the provision of
said fuel or fuel services, including any provisions therein, at the direction
of United. United shall use its best efforts to accommodate any operational or
other requirements of Contractor related to fuel or fuel services procured for
or on behalf of Contractor.

      C.    PURCHASE BY UNITED OF PASS THROUGH COST ITEMS

      Pass Through Purchase Rights. United reserves the right to assume the
responsibility for purchasing products and services to be used as Pass Through
Cost items under this Agreement by Contractor.

      D.    UNIFORMS

      Contractor, at its own expense, shall pay for and require all of its
Designated Personnel to wear uniforms which are in the United Express colors and
styles, as approved by United, while performing Contractor's United Express
Services as outlined in APPENDIX H. Contractor agrees that all such Designated
Personnel employed by Contractor shall wear the above-described uniforms. Any
other employees of Contractor who are visible to the public, other than
Designated Personnel, will wear uniforms reviewed and approved by United, which
approval shall not be unreasonably withheld. If United develops or designs new
uniforms for United Express operations, United will cover Contractor's
incremental costs of such new uniforms program.

      E.    PASSES AND REDUCED RATE TRAVEL

      Each party will comply with the terms of a separate agreement between them
under which are granted to the employees of the other party certain passes and
reduced rate pleasure travel privileges. However, United has the right to retain
all revenue

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generated from reduced rate travel, including companion passes, both on United
and United Express operated flights.

      F.    SIGNAGE

      As of the Effective Date, Contractor will display signage advertising its
operations as a United Express Carrier at all Contractor Locations and at those
Joint Locations specified by United. All signage must be approved by United
prior to its use by Contractor, and Contractor shall be responsible for the
acquisition, installation and maintenance of all such signage. The cost of such
signage shall be considered a one-time start up cost for each new station and
shall be considered a Pass Through Cost to be reimbursed by United. Should
United decide to rebrand or change signage requirements beyond the standards
that existed on the Effective Date of this Agreement, United agrees to pay the
incremental costs associated with signage changes as a Pass Through Costs not
subject to Markup.

      G.    ENVIRONMENTAL

            1.    With respect to all matters that relate to or may affect the
environment, Contractor agrees to conduct its operations in a prudent manner,
taking reasonable preventive measures to avoid environmental liabilities,
including, without limitations, measures to prevent unpermitted releases to the
environment.

            2.    Contractor agrees, at its own expense, to conduct its
operations in compliance with all Environmental Laws, including all
environmental rules, regulations, and policies dictated by the applicable
airport authority, including ensuring its employees are trained in the
procedures required to meet all Environmental Laws. United acknowledges that any
Environmental Impact Studies may make it cost prohibitive for Contractor to
operate to certain airports. If flying to certain airports is cost prohibitive
due to Environmental Impact Studies, Contractor may refuse to fly to that
specific airport.

                  To the extent associated with Contractor's activities
(including those of its agents), Contractor shall be responsible, and will
indemnify United, for any and all environmental liabilities, including, without
limitation, any penalties or costs associated with any enforcement action,
airport authority action, or private claim, any remediation or restoration
costs, any investigation costs, legal or environmental consultant costs, or any
property damage costs.

            a. *

      H.    START-UP COSTS

      With regard to Regional Jet aircraft under this Agreement, which are
currently in operation with another airline today, United will pay for those
interior reconfigurations or

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decor changes requested by United. Contractor will pay for the cost of all
exterior changes.

      I.    AIRCRAFT SUBSTITUTIONS

      In the event that a scheduled aircraft is down-gauged to a smaller
aircraft, United will pay the rates hereunder applicable to the smaller aircraft
(i.e. fewer seats) that actually flies the departure. In the event that a
scheduled aircraft is up-gauged to a larger aircraft, United will pay the rates
hereunder applicable to the type of aircraft originally scheduled for departure
for both the originating and any applicable return flight. If United requests in
writing hereunder that a larger aircraft be substituted for a smaller scheduled
aircraft, United will pay the applicable rates for all additional downstream
substitutions that are indirectly a result of the original United requested
substitution. Should such original United Express aircraft substitution result
in indirect substitution downline and United is unwilling to pay for such
indirect substitutions, Contractor has the right to refuse United's original
request for aircraft substitution. Contractor will provide to United copies of
United's requests to substitute aircraft with the normal reconciliation support
materials required from Contractor under the terms of this Agreement.

VIII. RATES PAYABLE TO CONTRACTOR

      A.    RATES

      AS AGREED BY UNITED AND CONTRACTOR:

            1.    CONSIDERATION

            For and in consideration of the transportation services, facilities
and other services to be provided by Contractor hereunder, the right of United
to (i) control all aspects of inventory as described in ARTICLE IV.C, (ii)
receive and retain all air fares, cargo rates and mail charges received by
Contractor and United, and (iii) receive and retain all other revenue received
by Contractor and United as provided in this Agreement, and other valuable
consideration provided under this Agreement, United shall pay Contractor
specified "*" (*) and specified "*" for the * as detailed in APPENDIX D for each
aircraft type.

            2. *

            Contractor and United agree that the * consists of the cost defined
in Appendix D. All other types of expenses, not defined in APPENDIX D as *
Costs, are considered and defined as *.

            3. *

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            The * and * are grouped by "*" for each aircraft type in APPENDIX D.
Within each *, are specific kinds or types of expenses as outlined in APPENDIX
D.

            4. *

            Each *, whether the costs are * or *, is expressed in terms of a
"*." The * express the basic measurement and constitute the driver of costs for
each *. Each * has a specific * as set forth in APPENDIX D.

            5. *

            As of the Effective Date, for each aircraft type, the parties have
established and agreed to a * which is the *. Hereafter, such rates shall be set
in accordance with the procedures set forth herein. Except as expressly provided
in this Agreement, the parties do not want to perform, and have not provided
for, any additional rate changes, rate negotiations or rate setting process.

            6.    ANNUAL ADJUSTMENT FACTORS

            Effective as of each *, Contractor and United agree to increase or
decrease all * within the * for the ensuing contract year by *. Contractor and
United agree to review the interrupted trip expense * after execution of this
agreement. If Contractor's actual uncontrollable costs are below $* per
passenger, Contractor will reduce this rate to the actual cost for the remainder
of this agreement.

            7.    CONSUMER PRICE INDEX

            "CONSUMER PRICE INDEX" OR "CPI" shall mean the percentage growth in
the Consumer Price Index, U.S. City Average, Urban Wage Earners and Clerical
Workers, All Items (base index year 1982-1984=100) as published by the United
States Department of Labor, Bureau of Labor Statistics. If the manner in which
the Consumer Price Index as determined by the Bureau of Labor Statistics shall
be substantially revised, including, without limitation, a change in the base
index year, an adjustment shall be made by the parties in such revised index
which would produce results equivalent, as nearly as possible, to those which
would have been obtained if such Consumer Price Index had not been so revised.
If the Consumer Price Index shall become unavailable to the public because
publication is not readily available to enable the parties to make the
adjustment referred to in this Section, then the parties shall mutually agree to
substitute therefore a comparable index based upon changes in the cost of living
or purchasing power of the consumer dollar published by any other governmental
agency or, if no such index shall be available, then a comparable index
published by a major bank or other financial institution or by a university or a
recognized financial publication.

            8.    EXAMPLE

            *

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            9.    AIRCRAFT OWNERSHIP COSTS

                  a)    RJ-70S. Aircraft ownership costs on the * RJ-70s will be
 paid in accordance with the contract rate table in Appendix D with a Markup of
*% and will not be subject to either annual escalations or adjustment based on
Contractor's performance against Operating Goals.

                  b)    RJ-50S. Aircraft ownership costs for the * RJ-50s will
 be paid in accordance with the contract rate table in Appendix D with a Markup
of *% and will not be subject to either annual escalations or adjustment based
on Contractor's performance against *.

                  c)    TURBOPROPS. Aircraft ownership costs for all turboprops
 will be paid in accordance with the contract rate table in Appendix D with a
Markup subject to adjustment based on Contractor's performance against * as a *.

                  d)    CAP. Under no circumstances will United's total
 ownership costs on any aircraft (actual costs) exceed $* per month for an RJ-50
or $* per month for an RJ-70. United also reserves the right to finance any
aircraft allocated for United Express service.

            10. CARRIER CONTROLLED COST STABILITY.

            Except to the extent that any Markup Points (as established in
APPENDIX E) may apply and the * review of station costs after startup (not to
exceed one-time per station), no other increases or additions to the * element
will be made over the life of this Agreement unless provided for in APPENDIX K,
except for annual CPI adjustments which shall take place on the anniversary of
the Effective Date.

            11. COMMERCIALLY REASONABLE EFFORTS

            Contractor agrees to use commercially reasonable efforts to control
its * and *. Failure to use commercially reasonable efforts to control * shall
be deemed as negligence on the part of the Contractor and may subject such costs
to rejection of payment by United, in which event Contractor waives its rights
to reimbursement of the applicable * items. The parties agree to discuss any
failure by Contractor to use reasonable efforts to control * and *.

            12. NON PAYMENT

                  a.    In the event of a Force Majeure or other disruption
resulting in at least a * suspension of greater than *% of Contractor's United
Express scheduled flights, *. In the event a permanent schedule reduction
results from a disruption, *.

                  b.    In the event that Contractor operates a flight departing
more than * late from the scheduled departure time with a load factor of less
than *% on board,

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Contractor shall not be reimbursed for such flight unless specifically requested
to fly such segment by United.

      B. OPERATING GOALS

      United and Contractor have developed a * ("*") program ("*") that, with
respect to Contractor's United Express operations, is based upon *. Contractor's
performance is evaluated with respect to *. Contractor's * will be used to
determine the amount of * applicable to the * pursuant to the procedures set
forth herein.

            1.    OPERATING GOALS METHODOLOGY

            For * are set forth on APPENDIX E. For *, the Operating Goals shall
be developed using the predetermined methodology set forth below. * for the
calendar year will be established to be effective on each *. Contractor's * are
determined using the following methodology based on United's * for the same
periods:

                  a. *.

                  b. *.

                  c. *.

                  b. *.

            2.    GROUND OPERATIONS. In stations, where Contractor does not
provide ground handling services for itself, performance goals as noted in
Article VIII.B will be adjusted such that mishandled bag goals will not apply to
those departures. Subject to United Ground Operations approval, United agrees to
develop by no later than * a reasonable methodology and associated processes and
procedures to identify, quantify, track and report specific incidents where
non-performance of Controllable Completions and On-Time Zero departures is
primarily due to the fault of the Ground Handling Provider. The aforementioned
report will be shared with Contractor. To the extent that Contractor's
performance in stations, where Contractor is not the Ground Handling Provider
for itself, results in a one or more performance level category (categories
being defined as * levels as outlined in APPENDIX E) reduction in Contractor's
applicable * level for all performance metrics for more than * consecutive
months and such Contractor's performance reduction is caused by the Ground
Handling Provider as outlined in the aforementioned report, United agrees to
provide for an equitable resolution process going forward. United agrees that
after *, Contractor's performance criteria used for the purposes of any SECTION
C DEFAULT will be adjusted to exclude incidents of non-performance of * and *
departures primarily due to the fault of the Ground Handling Provider (as
outlined in the aforementioned report).

            3. *

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            Contractor's *, as defined above in Paragraph 1a-1.d and adjusted
for seasonality using the * in the table in Paragraph 5 below, define the
minimum performance necessary to achieve at least *.

            4.    PERFORMANCE GRADE WIDTHS

            The operating performance values for determining * Performance
Levels will automatically change each year based on Contractor's *. "*" (*)
remain constant and will not be changed over the duration of this Agreement.
These Grade Widths are set forth in the table below, where * are the
Contractor's *:

                  *

            5.    EXAMPLE

                  *

            6.    SEASONALITY ADJUSTMENT

            At the beginning of each year beginning with 2004 goals, after
Contractor's * for the year have been calculated by the methodology outlined
above but before Contractor's * are finalized, Contractor may create the final *
goals by *.

      C. MARKUP

      For each * and for Contractor's entire United Express operations, except
as specified herein, Contractor's * shall be measured with respect to each of
the *. For purposes of determining Contractor's actual *, Contractor shall only
be held accountable (*) *. To establish the * to be applied hereunder, add
together *. United agrees to meet and work with Contractor in an attempt to find
solutions to remedy any failure by Contractor to meet * under this Agreement for
the other * to the extent it is caused by non-Contractor Ground Handling
Providers who provide Contractor's ground handling services at Contractor
Locations.

      D. WIRE TRANSFER AND RECONCILIATION

            1.    On a monthly basis, Contractor will provide an estimate of its
*, assuming C Performance Level and assuming a *, plus its * which never have a
*. This estimate will be based upon the schedule to be operated during the
upcoming month and shall be provided no later than * prior to the start of the
month in which the wire transfers shall be made. These total costs will be
divided by the number of * in the month and wire transferred by United to
Contractor each *.

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            2.    Complete Reconciliation of * (and associated *) according to *
paid under Paragraph 1 above as established in accordance with the terms of this
Agreement, shall be completed by United on a *, but no later than * days after
month's end:

                  a.    * Reconciliation - *. On or before the * day after the
last day of each *, Contractor shall submit to United a report detailing actual
operational statistics pertaining to the payment of *, with a content determined
by United, in a format mutually agreeable to United and Contractor. United shall
review Contractor's submission of operating statistics and compare to United's
internal flight information records. United and Contractor agree to discuss any
discrepancies in the operating data and to make reasonable efforts to resolve
all data discrepancies. Failing an amicable resolution, however, payment shall
be based on the lower level of operating statistics, recorded by Contractor or
United.

                  b.    * Reconciliation - *. On or before the * day after the
last day of each *, Contractor will use reasonable efforts to submit to United
documentation sufficient to support its actual expenses for * items, including
copies of invoices. Upon submission of the information, Contractor must notify
United in writing if any 3rd party information is missing from the submission
information, and provide an explanation for the delay. Under no circumstances
will United pay * more than * months after the expense was incurred.

                  c.    Regional Reconciliation of On Time Performance: At the
end of * or another mutually agreeable timeframe, United and Contractor agree to
readjust the annual operating goals for that previous * based on the actual
amount of flying in each region. If this reconciliation results in any amount
due to Contractor or to United, payment will be made accordingly or offset
against current amounts owing. However, the same seasonality adjustment used at
the beginning of the * shall be applied to the revised regional goals.

IX.   FEES PAYABLE TO UNITED

      A.    GOVERNMENT ASSISTANCE

      Any direct or indirect assistance received by Contractor as a result of
government assistance or bail-out plans that cover costs not incurred by the
Contractor or revenues that are generated by passengers carried by Contractor
and pertaining to Contractor's United Express operations will be forwarded
directly to United. That amount pertaining to Contractor's United Express
operations will be remitted to United pursuant to proration among all of
Contractor's code-sharing partners based upon available seat miles ("ASM's") or
whatever unit is used by the Government to disburse such aid. If the
aforementioned direct or indirect assistance to Contractor is not associated
with or related to operations or services provided to, or in behalf of, United
in any way, then the aforementioned direct and indirect assistance shall not be
forwarded to United. Should United receive any direct or indirect assistance
related in whole, or in part, to specific

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costs incurred by Contractor related to its United Express operations or
services, but not reimbursed by United under this Agreement, United agrees to
forward such monetary assistance to Contractor. Such amount forwarded to
Contractor by United will be based upon Contractor's United Express operations
and prorated between Contractor and United based upon ASM's or whatever unit is
used by the Government to disburse such aid.

X.    MAINTENANCE AND FUELING

      United will have no responsibility under this Agreement for maintenance or
fueling of Contractor's aircraft.

XI.   U.S. MAIL

      United and Contractor agree to cooperate in making bids for mail carriage.

XII.  INSURANCE

      A. INSURANCE TYPES

      During the term of this Agreement, Contractor agrees to procure and
maintain in full force and effect, at its own expense, policies of insurance
with insurers of recognized reputation and responsibility, which provide, unless
otherwise provided in the Aircraft Leases, at a minimum the following insurance:

      1     Comprehensive Airline Liability Insurance, including but not limited
to Aircraft Liability, Passenger Liability, Comprehensive General Liability
Insurance, War Risk and Allied perils, including both passengers and other third
parties, Cargo Liability and Baggage Liability Insurance, with combined single
limits for each and every loss and each aircraft of not less than (i) U.S. $*,
or (ii) U.S. $* per available seat or (iii) the limits that Contractor has in
place, whichever is greatest. Any policies of insurance carried in accordance
with this ARTICLE XI will also contain or be endorsed to contain those
provisions set forth in the attached APPENDIX F.

      2     Aircraft Hull All Risks Insurance, including ground and flight
coverage on Contractor's aircraft, including its engines and all its parts when
installed or temporarily detached from Contractor's aircraft on a
repair-or-replace basis with a deductible United has reasonably deemed
appropriate.

      3     Contractor agrees to maintain Workers' compensation in statutory
amounts required by each state in which any work is performed, in whole or in
part; Employers' Liability, with policy limits not less than $* combined single
limit, for all of Contractor's United Express employees. United shall in no way
be liable for any workers' compensation claims paid by Contractor related to any
of Contractor's operations. The Contractor's insurer agrees to waive rights of
subrogation against United with respect to worker's compensation claims.

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      4     Contractor agrees to maintain Commercial Automobile Liability
Insurance covering all owned, non-owned leased, and hired automobiles, trucks
and trailers, with policy limits of not less than $* combined single limit per
occurrence to cover Contractor's entire United Express operation.

      5     Contractor will be responsible for the first $* of loss or damage to
all automation equipment provided by United to Contractor. Contractor will
evidence property insurance and name United as loss payee.

      B. 30-DAY NOTICE

      On or before the Effective Date of this Agreement, and not less than *
days and * days notice with respect to war risk, before the expiration or
termination date of any insurance required to be maintained by Contractor under
ARTICLE III.A above, Contractor will furnish United with certificates of
insurance, substantially in the form of the attached APPENDIX F, evidencing
compliance with the foregoing requirements, unless otherwise provided in writing
between the parties.

      C. FAILURE TO MAINTAIN INSURANCE

      In the event that Contractor fails to acquire or maintain insurance as
herein provided, United may at its option secure such insurance on Contractor's
behalf at Contractor's expense.

XIII. LIABILITY AND INDEMNIFICATION

      A. EMPLOYER'S LIABILITY AND WORKERS' COMPENSATION

      Each party hereto assumes full responsibility for its employer's liability
and workers' compensation liability to its own officers, directors, employees or
agents on account of injury or death resulting from or sustained in the
performance of their respective service under this Agreement. Each party, with
respect to its own employees, accepts full and exclusive liability for the
payment of workers' compensation and employer's liability insurance premiums
with respect to such employees, and for the payment of all taxes, contributions
or other payments for unemployment compensation or old age benefits, pensions or
annuities now or hereafter imposed upon employers by the government of the
United States or by any state or local governmental body with respect to such
employees measured by the wages, salaries, compensation or other remuneration
paid to such employees, or otherwise, and each party further agrees to make such
payments and to make and file all reports and returns, and to do everything to
comply with the laws imposing such taxes, contributions or other payments.

      B. INDEMNIFICATION BY CONTRACTOR

      Contractor hereby assumes liability for and agrees to indemnify, release,
defend, protect, save and hold United and its officers, directors, agents and
employees harmless

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from and against any and all liabilities, damages, expenses, losses, claims,
demands, suits, fines or judgments, including but not limited to, attorneys' and
witnesses' fees, costs and expenses incident thereto, which may be suffered by,
accrue against, be charged to or be recovered from United or its officers,
directors, employees or agents, by reason of any injuries to or deaths of
persons, except for injury or death of United employees, or the loss of, damage
to or destruction of property, including the loss of use thereof, arising out
of, in connection with or in any way related to any act, error, omission,
operation, performance or failure of performance of Contractor or its officers,
directors, employees and agents, or of any Ground Handling Provider, regardless
of any contributory negligence either active, passive or otherwise on the part
of United or its officers, directors, employees or agents (but excluding the
reckless and willful misconduct or gross negligence of United or its officers,
directors, employees or agents), which is in any way related to the services of
Contractor contemplated by or provided pursuant to this Agreement, or otherwise.
United will give Contractor prompt and timely notice of any claim made or suit
instituted against United which in any way results in indemnification hereunder,
and Contractor will have the right to compromise or participate in the defense
of same to the extent of its own interest.

      C. INDEMNIFICATION BY UNITED

      *

      D. INDEMNIFICATION RELATED TO GROUND HANDLING SERVICES

      Contractor hereby assumes liability for and agrees to indemnify, release,
defend, protect, save and hold each Ground Handling Provider, and its officers,
directors, agents and employees, harmless from and against any and all
liabilities, damages, expenses, losses, claims, demands, suits or judgments,
including but not limited to, attorneys' and witnesses' fees, costs and expenses
incident thereto, which may be suffered by, accrue against, be charged to or be
recovered from such Ground Handling Provider, or its officers, directors,
employees or agents, by reason of any injuries to or deaths of persons (except
employees of Ground Handling Provider or employees of any agent hired by Ground
Handling Provider), or the loss of, damage to or destruction of property,
including the loss of use thereof, arising out of, in connection with or in any
way related to any act, error, omission, operation, performance or failure of
performance of Contractor or its officers, directors, employees and agents,
regardless of any negligence either active, passive or otherwise on the part of
such Ground Handling Provider, or its officers, directors, employees or agents
(but excluding the reckless and willful misconduct or gross negligence of such
Ground Handling Provider or its officers, directors, employees or agents and
excluding such Ground Handling Provider's negligent operation of ground support
equipment to the extent solely of such Ground Handling Provider's
indemnification obligation therefore under the following paragraph), which is in
any way related to the Ground Handling Services. To be eligible for this
indemnity, each Ground Handling Provider will give Contractor prompt and timely
notice of any

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claim made or suit instituted against it which in any way results in
indemnification hereunder, and Contractor will have the right to compromise or
participate in the defense of same to the extent of its own interest. Contractor
acknowledges and agrees that the Ground Handling Providers are third party
beneficiaries of the indemnities provided herein by Contractor, and may bring
legal actions and proceedings (whether administrative, judicial, or otherwise)
in their own names directly against Contractor.

      United will cause each Ground Handling Provider to agree to indemnify
Contractor against any physical loss or damage to any of Contractor's aircraft
caused by such Ground Handling Provider's negligent operation of ground support
equipment, provided that such Ground Handling Provider's liability under this
sentence shall be limited to any loss or damage not exceeding $* in respect of
any incident and shall not extend to any loss or damage below $* in respect of
any incident. In the event that Contractor believes the loss or damage to its
aircraft is excessive, United, Ground Handling Provider and Contractor agree to
meet in order to mitigate such loss or damage.

      Notwithstanding the foregoing, United shall require all Ground Handling
Providers procure and maintain, at their sole cost and expense, Commercial
Aviation General Liability Insurance including, but not limited to, bodily
injury liability, property damage liability, public liability, premises
liability, products completed operations liability, hangerkeepers liability and
contractual liability in an amount not less than Combined Single Limit (for any
Part 121 Certificated Air Carrier or affiliate of such carrier providing such
Ground Handling Services) any one occurrence of not less than USD $*. Said
insurance shall (i) name Contractor as Additional Insured as its interests may
appear, (ii) Be primary without right of contribution from any insurance carried
by or available to Contractor, (iii) contain severability of interests, cross
liability and breach of warranty clauses in favor of Contractor, (iv) shall
provide for 30 days prior written notice of any cancellation or material change
adverse to the interests of Contractor, (v) contain a waiver of insurers' rights
of subrogation against Contractor. Upon request, all Ground Handling Providers
shall provide Contractor with a Certificate of Insurance evidencing same.

      E. CONTRACTOR'S SUPPLIES LIABILITY

      Contractor hereby assumes liability for and agrees to indemnify, release,
defend, protect, save and hold United and its officers, directors, agents and
employees from and against any and all liabilities, damages, losses, claims,
demands, suits, fines or judgments, including but not limited to attorneys' and
witnesses' fees, costs and expenses incident thereto, which may be suffered by,
accrue against, be charged to or be recovered from United or its officers,
directors, employees, or agents by reason of any losses or damages incurred on
account of the loss, misapplication, theft or forgery of passenger tickets,
exchange orders or other supplies furnished by or on behalf of United to
Contractor, or the proceeds thereof, whether or not such proceeds have been
deposited in

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a bank and whether or not such loss is occasioned by the insolvency or
bankruptcy of a bank in which Contractor may have deposited such proceeds, other
than a loss caused by a bank to which funds have been transmitted at the express
direction of United. Contractor's responsibility hereunder for passenger
tickets, exchange orders and other supplies will commence immediately upon the
delivery of said passenger tickets, exchange orders, and other supplies into the
possession of Contractor or any duly authorized officer, agent or employee of
Contractor. United will furnish Contractor prompt and timely notice of any
claims made or suits instituted against United which in any way may result in
the indemnification hereunder, and Contractor will have the right to compromise
or participate in the defense of same to the extent of its own interest.

      F. UNITED DEFINITIONS

      As used in this ARTICLE XIII for purposes of identifying an indemnified
party, all references to United include United's parent company, and any
subsidiary or affiliate of United or its parent company, and their respective
employees, officers, directors and agents. For purposes of this ARTICLE XIII any
passenger who connects in any city from a flight on United or Contractor (the
"CARRYING PARTY") within four (4) hours after the end of such flight to a flight
of the other party (the "CONNECTING PARTY") become passengers of the Connecting
Party when such passenger enters the hold room or waiting area to which they
were deplaned in such city from the Carrying Party's flight to such on-line
city. A passenger of the Carrying Party who does not have a connecting flight
with the other party hereto and prior to entering the hold room or waiting area
after deplaning from the Carrying Party's flight in the Connection City is a
passenger of the Carrying Party. For purposes of this ARTICLE XIII, neither
loading bridges, hallways, stairways, nor ramp areas will be considered part of
the hold room or waiting area.

XIV.  REPORTS

      A.    CLOSE-OUT ENTRIES

      Upon departure of each Contractor flight from Contractor Locations and
Joint Locations, close-out entries shall be made by Contractor in Apollo
Services as required by United and as specified in the Standards of Service.
United will use good faith efforts to notify Contractor in writing as soon as
practicable after United determines that Contractor has failed to perform flight
close-out, as outlined above. If Contractor fails * times in any consecutive *
period to perform flight close-out, as outlined above, where such occurrence is
caused by or arises out of an act or omission of Contractor, then upon
notification by United to Contractor, Contractor shall pay United damages of *
for each occurrence over and above the first * occurrences in such * period.
Contractor is accountable for only the flights which are handled at the ticket
counter and gate by Contractor. Such damages shall be United's exclusive remedy
for Contractor's non-compliance with this paragraph. If United fails to notify
Contractor of its intent to seek damages pursuant to this paragraph within four
months after the end of the * period,

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United shall be deemed to have waived its right to seek such damages for
Contractor's non-compliance with this paragraph during such * period.

      B. BOARDING INFORMATION

      Information reports containing data covering boarding, and other
information agreed to by the parties for Contractor's operations hereunder will
be produced from the close-out entries and provided by United to Contractor on a
monthly basis * after the month end.

      C. OPERATING PERFORMANCE

      Contractor will furnish to United within * after the end of each month a
detailed report of its operating performance, which report will include
information on Contractor's performance during the preceding month for each of
the items designated by United, including, but not limited to, Operating
Performance Standards and aircraft appearance.

      D. INSPECTION

      United may inspect Contractor's corporate records and accounts solely
related to Contractor's United Express Services, from time to time, upon
reasonable notice during the life of this Agreement; provided that such
inspections do not unreasonably interfere with Contractor's business.

      E. FINANCIAL STATEMENTS

      Contractor will furnish to United, (i) within the time frame determined by
the Securities Exchange Commission (SEC) for financial reporting after the end
of the each calendar quarter, unaudited financial statements, including
Contractor's then current corporate balance sheet and profit and loss statement,
and (ii) within * after the end of the Contractor's fiscal year, Contractor's
then current, audited financial statements including, either separately or on a
consolidated basis, the balance sheet and the profit and loss statement,
together with associated footnotes, and a copy of the independent auditor's
report.

      F. GOVERNMENT FILINGS

      Contractor will be responsible for filing all reports relating to its
operations with the DOT, FAA and other applicable government agencies (other
than any such reports for which United has assumed the responsibility to file
them on Contractor's behalf), and Contractor will promptly furnish United with
copies of all such reports and such other available traffic and operating
reports as United may request from time to time during the life of this
Agreement. To the extent only United is in possession of relevant statistics
used in such reports, United will provide such available statistics to
Contractor as necessary for Contractor to complete these filings. If United
fails to provide such

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statistics to Contractor sufficiently in advance of the applicable deadline for
such filings, and Contractor is unable to submit such filings by the deadline
because of such delay, United will reimburse Contractor for any fines or
penalties incurred by Contractor as a result of its failure to submit such
filings by the deadline.

      G. COPY OF GOVERNMENT REPORTS

      Contractor will promptly furnish United with a copy of every final report
that Contractor prepares, whether or not such report is filed with the FAA, NTSB
or any other governmental agency, relating to any accident or incident involving
an aircraft used by Contractor pursuant to this Agreement, when such accident or
incident is claimed to have resulted in the death or injury to any person or the
loss of, major damage to or destruction of any property.

      H. BENCHMARKING

      No greater that once per calendar year, Contractor agrees to participate
in a detailed benchmarking process to be determined by United similar to the one
completed in 2003. United agrees that any aforementioned information, as well as
the one-time audit in ARTICLE III.H.4 will be used for informational purposes
only and not in any manner to become the basis of, or provide justification for,
any rate adjustment not associated with adjustments noted in other parts of this
Agreement.

XV.   INDEPENDENT CONTRACTORS AND UNAUTHORIZED OBLIGATIONS

      A. INDEPENDENT CONTRACTORS

            1.    The employees, agents and independent contractors of each
party hereto (the "Employer") engaged in performing any of the services the
Employer is to perform pursuant to this Agreement are employees, agents, and
independent contractors of the Employer for all purposes and under no
circumstances will be deemed to be employees or agents or independent
contractors of the other Party (the "non-Employer"). The Non-Employer will have
no supervision or control over any such Employer's employees, agents and
independent contractors and any complaint or requested change in procedure made
by the Non-Employer will be transmitted by it to the Employer's designated
representatives. In its performance under this Agreement, each party will act
for all purposes, as an independent contractor and not as an agent for the other
party.

            2.    Notwithstanding the fact that Contractor has agreed to follow
certain procedures, instructions and United Express Service Standards pursuant
to this Agreement, United will have no supervisory power or control over any
employees, agents or independent contractors engaged by Contractor in connection
with its performance hereunder, and all complaints or requested changes in
procedures made by United will, in all events, be transmitted by United to
Contractor's designated representatives. Nothing contained in this Agreement is
intended to limit or condition Contractor's control over its operations or the
conduct of its business as an air carrier, and Contractor and its principals
assume all risks of financial losses which may result from the operation of the
air services to be provided by Contractor hereunder.

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      B. UNAUTHORIZED OBLIGATIONS

            1.    Nothing in this Agreement authorizes United to make any
contract, agreement, warranty or representation on Contractor's behalf, or to
incur any debt or obligation in Contractor's name ("CONTRACTOR UNAUTHORIZED
OBLIGATION"); and United hereby agrees to defend, indemnify, save, release and
hold Contractor and its officers, directors, employees and agents harmless from
any and all liabilities, claims, judgments and obligations which arise as a
result of or in connection with or by reason of any such Contractor Unauthorized
Obligation made by United or its officers, directors, employees, agents or
independent contractors (other than Contractor) in the conduct of United's
operations.

            2.    Nothing in this Agreement authorizes Contractor to make any
contract, agreement, warranty or representation on United's behalf, or to incur
any debt or obligation in United's name ("UNITED UNAUTHORIZED OBLIGATION"); and
Contractor hereby agrees to defend, indemnify, save, release and hold United and
its officers, directors, employees and agents harmless from any and all
liabilities, claims, judgments and obligations which arises as a result of or in
connection with or by reason of any such United Unauthorized Obligation made by
Contractor or its officers, directors, employees, agents or independent
contractors (other than United) in the conduct of Contractor's operations.

      C. CONTRACTOR OPERATED FLIGHTS

      The fact that Contractor's operations are conducted under the United Marks
and listed under the UA designator code will not affect their status as flights
operated by Contractor, and Contractor and United agree to advise all third
parties, including passengers, of this fact.

XVI.  DEFAULT AND TERMINATION

      A. OPERATIONS DEFAULT

            1.    If either party becomes insolvent; if the other party is not
regularly paying its bills when due without just cause; if either party takes
any step leading to its cessation as a going concern; makes an assignment of
substantially all of its assets for the benefit of creditors or a similar
disposition of the assets of the business; or if either party either ceases or
suspends operations for reasons other than an ARTICLE XXVI Force Majeure
condition (a "SECTION A DEFAULT"), then the other party (the "INSECURE PARTY")
may terminate this Agreement on not less than * written notice (the "Notice
Period") to such party (the "SECTION A DEFAULTING PARTY") unless the Section A
Defaulting Party immediately gives adequate assurance of the future performance
of this Agreement within the Notice Period by establishing an irrevocable letter
of credit -- issued by a U.S. bank acceptable to the Insecure Party, on terms
and conditions acceptable to the Insecure Party, and in an amount sufficient to
cover all amounts potentially due from the Section

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A Defaulting Party under this Agreement -- that may be drawn upon by the
Insecure Party if the Section A Defaulting Party does not fulfill its
obligations under this Agreement in a timely manner.

            2.    If bankruptcy proceedings are commenced with respect to the
Section A Defaulting Party and if this Agreement has not otherwise terminated,
then to the extent permitted by the Bankruptcy Court, the Insecure Party may
upon * prior written notice suspend all further performance of this Agreement
until the Section A Defaulting Party assumes or rejects this Agreement pursuant
to Section 365 of the Bankruptcy Code or any similar or successor provision. Any
such suspension of further performance by the Insecure Party pending the Section
A Defaulting Party's assumption or rejection will not be a breach of this
Agreement and will not affect the Insecure Party's right to pursue or enforce
any of its rights under this Agreement or otherwise.

      B. COVENANT DEFAULT

      If either party (the "SECTION B DEFAULTING PARTY") shall refuse, neglect
or fail to perform, observe, or keep any material covenants, agreements, terms
or conditions contained herein on its part to be performed, observed, and kept
(other than any such covenant or agreement for which this Agreement provides an
exclusive remedy and other than the covenants described in ARTICLE XV.E), and
such refusal, neglect or failure (individually and collectively, a "BREACH")
shall continue for a period of * after written notice to cure such Breach to the
Section B Defaulting Party thereof or such longer period as may be demonstrably
necessary to complete the cure of such failure (but such longer period may not
exceed * after the receipt of the notice to cure) (a "SECTION B DEFAULT") then
the other party may upon * notice to the Section B Defaulting Party terminate
this Agreement. If a notice of Breach is delivered and a notice of termination
is not delivered within * after the end of the * cure period, as applicable, the
other party shall be deemed to have waived its right hereunder to terminate for
the particular occurrence of Breach for which the Section B Defaulting Party
received notice. Notwithstanding the foregoing, if United shall permanently
cease operations as a certificated air carrier, Contractor may give written
notice and terminate the Agreement effective immediately after such cessation of
operations.

      C. DEFAULT BY CONTRACTOR

      If Contractor shall refuse, neglect or fail to cure or perform any one of
the following conditions, United may give Contractor written notice to correct
such condition or cure such breach, and if any such condition or breach shall
continue for *, or, in the case of ARTICLE XV.C.1 below, * after notice to
Contractor thereof (a "SECTION C DEFAULT"), then United may terminate this
Agreement upon * written notice to Contractor if:

            1.    Contractor's operations fall below any of the following three
levels for * (in other words, Contractor will not have failed to comply with the
condition in this

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paragraph if it does not fall below any one or more of the following three
levels at any time during a period of *):

                  a.    less than *% Controllable Flight Completion (excluding
cancellations resulting from weather, Air Traffic Control, labor actions, or
from causes solely attributable to United or the station designated ground
service provider);

                  b.    greater than * Mishandled Bags per * passengers
(excluding stations where Contractor does not handle the ramp operations); and

                  c.    less than *% of flight departures are On-Time zero; or

            2.    Contractor knowingly maintains falsified books or records or
submits false reports of a material nature

            If notice of breach is delivered under this Section and a notice of
termination is not delivered within * thereafter, then United shall be deemed to
have waived its right to terminate under this Section for only the particular
occurrence for which Contractor received notice.

      D. SIMILAR AGREEMENTS

      United may terminate this Agreement with * prior notice (i) if Contractor
or any of its affiliates is in breach of the terms of ARTICLE 0 (Operating
Restrictions) or (ii) if Contractor or any of its affiliates is in breach of the
terms of ARTICLE IV.A.2 (Code Share Limitations) (a "SECTION D DEFAULT"), and
Contractor has failed to cure such breach within * after it occurs. If notice of
breach is not provided within * after United becomes aware of such breach,
United shall be deemed to have waived its right to terminate under this Section
for the particular occurrence of breach for which Contractor received notice.

      E. NON-COMPLIANCE WITH STANDARDS

            1.    If Contractor shall refuse, neglect, or fail to perform or
observe the provisions of the United Express Service Standards or Aircraft
Ground Handling Procedures to be performed, observed, and kept with regard to
one or more city pairs under this Agreement, and such refusal, neglect or
failure shall continue for a period of * after United delivers written notice to
cure such default to Contractor thereof (a "SECTION E DEFAULT") then United may
upon * notice to Contractor terminate this Agreement with regard to the city
pairs involved or as to the entire Agreement at United's discretion. United
acknowledges that except as set forth in Appendix B, United will contract with
the Ground Handling Provider and United shall ensure such Ground Handling
Provider complies with the standards set forth by United.

            2.    Contractor warrants that it shall maintain compliance with the
requirements of APPENDIX G for the term of this Agreement. Any failure to
maintain such compliance shall immediately be brought to United's attention
together with

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corrective actions taken by Contractor or a correction action plan. In the event
that United or any governmental agency with jurisdiction over the safety
requirements referenced in APPENDIX G provides written notice to Contractor that
it is not in compliance with such requirements (including any new requirements
published by the government from time to time) or any corrective action plan
related thereto (a "SECTION E SAFETY DEFAULT"), and in the absence of any
immediate threat to the safety of persons or property (a "CRITICAL SAFETY
EVENT"), Contractor shall have * (or such shorter period directed by the
relevant governmental agency) within which to cure such default. Should
Contractor fail to cure the Section E Safety Default within the cure period, or
if there exists a Critical Safety Event, United may, in whole or part, suspend
or terminate this Agreement or any terms or conditions impacted by such failure
or Event, without further liability; but, with reservation of all other rights
and remedies available to United.

      F. CONSEQUENCES OF TERMINATION

      Any termination pursuant to one or more of the provisions of this
Agreement will be without additional liability to the party initiating such
termination and will not be construed so as to relieve either party hereto of
any debts or obligations, monetary or otherwise, to the other party that accrued
hereunder prior to the effective date of such termination. Each party will be
entitled to any and all damages recoverable and remedies under law or in equity
against the other for any breach by the other party of this Agreement,
regardless of whether the non-breaching party elects to terminate this
Agreement;

      G. UNITED'S LIQUIDATED DAMAGES

            1.    If United terminates this Agreement pursuant to the terms of
this ARTICLE XVI, including for Contractor's breach, then Contractor will pay to
United as liquidated damages, and not as a penalty, the *, for each *; provided,
however, that if United secures another carrier to replace Contractor in the
city pairs served by Contractor under this Agreement as a United Express Carrier
at any of the affected stations, or if United determines that United could
replace Contractor without increasing its damages in these city pairs, then the
liquidated damages will be adjusted as follows:

                  a. *

                  b. *

                  c. *

            2.    For purposes of this Article XV.G,

                  a. "*" means the *.

                  b. "*" shall equal *.

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                  c. The amount of the "*" shall equal the sum *.

                  d. "*" means the *.

                  e. "*" means the *.

            3.    If this Agreement is terminated in a manner such that United
shall have the right to damages under this Article XV.G, United shall, in good
faith and in a commercially reasonable manner, secure another carrier to replace
Contractor and take such other reasonable actions so as to mitigate the damages
owed to United hereunder.

            4.    The inclusion of this Article XV.G, is not intended to modify,
waive or restrict Contractor's rights to exercise any and all remedies available
at law or in equity for United's breach of this Agreement.

            5.    The provisions of this Article XV.G, shall not be applicable
to a termination of this Agreement by United pursuant to Article III.C as a
result of Contractor's failure to meet the conditions referenced in Article
XV.C.1; provided, that the exclusion of the applicability of this Article XV.G
to Article XV.C.1 shall not be deemed to be a waiver of any right which United
may have for remedies at law or in equity.

      Not withstanding the above, total liquidated damages shall in no case
exceed $* aggregate.

      H. RESTRICTED ACTIONS

      Contractor shall not take, nor agree to take, any of the following actions
without United's prior written consent: (a) dispose of any of United's assets,
or (b) enter into any agreements with third parties which create liens, claims
or encumbrances on any of United's assets. To the extent that Contractor engages
in, invests in or otherwise is responsible (financially or otherwise) for any
business, activity or operation other than Contractor's United Express Services,
and unless otherwise expressly agreed in writing with United, Contractor will
ensure that the costs and expenses associated with or allocable to such other
businesses, activities or operations are not charged to or recovered from United
in any way.

XVII. ASSIGNMENT, MERGER AND ACQUISITION

      A. ASSIGNMENT

      This Agreement may be terminated by either United or Contractor (the
"FIRST PARTY") if the other party assigns this Agreement or any of its rights,
duties or obligations under this Agreement (except an assignment of the right to
money to be received hereunder and except to any affiliate of Contractor)
without the prior written consent of the First Party. In the event that this
Agreement is assigned in violation of this ARTICLE

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XVI, without such consent having been given in writing, the First Party will
have the right to terminate this Agreement immediately by telegraphic or written
notice to the other party; provided, however, that a corporate reorganization
that does not result in a material change in the ultimate ownership of
Contractor from the ownership that existed prior to such transaction will not be
considered an assignment as long as all of the entities succeeding to any of the
assets or liabilities of Contractor prior to such corporate reorganization agree
to be bound by this Agreement.

      B. MERGER AND ACQUISITION

      In the event Contractor merges with, or if control of Contractor is
acquired by, another air carrier, or a corporation directly or indirectly owning
or controlling or directly or indirectly owned or controlled by another air
carrier (a "HOLDING COMPANY"), or a corporation directly or indirectly owned or
controlled by any such Holding Company, United will have the option to terminate
this Agreement without liability to Contractor. Should United elect not to
terminate the Agreement, the Holding Company shall be obligated to comply and
perform under the full terms of this Agreement.

XVIII. CHANGE OF LAW

      Notwithstanding anything herein to the contrary, in the event there is any
change in the statutes governing the economic regulation of air transportation,
or in the applicable rules, regulations or orders or interpretation of any such
rule, regulation or order of the DOT or other department of the government
having jurisdiction over air transportation, which change or changes materially
affect the rights or obligations of either party hereto under the terms of this
Agreement, then the parties hereto will consult, no later than * after any of
the occurrences described herein, in order to determine what, if any, changes to
this Agreement are necessary or appropriate, including but not limited to the
early termination of this Agreement. If the parties hereto are unable to agree
whether any change or changes to this Agreement are necessary and proper, or as
to the terms of such changes, or whether this Agreement should be terminated in
light of the occurrences described above, and such failure to reach agreement
continues for a period of * following the commencement of the consultations
provided for by this ARTICLE XVIII, then this Agreement may be terminated by
either party immediately upon providing the other party * prior written notice
of such termination. Any such termination will be without additional obligation
or liability to both parties except that such termination will not relieve
either party of any debt or obligation, monetary or otherwise, accruing
hereunder prior to the effective date of termination.

XIX.  TAXES, PERMITS AND LICENSES

      A. TRANSACTION TAXES

      Contractor agrees to indemnify and hold United harmless from any and all
penalties or interest arising out of any real and personal property, sales and
use,

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occupational, gross receipts, value added, income, franchise and any other
taxes, customs, duties, excise taxes, fees, charges or assessments, of any
nature whatsoever imposed by any federal, state, local or foreign government or
taxing authority upon Contractor or United with respect to Contractor's
performance of this Agreement, or to Contractor's operations, or the equipment
contained therein or services provided thereby, or the revenues derived there
from (except for penalties or interests arising out of any tax upon or measured
by United's revenues, net income or any franchise tax). If a claim is made
against United for any penalties or interest referred to above, United will
promptly notify Contractor and request payment of such claim. If requested by
Contractor in writing, United will upon receipt of indemnity and evidence that
Contractor has made adequate provision for the payment of such penalties or
interest, reasonably satisfactory to United, contest the validity, applicability
or amount of such penalties or interest, taxes and other charges at Contractor's
expense. Contractor shall pay United upon demand for all expenses incurred
(including, without limitation, all costs, expenses, losses, legal and
accountants' fees, penalties and interest) in making payment, in protesting or
seeking refund of such penalties or interest.

      B. PAYROLL TAXES

      Contractor acknowledges that it is responsible for and will pay to the
appropriate authority, and will indemnify and hold United harmless from, any and
all federal or state payroll taxes, FICA, unemployment tax, state unemployment
compensation contribution, disability benefit payments, insurance costs and any
other assessments or charges which relate directly or indirectly to the
employment by Contractor of Contractor's employees. United acknowledges that it
is responsible for and will pay to the appropriate authority, and will indemnify
and hold Contractor harmless from, any and all federal or state payroll taxes,
FICA, unemployment tax, state unemployment compensation contribution, disability
benefit payments, insurance costs and any other assessments or charges which
relate directly or indirectly to the employment by United of United's employees.

      C. PERMITS AND LICENSES

      Contractor will comply with all federal, state and local laws, rules and
regulations, will timely obtain and maintain any and all permits, certificates
or licenses necessary for the full and proper conduct of its operations, and
will pay all fees assessed for airport use including but not limited to landing
fees, user airport fees and prorated airport facility fees. Upon sufficient
notice by United, Contractor further agrees to comply with all mandatory
resolutions issued by the Air Transport Association of America ("ATA") and all
non-binding recommended resolutions of the ATA which are adopted by United.

XX.   REVIEW

      During the term of this Agreement United may, at any time at its
discretion, require a joint review of Contractor's aircraft and facilities to
determine whether Contractor's United Express Services are meeting the
requirements of this Agreement. Such review can include an obligation for
Contractor to respond to reasonable

                                                                              52



information requests and to provide relevant documents. This review is not
intended nor shall it be construed to relieve Contractor of its responsibility
to provide a quality and airworthy aircraft that satisfies all FAA regulations.
In addition, upon request by United, within * after each calendar quarter United
and Contractor will meet to review Contractor's United Express Services during
the preceding calendar quarter.

XXI.  JURISDICTION

      With respect to any lawsuit, action, proceeding or claim relating to this
Agreement or any other agreement between United and Contractor (hereinafter, any
such lawsuit, action, proceeding or claim is referred to as a "LAWSUIT"), each
of the parties hereto irrevocably (i) submits to the exclusive jurisdiction of
the courts of the State of Illinois and the United States District Court located
in the City of Chicago, Illinois, and (ii) waives any objection which it may
have at any time to the laying of venue of any Lawsuit brought in any court,
waives any claim that any Lawsuit has been brought in any inconvenient forum,
and further waives the right to object, with respect to any Lawsuit, that such
court does not have jurisdiction over such party. Nothing in this Agreement
precludes either party hereto from bringing Lawsuits in any other jurisdiction
in order to enforce any judgment obtained in any Lawsuit referred to in the
preceding sentence, nor will the bringing of such enforcement Lawsuit in any one
or more jurisdictions preclude the bringing of any enforcement Lawsuit in any
other jurisdiction.

XXII. NOTICES

      Any and all notices, approvals or demands required to be given in writing
by the parties hereto will be sufficient if sent by certified mail, postage
prepaid, overnight delivery by a nationally recognized delivery company or hand
delivery, to United, addressed to:

            United Air Lines, Inc.
            1200 E. Algonquin Road
            Elk Grove Township, Illinois 60007
            Attn:  - Director, United Express
            Fax:  847-364-6728

and to Contractor, addressed to:

            Mesa Air Group, Inc.
            410 N. 44th Street, Suite 700
            Phoenix, Arizona  85008
            Attn: Chief Financial Officer
            Fax:  602-685-4352

            With a copy to:

            Mesa Air Group, Inc.
            410 N. 44th Street, Suite 700

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            Phoenix, Arizona  85008
            Attn:  Vice President & General Counsel
            Fax:  602-685-4352

or to such other addresses in the continental United States as the parties may
specify in writing.

XXIII. APPROVALS AND WAIVERS

      A.    Whenever this Agreement requires the prior approval or consent of
United, Contractor will make a timely request to United therefore and the
consent will be obtained in writing. United will also consider, in its sole
discretion, other reasonable requests individually submitted in writing by
Contractor for United's consent to a waiver of any obligation imposed by this
Agreement.

      B.    United assumes no liability or obligations to Contractor by
providing any waiver, approval, consent or suggestion to Contractor in
connection with this Agreement, or by reason of any neglect, delay or denial of
any request therefor.

      C.    Except as otherwise provided for in this Agreement, no failure by
either party to execute any power reserved to it by this Agreement, or to insist
upon strict compliance by the other party with any obligation or condition
hereunder, and no custom or practice of the parties at variance with the terms
hereof will constitute a waiver of such party's right to demand exact compliance
with any of the terms herein. Waiver by such party of any particular default by
the other party will not affect or impair such party's rights with respect to
any subsequent default of the same, similar or different nature, nor will any
delay, forbearance or omission of such party to exercise any power or right
arising out of any breach or default by the other party of any of the terms or
provisions hereof will affect or impair such party's right to exercise the same
or constitute a waiver by such party of any right hereunder or the right to
declare any subsequent breach or default and to terminate this Agreement prior
to the expiration of its term. Subsequent acceptance by such party of any
payments due to it hereunder will not be deemed to be a waiver by such party of
any preceding breach by the other party of any terms, covenants or conditions of
this Agreement.

XXIV. GOVERNING LAW

      This Agreement and any dispute arising hereunder, including any action in
tort, will be governed by and construed and enforced in accordance with the
internal laws of the State of Illinois.

XXV.  CUMULATIVE REMEDIES

      Unless and to the extent as may be otherwise expressly stated in this
Agreement, no right or remedy conferred upon or reserved to Contractor or United
by this Agreement is intended to be, nor shall be deemed, exclusive of any other
right or remedy herein or by law or equity provided or permitted, but each will
be cumulative of every other right or remedy.

                                                                              54


XXVI. FORCE MAJEURE

      Neither party shall be liable for delays or failure in performance
hereunder caused by acts of God, acts of terrorism or hostilities, war, strike,
labor dispute, work stoppage, fire, act of government, court order or any other
cause, whether similar or dissimilar, individually or collectively, "Force
Majeure" events beyond the control of Contractor or United. At any time
following a Force Majeure event, United retains the right to reduce *. After *
from the date of the qualifying Force Majeure event, margins shall return to the
originally scheduled amount. Should such a Force Majeure event occur and Mesa's
margins be reduced, United will agree to extend the term of the Agreement by *
from the date of original termination for *.

XXVII. SEVERABILITY AND CONSTRUCTION

      A.    Each term or provision of this Agreement will be considered
severable, and if, for any reason, any such term or provision herein is
determined to be invalid and contrary to, or in conflict with, any existing or
future law or regulation by a court or agency having valid jurisdiction, such
will not impair the operation of, or have any other effect upon, other terms or
provisions of this Agreement as may remain otherwise enforceable, and the latter
will continue to be given full force and effect and bind the parties hereto, and
said invalid terms or provisions will be deemed not to be a part of this
Agreement.

      B.    The captions appearing in this Agreement have been inserted for
convenience only and will not control, define, limit, enlarge or affect the
meaning of this Agreement or any of its provisions.

XXVIII. ACKNOWLEDGMENT

      A.    Each party expressly disclaims the making of, and acknowledges that
it has not received, any warranty or guarantee, express or implied, as to the
potential volume, profits or success of the business venture contemplated by
this Agreement.

      B.    Each party acknowledges that it has received, read and understood
this Agreement and the Appendices hereto.

XXIX. CONFIDENTIALITY

      A.    Except as required by law (including federal or state securities
laws or regulations) or by the rules and regulations of any stock exchange or
association on which securities of either party or any of its affiliates are
traded, or in any proceeding to enforce the provisions of this Agreement, United
and Contractor hereby agree not to publicize or disclose to any third party the
terms or conditions of this Agreement or any of the Related Agreements without
the prior written consent of the other parties thereto.

      B.    Except as required by law (including federal or state securities
laws or regulations) or by the rules and regulations of any stock exchange or
association on

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which securities of either party or any of its affiliates are traded, or in any
proceeding to enforce the provisions of this Agreement, United and Contractor
hereby agree not to disclose to any third party any confidential information or
data, both oral and written, received from the other and designated as such by
the other without the prior written consent of the party providing such
confidential information or data.

      C. If either party is served with a subpoena or other process requiring
the production or disclosure of any of the agreements, information or data
described in ARTICLE XXVIII.A or ARTICLE XXVIII.B, then the party receiving such
subpoena or other process, before complying with such subpoena or other process,
shall immediately notify the other party of same and permit said other party a
reasonable period of time to intervene and contest disclosure or production.

      D. Upon termination of this Agreement, each party must return to the other
any confidential information or data received from the other and designated as
such by the party providing such confidential information or data which is still
in the recipient's possession or control.

      XXX. RELATED AND THIRD PARTY AGREEMENTS

      United and Contractor shall enter into agreements listed below in this
ARTICLE XXX (the "RELATED AGREEMENTS"). All such Related Agreements will
automatically terminate contemporaneously with the termination of this Agreement
unless termination shall otherwise be effected in accordance with the terms of
such Related Agreements.

            a. Interline/Space Available Employee and Eligible Travel Agreement
(United Contract No. 163648).

            b. Emergency Response Services Agreement. (United Contract No.
163649)

            c. United Express/Positive Space Employee Travel Agreement (United
Contract No. 163467)

XXXI. ENTIRE AGREEMENT

      This Agreement, together with the Related Agreements, including any
Appendices, Attachments and Exhibits attached hereto and thereto, contains the
complete, final and exclusive agreement between the parties hereto with respect
to the subject matter hereof, and supersedes all previous agreements and
understandings, oral and written, with respect to such specific matter and said
Agreement will not be modified, amended or terminated by mutual agreement or in
any manner except by an instrument in writing, executed by the parties hereto.

XXXII. REFERENCES TO TIME PERIODS

      All references to the term "YEAR" in this Agreement shall mean contract
year unless specifically stated otherwise. All references to the term "MONTH" in
this

                                                                              56


Agreement shall mean a full calendar month; provided that if the Effective
Date shall be other than the first day of a calendar month, then the first
"MONTH" of this Agreement shall commence on the Effective Date and end on the
last day of the month in which the Effective Date occurs. All references to the
term "QUARTER" in this Agreement shall mean a calendar quarter; provided that
the first "QUARTER" of this Agreement shall commence on the Effective Date and
terminate on the last day of the calendar quarter in which the Effective Date
occurs. Calendar quarters shall be January 1 through March 31, April 1 through
June 30, July 1 through September 30, and October 1 through December 31.

      IN WITNESS WHEREOF, the parties hereto have by their duly authorized
officers caused this Agreement to be entered into and signed as of the day and
year first above written.

MESA AIR GROUP, INC.                                  UNITED AIR LINES, INC.

By:                                                   By:
   ---------------------------                            ----------------------

Name:                                                 Name: Greg T. Taylor
      ------------------------

Title:                                                Title: Sr. Vice President
      ------------------------
Planning
          --------------------
Date:                                                  Date:
        ----------------------                               -------------------

                                                                              57
k


                                   APPENDIX A

             UNITED MARKS & AIRCRAFT USED IN UNITED EXPRESS SERVICE

UNITED MARKS

UNITED EXPRESS

Stylized UNITED EXPRESS lettering

UNITED EXPRESS colors

Stylized letters UA

Uniform Design

Aircraft exterior and interior color decor

Other United Marks approved by United for use by Contractor

                                   *********
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                                   APPENDIX B

                         CITY PAIRS AND GROUND HANDLING

GROUND HANDLING***



         CUSTOMER
        SERVICE/TICKET       CUSTOMER           GROUND
          COUNTER*        SERVICE/GATES**     HANDLING/RAMP     RECEIPT/DISPATCH
          --------        ---------------     -------------     ----------------
                                                    
ASE    Air Wisconsin          Air Wisconsin     Air Wisconsin      Air Wisconsin
COS       United                  United            United              United
CPR       SkyWest                SkyWest           SkyWest             SkyWest
DEN       United                Contractor       Contractor          Contractor
DRO     Contractor              Contractor       Contractor          Contractor
EGE     Contractor              Contractor       Contractor          Contractor
GJT       SkyWest                SkyWest         Contractor          Contractor
GUC     Contractor              Contractor       Contractor          Contractor
HDN     Contractor              Contractor       Contractor          Contractor
JAC     Contractor              Contractor       Contractor          Contractor
RAP       SkyWest                SkyWest           SkyWest             SkyWest
SAF     Contractor              Contractor       Contractor          Contractor


*     Includes Small Package Dispatch (SPD)(TM) service.

**    Any unique ground equipment which is needed to service Contractor's
      aircraft will be provided by Contractor.

***   For purposes of the table above, Contractor, United, or a designated third
      party as applicable, shall provide or cause to be provided the designated
      services as shown in the table.

                                                                              59


                                   APPENDIX C

                           CONTRACTOR SUPPORT SERVICES

      At all locations not set forth on APPENDIX B where Contractor operates
scheduled air transportation as a United Express Carrier (i.e., Contractor
Locations), Contractor will provide the following minimum services:

      (a)   Contractor's employees shall be fully qualified personnel to handle
Contractor's operations.

      (b)   Posting of signage and decor appointment as specified by United.

      (c)   Adequate check-in areas including passenger waiting room facilities.

      (d)   Security facilities, personnel and passenger screening procedures as
are required by applicable orders, rules and regulations of the FAA or other
government agencies and those standards specified by United.

      (e)   Capability of operating Automation Equipment (Apollo Services) for
the purpose of providing passenger processing and operations in the
configuration and under the procedures specified by United.

      (f)   Baggage handling, delivery and tracing in accordance with procedures
issued by United.

                                                                              60


                                   APPENDIX D

      REIMBURSEMENT CATEGORIES & RATES PAYABLE TO CONTRACTOR

                                    * ******

      PASS-THROUGH UNIT RATES

                                     ********

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                                                            DEFINITIONS

      FLYING COST DESCRIPTIONS

                                        DESCRIPTIONS OF CARRIER CONTROLLED COSTS

        * ******

                                              DESCRIPTIONS OF PASS-THROUGH COSTS

         ******

      GROUND HANDLING COST DESCRIPTIONS

                                        DESCRIPTIONS OF CARRIER CONTROLLED COSTS

        ******

                                        CATEGORIES OF PASS-THROUGH COSTS

        ******
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                                   APPENDIX E

                    INCENTIVE PROGRAM & 2003 OPERATING GOALS

                            * *****

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                                   APPENDIX F

                               LIABILITY INSURANCE

                                   Issued by:

                                 Date of Issue:

THIS IS TO CERTIFY TO: UNITED AIR LINES, INC.

that Insurers are providing 100% of the following Aircraft Hull & Liability
Insurances:

NAME INSURED:

PERIOD OF INSURANCE:

INSURERS:

POLICY NUMBER:

GEOGRAPHICAL LIMITS:                      Worldwide Hull War limited to Western
                                          Hemisphere with commercial
                                          insurance; territorial limitations
                                          not defined in FAA policy.

AIRCRAFT INSURED:                          All aircraft owned or operated by the
                                           Named Insured.

DESCRIPTION OF COVERAGE:                   Comprehensive Airline Liability
                                           Insurance, Contractual Liability,
                                           including Aircraft Liability,
                                           Passenger , Liability War Risk should
                                           the FAA stop carrying it, including
                                           both Passengers and Other Third
                                           Parties, Cargo Liability and
                                           Comprehensive General Liability,
                                           including Hangarkeepers, Excess
                                           Automobile,Host Liquor Liability,
                                           Personal Injury, and Products
                                           Liability/Completed Operations
                                           coverage.  All Risk Physical Damage
                                           Hull Coverage

LIMIT OF LIABILITY                         Combined Single Limits to be
                                           specified consistent with ARTICLE
                                           III.1. Aircraft Hull All Risk per the
                                           Agreed Value,or up to $* per added
                                           aircraft.

SPECIAL PROVISIONS:

The insurers agree that coverage under this policy, by formal endorsement or
otherwise, is extended to insure all relevant terms and conditions of the United
Express Agreement, subject to the policy terms, conditions, limitations and
exclusions, between Contractor and United concerning Contractor's Aircraft,
(hereinafter referred to as "Agreement"), including, inter alia:

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      1.    The Insurers accept and insure the Indemnity and Hold Harmless
provisions of the Agreement, subject to the policy terms, conditions,
limitations and exclusions.

      2.    United, its affiliates, and their respective directors, officers,
employees, agents and indemnitees are named as additional insureds to the extent
of the liability assumed by Contractor under the Agreement, subject to the
policy terms, conditions, limitations and exclusions.

      3.    The Insurers agree that United shall not be liable for, nor have any
obligation to pay any premium due hereunder, and Insurers further agree that
they shall not offset or counter-claim any unpaid premium against the interest
of United.

      4.    The Insurers agree that all provisions of this insurance, except for
the limits of liability, shall operate in the same manner as if there were a
separate policy issued to each Insured.

      5.    The Insurers agree that this insurance shall be primary insurance
without any right of contribution from any other insurance which is carried by
United.

      6.    The Insurers agree to waive their rights of subrogation against
United, its officers, directors, employees and indemnitees, to the extent the
Contractor has waived and released its rights under the Agreement.

      7.    The Insurers agree that as respects the interest of United, its
directors, officers, employees and indemnitees, this insurance shall not be
invalidated by any action or inaction of the Contractor, its officers, directors
or employees, and shall insure United, its directors, officers, employees and
indemnitees regardless of any breach or violation of any warranties,
declarations, conditions or exclusions contained in the policy by the
Contractor, its officers, directors or employees.

      8.    In the event of cancellation for any reason whatever or if any
change of a restrictive nature is made affecting the insurance certified
hereunder, or if this insurance is allowed to lapse due to non-payment of
premium, such cancellation, change or lapse shall not be effective as to United,
its directors, officers, employees and indemnitees for at least * (* in the case
of non-payment of premiums, * notice of cancellation with respect to war risk)
after written notice by registered mail of such cancellation, change or lapse
shall have been mailed to United.

      9.    With respect to claims or causes of action in favor of United or its
directors, officers, agents or employees, they shall not be considered as
additional insured thereunder.

DATED:
       ----------------------

- ----------
* Confidential Treatment Requested

                                                                              65


AUTHORIZED REPRESENTATIVE:
                          --------------------------

                                   APPENDIX G

        SAFETY STANDARDS FOR UNITED AIRLINES AND UNITED EXPRESS CARRIERS

We have developed common safety standards to evaluate and effectively manage
safety. We will commit to:

Contractor represents and warrants that it is in compliance with the U.S.
Department of Defense (DoD) Quality and Safety Requirements (and any other
applicable governmental quality or safety requirement) and continues to comply
with all applicable Federal Aviation Regulations (F.A.R.). Contractor further
warrants that it shall maintain compliance with these requirements for the term
of this Agreement. Additional safety reviews and audits may be required at
United's discretion and Contractor shall cooperate with all such reviews and
audits.

In addition, Contractor agrees to the following:

- -     Mutual support of one another in implementing these standards by sharing
      safety data, information and expertise.

- -     Quality maintenance and operations training programs

- -     A carrier internal evaluation program to monitor key safety issues,
      including maintenance practices, required inspection items, technical
      document control, dangerous goods handling, training records and
      qualifications for all personnel.

- -     Quality programs to manage outsourcing of services.

- -     A formalized maintenance quality assurance program.

- -     Implementation of a program to rectify FAA inspection findings.

- -     Presence of a voluntary disclosure program.

- -     Formal process to routinely bring safety and compliance issues to
      the attention of carrier's senior management.

- -     Anonymous safety hazard reporting system.

- -     A Senior Management policy statement supporting open safety
      reporting by employees.

- -     Director of Safety, reporting to the highest levels of management,
      overseeing the carrier's safety programs.

- -     Process for managing required corrective actions from FAA and
      internal audit program as well as employee disclosure.

- -     Ongoing flight safety education/feedback program.

- -     Ground safety program in airport operating areas.

- -     Incident investigation process that includes accountability,
      recommendations and actions taken.

- -     Establishment and maintenance of emergency response procedures and
      manual.

                                                                        66


      -     Participation in UAL/industry safety information exchange forum.

                                                                              67


                                   APPENDIX H

                        UNITED EXPRESS SERVICE STANDARDS

      These Service Standards are meant to provide an overview for United
Express carriers of the service expectations established by United Airlines for
the day-to-day delivery of United's product. This document is not intended to be
an all inclusive manual of regulations, but to instead serve as a simple,
helpful source of information. The Service Standards outlined herein may change
from time to time, subject to the needs of the operation and our product
delivery. Any changes to these standards are at the sole discretion of United
Airlines and are not subject to contractual negotiations. Provided, however, the
parties have agreed to specific performance goals in this Agreement and nothing
shall be altered or changed that otherwise affects the economics of the
Agreement.

      It is the responsibility of each United Express carrier to maintain an
adequate number of employees at each location and support group or department
and to operate in a safe and reliable manner, which serves the customer at the
levels of service outlined by these Service Standards.

I.    CUSTOMER SERVICE

Uniforms: United Express employees are required to wear the United designated
uniform for Customer Service personnel. There is to be no deviation from this
uniform and it is to be worn at all times while on duty. Employees in uniform,
on or off duty are not allowed to drink intoxicating beverages, give the
appearance of being intoxicated or visit any establishment whose primary purpose
is to dispense liquor (e.g. bars, saloons, cocktail lounges, liquor stores).
"Uniform" refers to any uniform apparel bearing the United brand or insignia, or
which can be in any way identified with United Airlines or United Express.
Because the actions and appearance of employees influence, to a considerable
extent, the public's opinion of the United brand, uniformed employees must be
mindful of this and conduct themselves accordingly. For complete information on
the uniform and accessory items, review the Customer Service Uniform Appearance
Guidelines.

Training: Each United Express carrier is responsible to train all Customer
Service Representative (CSR) employees, including employees of another carrier
who may be contracted to perform these duties, using the same training modules
and computer assisted training provided by United Airlines. This training will
include, but is not limited to, all functional aspects for customer handling at
the ticket counter, gate, or baggage service.

      -     United Airlines will provide the necessary "Train the Trainer"
            support, but it is the responsibility of each United Express carrier
            to maintain trainer proficiency, knowledge and skill level.

      -     Each new hire CSR, or newly assigned CSR, must receive formal United
            Express customer service training as soon as possible, but not later
            than 30 days after the

                                                                              68


            date of employment or date of assignment. In either case, training
            must be specific to the employee's job function and task assignment.
            An employee may not work in an area in which he or she has not been
            properly trained.

      -     Each CSR must maintain proficiency in product knowledge, delivery
            and skill level.

      -     Each United Express carrier may add to the United training
            curriculum to meet its individual carrier needs, but it may not
            delete any portion of the United designated curriculum without
            written approval by United Airlines.

      -     All CSRs must complete TL17/17 lessons each week within 7 days of
            issuance.

Service Delivery: In the most basic interaction with the customer, United's
service standards encompass the foundation of service, which is: 1) Greet the
customer. 2) Use the customer's name. 3) Listen to the customers and respond to
their needs. 4) Give direction to the next step. 5) Acknowledge the customer's
importance to United and thank them for flying United Express.

Goals:

      -     Lobby line wait time: 10 minutes

      -     Jet bridge delivery time: 1 minute

      -     Meet the inbound aircraft (non-jet bridge locations) and open
            aircraft passenger door within 2 minutes of block time.

Service Tools: Customer Problem Resolution, or CPR, was created as a means to
provide customer service employees with the ability to resolve customer problems
on the spot, as they occur. CPR may include certificates for a free drink, a
credit of Mileage Plus miles to a customer's Mileage Plus account, or a Travel
Certificate to be used towards the purchase of future airline tickets. Other
tools may also include accommodation vouchers for hotels, cab/bus, or meals. It
is the responsibility of the United Express carrier to use and manage these
tools within United Airlines guidelines. The United Express carrier is
accountable for the safeguarding and appropriate use of these very important
customer tools. The United Express carriers are responsible for cost associated
with any accommodation vouchers written as a result of Contractor's failure to
complete a flight within 3 hours of scheduled completion time as a result of
mechanical issues or crew delays.

Flight Close Out: All flights must be closed out in Apollo/ACI immediately after
departure. This includes making the appropriate PB, PFS and PD entries. All
passenger counts, including revenue and non-revenue passengers, denied
boardings, as well as an accounting of any bags held off due to weight/space
restrictions, should be noted in the open comments field of the flight close out
message. Flight close out must be completed within 10 minutes of flight
departure.

                                                                              69


Flight Information (FLIFO): All flights must be updated with OUT/OFF/ON/IN times
within ten (10) minutes of actual occurrence to ensure accurate information to
customers and to employees making operational decisions. ETAs and ETDs must also
be entered within ten (10) minutes of the scheduled departure/arrival, and at
every 10 minute interval thereafter for ongoing or rolling delayed flights.

Customer Service Supplies: Each carrier must maintain an adequate amount of
Customer Service supplies to conduct its day-to-day business operation. Each
United Exprss carrier will use United Airlines designated supplies and vendors
and is responsible for the purchase of those supplies, except where United
handles that carrier.

II. RAMP SERVICE

Uniforms: United Express employees are required to wear the United designated
uniform for Ramp Service personnel. There is to be no deviation from this
uniform and it is to be worn at all times while on duty. Employees in uniform,
on or off duty are not allowed to drink intoxicating beverages, give the
appearance of being intoxicated or visit any establishment whose primary purpose
is to dispense liquor (e.g. bars, saloons, cocktail lounges, liquor stores).
"Uniform" refers to any uniform apparel bearing the United brand or insignia, or
which can be in any way identified with United Airlines or United Express.
Because the actions and appearance of employees influence, to a considerable
extent, the public's opinion of the United brand, uniformed employees must be
mindful of this and conduct themselves accordingly.

      -     In a line station, employees may combine pieces of the customer
            service uniform with pieces of the ramp uniform as long as the shirt
            or blouse is either the customer service shirt or blouse, or the
            ramp knit shirt.

      -     In a hub station, ramp personal must wear combinations of the United
            ramp uniform only.

For a review of the Ramp Service uniform, review the Ramp Service Uniform Guide.

Training: It is the responsibility of each United Express carrier to train its
Ramp Service employees, including employees of another carrier who may be
contracted to perform these duties. This training will include, but is not
limited to, load planning, baggage handling, ramp safety and security, ramp
driving, aircraft familiarization, aircraft servicing, receipt and dispatch of
aircraft, baggage make-up, baggage transfer, claim area delivery, baggage
scanning, live animal handling, dangerous goods, aircraft de-icing, Small
Package Delivery ("SPD") and mail handling.

      -     Each new hire, or newly assigned Ramp Service employee, must receive
            formalized training as soon as possible, but not later than 30 days
            after his or her date of employment or date of assignment.

                                                                              70


      -     Each Ramp Service employee must maintain product and delivery
            proficiency, knowledge and skill level.

Baggage Transfer: In a Hub or connecting station, each United Express carrier is
responsible for the transfer of all baggage/mail/cargo to United and other
airlines. Transferred bags are delivered as follows:

      -     Carry-on (security checked) bags placed in the pit/hold, are to be
            removed and delivered to the customers immediately at planeside.

      -     `City Bags' are to be delivered directly to the baggage claim area.

      -     `Hot Bags', whose window of time is determined on a local level by
            United Airlines, are to be delivered to the connecting flight at the
            gate. The gate drop point is to be determined locally by United.

      -     `Cold Bags', bags outside the Hot Bag window, are to be delivered to
            the designated sorter belt or transfer point.

      -     `Interline Bags' are to be delivered to the designated interline
            drop point.

Goals:

      -     Claim Area Baggage Delivery: Priority Bags delivered First; Last
            City bag delivered within 20 minutes of flight Block time

      -     Scanning: [97%] scanning rate uploaded within 10 minutes of
            departure of each flight

      -     MBTA (Mishandled Baggage Trend Analysis or the ratio of passengers
            mishandled per 1000 boarded.): Rates are determined in conjunction
            with United's corporate goal on an annual basis

      -     Message or meter to downline station with the transfer bag loading
            placements referred to as XBUE (Express Baggage loading message):
            Sent within 10 minutes of the departure of each flight

      -     Baggage Loading Audits:[ 95%] compliance

Ground Handling: United Express carriers are responsible for obtaining all
applicable federal, state, and local regulatory approvals for conducting
business at each location from which they operate. In addition, carriers will
ensure their ground handling procedures will satisfy all federal, state, and
local regulations. Each carrier will provide United with a copy of its station
and ground handling procedures.

From time to time, it may become necessary for United to ground handle United
Express, or on very limited occasions for United Express carriers to ground
handle United. It is the responsibility of the operating carrier to train the
ground handling carrier in all aspects of the required work to be performed.
Such work may include, but is not limited to:

                                                                              71


      -     Receipt and dispatch of aircraft, ramp safety, ramp driving,
            aircraft differences, aircraft servicing (potable water and
            lavatory), aircraft cleaning, towing, baggage handling, baggage
            loading and transferring, live animal handling, deicing, weight and
            balance, and dangerous goods.

Required training may be done one-on-one, group, or train-the-trainer. In the
case of train-the-trainer, it is then the responsibility of the ground-handling
carrier to train other additional personnel. The ground handling carrier will
ensure that proper training records are initiated, retained and current.

The ground-handling carrier will ensure that all required licenses and logs are
maintained and retained as necessary.

Each carrier is responsible for acquiring its required licenses.

The ground handling carrier will cooperate with any required governmental or
corporate inspection or audit, and will promptly correct any deficiencies found.

The operating carrier is responsible for managing all performance related
criteria. However, the ground handling carrier will make every "best faith"
effort to ensure that all performance requirements are met.

The ground handling carrier agrees to keep the operating carrier informed of any
deficiencies, irregularities and breach of procedures or problems of any type
that may negatively impact the operating carrier or its operating certificate.

The ground handling carrier will immediately advise the operating carrier of any
material change in space, parking location, manpower, or any other shortcoming
that may impact either carrier's operation or costs.

The ground handling carrier will use its own ground equipment wherever possible.

III. IN FLIGHT

Uniforms: United Express Flight Attendants are required to wear the United
designated uniform. There is to be no deviation from this uniform and it is to
be worn at all times while on duty. Employees in uniform, on or off duty are not
allowed to drink intoxicating beverages, give the appearance of being
intoxicated or visit any establishment whose primary purpose is to dispense
liquor (e.g. bars, saloons, cocktail lounges, liquor stores). "Uniform" refers
to any uniform apparel bearing the United brand or insignia, or which can be in
any way identified with United Airlines or United Express. Because the actions
and appearance of employees influence, to a considerable extent, the public's
opinion of the United brand, uniformed employees must be mindful of this and
conduct themselves accordingly. For complete information on the uniform and
accessory items, review the Customer Service Uniform Appearance Guidelines.

                                                                              72


Training: It is the responsibility of each United Express carrier to train its
own Flight Attendants in accordance with its FAA-certified program.

In Flight Service:

      -     Wherever possible, snack and beverage items should be consistent
            with the products served by United Airlines. United acknowledges
            that Contractor has priced its rates for inflight service on soda
            and pretzel-like snacks. Any changes to this level will require an
            adjustment to the catering cost category.

      -     All in-flight service items, including but not limited to napkins,
            cups, and food items, if branded, shall be branded as United
            Express. Contractor may, with the prominent use of the United
            Express logo, also indicate that the flight is operated by
            Contractor.

      -     Each United Express aircraft will be supplied by United with an
            adequate supply of Hemispheres and SkyMall Magazines. United Express
            carrier must place these two magazines in the designated seat pocket
            of each seat. Hemisphere and SkyMall magazines are the only
            magazines authorized in the seat pockets. Exceptions must be
            approved in writing by United.

      -     In all on board announcements, it is appropriate to announce the
            United Express carrier's name, but the name "United Express" must be
            included. For example, "On behalf of Mesa Airlines, we would like to
            thank you for flying United Express today."

      -     While a contracted carrier provides basic announcements, United may
            request that the United Express carrier make promotional
            announcements on behalf of United from time to time. Such requests
            will be honored and executed by the United Express carrier.

IV. OPERATIONAL GOALS

There are four (4) primary operational Goals that each United Express carrier is
expected to achieve: On-time-zero; Completion (less Weather/ATC/UA Requested
Cancellations); MBTA, and Repurchase Intent. These goals are set at the
beginning of each calendar year and may be adjusted year over year. In addition,
other target goals may be added to help improve the operation, such as: STAR,
Arrival: 14, Block Time, etc. It is expected that each carrier will use
commercially reasonable, but diligent, efforts to achieve these goals, whether
contractual or otherwise. Such goals may be changed or added to by United, as
operational needs demand.

      -     Controllable Completion: The Controllable flight completion goal
            shall be defined as to exclude all cancellations due to weather, ATC
            restrictions, acts or omissions caused by United or its employees or
            agents, cancellations resulting from emergency airworthiness
            directives, and requests made by United to cancel flights to free up
            ATC slots. Actual Controllable Completion is the actual number of
            completed departures / (divided by) (Total scheduled departures -
            (less)

                                                                              73


            cancels due to weather ATC, air worthiness directives, acts of
            omissions of United and United Requested Cancels )

      -     On Time Zero: The On Time Zero goal is the carriers system wide On
            Time Performance. Actual On Time Zero is the number of On Time
            Departures divided by the Total Scheduled Departures.

      -     Mishandled Baggage-MBTA: (See above definition)

Repurchase Intent (RPI) - Marketrak: United Airlines receives feedback from our
customers through the "Marketrak" survey program on their satisfaction in flying
United Express flights. Each United Express carrier must participate fully in
this program. Ratings for RPI are not compared between carriers. Each carrier's
individual rating is compared to its own historical performance.

Repurchase Intent (RPI): RPI is based upon customer response to their intent to
repurchase or use again United Express services as reflected in the Marketrak
survey. Actual RPI shall be determined by the percentage of customer who
responded on customer surveys that they would "Definitely" or "Most Likely" buy
another ticket on United or United Express.

V. MISCELLANEOUS

ACARS: Each United Express carrier is to use an ACARS system on all United
Express flights for the purpose of providing timely and accurate Flight

Information (FLIFO).

Signage: It is the responsibility of each United Express carrier to provide
appropriate and adequate brand signage, which is designated and approved by
United Airlines. Brand name(s) to be used on signage is as follows:

      -     United Handled City: All signage will reflect the United Airlines
            brand. United Express signs may be used at the departure gate for
            United Express flights at the discretion of United.

      -     Shared United/United Express Handled City: All signage at the ticket
            counter will reflect the United Airlines brand. Signage at the
            United Express handled gate(s) will reflect the United Express
            brand. Signage on the approach to the airport and on the curb to the
            airport terminal will primarily reflect United Airlines, but may, if
            appropriate, reflect United Express as well.

      -     United Express Handled City: All signage will reflect the United
            Express brand.

It is the responsibility of the United Express carrier to ensure that all
federally mandated signage is in place in accordance with regulations.

                                                                              74


Small Package Dispatch (SPD): United Express carriers will participate in
United's SPD program, accepting SPD shipments at the ticket counter up to 1 hour
prior to the departure of each flight and returning SPD shipments to the
designated delivery point within 30 minutes of the arrival of each flight.

      Carrier will accomplish all necessary input of data into United AFIS
system, within required input standards of the following:

    BSPD      Build Air Waybill - SPD       Within 1 hour of acceptance

    RAFT      Shipment on hand - SPD        Within 30 minutes of flight arrival

U.S. Mail: United Express carriers will participate with United in the
transportation of U.S. Mail in accordance with applicable guidelines. Each
United Express carrier will work with United in obtaining USPS Air System
Contracts for United designated market.

      Effective 9/28/2003 carriers participating in the CAIR 2003 contract will
be required to scan individual pieces of mail at the following touch points:
possession, load, transfer (if applicable) and delivery. The scanning will be
required for payment and will be the basis for measuring performance.
Performance is by class of mail:

            First Class Mail                    92%
            Priority Mail                       95%
            Express Mail                        98%

Station Operations Center (SOC) - Hub Locations: Each United Express carrier
will provide adequate staffing in the United Airlines SOC of each designated hub
city. Such Staffing will be provided during all normal hours of operation.

                                                                              75

                  REMAIN-OVERNIGHT ("RON") CLEANING STANDARDS
                        WORK TASKS AND STANDARDS MATRIX



       AREA - OVERNIGHT CLEAN                         TASK - OVERNIGHT CLEAN                             APPEARANCE
- ------------------------------------- ------------------------------------------------------- --------------------------------
                                                                                        
FLIGHT DECK                           -   Remove and replace trash bag                        -   Windshield and glare
                                      -   Vacuum the floor and seats                              shield are clear
                                      -   Damp mop non-carpeted floor                         -   Floors, seats,
                                      -   Damp wipe inside and outside of                         dashboard and center console
                                          windshield and glare shield with water                  free of dust and debris
                                      -   Remove debris                                       -   New trash bag
                                      -   Spot clean ceiling/cockpit door                     -   Clean cup
                                                                                                  holders,ceilings,doors


GALLEY                                -   Floor - vacuum and/or mop                           -   Free of dirt and debris
                                      -   Remove and dispose of all trash and                 -   Hard surface floors and
                                          leftover service items from storage                     drains are dry
                                          areas.
                                      -   Wash all hard surfaces in galleys:

                                                WATER          ALL-PURPOSE CLEANER             DISINFECTANT

                                                Coffee Makers      Floors, walls, counters        Mist
                                                                   Storage areas                  Counters & Floors, trash
                                                                   Drawers                        receptacles &
                                                                                                  compartments

SEATS/JUMPSEATS                       -   Brush crumbs and debris from seat area and floor    -   Seat area is free of
 (Includes all seat parts, i.e., seat -   Remove dirt and debris from personal property areas     dirt and debris
pocket, tray tables, etc.)            -   Damp wipe phones                                    -   Clean personal property
                                      -   Wipe arm and shroud of video screen                     areas
                                      -   Cross seat belts                                    -   Seat belts are crossed
                                      -   Wash tables with cleaner, dry & disinfect           -   Tables and hard
                                      -   Cross seat belts                                        surfaces are free of dirt and
                                      -   Seat back pocket:  CORRECT SAFETY CARD placed           residue
                                          first in seat back pocket. Replace missing or       -   Materials are orderly
                                          damaged seat back pocket materials.                     and in like new condition
                                      -   Straighten contents                                     with CORRECT SAFETY CARD in
                                                                                                  front

                LAVATORY              -   Wash all hard surfaces with cleaners                -   Free of dirt, dust and
                                          and mist with disinfectant                              debris floor to ceiling
                                      -   Scrub and clean toilet bowl with                    -   Mirror is clean and
                                          brush and cleaner and reset splash pan                  streak free
                                      -   Wipe all mirrors with glass cleaner                 -   New odor end (if nec.)
                                      -   Empty trash, wash container & compartment           -   Trash compartment and
                                          with cleaner, mist with disinfectant and                chute free of debris and door
                                          latch door                                              is latched
                                      -   Replace odor end if necessary (fragrance missing)
                                      -   Mop floor

              OVERHEAD BINS           -   Remove all debris                                   -   Free of debris
                                      -   Damp wipe exterior surfaces                         -   Clean exterior surfaces

WALLS, CEILINGS, AIRCRAFT DOOR,       -   Damp wipe/dry  with all-purpose cleaner             -   Clean, visible surfaces
CONSOLES, WINDOWS

        BLANKETS AND PILLOWCASES      -   Clean in plastic or neatly folded                   -   Clean


                                                                              76




                                   APPENDIX I

                            Intentionally left blank.

                                                                              77


                                   APPENDIX J

OFFICER POSITION'S ENTITLED TO POSITIVE SPACE LEISURE TRAVEL ON CONTRACTOR'S
UNITED EXPRESS FLIGHTS

* ****

- ----------
* Confidential Treatment Requested

                                                                              78


                                   APPENDIX K

                       REIMBURSEMENT FOR MANDATED CHANGES

GOVERNMENTAL REQUIREMENTS. If any governmental rule, order, regulation, or
requirement affecting: (i) all aircraft similarly equipped as the Aircraft
referenced in Appendix B; or (ii) all airlines flying similar equipment as the
Aircraft referenced in Appendix B (a "MANDATED CHANGE" or "MC"), results in an
incremental increase in any of the Carrier Controlled Costs, per Aircraft, then
United shall bear a part (the "UNITED MC COST") of the per Aircraft cost of
implementing the MC (the "MC COST"), where the MC is issued after the Effective
Date and performed during the Term of this Agreement, but only to the extent as
computed as follows, and where:

      1.    If MC Cost is equal to or less than $*, Contractor pays *% of MC
            Cost, and the formula below is inapplicable.

      2.    If MC Cost is equal to or greater than $*, the United MC Cost shall
            be determined by applying the formula below, where C shall be equal
            to the MC Cost * $*.

      3.    If MC Cost is more than $*, but less than $*, the United MC Cost
            shall be determined by (a) first applying the formula below, where C
            shall be equal to the MC Cost minus $*, then (b) multiplying this
            formula-derived * by the unadjusted MC Cost (stated in $*) and
            dividing by *, to yield the final United MC Cost

                                      *****

      *     is (*) of the total number of (*);

      *     is the number of (*) (a) starting from either (i) for Mandated
            Changes which are to be complied during or prior to the * month
            anniversary of this Agreement, of the Term of the Agreement or (ii)
            for Mandated Changes which are to be complied with after the * month
            anniversary of this Agreement, *, and (b) ending in the month in
            which the Mandated Change is complied with;

      *     is the considered life of the MC in months;

      *     is the cost of the MC (i.e., the MC Cost), as adjusted in
            subparagraphs 2 and 3 above;

      *     is United's MC Cost.

- ----------
* Confidential Treatment Requested

                                                                              79


If a Mandated Change, as issued, has a specific limited life less than *, then
the number of months limiting the life of the Mandated Change shall be
substituted for * in the formula set out above. If the life of the Mandated
Change is related to flight hours and aircraft cycles then a flight-time related
life shall be computed for such Mandated Change as issued based on the average
utilization of the Aircraft.

Contractor shall advise United of each single Mandated Change compliance
requirement, the incremental cost of which is expected to exceed $* per Mandated
Change. United and Contractor agree that the cost of complying with any Mandated
Change shall be based on Contractor's direct (out of pocket) cost therefore and
that United and Contractor shall exercise their best joint efforts to minimize
the cost of such compliance and, if any Mandated Change is proving to be
financially burdensome to either party, to find a mutually agreeable solution to
such financial burden.

- --------
 * Confidential Treatment Requested

                                       80

EX-21.1

exv21w1

EX-23.1

exv23w1

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Jonathan G. Ornstein, certify that:

1)	I have reviewed this annual report on Form 10-K of Mesa Air Group, 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 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)) 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) 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

c) 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 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.

	/s/ JONATHAN G. ORNSTEIN
		Jonathan G. Ornstein
		Chairman and Chief Executive Officer
		Mesa Air Group, Inc.
Date: December 13, 2004

74

EX-31.2

Exhibit 31.2

CERTIFICATION

I, George Murnane III, certify that:

1)	I have reviewed this annual report on Form 10-K of Mesa Air Group, 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 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)) 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) 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

c) 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 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.

	/s/ GEORGE MURNANE III
		George Murnane III
		Executive Vice President and
		Chief Financial Officer
		Mesa Air Group, Inc.
Date: December 13, 2004

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EX-32.1

Exhibit 32.1

MESA AIR GROUP, INC. AND ITS SUBSIDIARIES

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 Mesa Air Group, Inc. (the “Company”) on Form 10-K for the period ended September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jonathan G. Ornstein, Chairman and Chief Executive Officer of the Company, 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; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

By /s/ Jonathan G. Ornstein

Jonathan G. Ornstein
Chairman and
Chief Executive Officer

Date: December 13, 2004

76

EX-32.2

Exhibit 32.2

MESA AIR GROUP, INC. AND ITS SUBSIDIARIES

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 Mesa Air Group, Inc. (the “Company”) on Form 10-K for the period ended September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, George Murnane III, Executive Vice President and Chief Financial Officer of the Company, 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; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

By /s/ George Murnane III

George Murnane III
Executive Vice President and
Chief Financial Officer

Date: December 13, 2004

77