Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

		For the quarterly period ended June 30, 2008

		OR

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

		For the transition period from to

Commission File Number 001-33166

Allegiant Travel Company

(Exact Name of Registrant as Specified in Its Charter)

Nevada		20-4745737
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

8360 S. Durango Drive,
Las Vegas, Nevada		89113
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (702) 851-7300

(Former name, former address and former fiscal year if changed since last report)

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

Indicate by check mar k w hether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

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

The number of shares of the registrant’s common stock outstanding as of the close of business on August 1, 2008 was 20,295,270.

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Allegiant Travel Company

Form 10-Q

June 30, 2008

INDEX

PART I. FINANCIAL INFORMATION

ITEM 1. Unaudited Condensed Consolidated Financial Statements		3

· Condensed Consolidated Balance Sheets as of June 30, 2008 (unaudited) and December 31, 2007		3

· Condensed Consolidated Statements of Income for the three and six months ended June 30, 2008 and 2007 (unaudited)		4

· Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007 (unaudited)		5

· Notes to Condensed Consolidated Financial Statements (unaudited)		6

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		10

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		22

ITEM 4. Controls and Procedures		22

PART II. OTHER INFORMATION		22

ITEM 1. Legal Proceedings		22

ITEM 1A. Risk Factors		23

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		23

ITEM 6. Exhibits		23

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PART 1. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

ALLEGIANT TRAVEL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for share amounts)

	June 30,			December 31,
	2008			2007
	(unaudited)

Current assets:
Cash and cash equivalents	$	148,746		$	144,269
Restricted cash	17,782			15,383
Short-term investments	5,006			27,110
Accounts receivable, net of allowance for doubtful accounts of $- at June 30, 2008 and December 31, 2007	12,483			9,084
Income tax receivable	1,338			6,228
Expendable parts, supplies and fuel, net of allowance for obsolescence of $464 and $374 at June 30, 2008 and December 31, 2007 respectively	15,038			6,544
Prepaid expenses	7,583			14,718
Other current assets	2,163			1,552
Total current assets	210,139			224,888
Property and equipment, net	207,441			171,170
Restricted cash, net of current portion	—			38
Investment in and advances to joint venture	2,327			1,976
Deposits and other assets	2,280			7,353
Total assets	$	422,187		$	405,425

Current liabilities:
Current maturities of notes payable	$	19,837		$	11,955
Current maturities of capital lease obligations	1,838			6,241
Accounts payable	25,413			21,302
Accrued liabilities	13,131			13,174
Air traffic liability	81,532			74,851
Deferred income taxes	2,583			456
Total current liabilities	144,334			127,979
Long-term debt and other long-term liabilities:
Notes payable, net of current maturities	49,038			31,890
Capital lease obligation, net of current maturities	4,451			22,060
Deferred income taxes	15,698			13,165
Total liabilities	213,521			195,094
Stockholders’ equity:
Common stock, par value $.001, 100,000,000 shares authorized, 20,284,770 shares issued and outstanding as of June 30, 2008 and 20,738,387 shares issued and outstanding as of December 31, 2007	20			21
Treasury stock, at cost, 553,700 shares	(15,808		)	—
Additional paid in capital	161,734			159,863
Accumulated other comprehensive (loss) income	(32		)	13
Retained earnings	62,752			50,434
Total stockholders’ equity	208,666			210,331
Total liabilities and stockholders’ equity	$	422,187		$	405,425

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ALLEGIANT TRAVEL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited, in thousands, except for per share amounts)

	Three months ended June 30,						Six months ended June 30,
	2008			2007			2008			2007

OPERATING REVENUE:
Scheduled service revenue	$	87,643		$	65,622		$	179,379		$	123,853
Fixed fee contract revenue	12,577			7,533			26,834			20,881
Ancillary revenue	29,108			15,786			56,255			28,556
Other revenue	2,230			—			2,230			—
Total operating revenue	131,558			88,941			264,698			173,290
OPERATING EXPENSES:
Aircraft fuel	72,068			35,458			135,562			66,637
Salary and benefits	17,160			13,981			34,286			26,887
Station operations	10,493			8,198			22,512			16,833
Maintenance and repairs	11,362			5,692			21,815			12,219
Sales and marketing	3,670			3,033			8,004			6,065
Aircraft lease rentals	936			657			1,944			1,308
Depreciation and amortization	5,956			3,715			10,971			7,375
Other	5,238			4,049			10,565			7,507
Total operating expenses	126,883			74,783			245,659			144,831
OPERATING INCOME	4,675			14,158			19,039			28,459

OTHER (INCOME) EXPENSE:
(Gain) loss on fuel derivatives, net	—			(380		)	11			(1,904		)
Loss (earnings) from joint venture, net	53			(195		)	43			(262		)
Other expense	—			—			—			63
Interest income	(1,028		)	(2,409		)	(2,760		)	(4,293		)
Interest expense	1,489			1,361			2,904			2,769
Total other (income) expense	514			(1,623		)	198			(3,627		)
INCOME BEFORE INCOME TAXES	4,161			15,781			18,841			32,086
PROVISION FOR INCOME TAXES	1,515			5,805			6,523			12,363
NET INCOME	$	2,646		$	9,976		$	12,318		$	19,723
Earnings Per Share:
Basic	$	0.13		$	0.50		$	0.61		$	0.99
Diluted	$	0.13		$	0.49		$	0.60		$	0.97
Weighted average shares outstanding:
Basic	20,192			19,988			20,331			19,843
Diluted	20,413			20,433			20,554			20,323

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ALLEGIANT TRAVEL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

	Six months ended June 30,
	2008			2007

OPERATING ACTIVITIES:
Net income	$	12,318		$	19,723

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	10,971			7,375
Loss (gain) on aircraft and other equipment disposals	591			(96		)
Provision for obsolescence of expendable parts and supplies	90			(4		)
Stock compensation expense	710			474
Deferred income taxes	4,660			3,391
Excess tax benefits from stock option exercises	(809		)	(1,124		)
Changes in certain assets and liabilities:
Restricted cash	(2,361		)	(179		)
Accounts receivable	(3,399		)	(2,603		)
Income tax receivable	4,890			—
Receivable from related parties	—			394
Expendable parts, supplies and fuel	(8,584		)	(2,279		)
Prepaid expenses	(315		)	(2,438		)
Other current assets	(611		)	(902		)
Accounts payable	4,920			1,205
Accrued liabilities	(43		)	974
Air traffic liability	6,681			27,059
Net cash provided by operating activities	29,709			50,970
INVESTING ACTIVITIES:
Purchase of short-term investments	(5,000		)	—
Maturities of short-term investments	27,059			5,799
Purchase of property and equipment	(40,798		)	(14,020		)
Proceeds from sale of property and equipment	165			511
Investment in and advances to joint venture, net	(351		)	(262		)
Decrease (increase) in lease and equipment deposits	2,073			(2,746		)
Net cash used in investing activities	(16,852		)	(10,718		)
FINANCING ACTIVITIES:
Excess tax benefits from stock option exercises	809			1,124
Proceeds from exercise of stock options	352			539
Proceeds from issuance of common stock, net	—			22,265
Proceeds from issuance of notes payable	25,625			—
Repurchase of common stock	(15,809		)	—
Principal payments on notes payable	(7,795		)	(5,565		)
Principal payments on related party notes payable	—			(891		)
Principal payments on capital lease obligations	(11,562		)	(2,188		)
Net cash (used in) provided by financing activities	(8,380		)	15,284
Net change in cash and cash equivalents	4,477			55,536
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	144,269			130,273
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	148,746		$	185,809

NON-CASH TRANSACTIONS:
Note payable issued for aircraft and equipment	$	7,200		$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, in thousands, except per share amounts)

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation : The accompanying unaudited condensed consolidated financial statements include Allegiant Travel Company (“Allegiant” or the “Company”) and its wholly owned operating subsidiaries, Allegiant Air LLC, Allegiant Vacations LLC and AFH, Inc., and its 50% owned subsidiary accounted for under the equity method, SFB Fueling LLC. All intercompany balances and transactions have been eliminated.

These unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which management believes are necessary to present fairly the financial position, results of operations, and cash flows of the Company for the respective periods presented. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company and notes thereto included in the annual report of the Company on Form 10-K for the year ended December 31, 2007, filed with the Securities and Exchange Commission.

The preparation of the financial statements in conformity with U.S. generally accepted accounting principles of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

The interim results reflected in the unaudited condensed consolidated financial statements are not necessarily indicative of the results that may be expected for other interim periods or for the full year.

Reclassifications: Certain reclassifications have been made to the prior period’s financial statements to conform to 2008 classifications. These classifications had no effect on the previously reported net income.

Note 2 – Newly Issued Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141(R), Business Combinations (“SFAS 141(R)”), which replaces SFAS No. 141. SFAS No. 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. The Statement also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. The Company has not yet determined the effect that the adoption of SFAS 141(R) will have on the Company’s consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51 (“SFAS 160”), which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. The Statement also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company has not yet determined the effect that the adoption of SFAS 160 will have on its consolidated financial statements.

In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, Effective Date of SFAS 157 (“FSP FAS 157-2”). The FSP amends SFAS 157, to delay the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The FSP defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of the FSP. The Company has not yet determined the effect on the

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Company’s consolidated financial statements that adoption of SFAS 157 will have for those items within the scope of the FSP.

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133 (“SFAS 161”) . The Statement requires disclosures of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal years beginning after November 15, 2008, with early adoption permitted. The Company has not yet determined the effect that SFAS 161 will have on the Company’s consolidated financial statements.

Note 3 – Income Taxes

For the three and six months ended June 30, 2008, the Company did not have any material unrecognized tax benefits. The Company estimates that no significant unrecognized tax benefits will be recorded within the next twelve months.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. There was no significant accrued interest at June 30, 2008. No penalties were accrued at June 30, 2008.

The Company files its tax returns as prescribed by the laws of the jurisdictions in which it operates. Prior to May 2004, the Company elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code wherein the taxable income or loss of the Company was included in the income tax returns of its shareholders. In May 2004, the Company reorganized as a limited liability company and was therefore taxed as a partnership for federal income tax purposes until the reorganization into a corporation effected at the time of the Company’s initial public offering in December 2006. Under these previous structures, the Company did not pay federal income tax at the entity level on its taxable income for these periods. Instead, the members of the limited liability company or shareholders of the Subchapter S corporation were liable for income tax on the taxable income as it affected their tax returns. The Company was also subject to tax at the entity level in certain states in which it operates. Deferred income taxes to which the Company was subject under these previous structures were not material.

The Company (or its predecessor entities) is no longer subject to U.S. Federal income tax examinations for years before 2004. Various state and local tax returns remain open to examination. The Company believes that any potential assessment resulting from such examinations would be immaterial.

Note 4 – Stockholders’ Equity

On May 24, 2007, the Company sold 156 shares in a public offering. In conjunction with the public offering, on June 13, 2007, the underwriters exercised their overallotment option to purchase an additional 592 shares from the Company. The Company received approximately $22,300 in net proceeds from the sale of these shares.

In January 2008, the Board of Directors authorized a share repurchase program to acquire through open market purchases up to $25,000 of the Company’s common stock. As of June 30, 2008, the Company has repurchased 554 shares of the Company’s common stock through open market purchases at an average cost of $28.55 per share for a total expenditure of $15,809. No share repurchases were made by the Company during the second quarter of 2008.

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Note 5 – Earnings Per Share

The following table sets forth the computation of net income per share, on a basic and diluted basis for the periods indicated:

	Three months ended June 30,				Six months ended June 30,
	2008		2007		2008		2007
Numerator:
Net income	$	2,646	$	9,976	$	12,318	$	19,723
Denominator:
Weighted-average shares outstanding	20,192		19,988		20,331		19,843
Weighted-average effect of dilutive securities:
Employee stock options	44		257		46		293
Stock purchase warrants	132		140		134		140
Restricted stock	45		48		43		47
Adjusted weighted-average shares outstanding, diluted	20,413		20,433		20,554		20,323
Net income per share, basic	$	0.13	$	0.50	$	0.61	$	0.99
Net income per share, diluted	$	0.13	$	0.49	$	0.60	$	0.97

Note 6 – Long-Term Debt

Long-term debt, including capital lease obligations, consists of the following:

	As of June 30,			As of December 31,
	2008			2007

Notes payable, secured by aircraft, interest at 8%, due at varying dates through December 2010	$	13,010		$	15,747
Notes payable, secured by aircraft, interest at 8.5%, due November 2011	12,931			14,113
Notes payable, secured by aircraft, interest at 6%, due April 2012	17,270			—
Notes payable, secured by aircraft, interest at 6%, due at varying dates through February 2011	12,641			7,108
Notes payable, secured by aircraft, interest at 6.8%, due June 2011	7,670			—
Notes payable, secured by aircraft, interest at 8%, due June 2011	5,305			6,071
Note payable, secured by aircraft, interest at 9%	—			747
Other notes payable	48			59
Capital lease obligations	6,289			28,301
Total long-term debt	75,164			72,146
Less current maturities	(21,675		)	(18,196		)
Long-term debt, net of current maturities	$	53,489		$	53,950

In April 2008, the Company borrowed $18,000 under a loan agreement secured by unencumbered aircraft. The notes payable issued under the loan agreement bear interest at 6% per annum and are payable in monthly installments through April 2012.

In June 2008, the Company exercised the purchase options for five MD-80 aircraft under capital leases. In conjunction with the exercise, the Company borrowed and received proceeds of $7,670 secured by two of these aircraft previously subject to capital leases. The notes payable issued under the loan agreement bear interest at 6.8% per annum and are payable in monthly installments through June 2011.

Note 7 – Investment in Joint Venture

AFH, Inc., a wholly owned subsidiary of Allegiant Travel Company, entered into a joint venture agreement with Orlando Sanford International, Inc. (“OSI”) to handle certain fuel operations for the Orlando Sanford International Airport. The joint

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venture, which began operations in January 2007, is responsible for the purchase and transport of jet fuel to a fuel farm facility owned and operated by OSI, and for the sale of jet fuel to air carriers. In addition, AFH, Inc. is responsible for the administrative functions for the joint venture. The Company accounts for its 50% interest in the joint venture agreement under the equity method. AFH, Inc.’s proportionate allocation of net income is reported in the Company’s consolidated statements of income in Other (income) expense with an adjustment to the recorded investment in the Company’s consolidated balance sheets.

Note 8 – Financial Instruments and Risk Management:

Airline operations are inherently dependent on energy, and are therefore impacted by changes in jet fuel prices. Aircraft fuel expense represented approximately 56.8% and 47.4% of the Company’s operating expenses for the three months ended June 30, 2008 and 2007, respectively. For the six months ended June 30, 2008 and 2007, aircraft fuel expense represented approximately 55.2% and 46.0%, respectively, of the Company’s operating expenses. The Company endeavors to acquire jet fuel at the lowest possible cost. To manage a portion of the aircraft fuel price risk, the Company has previously used jet fuel and heating oil option contracts or swap agreements. The Company did not purchase or hold derivative financial instruments for trading purposes.

As of June 30, 2008, the Company had no derivative instruments on its projected fuel consumption. In January 2008, the last derivative instrument from a prior hedging program settled. The Company’s derivatives have historically not qualified as hedges for financial reporting purposes in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities . Accordingly, changes in the fair value of such derivative contracts, which amounted to gains of $380 for the three months ended June 30, 2007, and losses of $11 and gains of $1,904 for the six months ended June 30, 2008 and 2007, respectively, were recorded as a “(Gain) loss on fuel derivatives, net” within Other (income) expense in the condensed consolidated statements of income. These amounts include both realized gains and losses and mark-to-market adjustments of the fair value of the derivative instruments at the end of each period. The fair value of hedge contracts amounted to $81 as of December 31, 2007 and was recorded in “Other current assets” in the condensed consolidated balance sheets.

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Note 9 – Commitments and Contingencies

The Company is subject to certain legal and administrative actions it considers routine to its business activities. The Company believes the ultimate outcome of any pending legal or administrative matters will not have a material adverse impact on its financial position, liquidity or results of operations.

Note 10 – Subsequent Events

In July 2008, the Company purchased for cash two MD-80 aircraft that had been operated by the Company under operating leases.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations .

The following discussion and analysis presents factors that had a material effect on our results of operations during the three and six month periods ended June 30, 2008 and 2007. Also discussed is our financial position as of June 30, 2008 and December 31, 2007. You should read this discussion in conjunction with our unaudited condensed consolidated financial statements, including the notes thereto, appearing elsewhere in this Form 10-Q and our consolidated financial statements appearing in our annual report on Form 10-K for the year ended December 31, 2007. This discussion and analysis contains forward-looking statements. Please refer to the section below entitled “Special Note About Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.

Overview

We are a leisure travel company. The focus of our business is a low-cost passenger airline marketed to leisure travelers in small cities. Our business model emphasizes low operating costs, diversified revenue sources, and the transport of passengers from small cities to leisure destinations. Our route network, pricing philosophy, product offering and advertising are all intended to appeal to leisure travelers and make it attractive for them to purchase air travel and related services from us.

We provide service primarily to Las Vegas (Nevada), Phoenix (Arizona), Ft. Lauderdale (Florida), Orlando (Florida), and Tampa/St. Petersburg (Florida), five of the most popular leisure destinations in the United States. We have positioned our business to take advantage of current lifestyle and demographic trends in the U.S. we believe are positive drivers for the leisure travel industry. The most notable demographic shift occurring in the U.S. is the aging of the baby boomer generation as they enter their peak earning years and have more time and disposable income to spend on leisure travel. We believe a large percentage of our customers fall within the baby boomer demographic and we target these customers through the use of advertisements in more than 300 print circulations.

As an adjunct to our scheduled service business, we also fly charter (“fixed fee”) services, both on a long-term contract basis (primarily for Harrah’s Entertainment Inc.) and on an on-demand adhoc basis.

Our Fleet :

The following table sets forth the number and type of aircraft in service and operated by us at the dates indicated:

	June 30, 2008			December 31, 2007			June 30, 2007
	Own(a)(b)	Lease	Total	Own(a)	Lease	Total	Own(a)	Lease	Total
MD82/83/88s	29	4	33	24	4	28	22	3	25
MD87s	4	0	4	4	0	4	2	0	2
Total	33	4	37	28	4	32	24	3	27

(a) Aircraft owned includes the following number subject to capital leases: June 30, 2008 – two, December 31, 2007 – seven, and June 30, 2007 – five.

(b) Does not include six owned MD-80 aircraft leased to a third party.

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Our Markets :

Our scheduled service consists of limited frequency nonstop flights into leisure destinations from small cities. As of June 30, 2008, we offered scheduled service from 51 small cities primarily into our major leisure destinations of Las Vegas, Phoenix, Ft. Lauderdale, Orlando, and Tampa/St. Petersburg, including seasonal service, and additional service to other leisure destinations from Bellingham (Washington). The following shows the number of destinations and small cities served as of the dates indicated:

	As of June 30,	As of December 31,	As of June 30,
	2008	2007	2007
Major leisure destinations	5	5	3
Other leisure destinations	4	2	2
Small cities	51	51	48

Results of Operations

Comparison of three months ended June 30, 2008 to three months ended June 30, 2007

The table below presents our operating expenses as a percentage of operating revenue for the periods indicated:

	Three Months Ended June 30,
	2008		2007
Total operating revenue	100.0	%	100.0	%
Operating expenses:
Aircraft fuel	54.8		39.9
Salary and benefits	13.0		15.7
Station operations	8.0		9.2
Maintenance and repairs	8.6		6.4
Sales and marketing	2.8		3.4
Aircraft lease rentals	0.7		0.7
Depreciation and amortization	4.5		4.2
Other	4.0		4.6
Total operating expenses	96.4	%	84.1	%
Operating margin	3.6	%	15.9	%

We recorded total operating revenue of $131.6 million, income from operations of $4.7 million and net income of $2.6 million for the three months ended June 30, 2008. By comparison, for the same period in 2007, we recorded total operating revenue of $88.9 million, income from operations of $14.2 million and net income of $10.0 million.

As of June 30, 2008, we had a fleet of 37 aircraft in service, compared with a fleet of 27 aircraft in service as of June 30, 2007. The growth of our fleet permitted us to increase available seat miles (“ASMs”) by 27.0% for the three months ended June 30, 2008 compared to the same period in 2007. Departures increased by 36.5% while our average stage length decreased by 7.0%.

Compared to the three months ended June 30, 2007, scheduled service and other flying (fixed fee and non-revenue) ASMs increased in the same period of 2008 by 24.3% and 50.8%, respectively. As a result of the percentage increase in other flying during this period, scheduled service ASMs represented 87.9% of total system ASMs for the three months ended June 30, 2008, compared to 89.8% for the three months ended June 30, 2007.

Operating Revenue

Our operating revenue increased 47.9% to $131.6 million in the three months ended June 30, 2008 from $88.9 million in the same period of 2007, driven by increases in revenue passenger miles (“RPMs”) and operating revenue per ASM. RPMs increased by 33.9% as a result of the 27.0% increase in ASMs and an increase in our load factor. Operating revenue per ASM increased by 16.5% primarily as a result of the increase in our average ancillary fare per passenger for the three months ended June 30, 2008, compared to the same period of 2007, along with an increase in our load factor.

Scheduled service revenue . Scheduled service revenue increased 33.6%, or $22.0 million, to $87.6 million for the three months ended June 30, 2008, from $65.6 million in the same period of 2007 due to a 32.4% increase in scheduled service RPMs. The decrease in average stage length of 4.4%, along with an increase of 5.5 percentage points in the scheduled

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service load factor, resulted in a 7.4% year-over-year increase in total scheduled service revenue per ASM from 7.88¢ to 8.46¢.

Fixed fee contract revenue . Fixed fee contract revenue was $12.6 million in the three months ended June 30, 2008 compared to $7.5 million in the same period of 2007. Fixed fee contract revenue increased principally because in 2008 we initiated service under a new agreement for flying with a third Harrah’s Entertainment Inc. subsidiary and new flying which began in May 2008 under a charter services agreement with MLT Vacations. The new flying was offset by a reduction in seasonal charter service during the three months ended June 30, 2008 for Apple Vacations West, Inc. compared to the same period in 2007. In July 2008, MLT Vacations has terminated the charter services agreement with us effective October 2008.

Ancillary revenue. Ancillary revenue increased 84.4% to $29.1 million in the three months ended June 30, 2008 up from $15.8 million in the same period of 2007. The increase in ancillary revenue was due to a 39.2% increase in scheduled service passengers and a 32.5% increase in ancillary revenue per passenger from $20.94 to $27.75 due primarily to the sale of new products and higher prices on certain existing products.

Other revenue. Lease revenue of $2.2 million was generated during the three months ended June 30, 2008 related to the purchase of six MD-80 aircraft and three engines on lease to another airline. These aircraft and engines are expected to be returned to us in the second half of 2008 and during 2009.

Operating Expenses

Our operating expenses increased by 69.7%, or $52.1 million, to $126.9 million in the three months ended June 30, 2008, up from $74.8 million during the same period in 2007.

In general, our operating expenses are significantly affected by changes in our capacity, as measured by ASMs. The following table presents unit costs defined as Operating expense per ASM (“CASM”), for the indicated periods. The table also presents CASM, excluding fuel, which represents operating expenses, less aircraft fuel expense, divided by available seat miles. This statistic provides management and investors the ability to measure and monitor our cost performance absent fuel price volatility. Both the cost and availability of fuel are subject to many economic and political factors and are therefore beyond our control.

	Three Months Ended June 30,				Percentage
	2008		2007		Change
Aircraft fuel	6.11	¢	3.82	¢	60.0	%
Salary and benefits	1.46		1.50		(2.6	)
Station operations	0.89		0.88		1.1
Maintenance and repairs	0.96		0.61		57.4
Sales and marketing	0.31		0.33		(6.1	)
Aircraft lease rentals	0.08		0.07		14.3
Depreciation and amortization	0.51		0.40		27.5
Other	0.44		0.44		—
Operating CASM	10.76	¢	8.05	¢	33.7	%
Operating CASM, excluding fuel	4.65	¢	4.24	¢	9.7	%

Overall, Operating CASM increased by 33.7% primarily from increases in aircraft fuel expense and maintenance and repairs expense. Aircraft fuel expense and maintenance and repairs expense increased 103.3% and 99.6%, respectively, during the three months ended June 30, 2008 compared to the same period in 2007, which has significantly outpaced the ASM growth of 27.0% over the same period. Operating CASM, excluding fuel, increased by 9.7% primarily as a result of the increase in maintenance and repairs expense.

In addition to per ASM costs, management evaluates our operating expenses on a per passenger basis. The following table presents unit costs defined on a per passenger basis for the indicated periods. The table also presents Operating expense per passenger, excluding fuel, which represents operating expenses, less aircraft fuel expense, divided by the number of passengers carried.

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	Three Months Ended June 30,				Percentage
	2008		2007		Change
Aircraft fuel	$	62.48	$	43.75	42.8	%
Salary and benefits	14.88		17.25		(13.7	)
Station operations	9.10		10.11		(9.9	)
Maintenance and repairs	9.85		7.02		40.3
Sales and marketing	3.18		3.74		(15.0	)
Aircraft lease rentals	0.81		0.81		—
Depreciation and amortization	5.16		4.58		12.7
Other	4.54		5.00		(9.2	)
Operating expense per passenger	$	110.00	$	92.26	19.2	%
Operating expense per passenger, excluding fuel	$	47.52	$	48.52	(2.1	)%

Quarter over quarter, our passenger volume increase of 42.3% outpaced the cost increases in salary and benefits, station operations, sales and marketing, and other costs for a reduction of 2.1% in operating expense per passenger, excluding fuel. Passenger volume increase is attributable to our 5.5 percentage point increase in the scheduled service load factor during the second quarter of 2008 compared to the same period of 2007. Primary contributors to the change in operating expenses at a lower percentage were a 10.1% decrease in salary and benefits monthly average expense per full time equivalent employee and a 6.2% decrease in station operations expense per departure.

Aircraft fuel expense . Aircraft fuel expense increased 103.3%, or $36.6 million, to $72.1 million in the three months ended June 30, 2008 up from $35.5 million in the same period of 2007. This change was due to a 29.0% increase in gallons consumed and a 58.0% increase in the average cost per gallon to $3.52 per gallon during the three months ended June 30, 2008 compared to $2.23 per gallon in the same period of 2007.

Salary and benefits expense . Salary and benefits expense increased 22.7% to $17.2 million in the three months ended June 30, 2008 up from $14.0 million in the same period of 2007. This increase is largely attributable to a 36.6% increase in full-time equivalent employees to support our system growth during this period, offset by a reduction in accrued employee bonus expense compared to the prior year. We employed 1,299 full-time equivalent employees as of June 30, 2008, compared to 951 full-time equivalent employees as of June 30, 2007.

Station operations expense . Station operations expense increased 28.0% to $10.5 million in the three months ended June 30, 2008 compared to $8.2 million in the same period of 2007. The percentage increase in station operations expense lagged the 36.5% increase in departures as station operations expense per departure decreased by 6.2%.

Maintenance and repairs expense . Maintenance and repairs expense increased by 99.6%, or $5.7 million, to $11.3 million in the three months ended June 30, 2008 up from $5.7 million in the same period of 2007. The increase is largely attributable to seven scheduled heavy maintenance checks performed in the three months ended June 30, 2008 compared to three performed in the same period of 2007, along with three engine overhauls performed in the three months ended June 30, 2008 compared to one performed in the same period of 2007. We believe maintenance and repairs expense was unusually high in the three months ended June 30, 2008, and unusually low in the three months ended June 30, 2007. The timing of maintenance events may cause our maintenance and repairs expense to vary significantly from period to period.

Sales and marketing expense . Sales and marketing expense increased 21.0% to $3.7 million in the three months ended June 30, 2008 compared to $3.0 million in the same period of 2007. This increase is primarily due to an increase in credit card discount fees associated with the 33.6% increase in scheduled service revenue in the three months ended June 30, 2008 compared to the same period in 2007. Sales and marketing expense declined as a percentage of revenue from 3.4% in the three months ended June 30, 2007 to 2.8% in the same period of 2008.

Aircraft lease rentals expense . Aircraft lease rentals expense increased by 42.5% to $0.9 million in the three months ended June 30, 2008 up from $0.7 million in the same period of 2007 due to an increase in the number of leased aircraft from three as of June 30, 2007 to four as of June 30, 2008. We purchased two of these aircraft after June 30, 2008.

Depreciation and amortization expense . Depreciation and amortization expense was $6.0 million in the three months ended June 30, 2008 compared to $3.7 million in the same period of 2007, an increase of 60.3%, as the number of aircraft owned, subject to capital lease, or leased to a third party, increased from 24 as of June 30, 2007 to 39 as of June 30, 2008.

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Other expense . Other expense increased by 29.4% to $5.2 million during the three months ended June 30, 2008 compared to $4.0 million in same period of 2007 due mainly to increased aviation insurance, administrative, facilities, and training expenses associated with our company’s growth.

Other (Income) Expense

Other (income) expense decreased from an income amount of $1.6 million in the three months ended June 30, 2007 to a net other expense amount of $0.5 million for the same period of 2008. The change was principally due to a reduction of $1.4 million in interest income earned due to lower prevailing interest rates and a net gain on fuel derivatives of $0.4 million in the three months ended June 30, 2007 not repeated in 2008.

Income Tax Expense

Our effective tax rate remained relatively consistent at 36.4% for the three months ended June 30, 2008 compared to 36.8% in the same period of 2007. Our reported effective tax rate for the second quarter of 2008 may not be indicative of our effective tax rates for future quarters of 2008 or for 2008 as a whole.

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Comparison of six months ended June 30, 2008 to six months ended June 30, 2007

The table below presents our operating expenses as a percentage of operating revenue for the periods indicated:

	Six Months Ended June 30,
	2008		2007
Total operating revenue	100.0	%	100.0	%
Operating expenses:
Aircraft fuel	51.2		38.5
Salary and benefits	13.0		15.5
Station operations	8.5		9.7
Maintenance and repairs	8.2		7.1
Sales and marketing	3.0		3.5
Aircraft lease rentals	0.7		0.8
Depreciation and amortization	4.2		4.3
Other	4.0		4.3
Total operating expenses	92.8	%	83.7	%
Operating margin	7.2	%	16.3	%

We recorded total operating revenue of $264.7 million, income from operations of $19.0 million and net income of $12.3 million for the six months June 30, 2008. By comparison, for the same period in 2007, we recorded total operating revenue of $173.3 million, income from operations of $28.5 million, and net income of $19.7 million.

As of June 30, 2008, we had a fleet of 37 aircraft in service, compared with a fleet of 27 aircraft in service as of June 30, 2007. The growth of our fleet permitted us to increase ASMs by 31.6% for the six months ended June 30, 2008, compared to the same period in 2007 as departures increased by 42.2% and average stage length decreased by 7.5%.

Compared to the six months ended June 30, 2007, scheduled service ASMs increased by 33.9% in the same period of 2008, while other flying (fixed fee and non-revenue) increased 17.2%.

Operating Revenue

Our operating revenue increased 52.8%, or $91.4 million, to $264.7 million during the six months ended June 30, 2008 from $173.3 million in the same period of 2007. This was primarily driven by a 37.8% increase in RPMs and a 16.1% increase in operating revenue per ASM. The increase in RPMs resulted from the 31.6% increase in ASMs and an increase of our load factor. The operating revenue per ASM increase of 16.1% primarily resulted from the increase in our average ancillary fare per passenger for the six months ended June 30, 2008 compared to the same period of 2007, along with an increase in our load factor.

Scheduled service revenue . Scheduled service revenue increased 44.8%, or $55.5 million, to $179.4 million in the six months ended June 30, 2008 from $123.9 million in the same period of 2007 due to a 41.6% increase in scheduled service RPMs. The decrease in average stage length of 3.2%, along with an increase of 4.8 percentage points in the scheduled service load factor to 88.6%, resulted in an 8.2% year-over-year increase in scheduled service revenue per ASM from 7.69¢ to 8.32¢.

Fixed fee contract revenue . Fixed fee contract revenue increased 28.5% to $26.8 million during the six months ended June 30, 2008, up from $20.9 million for the same period of 2007. The increase was attributable to flying under a new agreement in 2008 with a third Harrah’s subsidiary along with increase in flying for other charter operators and ad-hoc operations compared to the same period in the prior year. As indicated above, the contract with MLT Vacations has been terminated effective October 2008.

Ancillary revenue . Ancillary revenue increased 97.7% to $56.2 million in the six months ended June 30, 2008, up from $28.6 million in the same period of 2007. The increase in ancillary revenue was due to a 47.4% in scheduled service passengers and a 33.6% increase in ancillary revenue per passenger from $20.02 to $26.75 due primarily to the sale of several new products and higher prices on certain existing products.

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Other revenue. Lease revenue of $2.2 million was generated during the six months ended June 30, 2008 related to the purchase of six MD-80 aircraft and three engines on lease to another airline. These aircraft and engines are expected to be returned to us in the second half of 2008 and during 2009.

Operating Expenses

Our operating expenses increased by 69.6%, or $100.8 million, to $245.7 million during the six months ended June 30, 2008, up from $144.8 million during the same period in 2007.

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The following table presents unit costs, CASM, and Operating CASM, excluding fuel, for the indicated periods:

	Six Months Ended June 30,				Percentage
	2008		2007		Change
Aircraft fuel	5.53	¢	3.58	¢	54.5	%
Salary and benefits	1.40		1.44		(2.8	)
Station operations	0.92		0.90		2.2
Maintenance and repairs	0.89		0.66		34.8
Sales and marketing	0.33		0.33		—
Aircraft lease rentals	0.08		0.07		14.3
Depreciation and amortization	0.45		0.40		12.5
Other	0.43		0.40		7.5
Operating CASM	10.03	¢	7.78	¢	28.9	%
Operating CASM, excluding fuel	4.49	¢	4.20	¢	6.9	%

Overall, Operating CASM increased by 28.9% primarily from increases in aircraft fuel expense and maintenance and repairs expense. Aircraft fuel expense and maintenance and repairs expense increased 103.4% and 78.5%, respectively, during the six months ended June 30, 2008 compared to the same period in 2007, which has significantly outpaced the ASM growth of 31.6% over the same period. Operating CASM, excluding fuel, increased by 6.9% primarily as a result of the increase in maintenance and repairs expense.

The following table presents our Operating expense per passenger and Operating expense per passenger, excluding fuel, for the indicated periods:

	Six Months Ended June 30,				Percentage
	2008		2007		Change
Aircraft fuel	$	58.73	$	42.61	37.8	%
Salary and benefits	14.85		17.19		(13.6	)
Station operations	9.75		10.76		(9.4	)
Maintenance and repairs	9.45		7.81		21.0
Sales and marketing	3.47		3.88		(10.6	)
Aircraft lease rentals	0.84		0.84		—
Depreciation and amortization	4.75		4.72		0.8
Other	4.59		4.80		(4.4	)
Operating expense per passenger	$	106.43	$	92.61	14.9	%
Operating expense per passenger, excluding fuel	$	47.70	$	50.00	(4.6	)%

During the first six months of 2008, our passenger volume increase of 47.6% outpaced the cost increases in salary and benefits expense, station operations, sales and marketing, and other costs for a reduction of 4.6% in operating expense per passenger, excluding fuel. Passenger volume increase is attributable to our 4.8 percentage points increase in the scheduled service load factor during the six months ended June 30, 2008 compared to the same period of 2007. Primary contributors to the change in operating expenses at a lower percentage were a 7.7% decrease in salary and benefits monthly average expense per full time equivalent employee and a 6.0% decrease in station operations expense per departure.

Aircraft fuel expense Aircraft fuel expense increased 103.4% to $135.6 million in the six months ended June 30, 2008, up from $66.6 million in the same period of 2007. This change was primarily due to a 34.0% increase in gallons consumed and an increase in the average cost per gallon to $3.19 per gallon during the six months ended June 30, 2008 compared to $2.10 per gallon in the same period of 2007.

Salary and benefits expense . Salary and benefits expense increased 27.5 % to $34.3 million in the six months ended June 30, 2008, up from $26.9 million in the same period of 2007. The increase is largely attributable to a 36.6% increase in full-time equivalent employees to support our system growth during this period, offset by a reduction in accrued employee bonus expense compared to the prior year. We employed 1,299 full-time equivalent employees as of June 30, 2008, compared to 951 full-time equivalent employees as of June 30, 2007.

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Station operations expense . Station operations expense increased 33.7%, or $5.7 million, to $22.5 million in the six months ended June 30, 2008 compared to $16.8 million in the same period of 2007. The percentage increase in station operations expense lagged the 42.2% increase in departures as station operations expense per departure decreased by 6.0%.

Maintenance and repairs expense . Maintenance and repairs expense increased by 78.5%, or $9.6 million, to $21.8 million in the six months ended June 30, 2008 up from $12.2 million in the same period of 2007. An increase in scheduled heavy maintenance checks to 11 for the first half of 2008 from six in the same period of 2007 and an increase in engine overhauls to four in the first half of 2008 compared to two in the same period of 2007 were the primary drivers of the higher maintenance and repairs expense in the current year. The timing of maintenance events may cause our maintenance and repairs expense to vary significantly from period to period.

Sales and marketing expense . Sales and marketing expense increased 32.0%, or $1.9 million, to $8.0 million in the six months ended June 30, 2008, compared to $6.1 million in the same period of 2007. The increase is primarily due to an increase in credit card discount fees associated with the 44.8% increase in scheduled service revenue in the six months ended June 30, 2008 compared to the same period of 2007. Sales and marketing expense declined as a percentage of revenue from 3.5% in the six months ended June 30, 2007 to 3.0% in the same period of 2008.

Aircraft lease rentals expense . Aircraft lease rentals expense increased by 48.6% to $1.9 million in the six months ended June 30, 2008 up from $1.3 million in the same period of 2007 due to an increase in number of leased aircraft from three as of June 30, 2007 to four as of June 30, 2008. We purchased two of these aircraft after June 30, 2008.

Depreciation and amortization expense . Depreciation and amortization expense was $11.0 million in the six months ended June 30, 2008 compared to $7.4 million in the same period of 2007, an increase of 48.8% as the number of aircraft owned, subject to capital leases, or leased to a third party increased from 24 as of June 30, 2007 to 39 as of June 30, 2008.

Other expense . Other expense increased by 40.7% to $10.6 million in the six months ended June 30, 2008 compared to $7.5 million in same period of 2007 due mainly to increased aviation insurance, administrative, facilities, and training expenses associated with our company’s growth.

Other (Income) Expense

Other (income) expense decreased from an income amount of $3.6 million in the six months ended June 30, 2007 to a net other expense of $0.2 million in the same period of 2008. The change is primarily due to a decrease in interest income of $1.5 million as a result of lower interest rates on invested cash, along with a minimal net loss on fuel derivatives from one settled contract during 2008 compared to a net gain on fuel derivatives of $1.9 million in the six months ended June 30, 2007.

Income Tax Expense

Our tax rate is affected by recurring items, such as tax rates in various states and the relative amount of income we earn in each jurisdiction, which we expect to be fairly consistent in the near term. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year. Our effective tax rate was 34.6% for the six months ended June 30, 2008 compared to 38.5% in the same period of 2007. The tax rate during the first six months of 2007 was higher due to a non-recurring tax provision adjustment impacting the six months ended June 30, 2007, that resulted from the reorganization consummated at the time of our initial public offering in December 2006. The lower effective tax rate for the six months ended June 30, 2008 was also attributable to the geographic mix of our flying and the impact this had on the state income tax portion of the tax provision. Our reported effective tax rate for the first half of 2008 may not be indicative of our effective tax rates for future quarters of 2008 or for 2008 as a whole.

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Comparative Consolidated Operating Statistics

The following tables set forth our operating statistics for the three and six months ended June 30, 2008 and 2007:

	Three months ended June 30,						Percent
	2008			2007			Change*

Operating statistics (unaudited):
Total system statistics:
Passengers	1,153,500			810,555			42.3
Revenue passenger miles (RPMs) (thousands)	1,037,351			774,828			33.9
Available seat miles (ASMs) (thousands)	1,179,101			928,177			27.0
Load factor	88.0		%	83.5		%	4.5
Operating revenue per ASM (cents)	11.16			9.58			16.5
Operating CASM (cents)	10.76			8.05			33.7
Fuel expense per ASM (cents)	6.11			3.82			59.9
Operating CASM, excluding fuel (cents)	4.65			4.24			9.7
Operating expense per passenger	$	110.00		$	92.26		19.2
Fuel expense per passenger	$	62.48		$	43.75		42.8
Operating expense per passenger, excluding fuel	$	47.52		$	48.52		(2.1	)
Departures	9,504			6,962			36.5
Block hours	21,518			16,370			31.4
Average stage length (miles)	838			901			(7.0	)
Average number of operating aircraft during period	36.7			26.2			40.1
Total aircraft in service end of period	37			27			37.0
Full-time equivalent employees at period end	1,299			951			36.6
Fuel gallons consumed (thousands)	20,460			15,864			29.0
Average fuel cost per gallon	$	3.52		$	2.23		57.8
Scheduled service statistics:
Passengers	1,048,870			753,716			39.2
Revenue passenger miles (RPMs) (thousands)	937,923			708,616			32.4
Available seat miles (ASMs) (thousands)	1,036,293			833,475			24.3
Load factor	90.5		%	85.0		%	5.5
Departures	7,899			6,121			29.0
Block hours	18,667			14,680			27.2
Yield (cents)	9.34			9.26			0.9
Scheduled service revenue per ASM (cents)	8.46			7.88			7.4
Ancillary revenue per ASM (cents)	2.81			1.89			48.7
Total revenue per ASM (cents)	11.27			9.77			15.4
Average fare — scheduled service	$	83.56		$	87.06		(4.0	)
Average fare — ancillary	$	27.75		$	20.94		32.5
Average fare — total	$	111.31		$	108.01		3.1
Average stage length (miles)	881			921			(4.4	)
Percent of sales through website during period	85.6		%	86.8		%	(1.2	)

* Except load factor and percent of sales through website, which is percentage point change

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	Six months ended June 30,						Percent
	2008			2007			Change*

Operating statistics (unaudited):
Total system statistics:
Passengers	2,308,210			1,563,794			47.6
Revenue passenger miles (RPMs) (thousands)	2,099,815			1,524,065			37.8
Available seat miles (ASMs) (thousands)	2,449,348			1,860,706			31.6
Load factor	85.7		%	81.9		%	3.8
Operating revenue per ASM (cents)	10.81			9.31			16.1
Operating CASM (cents)	10.03			7.78			28.9
Fuel expense per ASM (cents)	5.53			3.58			54.5
Operating CASM, excluding fuel (cents)	4.49			4.20			6.9
Operating expense per passenger	$	106.43		$	92.61		14.9
Fuel expense per passenger	$	58.73		$	42.61		37.8
Operating expense per passenger, excluding fuel	$	47.70		$	50.00		(4.6	)
Departures	19,526			13,729			42.2
Block hours	44,931			32,930			36.4
Average stage length (miles)	846			915			(7.5	)
Average number of operating aircraft during period	35.6			26.0			36.9
Total aircraft in service end of period	37			27			37.0
Full-time equivalent employees at period end	1,299			951			36.6
Fuel gallons consumed (thousands)	42,488			31,711			34.0
Average fuel cost per gallon	$	3.19		$	2.10		51.9
Scheduled service statistics:
Passengers	2,103,268			1,426,556			47.4
Revenue passenger miles (RPMs) (thousands)	1,911,171			1,350,095			41.6
Available seat miles (ASMs) (thousands)	2,156,305			1,610,616			33.9
Load factor	88.6		%	83.8		%	4.8
Departures	16,190			11,795			37.3
Block hours	39,013			28,527			36.8
Yield (cents)	9.39			9.17			2.4
Scheduled service revenue per ASM (cents)	8.32			7.69			8.2
Ancillary revenue per ASM (cents)	2.61			1.77			47.5
Total revenue per ASM (cents)	10.93			9.46			15.5
Average fare — scheduled service	$	85.28		$	86.82		(1.8	)
Average fare — ancillary	$	26.75		$	20.02		33.6
Average fare — total	$	112.03		$	106.84		4.9
Average stage length (miles)	894			924			(3.2	)
Percent of sales through website during period	86.8		%	84.7		%	2.1

* Except load factor and percent of sales through website, which is percentage point change

Liquidity and Capital Resources :

Current liquidity . Cash and cash equivalents, restricted cash and short-term investments decreased from $186.8 million at December 31, 2007 to $171.5 million at June 30, 2008. Restricted cash includes credit card deposits, escrowed funds under our fixed fee flying contracts and cash collateral against letters of credit issued to our hotel vendors, airports and certain other parties.

Sources and Uses of Cash.

Operating Activities : During the six months ended June 30, 2008, our operating activities provided $29.7 million of cash compared to $51.0 million during the same period of 2007. The cash flows provided by operations for the period in 2008 were primarily the result of net income and increase in passenger bookings for future travel. During the same period in 2007, these numbers were higher, accounting for a significantly larger amount of cash from operating activities for the six months ended June 30, 2007.

Investing Activities : Cash used in investing activities for the six months ended June 30, 2008 was $16.8 million compared to $10.7 million used in the same period of 2007. During the six months ended June 30, 2008, our primary use of cash was for the purchase of property and equipment of $40.8 million offset by net maturities of short-term investments of $22.1 million.

Financing Activities : During the six months ended June 30, 2008, we used $8.4 million in cash in financing activities compared to $15.3 million provided by financing activities for the same period of 2007. Financing activities for the six months ended June 30, 2008 primarily includes $15.8 million to purchase common stock in open market purchases, the retirement of capital lease obligations and other debt repayments, offset by $25.6 million obtained from the financing of ten

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aircraft. During the six months ended June 30, 2007, the $22.3 million proceeds from a public stock offering more than offset debt and capital lease financing payments.

Commitments and Contractual Obligations

The following table discloses aggregate information about our contractual cash obligations as of June 30, 2008 and the periods in which payments are due (in thousands):

	Total		Less than 1 year		1-3 years		4 to 5 years		More than 5 years
Long term debt obligations (1)	$	82,519	$	11,816	$	54,049	$	16,654	$	—
Capital lease obligations	4,070		1,110		2,220		740		—
Operating lease obligations (2)	23,855		1,954		6,569		4,824		10,508
Aircraft purchase obligations (3)	4,050		4,050		—		—		—
Total future payments on contractual obligations	$	114,494	$	18,930	$	62,838	$	22,218	$	10,508

(1) Long-term debt obligations include scheduled interest payments.

(2) Operating lease obligations include aircraft operating leases and leases of airport station property and office space.

(3) Aircraft purchase obligations represents the purchase price for two aircraft that were purchased at the end of the lease term in July 2008. These aircraft were under operating leases with forward purchase agreements.

Critical Accounting Policies and Estimates

A description of our critical accounting policies is included in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2007. There has been no material change to these policies for the six months ended June 30, 2008.

Recent Accounting Pronouncements

See related disclosure at “Item 1 – Unaudited Condensed Consolidated Financial Statements - Notes to Condensed Consolidated Financial Statements – Note 2 – Newly Issued Accounting Pronouncements.”

Special Note about Forward-Looking Statements

We have made forward-looking statements in this quarterly report on Form 10-Q, and in this section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “project” or similar expressions.

Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in the forward-looking statements. Important risk factors that could cause our results to differ materially from those expressed in the forward-looking statements generally may be found in our periodic reports filed with the Securities and Exchange Commission at www.sec.gov. These risk factors include, without limitation, increases in fuel prices, terrorist attacks, risks inherent to airlines, demand for air services to Las Vegas, Orlando, Tampa/St. Petersburg, Phoenix and Ft. Lauderdale from the markets served by us, our ability to implement our growth strategy, our fixed obligations, our dependence on our leisure destination markets, our ability to add, renew or replace gate leases, our competitive environment, problems with our aircraft, dependence on fixed fee customers, our reliance on our automated systems, economic and other conditions in markets in which we operate, governmental regulation, increases in maintenance costs and insurance premiums and cyclical and seasonal fluctuations in our operating results.

Any forward-looking statements are based on information available to us today and we undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are subject to certain market risks, including commodity prices (specifically, aircraft fuel). The adverse effects of changes in these markets could pose a potential loss as discussed below. The sensitivity analysis does not consider the effects that such adverse changes may have on overall economic activity, nor does it consider additional actions we may take to mitigate our exposure to such changes. Actual results may differ. See the notes to our consolidated financial statements in our annual report on Form 10-K filed with the Securities and Exchange Commission for a description of our significant accounting policies and additional information.

Aircraft Fuel

Our results of operations can be significantly impacted by changes in the price and availability of aircraft fuel. Aircraft fuel expense represents more than 50% of our operating expenses. Increases in fuel prices or a shortage of supply could have a material effect on our operations and operating results. Based on our fuel consumption for the three and six months ended June 30, 2008, a hypothetical ten percent increase in the average price per gallon of aircraft fuel would have increased fuel expense by approximately $7.1 million for the three months ended June 30, 2008, and by approximately $13.6 million for the six months ended June 30, 2008. While we are not currently hedging our fuel risk, in the past we entered into forward contracts or other financial products to reduce our exposure to fuel price volatility. As of June 30, 2008, we had no fuel derivative contracts outstanding.

Interest Rates

We have market risk associated with changing interest rates due to the short-term nature of our invested cash, which totaled $148.7 million, and short term investments of $5.0 million at June 30, 2008. We invest available cash in certificates of deposit, investment grade commercial paper, and other highly rated financial instruments. Because of the short-term nature of these investments, the returns earned closely parallel short-term floating interest rates. A hypothetical 100 basis point change in interest rates in the three months ended June 30, 2008 would not have a significant impact. For the six months ended June 30, 2008, a hypothetical 100 basis point change would have affected interest income from cash and investments by $0.3 million.

Our long term debt consists of fixed-rate notes payable and capital lease arrangements. A hypothetical 100 basis point change in market interest rates as of June 30, 2008, would not have a material effect on the fair value of our fixed- rate debt instruments. Also, a hypothetical 100 basis point change in market rates would not impact our earnings or cash flow associated with our fixed-rate debt.

Item 4. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures . As of the end of the period covered by this report, under the supervision and with the participation of our management, including our chief executive officer (“CEO”) and chief financial officer (“CFO”), we evaluated the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the “Exchange Act”). Based on this evaluation, our management, including our CEO and CFO, has concluded that our disclosure controls and procedures are designed, and are effective, to give reasonable assurance that the information we are required to disclose is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based upon this evaluation, the CEO and CFO concluded that our disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed in our reports filed with or submitted to the SEC under the Exchange Act is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in internal controls . There were no changes in our internal control over financial reporting that occurred during our quarter ending June 30, 2008, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

We are subject to certain legal and administrative actions we consider routine to our business activities. We believe the ultimate outcome of any pending legal or administrative matters will not have a material adverse impact on our financial position, liquidity or results of operations.

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Item 1A. Risk Factors

We have evaluated our risk factors and determined that there have been no changes to our risk factors set forth in Part I, Item 1A in the Form 10-K since we filed our Annual Report on Form 10-K on March 11, 2008.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Use of Proceeds from Initial Public Offering

On December 13, 2006, we consummated the initial public offering of our common stock, $0.001 par value. The shares of common stock sold in the offering were registered under the Securities Act of 1933, as amended, on a Registration Statement (Registration No. 333-134145) that was declared effective by the Securities and Exchange Commission on December 8, 2006. The estimated aggregate net proceeds to us from the offering were approximately $94.5 million after deducting underwriting discounts and commissions paid to the underwriters and other expenses incurred in connection with the offering.

Approximately $0.9 million of the proceeds were applied to the repayment of debt owed to our chief executive officer and chairman of the board. No other portion of the proceeds from the offering was paid, directly or indirectly, to any of our officers or directors or any of their associates, or to any persons owning ten percent or more of our outstanding common stock or to any of our affiliates. We have invested the remaining net proceeds in short-term, investment-grade, interest bearing instruments, pending their use to fund working capital and capital expenditures, including capital expenditures related to the purchase of aircraft. As of June 30, 2008, we have used $82.9 million of the proceeds of our initial public offering for capital expenditures.

Our Repurchases of Equity Securities

On January 29, 2008 we announced a share repurchase program to acquire through open market purchases up to $25.0 million of our common stock over a period not to exceed 12 months. As of June 30, 2008, the Company has repurchased 553,700 shares of the Company’s common stock through open market purchases at an average cost of $28.55 per share for a total expenditure of $15.8 million. We did not repurchase any shares during the second quarter of 2008.

Item 6.	Exhibits

3.1	Articles of Incorporation (1)
3.2	Bylaws of the Company (2)
10.1	Master Loan Agreement dated as of April 11, 2008 between Bank of Nevada and Allegiant Air, LLC (3)
31.1	Rule 13a - 14(a) / 15d - 14(a) Certification of Principal Executive Officer
31.2	Rule 13a - 14(a) / 15d - 14(a) Certification of Principal Financial Officer
32	Section 1350 Certifications

(1) Incorporated by reference to Exhibit filed with Registration Statement #333-134145 filed by the Company with the Commission on July 6, 2006.

(2) Incorporated by reference to Exhibit filed to the Quarterly Report on Form 10-Q filed with the Commission on May 9, 2008.

(3) Portions of the indicated documents have been omitted pursuant to a request for confidential treatment and the document indicated has been filed separately with the Commission as required by Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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SIGNATURES

Pursuant to the requirements 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.

	ALLEGIANT TRAVEL COMPANY


Date: August 8, 2008	By:	/s/ Andrew C. Levy
	Andrew C. Levy
	Principal Financial Officer

Exhibit 10.1

Confidential treatment has been requested for portions of this document. This copy of the document filed as an Exhibit omits the confidential information subject to the confidentiality request. Omissions are designated by the symbol [... *** ...]. A complete version of this document has been filed separately with the Securities and Exchange Commission.

MASTER LOAN AGREEMENT

THIS MASTER LOAN AGREEMENT (“Agreement”) is made effective as of , 2008, between ALLEGIANT AIR, LLC, a Nevada limited-liability company, with its principal executive office located at 3301 North Buffalo Drive, Suite B-9, Las Vegas, Nevada 89129 (“Borrower”) and BANK OF NEVADA, a bank chartered under the laws of Nevada, with its principal executive office located at 777 N. Rainbow Blvd., Las Vegas, Nevada, 89107 (“Lender”) .

Background

A. Borrower intends to obtain from Lender certain loans in the aggregate principal amount of EIGHTEEN MILLION AND NO/100 DOLLARS ($18,000,000.00), collectively the “Loans” , and individually a “Loan”) . The respective Loans shall be in the following amounts: $2,895,000.00, $2,394,000.00, $2,052,000.00, $1,881,000.00, $2,166,000.00, $2,166,000.00, $2,508,000.00, and $1,938,000.00. For each Loan, the Borrower’s obligation to repay the Loan shall be set forth in and evidenced by a Note (defined below). The Borrower’s obligation to repay each Loan shall be secured by a security interest in property consisting of one (1) aircraft corresponding to each Loan, for a total of eight (8) aircraft, each including two Pratt & Whitney aircraft engines (the “Aircraft”, “Engines” and “Collateral” as more specifically defined in the Security Agreement, defined below, to be executed by Borrower and corresponding to each Note).

B. Lender has agreed to make the Loan to Borrower in separate installment promissory notes (the “Notes” collectively, or “Note,” individually) on or about the “Funding Date” set forth in each Security Agreement, executed by Borrower (“Security Agreements” collectively, or “Security Agreement,” individually) and corresponding with each Note upon Borrower’s fulfillment of the terms and conditions stated herein.

C. The amounts of the respective Loans/Notes, and the Collateral (including Aircraft and Engines) to which each Loan/Note corresponds, are as follows:

Aircraft		Loan:

i.	N860GA	$	2,895,000
ii.	N861GA	$	2,394,000
iii.	N862GA	$	2,052,000
iv.	N891GA	$	1,881,000
v.	N880GA	$	2,166,000
vi.	N881GA	$	2,166,000
vii.	N883GA	$	2,508,000
viii.	N884GA	$	1,938,000

Agreement

1. General Conditions Precedent to the Loan . Before the Lender makes a Loan, Borrower shall execute and deliver to Lender the respective Note corresponding to the Loan, in the form attached hereto as Exhibit “A”, and the Security Agreement for the Collateral corresponding to the Loan, in the form attached hereto as Exhibit “B”, and provide all financial information, corporate documents, certifications, authorizations and invoices requested by Lender and to Lender’s satisfaction. In addition, Lender’s obligations shall be conditioned upon Lender’s receipt of and determination that the following are satisfactory to Lender: (a) lien searches in the jurisdiction in which Borrower’s principal executive office is located; (b) lien searches with the Federal Aviation Administration (“FAA”) ; (c) lien searches with the International Registry of Mobile Assets created by the Cape Town Treaty (“IRMA”) and (d) Borrower’s parent company, Allegiant Travel Company, a Nevada corporation, shall have executed a guaranty in the form attached hereto as Exhibit “C”.

2. Note Term and Payments . Each Note shall provide for the amortization of principal and interest in equal monthly installments over a period of forty eight (48) months and for a balloon payment of the remaining principal balance on the date that is forty-eight (48) months after the date of the Note, all as set forth in each Note and commencing on the date stated in each Note.

3. Interest Rate . The interest rate for each Note shall be reflected in the respective Note and shall be equal to 3-Month LIBOR rate (the “3-Month LIBOR rate”) , plus two hundred fifty basis points (2.50%), fixed. For these purposes, the “3-Month LIBOR rate” shall mean the 3-Month LIBOR rate as published in The Wall Street Journal on the date of the advance. This definition of Bank’s 3-Month LIBOR rate is to be strictly interpreted and is not intended to serve any purpose other than providing an index to determine the interest rate used herein. Bank’s 3-Month LIBOR rate may not necessarily be the same as the quoted offered side in the Eurodollar time deposit market by any particular institution or service applicable to any interest period. It is not the lowest rate at which Bank may make loans to any of its customers, either now or in the future. At no time shall the interest rate applicable to the Notes be less than 6.00% per annum.

4. Origination Fee . Borrower shall pay, as a condition precedent to the Loans, a “loan origination fee” equal to one-quarter of one percent (0.25%) of the amount of each of the Loans. The origination fee shall be payable at the time of each advance of the Loan evidenced by a respective Note by reducing the amount to be disbursed by Lender to Borrower upon the execution of each Note by the amount of the loan origination fee with respect to such Loan.

5. Consideration for the Note . In consideration of each Note and as a condition of its Loan to Borrower, Lender requires Borrower to grant a security interest in the Collateral described in each Security Agreement to secure Borrower’s payment and performance of all its obligations under the corresponding Note.

6. Method of Payment . Borrower shall make each payment under each Note on the date when due thereunder in lawful money of the United States to Lender’s address set forth above (or the address of Lender’s assignee which shall be provided to Borrower) in immediately available funds. Borrower may make payments by wire transfer per wire instructions set forth on Exhibit “D” attached hereto as such wire instructions may be changed by Lender by prior written notice to Borrower.

7. Fees and Costs . Borrower shall reimburse Lender for all out of pocket appraisal fees, attorneys’ fees and additional costs, charges, and expenses incurred (i) for all searches, filings, registrations, recordings, waivers and appraisals; (ii) in review, preparation, execution and delivery of the Loan Agreement, the Security Agreements and the Notes (“Debt Documents”), (iii) in defending or protecting Lender’s security interest in the Collateral after a default by Borrower or in the event another lien is filed against the Collateral or Lender has reasonable basis to believe its priority secured position in the Collateral is impaired; (iv) in the enforcement of the Loan or the collection of any payments due under the Debt Documents after an Event of Default (defined below) by Borrower, or the preparation of any settlement agreements prepared in connection with the Loan as a result of any such event of default; (v) in any amendment of the Loan other than an amendment requested by Lender; and (vi) in any lawsuit or other legal or arbitration/mediation proceeding to which the Loan gives rise, including without limitation, actions in tort if Lender is the prevailing party. The documentation, appraisal fees and legal fees to be paid by Borrower and described in clauses (i) and (ii) above shall not exceed $20,000.00.

8. Corporate Existence and Evidence; Citizenship; International Registry . Borrower represents and warrants, on a continuing basis, that it (i) is a limited liability company, (ii) is duly organized and validly existing in good standing under the laws of the jurisdiction of its organization, (iii) is duly qualified to do business in each jurisdiction where its operations require, and (iv) has full power and authority, under the operating or other organizational or governing agreement of the company, to obtain the Loans using the Collateral as security, and to enter into and perform its obligations under the Debt Documents. Borrower’s execution, delivery and performance of the Debt Documents have been duly authorized by all necessary company action on the part of Borrower and are not inconsistent with its operating agreement or other organizational or governing instruments. Borrower is, and shall at all times throughout the term of this Agreement (including any extensions or renewals hereof) be and remain, a citizen of the United States within the meaning of 49 U.S. Code Section 20102(a)(15) of Title 49 of the United States Code. In addition, Borrower shall, throughout the term of the Loan, (i) be registered as a Transaction User Entity, (ii) have designated a Professional User Entity (acceptable to Lender) and (iii) have paid all required fees and taken all actions necessary to enable Lender to register any International Interest with the International Registry. The terms “Transaction User Entity” and “Professional User Entity” shall have the respective meanings assigned thereto in the International Registry Regulations issued pursuant to Article 17(2) of the Cape Town Convention and Article XVIII of the Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Aircraft Equipment.

9. Legally Binding Obligations . The execution, delivery and performance by Borrower of the Debt Documents do not violate any law or governmental rule, regulation or order applicable to Borrower and do not and will not contravene any provision, or constitute a default under any instrument to which it is bound, and will constitute a legal, valid and binding agreement of Borrower, enforceable in accordance with its terms. No action, including any permits or consents, in respect of or by any state, federal or other governmental authority or agency is required with respect to the execution, delivery and performance of the Debt Documents by Borrower.

10. Financial Statements and Covenants .

(a) Borrower shall provide to Lender a copy of its parent company’s annual audited financial statements within one hundred twenty (120) days after its fiscal year end, and a copy of its parent company’s quarterly un-audited financial statements within sixty (60) days after the end of each fiscal quarter.

(b) [Intentionally omitted.]

(d) [...***...]

(e) Until Borrower’s obligations are paid in full as required under the Debt Documents, Borrower agrees that it will: (i) preserve its organizational existence and not, in one transaction or a series of related transactions, merge into or consolidate with any other entity, or sell all or substantially all of its assets; and (ii) not change its name, address of principal executive offices, address or jurisdiction of organization without first providing Lender with at least thirty (30) days’ prior written notice. The parties acknowledge that Borrower expects to move its principal offices to 8360 South Durango Drive, Las Vegas, Nevada 89113 in 2008;

(f) At all times prior to the repayment of all of Borrower’s obligations under this Loan Agreement and the Notes executed hereunder, neither Borrower nor any of its officers, directors or members and any other direct or indirect holder of any equity interest in Borrower: (i) shall be a Prohibited Person as defined under U.S. Presidential Executive Order #13224 and the Patriot Act; and (ii) shall fail to be in full compliance with all applicable orders, rules, regulations and recommendations promulgated under or in connection with Executive Order #13224 and the Patriot Act except that Borrower makes no representation with respect to the shareholders of its publicly held parent company; and

(g) Borrower shall, in all material respects, remain in compliance with all applicable laws, regulations, requirements, rules and orders applicable to its business, all manufacturers’ instructions and warranty requirements, all FAA directives (as applicable) and with the conditions and requirements of all policies of insurance with respect to the Collateral.

11. Notices required . Borrower shall give Lender written notice of each of the following events within the specified period of time set forth below:

(a) any loss, damage or destruction to an item of Collateral within 10 days thereof;

(b) any condition or event that constitutes a default under the Debt Documents, specifying the nature thereof and the action which Borrower is taking or proposes to take with respect thereto, within 10 days thereof;

(c) the cancellation, revocation, suspension, restriction or expiration of any FAA registration, maintenance certificate, airworthiness certificate, or insurance on any item of Collateral upon Borrower’s receipt thereof;

(d) any litigation involving Borrower within 10 days of Borrower’s commencing or receiving notice of such litigation, as applicable, if such litigation, if adversely determined, would have a material adverse effect on Borrower, its Financial condition, or the Collateral;

(e) a change in ownership of Borrower such that it is no longer a wholly-owned subsidiary of Allegiant Travel Company within 20 days thereof; or

(f) any other event or change in the type of business conducted by Borrower or the location or jurisdiction of organization of Borrower or its parent corporation within 20 days thereof.

12. Indemnification . Borrower shall indemnify and hold Lender harmless from and against any and all third party claims (including without limitation, negligence, tort and strict liability), damages, adjustments, suits, administrative and legal proceedings, and any and all costs and expenses in connection therewith (including attorneys’ fees incurred by Lender) arising out of or in any manner connected with or resulting from this Agreement or the Collateral, including, without limitation the manufacture, purchase, financing, ownership, rejection, non-delivery, transportation, importation, delivery, possession, use, operation, maintenance, inspection, condition, lease, return, storage or disposition thereof, and including further, without limitation (a) claims for injury to or death of persons and for damage to property, (b) claims relating to patent, copyright, or trademark infringement, (c) claims relating to latent or other defects in the Collateral whether or not discoverable by Borrower, and (d) claims for wrongful, negligent or improper act or misuse by Borrower. Borrower agrees to give Lender prompt notice of any such claim or liability. The term “Lender,” for purposes of this paragraph, includes Lender, its successors and assigns, shareholders, members, owners, partners, directors, officers, representatives and agents. The provisions of this paragraph shall survive the expiration or other termination of this Agreement and the Debt Documents with respect to events occurring prior to such expiration or termination.

13. Default. An Event of Default shall occur under this Agreement if:

(a) Nonpayment of any Note . Borrower fails to pay Lender or its assigns when due any principal or interest payment under any Note and such failure shall continue uncured for five (5) business days.

(b) Other Nonpayment . Borrower fails to pay Lender or its assigns when due any other obligation under any Note, this Agreement, any Security Agreement or any other instrument executed as a part of this Agreement, and such failure shall continue uncured for five business (5) days after Borrower’s receipt of written notice of the failure from Lender;

(d) Unauthorized Use of Collateral or Proceeds . Borrower attempts to or does, remove, sell, assign, transfer, encumber, sublet or part with possession of any one or more items of the Collateral or proceeds, except as expressly permitted herein or in any Security Agreement, allows any of the Collateral or proceeds to become subject to any levy, seizure, attachment, assignment or execution, or Borrower abandons any item of Collateral without substituting therefor additional Collateral in accordance with the terms of the Security Agreement;

(e) Failure to Provide Notice . Borrower fails to notify Lender of any material loss, damage, or destruction to any of the Collateral within ten (10) days thereof;

(f) Breach of Debt Documents . Borrower fails to observe or perform any of its covenants and obligations required to be observed or performed under any of the Debt Documents and such failure continues uncured for twenty (20) days after the earlier of receipt of written notice from Lender or Borrower’s knowledge thereof, except that: (i) the twenty (20) day cure period shall not apply and an Event of Default shall occur immediately upon Borrower’s failure to maintain insurance in compliance with the terms of the Debt Documents, and (ii) the twenty (20) day cure period shall not apply when a shorter cure period has been specified in this Section;

(g) Representations and Warranties . That Prove False. Borrower breaches any of its representations or warranties made under any of the Debt Documents in any material respect, or if any such representations or warranties are false or misleading in any material respect;

(h) Bankruptcy and Insolvency . Borrower or its parent company shall (i) be adjudicated insolvent or a bankrupt, or cease, be unable, or admit its inability to pay its debts as they mature, or make a general assignment for the benefit of creditors or enter into any composition or arrangement with creditors; (ii) apply for or consent to the appointment of a receiver, trustee or liquidator of it or of a substantial part of the Collateral, or authorize such application or consent, or proceedings seeking such appointment shall be instituted against it without such authorization, consent or application and shall continue undismissed for a period of sixty (60) days; (iii) authorize or file a voluntary petition in bankruptcy or apply for or consent to the application of any bankruptcy, reorganization in bankruptcy, arrangement, readjustment of debt, insolvency, dissolution, moratorium or other similar law of any jurisdiction, or authorize such application or consent; or proceedings to such end shall be instituted against it without such authorization, application or consent and such proceeding instituted against it shall continue undismissed for a period of sixty (60) days;

(i) Control of Borrower . Borrower shall become a less than wholly-owned subsidiary of Allegiant Travel Company or Allegiant Travel Company shall no longer control the managing board of Borrower;

(j) Breach of Security Agreement . Debtor fails to comply with the terms of any Security Agreement executed by Borrower and Lender, which failure is not cured by Borrower within the applicable cure period under such Security Agreement;

(k) Change in Corporate Existence . Borrower shall have terminated or changed its organizational or limited liability company existence, consolidated with, merged into, or conveyed or leased substantially all of its assets to any person or entity, unless: (i) such person or entity executes and delivers to Lender an agreement reasonably satisfactory in form and substance to Lender, containing such person’s or entity’s effective assumption, and its agreement to pay, perform, comply with and otherwise be liable for, in a due and punctual manner, all of Borrower’s obligations having previously arisen, or then or thereafter arising, under the Debt Documents, together with any and all documents, agreements, instruments, certificates, guarantees, opinions and filings reasonably requested by Lender; (ii) Lender is reasonably satisfied as to the creditworthiness of such person’s or entity’s conformance to other standard criteria then used by Lender for such purposes; and (iii) Borrower has provided no less than twenty (20) days prior written notice of such occurrence to Lender or its assigns; or

(1) Location of Collateral . Borrower or its lessee operates or locates the Collateral in any country or jurisdiction that does not maintain full diplomatic relations with the United States, any area of hostilities, or any country or jurisdiction for which exports or transactions are subject to specific restrictions under any United States export or other law or United Nations Security Counsel Directive, or otherwise violates, or suffers or permits the violation of, such laws or directives.

14. Remedies . Upon the occurrence of any Event of Default and at any time thereafter during the continuance of such default, Lender may, with or without giving notice to Borrower, do any one or more of the following:

(a) Enforcement . Accelerate amounts owing under any or all of the Notes, and enforce this Agreement, any or all of the Security Agreements and any or all of the Notes according to their respective terms;

(b) Cure . Advance funds on Borrower’s behalf to cure the Event of Default, whereupon Borrower shall immediately reimburse Lender therefor, together with interest charges accrued thereon;

(d) Acceleration . Accelerate all obligations due and payable under any or all of the Notes, and declare any or all of the Notes immediately due and payable;

(e) Additional Collateral . Request additional collateral to secure the Note or Notes;

(f) File Suit and Obtain Judgment . File suit and obtain monetary judgment and, in conjunction with any action, seek any ancillary remedies provided by law, including levy of attachment or garnishment;

(g) Exercise Rights under Security Agreements . Exercise any remedies available to Lender under any or all of the Security Agreements.

The rights and remedies afforded Lender hereunder shall not be deemed to be exclusive, but shall be in addition to any rights or remedies provided by law. Lender’s failure promptly to enforce any right or remedy hereunder shall not operate as a waiver of such right or remedy, and Lender’s waiver of any default shall not constitute a waiver of any subsequent or other default. Lender may accept late payments or partial payments of amounts due under the Note or Notes and may delay enforcing any of Lender’s rights or remedies hereunder without losing or waiving any of Lender’s rights or remedies. Except as expressly provided in this Agreement, Borrower waives any notice of Lender’s notice of nonpayment, presentment, notice of dishonor, or any other notice.

Lender shall also have and enjoy all rights and remedies provided at law or in equity, including without limitation those provided to secured parties under the Uniform Commercial Code (“UCC”) , to collect, enforce or satisfy any obligations of Borrower then owing, whether by acceleration or otherwise.

Notwithstanding the foregoing, in the event Lender is fully compensated for all amounts due under the Debt Documents, including all fees of collection, through the exercise of any or all of the foregoing remedies, any excess amounts obtained by Lender through such collection efforts shall inure to the benefit of and shall be paid to Borrower or as directed by Borrower.

15. Bankruptcy Code . The parties acknowledge that Lender and its assignees shall not be entitled to the benefits of Section 1110 of the Bankruptcy Code with respect to the security for the Loan.

16. Governing Law; Waiver of Trial by Jury . THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. THE PARTIES AGREE TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF NEVADA; ANY SUIT OR OTHER PROCEEDING BROUGHT BY EITHER PARTY TO ENFORCE OR CONSTRUE THIS AGREEMENT, OR TO DETERMINE MATTERS RELATING TO THE COLLATERAL OR THE RELATIONSHIP BETWEEN THE PARTIES HERETO, SHALL BE BROUGHT ONLY IN THE STATE OR FEDERAL COURTS IN NEVADA. THIS AGREEMENT WAS EXECUTED IN NEVADA AND IS TO BE PERFORMED IN NEVADA (BY REASON OF ONE OR MORE PAYMENTS REQUIRED TO BE MADE TO LENDER IN NEVADA). THE PARTIES HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS AGREEMENT, THE COLLATERAL OR THE CONDUCT OF THE RELATIONSHIP BETWEEN BORROWER AND LENDER.

17. Headings . Section headings used in this Agreement are for convenience only and are not a part of this Agreement and shall not be used in construing it.

18. Severability . In the event that any provision of this Agreement is found to be unenforceable in any legal proceeding, the remaining provisions shall remain in full force and effect.

19. Integration and Modification. This Agreement is the entire agreement of Borrower and Lender concerning its subject matter until the parties’ execution of one or more Security Agreements and one or more Notes. This Agreement may not be amended or modified except by a written amendment signed by a duly authorized representative of each party, but no such amendment or modification needs further consideration to be binding.

[THE REMAINDER OF THIS PAGE INTENTIALLY LEFT BLANK]

The parties have signed this Agreement as of the day and year written below.

Dated: , 2008

BORROWER:		LENDER:

ALLEGIANT AIR, LLC		BANK OF NEVADA


BY:		BY:
NAME:	Andrew C. Levy	NAME:
TITLE:	Authorized Agent	TITLE:

EXHIBIT “A”

Form of Note

(to be attached)

Loan No.

PROMISSORY NOTE

AIRCRAFT # N860GA

$2,895,000.00

Date: , 2008

FOR VALUE RECEIVED, ALLEGIANT AIR, LLC, a Nevada limited-liability company, with its principal executive office located at 3301 North Buffalo Drive, Suite B-9 Las Vegas, Nevada 89129 (“Debtor”), hereby promises to pay, without offset, defense or counterclaim, to the order of BANK OF NEVADA (“Secured Party”) with its principal executive office located at 777 N. Rainbow Blvd., Las Vegas, Nevada, 89107, or at such other place as may be designated in writing by the holder of this Note, the principal sum of TWO MILLION EIGHT HUNDRED NINETY FIVE THOUSAND AND NO/100 DOLLARS ($2,895,000.00), with interest under this Note will accrue at the rate of six percent (6%) per annum. Payments under the Note will be paid as follows:

A. Principal and interest under this Note shall be payable in forty-eight (48) installments of SIXTY EIGHT THOUSAND ONE HUNDRED NINETY FIVE AND 72/100 DOLLARS ($68,195.72) each, reflecting a 48-month amortization period, commencing on the day of 2008, and on the same day of each month thereafter through and including , 2012.

B. A final installment equal to the unpaid balance of the Note (if any) shall be due and payable on , 2012.

Debtor shall have the right to prepay the Note in whole or in part, at any time or times, without premium or penalty.

In the event of a default under this Note, any other Note signed by Debtor in favor of Secured Party, the Loan Agreement or the Security Agreement (as hereinafter defined) and/or after maturity (whether by acceleration or otherwise), interest on any amounts not paid when due under this Note and any amounts accelerated pursuant to the Security Agreement, shall accrue at a per annum rate equal to the aforesaid rate plus three percent (3%), which default interest rate shall apply both before and after any judgment obtained by Secured Party or its assigns. Interest on any amounts not paid when due under this Note and any amounts accelerated pursuant to the Security Agreement shall be computed on the basis of a year equal to 360 days and charged for the actual number of days within the period for which interest is being charged.

This Note is entered into pursuant to a Master Loan Agreement dated as of , 2008, between Debtor and Secured Party and is secured by collateral described in a Security Agreement between Debtor and Secured Party, to which reference is made for a description of the rights of Secured Party and any holder of this Note. If there is an Event of Default under the Loan Agreement which is not cured within the cure period provided for therein, Secured Party may declare the entire amount of the Note to be

immediately due and payable and exercise all of its rights and remedies under the Security Agreement. If suit is brought to collect this Note, Debtor shall be liable to Secured Party for its costs of enforcement of its rights and remedies, including, without limitation, its reasonable attorneys’ fees.

Presentment, demand for payment, notice of dishonor and protest are hereby waived.

Secured Party may renew or extend this Note, release any guarantor hereof or waive or modify any provision hereof, without affecting the obligations of Debtor, except as may be specifically set forth in such renewal, extension, release, waiver or modification.

All payments received by Secured Party in respect hereof shall be applied, first, to any charges then owing hereon, next, to accrued interest and then, to principal. Secured Party may assess Debtor a charge for any remittance that is dishonored.

This Note shall in all respects be governed by and construed in accordance with the laws of Nevada, including all matters of construction, validity and performance. The parties agree to submit to the exclusive jurisdiction of the state or federal courts located in the State of Nevada; any suit or other proceeding brought by either party to enforce or construe this Agreement, or to determine matters relating to the Collateral or the relationship between the parties hereto shall be brought only in the state or federal courts in Nevada. This Note was executed in Nevada and is to be performed in Nevada. The parties hereby waive the right to trial by jury of any matters arising out of this Note, or the conduct of the relationship between Debtor and Secured Party.

This Note and the Security Agreement may not be otherwise modified or changed, in whole or in part, and no right or remedy of Secured Party under this Note or the Security Agreement or under any other agreement may be waived, except in a writing signed by Secured Party. All rights, remedies and benefits of Secured Party hereunder shall inure to the benefit of the holder of this Note. Secured Party may assign this Note and Security Agreement without notice to Debtor; provided, however, that Debtor shall not be in default hereunder as a result of compliance with the terms of the Note and Security Agreement until Debtor has been notified of such assignment in writing.

DEBTOR:

ALLEGIANT AIR, LLC, a Nevada limited-liability company


By:
Name:	Andrew C. Levy
Title:	Authorized Agent

EXHIBIT “B”

Form of Security Agreement

(to be attached)

AIRCRAFT SECURITY AGREEMENT

AIRCRAFT #N860GA

THIS AIRCRAFT SECURITY AGREEMENT (“Agreement”) is made between ALLEGIANT AIR, LLC, a Nevada limited liability company, with its principal executive office located at 3301 North Buffalo Drive, Suite B-9 Las Vegas, Nevada 89129 (‘Debtor”), and BANK OF NEVADA, a bank chartered under the laws of Nevada, with its principal executive office located at 777 N. Rainbow Blvd., Las Vegas, Nevada, 89107 (“Secured Party”), effective as of , 2008, as the Funding Date for the amount of TWO MILLION EIGHT HUNDRED NINETY FIVE THOUSAND AND NO/100 DOLLARS ($2,895,000.00), as set forth in the corresponding Promissory Note.

1. Background . Secured Party and Debtor will have simultaneously herewith entered into a Promissory Note (“860 Note”) , evidencing the loan made by Secured Party with respect to the Collateral hereunder. As a condition to and in consideration of its loan to Debtor under the Note, Secured Party requires Debtor to grant a security interest in the “Collateral” described herein to secure Debtor’s payment and performance of all its obligations under the Note. This Security Agreement has been entered into pursuant to that certain Master Loan Agreement dated as of , 2008, between Secured Party and Debtor (“Loan Agreement”). All of the Promissory Notes issued by Debtor under the Loan Agreement are hereinafter referred to as the “Loan Notes”.

2. Grant of Security Interest . For valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Debtor hereby grants to Secured Party a security interest in the “Collateral” described in Section 3 to secure all of Debtor’s obligations (including without limitation all payment obligations) under the Loan Notes and all other obligations and liabilities of Debtor to Secured Party arising in connection with the Loan Notes and/or the Loan Agreement, hereinafter together with this Security Agreement collectively referred to as the “Debt Documents,” for which Debtor is now or may hereafter become liable in any manner, whether such obligations arise under the Loan Notes or otherwise, and whether primary or secondary, direct or indirect, contingent or absolute, and howsoever arising, including without limitation, all costs and expenses incurred in connection with the Loan Notes or in the protection or maintenance of the Collateral or in the enforcement of this Security Agreement, including without limitation, court costs and attorneys’ fees and expenses.

3. Collateral . The Collateral serving as “Collateral” and subject to the above security interest shall consist of one aircraft (“Aircraft”) along with the aircraft engines (“Engines”), Parts, appurtenances and other personal property as more fully described in Exhibit “A” attached hereto, together with all attachments, replacements, parts, substitutions, additions, repairs, accessions and accessories incorporated therein or affixed thereto, and all rights and services related thereto, all records, logs, manuals, data, inspection, modification and overhaul records and all maintenance and inspection programs required to be maintained with respect to the personal property under applicable rules and regulations of the FAA, and all other documents at any time maintained with

respect to such personal property and to the extent not listed above as original collateral, rebates, refunds, remittances, proceeds (including insurance proceeds), and income of the foregoing (“Collateral”) .

At any time during the term of this Agreement, the Debtor shall have the right to substitute an equivalent Engine with a value and utility of at least the value and utility of the Engine sought to be replaced (assuming the Engine to be replaced is in a condition at least as favorable as required by this Agreement). The term “Engine” shall refer to any Replacement Engine substituted for an Engine in accordance with this Section 3, but shall not include any Engine that has been substituted with a Replacement Engine. In order to effect a substitution of an Engine, the Debtor shall comply with the following:

(a) Casualty Occurrence with Respect to an Engine . Upon a Casualty Occurrence with respect to an Engine, Debtor shall give Secured Party prompt written notice thereof and shall, within forty-five (45) days after such occurrence, grant to Secured Party, as replacement for the Engine suffering a Casualty Occurrence, a first- priority perfected security interest in a Replacement Engine.

Upon full compliance by Debtor with the terms of this subsection and subsection (d), Secured Party will release the lien of this Security Agreement with respect to the Engine (and related Collateral) which suffered the Casualty Occurrence.

(b) Engine Replacement . The Debtor shall have the option, at any time, on at least ten (10) Business Days’ prior written notice to the Secured Party, to substitute a Replacement Engine for an Engine, subject to (i) advance notice to the Secured Party; (ii) compliance with the terms and conditions set forth at subsection (d); and (iii) the additional requirement that such Replacement Engine shall be of the same or better value utility of the Engine being replaced. Upon full compliance by Debtor with the terms of this paragraph, Secured Party will release the lien of this Security Agreement with respect to the Engine (and related Collateral) being replaced.

(c) CRAF Program Requisitioned Engine. If the Engine is requisitioned for use pursuant to the CRAF Program and/or CRAF Program activation, the Engine being requisitioned shall be substituted by a Replacement Engine as Collateral, and Secured Party shall release its lien on the Engine pursuant to the terms and conditions set forth at subsection (d) below. In addition, the Replacement Engine shall be of the same or better value utility of the Engine being replaced.

(d) Lien Release on Engine. Secured Party shall release its lien on the Engine (and related Collateral) after a Casualty Occurrence or upon replacement of an Engine, provided each Replacement Engine is: (i) free of all liens other than Permitted Liens; (ii) in as good an operating condition as the Engine being replaced, assuming the Engine being replaced was in the condition and repair required by the terms hereof immediately prior to the Casualty Occurrence or replacement and (iii) Secured Party receives a Security Agreement Supplement (a “Supplement”‘) in the form attached as Exhibit “B” hereto certifying that the Replacement Engine satisfies all of the requirements set forth in

the Supplement. In addition, prior to such release, Debtor, at its own expense, will promptly (x) take any and all actions necessary to cause such Replacement Engine to become subject to the lien of this Security Agreement; (y) furnish Secured Party with such evidence of title to such Replacement Engine and of compliance with the insurance provisions of Section 4h hereof with respect to such Replacement Engine as Secured Party may reasonably request; and (z) furnish Secured Party such other documents as the Secured Party may reasonably request in connection with the consummation of the transactions contemplated by this Section 3, in each case in form and substance reasonably satisfactory to Secured Party. If Debtor is in breach of any provision in the Debt Documents, Secured Party shall have no obligation to release its lien on an Engine until the breach has been cured.

Secured Party shall have the right to inspect the Replacement Engine records to determine whether the Replacement Engine complies with the conditions for release of its lien as stated above. No inspection shall interfere with the operation of the Engine in the Debtor’s business unless Debtor or its lessee fails to cooperate with Secured Party to access the Engine records.

(d) Additional Definitions. For purposes of this Agreement, the following terms will have the meanings indicated:

“ Airframe ” means the airframe described on Exhibit “A” but not including any Engine installed thereon, but including any and all Parts incorporated on or installed on or attached to the Airframe.

“ Parts ” means any and all appliances, parts, systems, components, assemblies, rotables, life limited parts, instruments, appurtenances, accessories, furnishings and other equipment of whatever nature used in connection with the Engine.

A “ Casualty Occurrence ” or “ Casualty Loss ” shall mean any of the following events with respect to an Aircraft or an Engine constituting part of the Collateral:

(a) loss of such property or its use due to theft or disappearance for a period in excess of sixty (60) consecutive days or destruction, damage beyond economic repair or rendition of such property permanently unfit for normal use by Debtor for any reason whatsoever;

(b) any damage to such property which results in an insurance settlement with respect to such property on the basis of a total loss or on the basis of an actual, arranged or constructive total loss; or

(c) the confiscation, appropriation or seizure of, or requisition of title to such property, or the use of such property by or on the authority of any governmental entity (other than a requisition or activation under CRAF) which in any such case shall have resulted in the loss of possession thereof by Debtor for a period in excess of sixty (60) consecutive days (or for such shorter period ending on the date which is seven (7) days

from the date of receipt of an insurance settlement with respect to such property on the basis of a total loss).

“Permitted Liens” shall mean (i) the lien created by this Security Agreement; (ii) liens for taxes either not yet due or being contested in good faith and so long as adequate reserves are maintained with respect to such liens and the Collateral is not in material danger of being lost, sold, confiscated, forfeited or seized as a result of such lien; (iii) inchoate material person’s, mechanics’, worker’s, repairer’s, employees’ or other like liens arising in the ordinary course of business and not delinquent or such liens being contested in good faith by Debtor so long as the Aircraft is not in material danger of being lost, sold, confiscated, forfeited or seized as a result of such lien; (iv) liens arising out of any judgment or award unless the judgment secured shall not, within sixty (60) days of the entry thereof, have been discharged or vacated or execution thereof stayed pending appeal or shall not have been discharged, vacated or released within sixty (60) days after execution of such stay; (v) rights of others under any arrangements to the extent expressly permitted under this Security Agreement, and (vi) any other lien with respect to which Debtor shall have provided security in form and amount adequate in the reasonable opinion of the Secured Party.

A “ Replacement Engine ” shall mean an engine of the same manufacturer and model, or an improved model, as an Engine replaced and that such Replacement Engine shall have equal or greater expected life remaining to the next scheduled overhaul as the Engine being replaced.

“ CRAF Program ” means the Civil Reserve Air Fleet Program established pursuant to 10 U.S.C. § 9511-13 or any similar substitute program.

No reference to “proceeds” in this Security Agreement authorizes any sale, transfer, or other disposition of the Collateral by Debtor.

4. Representations, Warranties and Covenants . Debtor represents, warrants and covenants with Secured Party, on a continuing basis, as follows:

(a) Title. Debtor is the absolute owner with full right and interest in the Collateral, which is free and clear of any and all liens, claims and encumbrances, except for Permitted Liens or any lease of the Collateral entered into in accordance with the terms of this Agreement. Debtor has full power and authority to grant a security interest in the Collateral and agrees to defend its title and ownership of the Collateral against all other persons who may claim an interest in it;

(b) No Other Security Interests Outstanding or other FAA, IRMA or UCC Filings. There are no security interests (including filed financing statements or liens or other interests filed with the Federal Aviation Administration (“FAA”) or the International Registry of Mobile Assets (“IRMA”) , liens, claims or other encumbrances against the Collateral other than created hereby or any lease of the Collateral entered into in accordance with the terms of this Agreement. During the course of this Security

Agreement and as long as any Debtor obligations under the 860 Note remains outstanding, (i) Debtor will not grant or permit a security interest in the Collateral other than the security interest created hereunder or permitted hereby, (ii) Debtor will keep the Collateral free from any and all liens, claims and encumbrances, other than any lease of the Collateral entered into in accordance with the terms of this Agreement and other than Permitted Liens and (iii) Debtor will not file any corrective or termination statement with respect to any FAA or IRMA filings or UCC financing statements recorded by Secured Party or its assigns;

(c) No Sale or Disposition of Collateral. Other than a lease permitted under Section 11 hereof, Debtor will not assign, transfer, discount, sell, license, offer for sale, or otherwise dispose of the Collateral or any interest therein without the prior written consent of Secured Party or without providing substitute Collateral in accordance with Section 3 hereof;

(d) Uses of Collateral. Debtor shall at all times keep the Collateral in its sole possession and control, except as permitted by Secured Party or except for any lease entered into in accordance with the terms of this Agreement, and in connection with inspections, repairs or modifications by authorized, competent and duly qualified third parties, and shall cause the Collateral to be installed, used and operated only on airframes that are duly registered with the FAA (if in the United States) or other governing authority with jurisdiction over the Collateral. Debtor shall cause the Collateral to be installed, used, operated and removed (i) in accordance with applicable manufacturer’s manuals or instructions; (ii) by competent and duly qualified personnel only; (iii) in accordance with applicable governmental regulations; and (iv) in accordance with the provisions of Exhibit “C” attached hereto and made a part hereof by reference. Debtor may only make and remove alterations, attachments or improvements to the Collateral in accordance with the provisions of Exhibit “C”;

At all times when in use, the Collateral, if it includes or consists of engines, propellers or blades, will be placed on aircraft that are operated only by duly-qualified, currently certificated pilots having at least the minimum total pilot hours required by Debtor’s insurance carriers (if applicable), and with such certification by the FAA (if operated in the United States), and shall not be used for the carriage or the transport of contraband. At all times when in use, the Collateral, if it includes or consists of aircraft, will only be operated by duly-qualified, currently certificated pilots having at least the minimum total pilot hours required by Debtor’s insurance carriers (if applicable), with such certification by the FAA, and shall not be used for the carriage or the transport of contraband.

(e) Adherence to Legal and Other Requirements. Debtor shall at all times comply with all statutes, laws, rules, ordinances, regulations, orders and directives and mandatory standards issued by any governmental agency applicable to the Collateral and in compliance with any airworthiness certificate, Airworthiness Directive, license or registration relating to the Collateral issued by any applicable agency, as well as with all manufacturers’ instructions and warranty requirements, and with the conditions and requirements of all policies of insurance with respect to the Collateral and the Debt

Documents. Debtor shall continue to be the entity duly registered with the FAA under the Transportation Code and with the IRMA for each item of Collateral;

(f) Maintenance of Collateral. Debtor shall, at its own expense, or require its lessee under Section 11 to, comply in all respects with the maintenance and repair provisions set forth in Exhibit “C” hereto;

(g) Taxes and Fees. Debtor shall pay promptly when due all taxes, fees and assessments on or with respect to the Collateral (such as registration and license fees and assessments, sales and use taxes, and personal property taxes). In addition, Debtor shall pay all penalties and interest resulting from its failure to pay any taxes or fees when due. Should Debtor fail to make all payments when due, Secured Party may at its option (although it is not required to do so) pay or discharge the same. Any such payment shall become an obligation of Debtor secured by the Collateral;

(h) Insurance. Debtor shall, or require its lessee under Section 11 to, obtain and maintain for the entire time this Security Agreement is in effect, at its own expense (as primary insurance for Debtor and Secured Party), with insurers of recognized reputation and responsibility and in form customary in the airline industry and reasonably acceptable to Secured Party, comprehensive airline and general liability (including, without limitation, contractual, bodily injury, passenger, third-party liability and property damage liability) insurance (exclusive of manufacturer’s product liability insurance) covering operation of the Collateral, in an amount not less than $500,000,000 per occurrence. In addition, Debtor shall, or require its lessee under Section 11 to, at all times maintain war risk (aviation liability) insurance of the scope at least as comprehensive as covered by AVN 52D (or its equivalent) as in effect on the date of the Loan Agreement, in an amount (taking into consideration any insurance or indemnification provided by the United States government or any agency or instrumentality thereof the obligations of which are supported by the full faith and credit of the United States government) not less than $500,000,000 per occurrence.’ In addition, such insurance shall be at least of a scope and coverage (except as to dollar requirements) (i) as Debtor carries on the operation of its other property similar to the Collateral and (ii) as is customarily carried by United States based air carriers engaged in the same or similar business, similarly situated with Debtor and operating property that is similar to the Collateral.

Debtor shall also, or require its lessee under Section 11 to, obtain and maintain for the entire time the Security Agreement is in effect, at its own expense (as primary insurance for Secured Party and Debtor), with insurers of recognized reputation and

(1) For the avoidance of doubt, AVN 52D provides insurance against the following risks: (1) war, invasion, acts of foreign enemies (whether war be declared or not), civil war, rebellion, revolution, insurrection, martial law, military or usurped power, or attempts at usurpation of power, (2) strikes, riots, civil commotions or labor disturbances, (3) any act of one or more persons, whether or not agents of a sovereign power, for political or terrorist purposes and whether or not the loss or damage resulting therefrom is accidental or intentional, (4) any malicious act or act of sabotage, (5) confiscation, nationalization, seizure, restraint, detention, appropriation, requisition for title or use by or under the order of any government (whether civil, military or de facto) or public or local authority, and (6) hi-jacking or any unlawful seizure or wrongful exercise of control of the Collateral or crew in flight (including any attempt at such seizure or control) made by any person or persons on board the Collateral or, if the Collateral consists of or includes engines and/or propellers, the airframe to which the Collateral is attached, acting without the consent of the insured.

responsibility and in form customary in the airline industry and reasonably acceptable to Secured Party, all-risk ground, taxiing and flight aircraft hull insurance covering the Collateral and, if the Collateral consists of or includes engines and/or propellers (including blades), shall also cover the Collateral while on an airframe or removed therefrom, whether temporarily or otherwise, and fire and explosion coverage, ingestion and lightning and electrical damage, and extended coverage and all-risk property damage insurance, including fire and transit, covering the Collateral; provided, however, that the amount of such insurance against loss or damage to the Collateral shall be equal to or greater than the fair market value of the Collateral. In addition, such insurance shall be at least of a scope and coverage (except as to dollar requirements) (i) as Debtor carries on the majority of its other property similar to the Collateral and (ii) as is customarily carried by United States based air carriers engaged in the same or similar business, similarly situated with Debtor and operating property that is similar to the Collateral. Further, Debtor shall, or require its lessee under Section 11 to, at all times maintain or cause to be maintained war risk hull and governmental confiscation insurance providing insurance against the following risks: (1) strikes, riots, civil commotions or labor disturbances, (2) any malicious act or act of sabotage and (3) hi-jacking or any unlawful seizure or wrongful exercise of control of the Collateral or crew in flight (including any attempt at such seizure or control) made by any person or persons on board the Collateral or, if the Collateral consists of or includes engines and/or propellers, the airframe to which the Collateral is attached, without the consent of the insured. Such insurance described in the immediately preceding sentence shall be in an amount (taking into consideration any insurance or indemnification provided by the United States government or any agency or instrumentality thereof the obligations of which are supported by the full faith and credit of the United States government) not less than the amount set forth in Exhibit “D” to this Security Agreement.

Each of the foregoing insurance policies shall name Debtor as insured and Secured Party and its assignees as additional insureds and loss payees thereof, shall contain cross-liability endorsements, shall contain a clause requiring the insurer to give Secured Party and its assignees at least thirty (30) days prior written notice of any material alteration in the terms of such policy or of the cancellation thereof, and shall be in full force and effect throughout any geographical areas at any time traversed by the Collateral. Debtor shall furnish to Secured Party certificates of insurance and letters from a reputable and recognized aviation insurance broker to the effect that Debtor’s or lessee’s insurance coverage comply with the terms of this Security Agreement; provided, however, that Secured Party shall be under no duty either to ascertain the existence of or to examine such insurance policies or to advise Debtor in the event such insurance coverage shall not comply with the requirements hereof. All insurance covering loss or damage to the Collateral shall (i) contain a breach of warranty clause reasonably satisfactory to Secured Party; (ii) provide that the additional insureds shall have no liability for premiums, commissions, calls, assessments or advances or other charge with respect to such policies; (iii) provide that it is primary without right of contribution; (iv) provide that in respect of the respective interest of each additional insured in such policies, the insurance shall not be invalidated by any action or inaction of Debtor, any lessee, or any other person or entity; (v) provide that all of the provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured;

(vi) be payable in United States dollars; and (vii) provide that (1) in the event of a Casualty Loss and on the condition that no Event of Default shall have occurred and be continuing, the proceeds shall be paid first to Secured Party, to be applied against all of the Debtor’s obligations due and owing under the 860 Note given with respect to the Collateral suffering the Casualty Loss, with the excess being payable to the Debtor, unless the Casualty Loss relates to an Engine and Debtor elects to substitute a Replacement Engine as provided in Section 3, whereupon the proceeds shall be paid to Debtor; (2) in the event of an insured loss that does not constitute a Casualty Loss, there is no existing Event of Default then outstanding and if Debtor provides to Secured Party evidence reasonably satisfactory to the Secured Party that the damage giving rise to such payment has been repaired or that such insurance proceeds shall be used to pay for repairs then being made or to be made, then the proceeds shall be paid to Debtor or at Debtor’s direction, otherwise the proceeds shall be paid to Secured Party to be applied against all of the Debtor’s obligations due and owing under the 860 Note given with respect to the Collateral suffering the Casualty Loss with any excess insurance proceeds payable to the Debtor; and (3) in the event of a Casualty Loss or an insured loss while an Event of Default shall have occurred and be continuing, the proceeds shall be payable to Secured Party to be applied against all of the Debtor’s obligations under the 860 Note with respect to such Collateral with any excess being payable to Debtor. Debtor may maintain reasonable deductibles with respect to the insurance required hereunder.

(i) Loan Notes. So long as this Security Agreement remains in effect, Debtor shall be liable under this Security Agreement for all of its obligations under the Loan Notes. Breach of any of Debtor’s obligations under any of the Loan Notes shall constitute a breach of this Security Agreement;

(j) Possession and Location of Collateral. Debtor or its lessee under any lease entered into in accordance with this Agreement shall, at all times, retain sole possession and control of the Collateral, headquartered at the location shown on Exhibit “E” (or amendment thereto in connection with the lease of the Collateral or otherwise), and all records, logs, manuals, data, inspection, modification and overhaul records shall be kept at Debtor’s or such lessee’s chief executive offices. Notwithstanding the foregoing, Debtor or lessee may operate the Collateral in connection with its business and may also temporarily move the Collateral to other locations for repair or maintenance provided Debtor furnishes Secured Party with a reasonably-detailed list of such repair locations within ten (10) days of Secured Party’s reasonable request therefor;

(k) Personal Property. Any and all Collateral which is personal property shall remain personal property at all times. Debtor shall not affix any of the personal property to any real property in any manner which would change its nature to a fixture; and

(1) Location, State of Incorporation and Name of Debtor. Debtor’s full and exact legal name, state of organization and correct and current chief executive office are as listed in the heading or introductory paragraph of this Security Agreement.

5. Financing Statement and Other Documents . Debtor authorizes Secured Party to file one or more financing statements, IRMA registrations and FAA filings describing the Collateral, and to take any and all actions which Secured Party deems necessary or advisable in order to perfect Secured Party’s interest in the Collateral. Debtor agrees to execute any additional documents, and to take any further actions, reasonably requested by Secured Party to evidence or perfect the first priority of the security interest granted to Secured Party by this Security Agreement.

6. Inspection and Appraisal of the Collateral . Secured Party, its assigns and agents shall have free access to the Collateral at all reasonable times during normal business hours for the purpose of inspecting the Collateral and for any other purpose contemplated in this Security Agreement; provided, however, that no inspection shall interfere with the operation of the Collateral in the Debtor’s or its lessee’s business unless Debtor or a lessee fails to cooperate with Secured Party for access to the records for the Collateral.

7. Default . The occurrence of an Event of Default under the Loan Agreement shall constitute an Event of Default under this Agreement.

8. Remedies . Upon the occurrence of any Event of Default and at any time thereafter during the continuance of the default, Secured Party may, with or without giving